Bushfire insurance losses will mount but remain manageable for Australian P&C insurers

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Moody’s Investors Service says in a new report that 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. 

As of 7 January, 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 AUD700 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% over the last 10 years,” says 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% and natural catastrophe losses totaled about AUD4.5 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. 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,” adds Mirenzi. 

Moody’s expects Suncorp Group, through its subsidiary AAI Limited (financial strength A1 stable) and Insurance Australia Group Limited to receive the largest sum of gross claims, because of their significant market share in home and motor insurance. 

However, QBE Insurance Group Limited (QBE Insurance (Australia) 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. 

This report forms part of a series of commentaries that Moody’s has published on the credit impact of the Australian bushfires on various sectors.

For more information go to www.moodys.com.