Leading ratings agency warns of earnings effect from natural disasters

Leading ratings agency warns of earnings effect from natural disasters

Leading ratings agency warns of earnings effect from natural disasters A.M Best has warned that the recent run of natural disasters to effect parts of Australia could have a material effect on insurers.

The ratings agency published a briefing entitled Recent Natural Catastrophe Losses in Australia Challenge Underwriting Profits which details the affect the catastrophe ‘events’ will have on the insurance industry.

“These events are expected to materially affect non-life insurers’ upcoming earnings for the current fiscal year ended June 30, 2015,” the briefing notes.
 
“Nevertheless, A.M. Best believes Australia’s non-life industry will continue to be profitable even given the estimated insured losses from these events. The net impact will likely be more of an earnings event for the sector, rather than a capital event.”
 
The ICA recently declared its fifth catastrophe of 2015 as insurers have dealt with hailstorms in Brisbane, Cyclone Marcia and storms throughout New South Wales over the previous months.
 
“With potentially more claims forthcoming, the ultimate insurance losses could be material, and some major insurers have already revised downward their forecasted profit margins,” the briefing continues.
 
The ratings agency believes that, while the events will have an effect on insurers the reinsurance capacity of Australian insurers alongside “prudent regulatory standards” will help shield the worse losses.
 
“In spite of the negative impact expected on underwriting profits, so far these catastrophic events are unlikely to lead to a net loss for non-life sector in view of the robust reinsurance protection in place for most general insurers operating in the region.
 
“The prudent use of reinsurance will substantially mitigate the net impact on the industry primarily through a combination of per risk excess of loss cover, and some forms of aggregate excess of loss cover.”