While Australian-based insurers will be able to largely self-finance claims from the recent flooding in Victoria, northern Tasmania, and New South Wales, the event will still have implications for availability and affordability pressures, according to S&P Global Ratings.
Even if more rain and flooding are predicted in the coming week, catastrophe reinsurance coverage is unlikely to be activated, and insurers’ earnings will only be slightly stripped away, according to S&P in a report released today.
Claims resulting from the current floods are primarily from content coverage for residences, small businesses, and agricultural lines, rather than material property damage.
The Insurance Council of Australia declared the floods a “significant event” yesterday, with the effects assumed to be less severe than in previous disasters, such as the floods in the southeast Queensland and New South Wales earlier this year.
The floods were Australia’s worst on record, with claims totaling around $5.45 billion. They occurred during a period of high natural disaster activity, including floods, hailstorms, bushfires, and an earthquake.
In recent years, insurers’ natural peril allowances have been insufficient. According to S&P, the shortfall has accelerated premium rates and the cost of reinsurance.
“Weather events such as the current floods will further constrain the availability and affordability of flood insurance cover.”
According to S&P, direct fiscal costs to governments and financial harm will be manageable.
The states are in charge of the vast bulk of the immediate relief efforts and will increase grants to local governments to repair infrastructure such as roads and bridges, with the federal government typically trying to cover up to 50-75% of the costs through Disaster Recovery Funding Arrangements.
According to S&P, annual federal outlays under the program have averaged less than $2 billion over the last decade, which is low when compared to the national fiscal deficit.
Economic losses from the most recent events should be less than those from the February floods, which shaved an estimated 12 percent of GDP growth in the March quarter.