Cyclone Yasi crossed the Queensland coast last night with damaging winds and rain.
And while the news saw insurance stocks sold off with Suncorp and IAG, the two majors losing 1.8% ( down 15c to $8.21) and 1.9% (down 2.4% or 9c to $3.64) in value, the biggest area of damage could be to north Queensland’s fragile sugar industry (already facing losses from the big wet in late 2010) and bananas.
Cyclone Larry caused a deal of property loss, but perhaps the biggest costs were the almost total wipeout of the banana crop, which boosted consumer inflation temporarily, and severe damage to the local sugar industry, which could happen again.
JP Morgan analysts said in a note yesterday that if the cyclone follows the path Cyclone Larry took in 2006; insured losses for the industry may be around $350 million Australian dollars.
Implied gross losses for both Insurance Australia Group and Suncorp would be approximately $115 million for each firm, they said.
But the losses could be much higher because Yasi is much bigger than Larry and damage could extend well in land and flooding could return to parts of central Queensland already recovering from floods last month.
Fears that the cyclone would hit Cairns eased late yesterday.
The storm will have a much smaller impact on the insurers than the floods of December and January have had, especially in Queensland.
Suncorp told the ASX in a short statement yesterday that it "has a range of reinsurance protections in place that will minimise the financial impact of TC Yasi.
"As a result of the combination of the catastrophe and aggregate reinsurance programs, Suncorp expects its net claims costs arising from TC Yasi will be capped at $10 million."
(That means the company’s reinsurers will pick up all costs above the $10 million mark. That sounds fine, but along with big reinsurance claims from the Queensland floods, Suncorp and the industry will face big rises in reinsurance premiums in coming months).
"Customer Response Teams are being deployed to Cairns and Townsville to assist the Group’s customers and additional assessors are currently being sourced from overseas.
"Increased numbers of call centre and other support employees are also being coordinated to provide 24 hour claims capability," the company said.
The Insurance Council of Australia said earlier this week that the total estimated insurance claims for losses from the Queensland floods were now hit $1.51 billion.
The total cost of the floods has been roughly estimated at $5 to $6 billion. That includes lost export revenues, much of which will be made up, especially in the Queensland coal industry.
And the council said that initial claims from the Victorian floods were nearly $69 million, covering 4780 individual claims.
The council said that "As of 30 January, its members had received 38,460 claims, with 53 per cent of these from Brisbane, 17 per cent from Toowoomba and the Lockyer Valley, and 30 per cent from regional Queensland".
ICA said it updated its figures after receiving claim numbers from insurers including Insurance Australia Group and Suncorp.
The latter, which has 40% of the market for home and contents insurance in Queensland and is the only insurer to offer automatic flood cover for home insurance, has the largest insurance exposure to the Queensland floods of all insurers.
Insurer Allianz this week said it would pay out all property loss claims from Toowoomba, which would be considered as damage from run-off rather than flood, while hydrology assessments continued in other flood-affected areas.
The big question mark is the impact of Yasi on not only banana crop (remember Larry hit in March 2006, almost five years ago), but to the area’s sugar crop.
Queensland cane industry group Canegrowers, said the cyclone was headed towards one of Australia’s sugarcane heartlands, with 30% of the nation’s crop grown north of Townsville.
It said Cyclone Larry, which five years ago devastated an area from the south of Cairns through to the northern outskirts of Tully, wiped out 40%-50% of crops in its path.
Canegrowers estimated in a statement yesterday that Yasi could cause damage to the regional sugarcane sector worth at least $500 million, based upon the damage done by the less powerful Larry.
"The half a billion projected losses do not even start to include the cost of broader damage to infrastructure such as the road and rail network, houses, property, mills and ports," Canegrowers chief executive Steve Greenwood said in the statement yesterday.
"There were those in Cyclone Larry who lost everything – farmhouses, crop, machinery, sheds, and livelihood during the devastating force.
"We are preparing ourselves for damage control mode, so we can move quickly to focus on assisting individual growers for whom there have been immediate severe economic losses.
"Some growers stand to lose 100 per cent of their crop, a blow from which they may never recover."
There are around 1,500 cane growers north of Townsville, and the regional sugarcane sector employed about 5,000 people.
The sector dominated the regional economy, contributing about $1.95 b
