Phil Ayling and Teresa Ooi
THE financial impact of Queensland’s devastating floods is growing dramatically.
Disruptions to business and insurance claims will slash earnings in key industry sectors.
The implications for the broad economy are also being felt, with the Australian dollar plunging yesterday because of the likely impact of lower exports on Australia’s trade figures.
The dollar fell more than US1c to US98.37c and investors stripped millions of dollars off the market capitalisation of insurance companies and coalminers amid fears damages bills would soar.
Economists said the floods would shave about 0.2 to 0.6 percentage points off the nation’s gross domestic product, with inflation poised to rise an average of 0.25-0.5 percentage points over the next few quarters.
As the rain continues to punish Queensland and isolate parts of the state, retailers, which are closing stores, and transport companies, which are facing supply issues, are also being hit and investors are becoming increasingly concerned at the cost to corporate balance sheets.
“Support for the Australian sharemarket remains patchy,” UBS executive director Mark Fitzgerald said.
“You’ve got to think what implications this (the Queensland flooding) has on the banks as well as insurers . . . there is a lot of uncertainty out there.”
The broad sharemarket closed flat yesterday, but companies most exposed to the floods, such as Suncorp, fell sharply, with more than $400 million wiped from its value on fears of a blowout in claims, as the big wet extends its path of destruction to Brisbane. Suncorp, which has 26 per cent of its business in Queensland, is expected to update the market as early as today.
Merrill Lynch, like most brokers, expects the floods to cost Suncorp about $200m, but the firm says the figure was only an estimate because of uncertainty about the covers in place, the nature of the various reinsurance programs and the potential impact on prospective claims costs, such as labour shortages and material inflation.
IAG, which has a much smaller exposure to Queensland, also fell 1.4 per cent.
Other big losers yesterday were coalminer New Hope, which fell 2.6 per cent to $4.92 after it said it had suspended all production as it assessed damage to transport infrastructure.
QR National shares fell 3.3 per cent, after it suspended rail services to mines west of Brisbane, adding that it was unable to assess the extent of rail damage from the floods.
Analysts estimate the floods could cost the insurance industry more than $1 billion.
Suncorp already had been inundated with 100 claims from the Toowoomba floods on top of the 2500 claims filed over the past four weeks, a company spokesman confirmed yesterday.
Several analysts said the sharp rise in claims could affect Suncorp’s earnings this year.
Deutsche Bank analyst Shreyas Patel said the financial cost to Suncorp could be about $200m, and $30m for IAG.
Merrill Lynch analyst Andrew Kearnan said: “We think the cost of the Queensland floods could be significant for Suncorp.
“In our forecasts, we assume that it is a $200m event, all incurred in the first half of 2011.
“Suncorp has a budget for natural hazard costs of $460m for financial year 2011 and we assume this will be split evenly between the halves. The bottom line is that Suncorp still has a $230m budget for second-half 2011 natural hazard costs.”
Suncorp spokesman Jamin Smith said it was too soon to assess its total financial exposure to the disaster.
Suncorp had comprehensive reinsurance coverage for the floods, but it was too early to say if the cost of the floods would cause its natural perils allowance to run over budget in 2010-11.
“We don’t know what the cost of these floods are going to be. We set aside a large amount of money every year for natural perils and we also have comprehensive reinsurance arrangements in place,” Mr Smith said.
“The business is very well protected and it means our focus at the moment is where it should be . . . helping customers who have been affected.”
Reinsurance is purchased by insurance companies from global insurers to protect them against large losses and allow them to issue policies with higher limits than it would otherwise be allowed.
Mr Smith said it was too early to assess if premiums would rise.
Source: www.theaustralian.com.au
