The Suncorp Group Ltd (ASX: SUN) share price is going to be on watch today after announcing a natural hazard update from the heavy rain and flooding in NSW.
What is the damage to Suncorp?
Suncorp has given an update to investors about the expected financial impact from the heavy rainfall and flooding across NSW, South East Queensland and Victoria.
As of midday on 30 March 2021, the insurance giant had received around 7,600 claims across the three states. The number of claims is expected to rise as customers get access to their properties again. Around 75% of the claims are from NSW, a fifth from Queensland and the rest from Victoria and the ACT.
Suncorp appreciated the decisions by the Queensland and NSW Governments to classify assessors and tradespeople as essential workers so they can travel to flood-affected regions. There’s so much damage it needs interstate assessors and repairers to be able to travel there so they can start the rebuilding process as soon as possible.
Based on the claims lodged to date and Suncorp’s initial assessment of damage, Suncorp has estimated the net claim cost for this event to be between $230 million to $250 million.
Suncorp said it expects the majority of claims will be attributed to a single event across all three states for reinsurance purposes. The costs of this event will be capped at $250 million under the main catastrophe program.
Management comments
Talking about the problems of providing insurance to flood prone areas like this, Suncorp CEO Steve Johnston said: “Floods too frequently devastate communities across Australia, which is why as a country we must address this risk. Unfortunately, many homes in Richmond, Windsor, Penrith, Port Macquarie and Taree are in medium to very high flood risk areas.
“As a country, we need to address how we can protect homes in flood-prone regions through government investment in mitigation infrastructure. We must also improve planning decisions to ensure we are not building new homes in high-risk areas.”
How much is Suncorp insured for over the rest of the year?
Suncorp said it has a comprehensive reinsurance program in place to provide strong protection for the rest of FY21. The full limits remain available on all the group’s main catastrophe program and dropdown aggregate reinsurance covers. The aggregate excess of loss (AXL) protection provides $400 million of cover in excess of a retention of $650 million with an event deductible of $5 million. At 28 February 2021, $370 million of the AXL deductible had been eroded.
This seems like a pretty expensive event for everyone involved. It’s really hard for homeowners that didn’t have flood insurance with how much it can cost.
I’m not sure Suncorp is a great ASX share to own, it seems to suffer through every recession and each bad storm event (which could happen more frequently).
