Australia's largest P&C insurers should be well placed to manage claims stemming from tropical cyclone Alfred. The path and strength of the cyclone is uncertain, but similar events in the past suggest insured losses of more than AUD 2bn ($1.265bn).
The cyclone is tracking to hit the southern Queensland coast on March 7, 2025. This highly populated location is more southern than typical cyclone hits. The current parameters appear to match, or exceed, some of Australia's largest natural catastrophes in the past ten years, said S&P Global Ratings in a recent report.
The Australian Cyclone Reinsurance Pool (ACRP) takes the first layer of insured losses after an initial deductible held by the insurer, while extreme losses can be covered by the pool's AUD 10bn Federal Government guarantee.
"Australia's three largest P/C insurers have strong credit quality and their maximum event retentions are well covered at the moment and represent about 20% of each entity's natural perils allowance," said S&P Global Ratings credit analyst Craig Bennett. "Capital adequacy is very strong, or better, by our assessments, based on our global insurance capital model.
Credit fundamentals of the rated insurers are supplemented with participation in the ACRP. We expect the ACRP and government-guarantee, if required, to respond to eligible property claims incurred up to 48 hours after the event. Where claims fall outside the ACRP cover--like large commercial losses or ongoing rain and flood--primary insurers will have access to their own resources and then significant reinsurance covers.
Strong winds, heavy rainfall, and storm surge are likely to affect the east coast of Australia between the Sunshine Coast in Queensland and the Northern Rivers region of New South Wales. This includes the major city of Brisbane with a population of about 2.5m.
"A cyclone hitting a major city like Brisbane can result in elevated property damage and insurance claims and may include significant business interruption," said Mr. Bennett. "Most rated insurers have already enacted emergency disaster management plans. "
Brisbane council estimates about 20,000 homes to be at risk of inundation in the Brisbane region alone. This compares with the 2022 floods where about 35,000 homes were materially damaged out of a total 245,000 claims, with incurred claims of about AUD 6.4bn. The last major tropical cyclone, TC Debbie, occurred in 2017 with incurred claims of about AUD 1.8bn over about 77,000 claims.
S&P noted that this report does not constitute a rating action.