Warmer El Nino will boost insurer profits
The warmer El Nino summer will help the country’s largest insurers keep a lid on catastrophe costs after severe storm events cost some $10.5 billion in damage over the past three years during an extended La Nina pattern.
Morgan Stanley analyst Andrei Stadnik said the change in weather conditions would benefit big established players likeSuncorp and IAG, with claims on average 40 per cent lower in El Nino periods compared to La Nina.
“El Nino is associated with warmer days, lower rainfall and lower cyclone risk,” Mr Stadnik said. “It is also associated with droughts and bushfires. But bushfires account for only 11 per cent of total Australian-insured catastrophe claims since 1968 while cyclone, storm and flooding account for 59 per cent.”
The Bureau of Meteorology declared a La Nina event in September 2020 that lasted until May 2021. It declared another La Nina that November, persisting until March 2023 and, this week, it identified the first El Nino since mid-2019.
Insurance Council of Australia data indicates that, normalised against 2022 values, severe weather events like floods, storms, cyclones and hail have cost the industry $10.5 billion over that period of time.
Mr Stadnik said catastrophe claims in El Nino periods were broadly on par with that of neutral weather patterns, and 42 per cent lower than La Nina. Motor insurance, meanwhile, also benefited from the warmer conditions because the roads are not as wet, according to the Morgan Stanley analyst.
“History shows that 2-3 per cent changes in industry motor loss ratios are possible from an increase or reduction in rainfall,” he said.
KPMG insurance partner Scott Guse, whose quarterly review of the sector found that gross written premiums was up 12.2 per cent in
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