Insurers are in a stable position to address associated rising costs in the aftermath of Tropical Cyclone Jasper and the persistent floods in Far North Queensland, according to independent credit risk research provider S&P Global Ratings Australia (S&P).
In a release, S&P offered its perspective on the implications of Tropical Cyclone Jasper – which hit north of Cairns on December 10 and concluded on December 14 – and the ongoing floods in Far North Queensland for insurers.
S&P described Tropical Cyclone Jasper as a modest event. However, the continuous record flooding in Far North Queensland is causing widespread damage, with potential impacts on agriculture, tourism, private property, and public infrastructure. Notably, major cities and commercial centres have thus far avoided direct impact, limiting overall economic losses.
The credit risk research provider suggested that the ultimate impact on the economy and public finances of Queensland remains uncertain, but it anticipates that the impact will not be significant enough to trigger rating changes within the next two years. This assessment is grounded in the belief that insurers in the region are well-positioned to handle the associated claims.
S&P attributed the low number of claims, in the low thousands, to the low population and property density in the affected region, along with expectations of underinsurance. It pointed out that insurers can also leverage extensive reinsurance cover in the event of escalating claims costs, with only insurers holding substantial market share in Far North Queensland expected to trigger their reinsurance catastrophe covers.
The Australian Reinsurance Pool Corporation is expected to absorb some of the privately insured exposure for claims incurred up to December 16. However, uncertainties arise regarding how many claims will fall within this timeframe, given that much of the flooding occurred after this date.
In terms of Queensland’s fiscal resilience, S&P emphasised that there is capacity within the current credit ratings (AA+/Stable/A-1+) to absorb the fiscal costs. It also noted that Queensland is likely to incur higher expenditures in the coming years as it supports affected households, businesses, and undertakes infrastructure rebuilding efforts.
S&P highlighted that the financial assistance from the Disaster Recovery Funding Arrangements 2018 lags behind state expenditure, potentially impacting Queensland’s financial position in 2024.
The Insurance Council of Australia has already declared a “significant event” for Far North Queensland in response to the impacts of Tropical Cyclone Jasper.
