Moody's: Escalating bushfire insurance losses will remain manageable for Australian P&C insurers

Fire-related claims will dent insurers' profits, however

Moody's: Escalating bushfire insurance losses will remain manageable for Australian P&C insurers

Insurance News

By Mina Martin

Insurance losses from Australia’s deepening bushfire crisis will mount, but Australian property and casualty (P&C) insurers will likely be able to manage the impact, given their strong underwriting performance, high level of reserve adequacy and capital, and strong reinsurance protection.

This is according to a new report by Moody’s Investors Service, which also noted the industry’s decade-long history of strong underwriting discipline.

As of January 07, insurers had received 8,985 insurance claims from New South Wales, Victoria, Queensland and South Australia since September, with the Insurance Council of Australia (ICA) estimating total insurance losses to reach $700 million, as many more claims are lodged over the coming weeks. 

“Although we expect claims to continue to rise, dampening the sector’s profits, they are likely to be manageable as the industry has a long history of strong underwriting discipline, which has kept its combined operating ratio consistently below 100% over the last 10 years,” said Frank Mirenzi, a Moody’s vice president and senior credit officer.

The only exception was in 2011, when natural catastrophe losses from three events hit $4.5 billion – losses unlikely to be breached by the ongoing fires, Moody’s said.

“Despite the manageable impact for insurers, the catastrophic fires highlight that the P&C insurance industry is at the forefront of environmental risk,” Mirenzi said. “The industry is exposed to the economic consequences of climate change, primarily through the unpredictable effect of climate change on the frequency and severity of weather-related catastrophic events, such as hurricanes, floods, convective storms, drought, and wildfires.”

Moody’s said Suncorp Group, through its subsidiary AAI, and IAG will likely receive the largest sum of gross claims, because of their significant market share in home and motor insurance. The bushfires will also adversely impact QBE and international insurers Allianz SE and Zurich Insurance Company through higher natural peril costs.

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