PERILS slashes March 2021 Australian flood loss estimate again

The industry loss to insurance and reinsurance markets from March 2021’s severe flooding that affected New South Wales and Queensland, Australia has been revised down again by PERILS AG, with the total falling to just A$688 million according to the firm.

That’s now down 35% from the very first industry loss estimate catastrophe data aggregator PERILS gave for this flood outbreak.

PERILS reported an industry loss estimate of A$1.055 billion for losses suffered by the property and motor hull lines of insurance business, but that was then lowered to A$916 million (around US $700m).

The total was then reduced much further, to A$751 million in September 2021, with PERILS blaming the industry for “initial over-reserving of losses in the wake of the flood event”.

Now, the loss estimate has been finalised at just A$688 million, another 8% decline, of which 88% of the claims are related to property damage and 12% motor lines, according to PERILS.

This March 2021 Australian flood event saw significant river and surface water flooding occur from the 18th to 24th of the month, after a blocking high pressure system in the Tasman Sea interacted with a low-pressure system off north-west Australia that fed moist tropical air into eastern Australia.

The Mid North Coast, and the Hunter and Greater Sydney regions experienced the worst flooding, while parts of south-east Queensland and eastern Victoria were also hit by storm and flood damage.

Over a 7-day period, the New South Wales coastal region experienced the highest recorded rainfall since national records began in 1900, related to this low pressure system feeding tropical air over the landmass. A number of locations along the mid-north coast of New South Wales recording as much as 600-800mm of rain.

Damage from the floods and storms was largely insured across private property and businesses, but losses to public infrastructure, crops and livestock remained largely uninsured.

As we explained previously, the fact the industry over-reserved can have ramifications for insurance-linked securities (ILS) funds and collateralised reinsurance, given the ability of ceding companies to trap or hold onto collateral based on their reserving.

There is always a chance of collateral being trapped if loss reserves are reported to be higher than is actually necessary.

Which makes the accuracy of industry estimates all the more important, as some carriers will factor in the loss estimates they are hearing when it comes to setting reserves and making decisions about collateral release. But also highlights the challenge those reporting estimates face, when the industry will always tend to reserve more than necessary, where it can.