Bushfire insurance losses will remain manageable for Australian P&C insurers - Moody's

Australian property and casualty (P&C) insurers' losses from the bushfires will be manageable, given their strong underwriting performance, high level of reserve adequacy and capital, and strong reinsurance protection. This is according to a new report from Moody's Investors Service, titled Property & Casualty Insurers – Australia: Bushfire insured losses will mount but remain manageable.

As of January 7, the Insurance Council of Australia (ICA) said that 8,985 insurance claims had been lodged in New South Wales, Victoria, Queensland and South Australia since September 2019. Total insurance losses could reach A$700 million ($481 million) as many more claims are lodged over the coming weeks, according to the ICA.

"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 percent over the last 10 years," said Frank Mirenzi, a Moody's vice president and senior credit officer.

The only exception to this is 2011, when the industry's combined ratio was 103 percent and natural catastrophe losses totalled about A$4.5 billion due to three large loss events. Final losses from the ongoing bushfires are unlikely to be significantly greater than 2011.

"Despite the manageable impact for insurers, the catastrophic fires highlight that the P&C insurance industry is at the forefront of environmental risk,” said Mirenzi. “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 expects Suncorp Group, through its subsidiary AAI (financial strength A1 stable) and Insurance Australia Group to receive the largest sum of gross claims, because of their significant market share in home and motor insurance.
However, Moody’s said QBE Insurance Group Limited (financial strength A1 stable) and international insurers with large Australian operations such as Allianz SE (financial strength Aa3 stable) and Zurich Insurance Company Limited (financial strength Aa3 stable) will also be adversely impacted through higher natural peril costs as a result of the bushfires.