Storm chasers
an interesting sumary of comments on Cyclone Yasi by Glenn Dyer; www.businessspectator.com.au Published 7:38 AM, 3 Feb 2011
Only one story this morning and that’s Yasi, which came ashore in North Queensland late last night. Unwelcome, noisy, wet and uninvited. While there are other topics examined this morning, our commentators concentrate on Yasi’s impact.Fairfax’s Elizabeth Knight made an obvious point that many doom and gloomers overlook: “There may be billions of dollars lost and insurance companies are set to be rocked by the claims that may follow. But a weather event, even one as monumental has this, will not necessarily alter the trajectory of the economic cycle. Also this week, the world has focused on the riots in Egypt and the flow-on effects for the rest of world, including the oil price and general geopolitical stability. Markets have also been concerned over the past few weeks on the Chinese government’s response to the threat of inflation. In short there have been plenty of events that could disrupt the tentative growth in world economies and market confidence. But it is arguable whether any of these are game changers. Put simply there is little on the world economic horizon that should worry investors at this stage.”
And Fairfax’s Eric Johnston laid out another obvious point this morning: “One of the world’s biggest reinsurance companies says Australia has become a riskier place to do business because of a string of big natural disasters over the past two years. The comments by Swiss Re may set the groundwork for an increase in the premiums that global reinsurance players charge local underwriters such as Suncorp or Insurance Australia Group to protect them from the cost of insuring against large floods, fires and storms. As reinsurance represents one of the biggest single costs for insurers, any increase in rates is likely to be felt by home owners and businesses.”
And The Financial Review reported this morning: “Some insurers recently cut their exposure in north Queensland, making it harder for business and apartment owners to get insurance cover at competitive prices.”
The Australian‘s Tim Boreham looked at possible losses for insurers from Yasi: “JPMorgan estimates a net loss for Suncorp Metway of $10 million if Yasi were to follow Larry’s path, or $115m on a gross basis. In other words, $105m comes off the insurer’s aggregate reinsurance protection, which allows for $400m of disasters before the insurer bears the full cost of an event. According to the firm, the Brisbane floods have used $120m of this cover, with Victoria’s floods costing another $40m. In theory, this puts Suncorp in a vulnerable position if Yasi is more damaging than Larry, or other disasters occur. But reinsurance is never simple, and apparently Suncorp also has some “worst case” cover based on a cyclone hitting Brisbane and the Gold Coast. JP Morgan expects IAG (which incurred a $172m gross loss from Larry) also to incur a gross loss of $115m.”
Fairfax’s Ian Verrender says don’t believe all the alarmist reports about losses from floods: “With flood peaks scarcely past, major mining groups stunned observers. Having suspended operations and shipments, in some cases invoking force majeure clauses on contracts, they reckoned they could end up financially in front as a result of the floods. It is a suppliers’ market. It has been that way for much of the past decade. But commodity prices have been gathering strength at an unprecedented pace for months, with demand from China and India continuing to power ahead and a resurgence in the US economy on the way. Factor in major shortages of coking coal to global markets and other key mineral exports, and prices inevitably have increased, to the extent that they are likely to more than compensate for lost production.”