According to S&P Global Ratings, Australia-based insurers will generally be able to self-finance claims resulting from continuous flooding in the southeast of the country.


"We believe that despite the likelihood of additional rain and floods over the next week, the size of the storm is unlikely to necessitate catastrophe reinsurance coverage. We anticipate a minimal decline in insurer earnings, "said the international credit rating agency.


On October 17, the Insurance Council of Australia (ICA) deemed the flooding that is now occurring in Victoria, New South Wales, and northern Tasmania to be a "major occurrence." Significant events are less in scope than "catastrophe events," which cause insurers to give affected policyholder claims priority.


According to S&P, the ICA sees the most recent floods as a minor insurance event that was less widespread than other recent major climatic catastrophes, such as the floods that hit South East Queensland and New South Wales in February 2022. The latter floods, which resulted damage claims totaling roughly A$5.45 billion ($3.43 billion), were the worst Australian floods on record. The size of such tragedy necessitated the use of reinsurance by insurers to cover claims. Instead of material property damage, claims resulting from the recent floods are primarily coming from content insurance for homes, small enterprises, and agricultural lines.


Recent years have seen insufficient natural peril allowances imposed by insurers. The price of reinsurance has increased due to this shortage, as have premium rates. The availability and cost of flood insurance will be further restricted by weather-related occurrences like the present floods.


S&P believes that the direct financial costs to governments and the harm to the economy will be manageable. The majority of the emergency flood relief operations are being spearheaded by the states, which will also increase subsidies to local governments for infrastructure restoration. This includes fixing up important public facilities like highways and bridges. The Australian government will then normally compensate them for up to 50% to 75% of their expenses under Australia's Disaster Recovery Funding Arrangements.


For the majority of the last ten years, annual federal expenditures under this program averaged less than A$2 billion, which is small when compared to the country's budget deficit. Economic losses should be less severe than during the floods of February 2022, which are thought to have reduced GDP growth by half a percentage point in the quarter ending in March 2022.