Choice Urges Home Owners To Be Cautious When Buying Home Insurance
Choice, the consumer group is advising consumers who live in places that are prone to flooding from taking out insurance in an irresponsible manner, whilst at the same time heavily criticizing the industry according to the insurance council.
Recently the advisory group held its annual Shonky Awards, where the group awarded lemon trophies for dubious dodgy and deceitful goods and services.
Choice singled out the insurance industry, following this summer’s flooding in Victoria, Queensland and New South Wales.
According to Choice, this year’s flooding left people who lived in the three states without any cover as insurers sought to avoid their liabilities.
Rob Whelan the executive director and chief executive of the Insurance Council of Australia says the group may scare property owners who are at risk from buying flood insurance.
“We don’t want a situation to arise in which property owners do not have appropriate cover for their property because they were put off by irresponsible and inaccurate statements by Choice,” Mr Whelan said.
According to Mr. Whelan, 130,000 claims were made and determined in the immediate aftermath of the flooding and cyclone which struck Queensland during last summer. Of that, only 725 claims ended up in dispute, representing just 0.6 per cent of the outstanding total, which were referred by policy holders to the insurance ombudsman.
“Those property owners with a flood risk should be responsibly encouraged to purchase flood insurance and not leave themselves unprotected. Handing out dummy awards is a stunt, not a solution. It’s not worthy of Choice.” he said.
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Shares Of Australian Insures Drop As Investors Fret Over Japan
Shares of Australian insurers that have exposure to Japan are vulnerable to sell offs amid investor fears that reinsurance costs will soar.
Australia’s largest insurer QBE Insurance Group also has the biggest exposure to Japan warned on Monday that it expects net claims of US$125 million. Its shares fell by 1 per cent on Monday, whilst rival Insurance Australia Group saw its share price decline by 2.6 per cent, with Suncorp falling 1.3 per cent. Neither IAG nor Suncorp have any exposure to Japan, but their shares still sold off as investors expressed concern that the two companies would be negatively impacted by rising reinsurance costs.
Southern Cross equities director Charlie Aitken warned that Australian insurers were headed for broker downgrades.
“This large-scale disaster may well prove the straw that breaks the reinsurance camel’s back. What’s bad for reinsurers is worse for insurers, with reinsurance rates likely to go through the roof and crush margins,” Mr Aitken said.
On Monday, QBE released a statement saying that its exposure to large individual and catastrophe claims year to date was approximately US$550 million, well below its budgeted US$1.65 billion.
“The majority of our estimated net claims from the devastating Japanese earthquake will come from the relatively low exposure in our reinsurance, marine and energy operations in Europe,” chief executive Frank O’Halloran said.
Goldman Sachs Analyst Ryan Fisher however raised the question of whether QBE’s budget of US$1.65 billion was “no longer looking as large or comfortable as it usually would” given that the US hurricane season usually happens in the second half of the year.
QBE is one of the only Australian insurers with exposure to the earthquake that has devastated Japan and the resulting tsunami. IAG has no exposure to Japan since it does no business there, but does have operations in Thailand and Malaysia, whilst Suncorp is purely Australia and New Zealand focused, with minimal exposure in Asia.
A spokesperson for the Insurance Council of Australia said: “The impact of Japan’s catastrophes is minimal to insurance companies in Australia, with the exception of QBE, which has some exposure in Japan.”
The reinsurance majors such as Swiss Re, Munich Re, and Hannover Re all say that it is far to early to be able to estimate their potential exposure to the disaster or Japan’s losses for the insurance industry.
But Mr Aitken said he expected reinsurers to start rationing reinsurance. “Reinsurance costs would rise sharply as reinsurers become more selective and start rationing reinsurance,” he said.
Munich Re, the world’s No 1 reinsurer has operated in Japan since 1912 and has an office in Tokyo.
Munich Re’s Nikola Kemper in Hong Kong said: “It is still too early to issue any loss estimates (economic and insured) or discuss the impact on reinsurance around the world.” In an earlier statement the company said:”Since this analysis is very complex, it is far too early to provide any reliable statements regarding the insured losses and Munich Re’s loss burden from the quake.”
But Boston-based AIR Worldwide estimated that the earthquake had caused as much as $US35bn in insured property losses excluding the tsunami.
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IAG Posts 51 Per Cent Half Year Profit Decline
Australian insurance major IAG reaffirming recent guidance given to investors posted a 51 per cent decline in first have net profit.
IAG’s first half profit for the six months ending December 31 fell 51 per cent to $161 million from $329 million during the same time period in the previous year.
IAG blamed the decline on a $121 million loss at its UK subsidiary. The company’s insurance profits fell from $488 million in the previous year to $470 million, with insurance margins declining to 12.7 per cent from 13.4 per cent.
IAG chief, Mike Wilkins confirmed that the company’s guidance was revised on Wednesday following the earthquake in New Zealand.
“The ongoing underlying strength of our businesses in Australia and New Zealand gives us confidence the group will deliver an improved insurance margin in the 2011 financial year, compared to seven per cent reported in the 2010 financial year,” Mr Wilkins said.
