Australia floods : early market estimates put losses at about $1 billion for the insurance sector

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    Suncorp shares slumped 3 per cent, or 26c, to $8.35, knocking $330m from its value, QBE shares lost 38c, or $380m in value, to $17.77, while IAG fell 6c to $3.82 for the loss of $120m.

    Early market estimates put losses at about $1 billion for the insurance sector. But JPMorgan said a $1bn figure was an “extremely preliminary estimate” reflecting that there was only partial coverage for flood for property policies, and no coverage for flood in crop insurance policies. It estimates net losses for Suncorp could be as high as $200m.

    JPMorgan said IAG would have losses covered entirely by a reinsurer if gross losses were between $15m and $50m.

    “If they are greater than $50m, IAG will wear the cost in excess of $50m up to a maximum of $175m,” it said. JPMorgan was uncertain of QBE’s reinsurance arrangements, but it did not expect the impact to be significant.

    Suncorp has the greatest exposure to the Queensland market. A spokeswoman yesterday said the company had received 1800 claims, but was expecting considerably more. “Most of the claims we’ve had so far are home and motor vehicle claims,” she said.

    “But we’re expecting a lot more from areas like Rockhampton which are still being flooded and people have other immediate priorities.”

    IAG, which trades in Queensland mainly through the NRMA Insurance and CGU brands, yesterday said it had received 600 claims related to both former tropical cyclone Tasha, which went through far north Queensland on Christmas Day, and the floods in the central and southern parts of the state.

    QBE was unable to say how many claims it had received.

    Shaw Stockbroking analyst Jamie Spiteri said the share sell-off was led by uncertainties about the floods and the extent of the three main companies’ exposure.

    “The full extent of their exposure is not likely to be identified for some time yet,” Mr Spiteri said. “The fallout could be quite significant financially, but there’s no real way of knowing.”

    But while the insurance companies — mainly Suncorp — brace themselves for more shocks, the financial impact on the state’s mining and agricultural industries continues to mount.

    The Queensland Resources Council also said the floods had cost the state’s coal industry an estimated $1 billion in production.

    The main Queensland Rail train line to Dalrymple Bay has been reopened, but QR National’s Blackwater line to Gladstone Port remains closed.

    While QR National estimates that the flooded Dawson River will continue to cut the Blackwater line near Duaringa into next week, Wesfarmers, which operates the Curragh mine that uses the line, said yesterday that it did not expect the line to reopen until Wesfarmers closed down the operations at its Curragh mine and moved tow draglines to higher ground last week. But in a statement yesterday, the company said floodwaters were receding.

    It was also the first company to give an assessment of the impact of the floods on the mine’s output. Full-year sales of metallurgical coal has been revised down from 6-6.5 million tonnes to 5.8-6.2 million tonnes.

    Another company likely to be hit by the floods is construction group Leighton Holdings.

    JPMorgan yesterday downgraded its earnings estimates for this financial year and next to reflect the reduction in activity and lost revenues for the group’s contract mining operations and other major projects in Queensland.

    The broker’s net profit forecasts for the company have been reduced by 6.2 per cent this year and 4.3 per cent in 2011-12. It highlighted concern over Leighton’s $4bn Airport Link project in Brisbane.

    Source : The Australian