S&P Global confirms Australian insurers' ability to manage large flood-related claims

S&P Global confirms Australian insurers' ability to manage large flood-related claims | Insurance Business

S&P Global confirms Australian insurers

Australia’s largest insurers are well placed to manage expected claims from major Queensland floods, including the recent Townsville flooding, which has the potential to result in large claims that may affect up to 20,000 homes, according a global ratings agency.

S&P Global Ratings said both Suncorp and Insurance Australia Group (IAG) will be able to meet potentially large flood-related losses, thanks to robust reinsurance and capital surplus. It also expects flood costs to have a minor impact on Queensland’s financial position.

“While the extent of claims from the flooding is unknown, we expect the combination of Suncorp's quota share and natural hazard aggregate reinsurance cover will limit any material impact on earnings,” S&P Global said, as it noted that the Brisbane-based insurance giant still has about $90m aggregate natural-hazard protection as of Dec. 31, as well as substantial capital buffer and strong balance sheet.

“IAG is likely to have only modest exposure to the event given it is underweight in the Queensland market and associated flood-cover exposures,” S&P said. “In our view, the scale of the event is unlikely to trigger the first layer of its 2019 catastrophe program where IAG retains the first $250 million of each event ($169 million post its 32.5% quota-share).”

S&P Global also said the floods will likely have a relatively minor effect on the state of Queensland’s AA+/Stable/A-1+ rating and $65bn budget, with the state’s credit profile also enhanced by Australia’s AAA/Stable/A-1+ rating.

“The persistent cost of natural disasters is captured in our rating and forecasts,” the ratings agency said. “The state budget is likely to be affected with a temporary hit to revenues and the government announcing emergency financial assistance of up to $900 per affected family. The state will also undertake repairs to damaged public infrastructure. The floods are also likely to weigh on economic output in the third quarter of 2019 fiscal year.”