AM Best believes Australian insurers are well-capitalised and should be able to withstand losses from the recent bushfires, aided by support from reinsurance partners.
However, meaningful bushfire losses passed on to reinsurers may result in upward pressure on reinsurance rates and tightening of terms and conditions in upcoming renewal windows.
The new commentary, “Australian Insurers Able to Contend With Mounting Bushfire Losses” from the US-based credit rating agency notes that the 2019-2020 bushfire season will be one of the costliest for Australia.
Given the scale of the fires and geographical loss spread, Australia’s market-leading nonlife insurance groups are expected to pick up the lion’s share of insured losses, while smaller, niche or regional insurers may be exposed to portfolio concentrations within the fire zones.
Australia’s insurance industry has shown itself capable of absorbing natural catastrophe losses over recent years, according to a statement.
Comprehensive use of reinsurance has served to curtail material net loss ratio volatility and has strongly contributed to the industry’s ability to return combined ratios below 100%, even in catastrophe-heavy years.
Although insurers are considered well placed to face these bushfire losses, they will need to carefully consider their approach to managing bushfire exposures, which may ultimately result in tightening of terms and pricing increases in loss affected areas.
AM Best will continue to monitor the development of the current bushfires and assess any impact arising on the credit fundamentals of rated entities as the impact and loss estimates become available. – Jan 28, 2020, Bernama
