Insurance Australia Group (IAG) says it’s 2016-17 results will see a $170 million hit to pre-tax profit, thanks to the impact of Cyclone Debbie’s winds, rain storms and extensive flooding in Queensland and Northern NSW.
The impact will be on top of that from the hail storms in Sydney in February, which caused considerable damage to roofs and motor vehicles, especially in the outer northwestern suburbs.
“IAG estimates it will incur a net natural peril claims cost of approximately $140 million from Tropical Cyclone Debbie, which is consistent with the maximum event exposure indicated in the perils update provided on 6 March 2017", the insurer said in a statement to the ASX yesterday.
“This is a highly unusual and complex event with the devastating effects still being felt across North and South East Queensland, Northern New South Wales and New Zealand’, the company said in its statement to the ASX on Wednesday.
The event means IAG has lowered its 2017 financial year reported insurance margin guidance range, from 12.5% to 14% to now just between 10.5% and 12.5%. That would put earnings close to 2015’s $1.10 billion when the insurance margin was 10.7% IAG shares fell 0.3% to $5.95.
IAG said it had received approximately 4,300 claims as at Tuesday April 4 for mainly property damage in relation to Tropical Cyclone Debbie. That compares to the 20,000 claims reported in the March 6 statement from the insurer regarding the northern Sydney hailstorms on February 18.
In that update IAG said it expected the net claim cost of the hailstorm to be around $160 million, with its maximum net exposure to that event around $200 million.
Yesterday it detailed the damage so far:
Following this event, IAG has increased its expectation for 2016-17 net natural peril claim costs to $850 million, compared to the previously held assumption of $680 million.
This comprises:
- Around $650 million for the eight months ended 28 February 2017, as advised on 6 March 2017 and including an estimated cost of $160 million for the Northern Sydney hailstorm event which occurred in late February;
- Approximately $50 million from events in March 2017, excluding Tropical Cyclone Debbie;
- Approximately $140 million for Tropical Cyclone Debbie, as outlined above;
- The expected full utilisation of the FY17-specific reinsurance cover of $96 million, which applies to net natural peril claim costs immediately above $680 million; and
- An estimate of around $100 million for further peril events in the combined months of April, May and June 2017.
The estimate for the final three months of the financial year includes consideration of IAG’s maximum exposure to a subsequent event. This has reduced to $20 million owing to activation of the calendar 2017 aggregate sideways cover which, after Tropical Cyclone Debbie, contains approximately $320 million of remaining protection, with qualifying events capped at a maximum contribution of $180 million excess of $20 million per event,” IAG said yesterday.
The other insurer with a particularly large exposure to Cyclone Debbie is Suncorp which is estimated to have about 35% of Queensland’s home and motor insurance market. It has said very little about the impact of Debbie.
Investors will be looking for Suncorp to provide the same sort of detail. Some analysts say the impact for Suncorp could be bigger than the $170 million pre tax hit for IAG – with early estimates over $200 million.
Investors are bracing themselves for bad news from Suncorp and other insurers in coming weeks – not only on the claims side, but on premiums. Customers of all insurance companies with exposure to Cyclone Debbie will probably see an increase in insurance premiums.
