Australian floods will force pricing or rejig reinsurance cover rules

Australian flooding may force a re-pricing from property reinsurers and/ or a rethink of reinsurance structures and retained exposures by the continent's primary carriers,  AM Best said in a report.

Flood events have been stacking up on one another since mid-to-late February in a catastrophic event likely to be heavily borne by reinsurers.

“Reinsurers have borne the brunt of recent loss events and will likely do again in this instance,” analysts at AM Best wrote.

Reinsurers might already have been ready to put Australian under closer review even prior to current storms. The 2019-2021 tally of A$11 billion ($8.4 billion) had compared quite unfavourably to the total of A$4.6 billion for the three prior years, AM Best warned. The ICA declared nine natural catastrophes in the period, the group's annual catastrophe report showed.

“There is likely to be concern among reinsurers over the number of large catastrophe events hitting the market year after year,” AM Best analysts wrote.

In the current event, flooding has been ongoing since ca February 21, 2022. The Insurance Council of Australia designated an insurance catastrophe in Southeast Queensland on February 26 and extended to include New South Wales just two days later.

By Friday (April 1), the ICA had counted 169k claims filed with insurers, a 3.5% weekly increase, putting the claims tally to A$2.37 billion, the group indicated on Twitter. The sum was down from A$2.45 billion the week prior. The ICA reports on the flow of claims, not extended estimates from damage studies.

The pending rebuilding will run directly into a peak in the post-Covid and war-era inflation spike, analysts at AM Best warned. That may keep the final tally under a question mark.

The bulk of Australian insurers buy catastrophe programmes from highly-rates reinsurers and keep low retained exposures relative to their capital base, AM Best said.

Any further repricing or repositioning by major reinsurers “may have substantial impact” on direct carriers which have proven heavily reliant on reinsurance and test their own pricing power.

“Where primary carriers reinsurance negotiations are becoming more challenging, management teams may consider increasing retention levels to control costs, or altering the mixture between proportional, aggregate and catastrophe covers.”

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