IAG expects A$169m cost from Sydney hailstorm

Australia-based Insurance Australia Group (IAG) expects claim costs of A$169 million ($120.2 million) from the latest Sydney storms fully eroding the deductible attached to the calendar 2018 aggregate cover.

The Insurance Council of Australia (ICA) has declared a catastrophe following storms on December 20 that caused extensive hail and water damage across Sydney and the Central Coast.

As of the afternoon of Friday, December 21 local time, insurers had received more than 25,000 claims, with losses of more than A$125 million, according to the ICA. These figures will rise sharply over the next few days as householders, vehicle owners and small businesses examine the damage and lodge claims, the organisation said.

Some of the worst damage was recorded in the northern suburbs of Sydney after up to baseball-sized hail shattered windows, dented roofs, and downed tree branches, according to Aon.

For IAG, the scale of anticipated claim volumes and severity of related hail damage already indicate the pre-tax cost of the Sydney storms will be in line with IAG’s maximum first event retention, of A$169 million post-quota share.

By 10am on 21 December 2018 local time IAG had received more than 6,500 claims resulting from the Sydney hailstorm, and this is expected to rise significantly over coming days, the company said. The claims are in respect of a mixture of motor and property damage.

IAG Australia Division CEO Mark Milliner said: “Our priority is to help customers affected by the hailstorm as soon as possible. Extra employees have been allocated to the claims and repair management teams and our online claim lodgment facility is assisting the rapid assessment of claims.”

IAG estimates year-to-date net natural peril claim costs for full year 2019 currently amount to approximately A$410-430 million pre-tax, post-quota share. This estimate includes approximately $150 million for events incurred in the five-month period ending 30 November 2018, around A$70 million from the southern low which affected parts of New South Wales, Victoria and Queensland in mid-December, A$169 million attributable to the latest Sydney storms; and A$20-40 million of attritional events incurred so far in the month of December.

Following the Sydney event, it is IAG’s current expectation that the deductible attached to the calendar 2018 aggregate cover has been fully eroded. On this basis, the cost of any subsequent event in the period up to 31 December 2018 will be capped at A$17 million pre-tax (post-quota share), after allowing for protection provided by the aggregate cover. Total protection available under the 2018 aggregate cover amounts to A$321 million, post-quota share.

The bulk of IAG’s catastrophe reinsurance resets from 1 January 2019, and it is IAG’s intention to disclose details of its calendar 2019 catastrophe reinsurance programme in the opening week of January 2019, once it has been finalized. It is anticipated that IAG’s maximum event retention from 1 January 2019 will be similar to the A$169 million applicable from the beginning of calendar 2018.

IAG’s catastrophe reinsurance for the full year 2019 is further strengthened by the stop-loss cover which operates on a financial year basis, the company noted. This provides A$101 million of protection (post-quota share), directly above IAG’s full year 2019 natural perils allowance of A$608 million.