Suncorp, IAG and QBE gave a lesson in remaining cool in a crisis, reassuring the public and the markets that they could pay out on claims.
Analysts initially agreed that the safety net of the companies’ own re-insurance policies would nullify any damaging exposure.
But as the total bill is estimated at $1 billion and some insurers have made disclosures about revised liabilities in their own re-insurance, analysts are expressing doubts about their ability to deliver previously forecast earnings.
Yesterday, the Insurance Council of Australia updated the number of insurance claims so far to 7000 for a total of $365 million, excluding claims from large industrial and mining policyholders.
The figures also exclude claims from the hardest-hit areas — Toowoomba, Ipswich and Brisbane — and likely claims from parts of NSW and Victoria that have experienced heavy flooding.
Even though analysts may have revised their earnings estimates for some insurers, the sector faces strong headwinds in 2011.
Insurers are also on a knife edge over planned regulations requiring them to boost their capital reserves.
WHAT ANALYSTS SAY
JP Morgan analyst Siddharth Parameswaran told The Daily Telegraph that, based on statements issued by Suncorp, he had revised its full-year net profit down by 25 per cent to $240 million.
IAG also earned a 5 per cent downgrade to $35 million for 2010-11, but Mr Parameswaran said he had not revised QBE’s expected earnings as it had
not posted any material announcements about its exposure to the floods.
Fitch Ratings is sticking to its assessment of the sector’s ability to protect itself from debilitating losses.
Primary analyst John Birch said yesterday details coming to hand confirmed Fitch’s view that re-insurance, plus individual insurers’ own provisions, would adequately protect the big three.
Suncorp’s main catastrophe re-insurance provides $5.6 billion of cover in excess of $200 million per event, should the inundation of Ipswich and Brisbane be extremely severe.
Based on a July 1 start date, this policy lessens the annual impact on earnings from frequent large-loss events.
IAG’s re-insurance is based on a January 1 start date, and some of the damage from the Queensland floods will be captured by its 2010 program.
Fitch expects the impact to the globally diversified QBE to be immaterial, given its low level of concentration in one area or class of insurance.
REGULATION
Last year, APRA signalled that it wanted to revise upwards capital standards for the $42 billion industry, which netted $7 billion in profit.
That plan met with industry condemnation, and it is understood APRA will now consult more thoroughly before releasing revised proposals.
COMPETITION
The insurance market is divided into two main tiers, with the big players accounting for more than half.
Market share is roughly Suncorp on 18.2 per cent; IAG on 16 per cent; QBE on 10 per cent; and Allianz on 7.6 per cent, with the remainder shared among more than 100 much smaller providers.
Competition will also come from new entrants such as Virgin Money, which already offers motor insurance in an alliance with Citibank and is considering offering life-insurance policies.
Japan’s Dai-ichi, which is finalising its purchase of Tower Australia, has also said it is continuing to eye expansion in south-east Asia, including Australia.
Australia Post, which is rumoured to be considering a push into financial services, is also well placed to offer insurance products.
Some of the smaller players in the market, however, will struggle to meet APRA’s new capital requirements and will be likely takeover targets.
ECONOMY
Adding to the uncertainties will be the economy, which dictates how much insurers collect from their investments.
Before the floods, market researcher IBIS-World had
estimated the sector would grow by 2.4 per cent between now and 2016.
But IBISWorld’s Ian McGowan said this estimate might need to be revised if further catastrophes occurred over the next year or two.
Source : The Daily Telegraph
