Australia ready to take hit from Queensland cyclone and flood damage: S&P

The state could face higher spending in the next few years.

Insurers and the State of Queensland in Australia are seen as well-equipped to face the increasing expenses from the Tropical Cyclone Jasper and Far North Queensland floods, S&P Global Ratings said.

Cyclone Jasper, which struck north of Cairns between 10 to 14 December 2023, was relatively mild, but the subsequent record flooding is causing extensive damage across the region. 

The state is likely to increase spending in the next few years to support affected communities and rebuild infrastructure. This impact on the state's budget will be partly mitigated by the Disaster Recovery Funding Arrangements 2018, under which the Australian government will reimburse a portion of Queensland's costs. 

However, this financial support will lag behind the state's expenditures, possibly weakening Queensland's financial position in 2024 more than previously anticipated.

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This damage, primarily impacting agriculture, tourism, private property, and public infrastructure, has not significantly affected major cities and commercial centers, thereby limiting the broader economic losses.

The overall economic and public financial toll from these events is still uncertain, but it's unlikely to significantly alter Queensland's credit metrics or prompt rating changes within the next two years.

Insurance companies are well-prepared to manage claims from both the cyclone and the floods. Claim numbers are currently low, reflecting the sparse population and property density in the affected areas and widespread underinsurance due to cost constraints and a high proportion of renters. 

Should claims costs rise, insurers can rely on substantial reinsurance coverage, although only those with significant market shares in Far North Queensland are expected to trigger their catastrophe reinsurance.

The Australian Reinsurance Pool Corporation will cover some of the privately insured losses for claims made up to 16 December, 48 hours after the cyclone ended. However, the extent to which the Pool will cover the claims is uncertain, as much of the flooding occurred after