Australia’s terribly destructive bushfires show few signs of abating and they are now starting to have an impact on companies listed on the share market.
The insurance sector is an obvious place to start and sure enough Australia’s biggest general insurer – IAG (ASX: IAG) – has already stated that the bushfires could leave a sizeable dent on its bottom line.
Some of IAG’s better known brands include NRMA, CGU, SGIO, SGIC and Swann Insurance and the overall group has already received more than 2,800 fire-related claims since September with an estimated value of $160 million.
Insurance claims mounting up
That claims number is obviously still rising as more homes and possessions are damaged or lost, but has already said that it expects to pay out close to $400 million for natural disaster claims from the second half of 2019, which is well above the insurer’s allowance for that period of $320 million and is 60% of its annual “perils” budget of $640 million.
As well as bushfires, hail storms on the Sunshine Coast and in New Zealand in November helped to boost that $400 million in natural disaster claims.
Not all of that impact will be felt by IAG, which re-insures a lot of its risks and also announced last week that it had finalised its catastrophe re-insurance program for the 2020 calendar year, increasing its gross re-insurance protection to up to $10 billion, from $9 billion in 2019.
The group’s Australia division chief executive officer Mark Milliner said bushfires and been exacerbated by prolonged drought and conditions were expected to deteriorate over the coming weekend.
Victorian losses still to come
So far, according to the Insurance Council of Australia, the vast majority of claims have come from NSW, with a much smaller number of claims from Victoria and South Australia, but, again, that is probably about to change as the bushfires continue to rage across state boundaries.
It is worth remembering that the Victorian Bushfires Royal Commission’s final report put the overall cost of the 2009 Black Saturday fires at more than $4.4 billion, with most of that total being insurance claims for the loss of 2,000 houses.
Fire hits the big cheese
Diary giant Bega Cheese (ASX: BGA) is another company feeling the heat from the fires with chief executive officer Paul van Heerwaarden telling the ASX that some of the company’s milk suppliers and employees had been impacted by the fires around Bega and Cobargo in NSW.
Some have lost homes and suffered burnt pasture with the picture still unclear, although at this stage no dairies have been lost.
Bega Cheese says its two facilities in NSW have not been directly impacted and remain fully operational.
“We are working closely with our employees, dairy farm suppliers and freight providers to ensure milk can be delivered and processed whilst taking every precaution to ensure the safety of everyone involved,” Bega told the ASX.
Bega also thanked the local council and Rural Fire Service, and said it would provide more updates as required, but unlike the insurers whose shares remained robust, the news sent Bega shares sharply lower.
Berries and tourists become scarce
The berry plantations at the farm were not materially affected, according to the company.
Accommodation provider Aspen Group (ASX: APZ) has forecast an income hit of at least $500,000 as bushfires continue to threaten the NSW south coast and cause evacuations which are obviously keeping holidaymakers away.
Timber plantations destroyed
Two sets of fires have also caused significant damage to plantations owned by Kangaroo Island Plantation Timber Plantation (ASX: KPT).
Initially, the company lost 891 hectares in the first fire but a second fire damaged a further 971ha of plantations.
That represents a further 7% of its landholding, which it estimated had an insured value of about $8.5 million.
After the company came out of a trading halt its shares dropped by 12.9%.
Kangaroo Island Plantation is Australia’s only listed timber company, with about 25,000ha of land on which it grows pine and eucalyptus.
The company will now try to quickly salvage pines and eucalypts that have been killed, but not burned before the timber deteriorates, perhaps barging timber from the island.