“This is despite the substantial net natural peril claim cost resulting from the sequence of severe weather events in Australia, as well as the powerful earthquake in New Zealand, in the opening weeks of calendar 2011.”
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Suncorp Posts Better Than Expected Decline In First Half Profits
Australian bancassurer Suncorp reported a 39 per cent decline in first half profits, coming in better than expected, with the company saying that despite goodwill write-downs and natural disasters occurring over the period, its underlying business was performing well.
Suncorp which is based in Queensland and had heavy exposure to the flooding in the state also announced that its current chairman John Story who is set to step down, would be replaced by former Telstra chief executive Dr Ziggy Switkowski.
Net profit after tax and abnormal items fell to $223 million for the half-year, from $364 million in the prior corresponding period. Analysts had expected net profit after tax of $190 million.
Suncorp increased provisions during its first half used to cover the potential impact of abnormal weather events by $35 million. The banc assurer purchased additional reinsurance for the full year, after fully utilizing its $400 million in aggregate reinsurance cover.
Patrick Snowball, Suncorp’s chief executive said that the impact of recent weather events would have been much more significant had the company not made progress in simplifying its business. Natural hazard claims were $182 million above budget.
“Our group is considerably stronger and far more stable than this time last year,” Mr. Snowball said.
“Premium rates are expected to increase following the sequence of natural hazard events that have continued into the 2011 calendar year,” the company said.
Suncorp’s life insurance business posted a 42 per cent fall in first half net profit to $61 million, due to higher than expected claims and policy lapses.
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IAG Revises Insurance Margin Guidance Downwards
Australian insurance major IAG on Monday cut guidance on its margins after its UK subsidiary incurred a loss and following the aftermath of floods and storms in Australia.
Australia’s largest home and car insurer issued insurance margin guidance of between 9 to 11 per cent for the year ending June 30th 2011. The company had previously expected to deliver margins of between 10.5 to 12.5 per cent.
Despite predicting a lower margin IAG said that its gross written premium growth is expected to remain at between 3 to 5 per cent.
Mike Wilkins, IAG chief executive, commenting on the flooding in Queensland, Victoria and New South Wales said:”It requires a collaborative approach between industry, governments and communities,”
“Initiatives needed include better flood maps, stricter land use planning, stronger building codes, appropriate infrastructure, and a common definition of flood.”
First half profits for the period ending December 31st are expected to come in at $470 million compared with $488 million during the same time period in the previous year IAG said in a statement.
Its UK subsidiary lost $121 million as bodily injury claim inflation continued to affect that industry.
“This, coupled with rate increases taking longer than anticipated to emerge in non-private motor classes, has contributed to a greater than expected loss for this business,” Mr. Wilkins said.
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Australians Likely To Have To Pay Higher Home Insurance Premiums
Australians are likely to have to pay higher home insurance premiums as insurers seek to recoup some of the $1.6 billion in claims they will have to pay out as a result of the flooding in Queensland and cyclone Yasi warns QBE Insurance chief executive Frank O’Halloran.
Australian insurers face further pricing pressure as global re-insurers demand higher premiums for substantially increasing their exposure to the risk of Australian natural disasters.
”What you’ll see in Australia is a move in property rates – that’s for sure – on the back of what’s happened/ I have no doubt in my mind you’ll see significant increases in the costs of re-insurance in Australia,” Mr. O’Halloran told a market briefing.
Many analysts expect that premiums in 2011 will likely track the rises of the last two years, which rose 11 and 10 per cent respectively.
”One would expect that after a couple of severe weather events in a short period of time it’s more likely that the overall average increase in household insurance premiums will be more than the 8 per cent predicted [for 2011],” said Elaine Collins, leader of the general insurance actuarial team at Deloitte.
QBE derives most of its earnings from international operations, but still expects a claims bill from the Queensland flooding of at least $145 million.
A ”very preliminary estimate” of claims for damages caused by cyclone Yasi is around $100 million, Mr O’Halloran said. ”I think the industry dodged a bullet – and so did the rest of Queensland – which is a very pleasing thing to happen.”
Australia’s largest insurer Insurance Australia Group (IAG) estimates its bill from the flooding and cyclone to be in the $100 to $130 million range, whilst its exposure to flooding in Victoria is estimated to be between $25 to $40 million.
The Reserve Bank of Australia says that the insurance industry in Australia will easily be able to cope with large rises in claims, and that it is well capitalized with insurers holding double the minimum regulatory capital.
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Fitch Believes Suncorp Has Sufficient Reinsurance To Cover Queensland Flood Related Claims
Fitch, the credit ratings agency says it believes major Australian general insurers have more than enough reinsurance to cover the claims that are expected from the flooding in Queensland which is estimated to cost Suncorp as much as $150 million.
According to the ratings agency, whilst the insured losses have the potential to escalate substantially as flooding begins to engulf urban areas such as Brisbane, the major insurers have sufficient reinsurance protection.
