The wildfires which tore through California last month may not be enough on their own to impact reinsurance pricing for Australian insurers but, when coupled with other major disasters, pricing could change, an expert has said.
The California fires are set to become the costliest insured wildfire loss ever recorded, according to
Aon Benfield’s Impact Forecasting. The analytics arm of the reinsurance broker found that at least 19,000 residential, commercial and motor claims had already been filed with current payouts exceeding US$3.32 billion and the total loss expected to rise to US$8 billion.
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Coupled with earlier major losses in the north Atlantic hurricane season, as well as losses linked to Cyclone Debbie, reinsurers face their first earnings impairment since 2011, which could impact the Australian market, John Carroll, head of broking at Aon Benfield said.
“We expect these factors to result in a global reversal of rate reductions that we have witnessed for a number of years; however, the magnitude of any rate changes will vary by country and product line,” Carroll told Insurance Business.
“We expect a firming of reinsurance pricing across the Australian industry in the coming six months of renewal activity – however, final pricing outcomes will be a function of each insurer’s actual exposures and results; we do not expect a simple ‘across the board’ change in pricing across the market.”
Carroll noted that much of the Australian insurance industry has their reinsurance renewals in June and while there is an underlying trend to resist rate reductions due to loss activity in 2017, the coming bushfire and cyclone season will “be the more significant factor in final pricing and reinsurance impacts.”
“For insurers locally, the impact of recent local events (such as Cyclone Debbie and the Kaikoura earthquake) will be a factor in any final pricing outcome – we would expect more pressure on pricing at the bottom end of reinsurance programmes where there has been more loss activity in recent times,” Carroll concluded.
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