Best’s Commentary: Australian Insurers Able to Contend With Mounting Bushfire Losses
The new Best’s Commentary, “Australian Insurers Able to Contend With Mounting Bushfire Losses,” notes that the 2019-2020 bushfire season will be one of the costliest for
Australia’s insurance industry has shown itself capable of absorbing natural catastrophe losses over recent years. Furthermore, comprehensive use of reinsurance has served to curtail material net loss ratio volatility, and has strongly contributed to the industry’s ability to return combined ratios below 100%, even in catastrophe-heavy years. Still, despite the resilience of Australia’s insurers, AM Best expects the current fire season to make a dent in the full-year earnings and net loss ratios of the country’s direct insurers.
The role that reinsurance will play in smoothing earnings from the current bushfire events remains to be seen. As loss estimates and insurers’ exposures increase in certainty, so too will the ultimate destination of losses and the reinsurance coverages triggered. Individual insurers’ reinsurance terms and conditions also will play a role, particularly concerning the definition of a single event, notably concerning any geographical restrictions and hours clauses applying to the fire series. Determination of these terms may prove material for certain insurers in determining whether event excess of loss retentions have been reached, or whether aggregate reinsurance protections will be hit from accumulation of losses below event limits.
Although insurers are considered well placed to face these bushfire losses, they will need to carefully consider their approach to managing bushfire exposures, which may ultimately result in tightening of terms and pricing increases in loss affected areas. AM Best will continue to monitor the development of the current bushfires, and will assess any impact arising on the credit fundamentals of rated entities as the impact and loss estimates become available.
To access the full copy of this commentary, please visit http://www3.ambest.com/bestweek/purchase.asp?record_code=293900.
AM Best is a global credit rating agency, news publisher and data analytics provider specializing in the insurance industry. Headquartered in
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Source: AM Best
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