Queensland based Suncorp received nearly $1.9 billion in premiums from Queensland based clients during the year ending June 30th 2010, resulting in the largest exposure to the flooding amongst all major Australian insurers. Suncorp said earlier in the week that it has received 2500 claims so far which will cost is between $70 million to $90 million, with the pre tax total costs of flood related claims amounting to between $130 to $ 150 million.
Fitch estimates that Suncorp has catastrophe reinsurance coverage worth $5.6 billion per event, which will have the effect of containing Suncorp’s exposure to such events.
Additionally because of covenants regarding time restrictions in its reinsurance coverage, the floods will be treated as multiple events and covered by the bancassurer’s $300 million aggregate reinsurance contracts.
As a result Fitch estimates that Suncorp’s total protection amounts to $400 million, and coupled with recent increases in premiums, will significantly cushion the impact of the floods on earnings of the company.
Insurers typically purchase reinsurance on their liabilities from global insurers to protect themselves from large losses, allowing them to issue policies with much higher limits than would otherwise be possible.
Shares in Suncorp, IAG, QBE and Bank of Queensland have taken a beating this week as the flood crisis unfolded with financial market awaiting gross claim costs from over 4300 claims to date.
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Analysts Downgrade Suncorp
Analysts have already begun circling Australian insurers with Goldman Sachs downgrading Suncorp Group’s full year earnings estimates as a result of the impact of claims stemming from the flooding in Queensland.
Despite downgrading Queensland based Suncorp, Goldman’s did quite the opposite with rival Insurance Australia Group (IAG), upgrading the insurer’s full year earnings.
According to the investment bank, the impact of flood related claims on Suncorp will result in an 11.3 per cent decline in full year earnings per share compared to its estimate prior to the flooding.
In its research note on Wednesday, Goldman Sachs said that compared to rival IAG, Suncorp faced a much larger exposure to the flooding as a result of its larger market share in its home state of Queensland, its broader policy terms and the fiscal year structure of its reinsurance arrangements.
Goldman believes that the bancassurer will take a $200 million hit as a result of the flooding, which would result in the company exceeding its first half budget for claims by $150 million.
In upgrading IAG’s 9.1 per cent earnings estimate despite the flooding, Goldman said that IAG operated its reinsurance arrangement on a calendar year basis and this means that prior to the flooding, it estimated that the insurer came in by $100 million under its natural perils budget.
Goldman estimates IAG’s exposure to the flooding in Queensland at about $40 million, implying that the insurer would be $60 million ahead of its budget for the half.
“Notwithstanding the floods, IAG looks to us to be in pretty good shape and we are forecasting a 12-month total return of about 20 per cent. SUN (Suncorp) remains a higher-risk, higher-reward proposition. In our view the stock has been significantly oversold and we see very strong upside potential from current levels.” Goldman said.
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Investors Sell Off Insurer Stocks Amidst Uncertainty Over Exposure To Queensland Floods
Australia’s three largest insurers saw their market capitalisation wiped by over $830 million, as investors fearing the impact on earnings as a result of the Queensland flooding intensified.
Suncorp, QBE and IAG all saw their share price decline on Tuesday, after JP Morgan analysts began suggesting preliminary damage estimates could be as high as $1 billion, with Suncorp’s exposure as high as $200 million.
IAG according to JP Morgan may have its entire exposure covered by re-insurance if its gross exposure was between $15 million to $50 million.
“If they are greater than $50m, IAG will wear the cost in excess of $50m up to a maximum of $175m,” JPMorgan said.
The investment bank also said was uncertain of QBE’s reinsurance plan, but it did not expect the impact to be significant.
Of the three insurers, Queensland based Suncorp has by far and away the largest exposure to flood claims, with a spokesperson saying it had received 1,800 claims and was expecting many more.
“Most of the claims we’ve had so far are home and motor vehicle claims, but we’re expecting a lot more from areas like Rockhampton which are still being flooded and people have other immediate priorities.” she said.
IAG said it had received 600 claims so far which were both flood related and cyclone Tasha related, whilst QBE has not disclosed the number of claims it has received.
Analysts say the sell-off in insurer stocks was driven by uncertainty over the extent of their exposure to the flooding in Queensland, the level of which will not likely be identified for a long time yet.
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Suncorp Urges Queensland Flood Victims To Lodge Claims ASAP
Queensland based bancassurance firm Suncorp issued a statement to the Australian stock exchange re-assuring investors that is has sufficient reinsurance to cover claims related to flooding in the state.
The flood crisis has affected more than 20 cities and towns and is expected to cost more than $1 billion described as the worst in 50 years. Suncorp says it has received over 1,800 claims since Christmas Eve.
Suncorp operates a number of general insurance brands and as part of its response to the Queensland flood crisis has increased the number of staff dealing with claims, assessment and support.
“Suncorp makes allowances for natural hazard claims and has a comprehensive reinsurance program in place. Claims numbers are expected to increase as waters recede and customers return to their homes,” Suncorp said.
It encouraged customers to lodge claims as soon as possible.
“A cost estimate for the event will be provided when claims in affected areas have been assessed,” the company said.
On Friday Prime Minister Julia Gillard toured some of the affected areas.