In the period since September 2010, the insurance market in Australasia has been hit by an unprecedented run of catastrophic events. The two earthquake events in Christchurch (the second of which resulted in one of New Zealand’s largest natural disasters), widespread and severe flooding in Queensland and Victoria along with the damage bill from Cyclone Yasi in North Queensland have the potential to cost the insurance market up to and perhaps in excess of AUD20 billion in insured losses.

In addition, it is likely that total insurable losses from the earthquake and tsunami in Japan will be well in excess of this amount.  Whilst the insurance market structure in Japan is unique, many of the insurers and reinsurers that operate in Australasia will sustain heavy losses from this event.

Based on the mixed results of insurers in recent months, we expect an inconsistent reaction to the recent catastrophe events in our local region. Each insurer’s response will depend on a number of factors including the profile of their underwriting portfolio (client segment spread, product diversification, geographic spread and aggregate catastrophe exposure) as well as loss experience, facultative reinsurance arrangements and the timing of their treaty reinsurance renewals.

Local insurers have been quick to point out that they have in place reinsurance arrangements that cap their losses from catastrophe events at financially manageable levels, however, some of these arrangements will need to be renewed in coming months and price increases and coverage restrictions are certain to be imposed on insurers.

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