“The weather side, if that works out, is kind of the cherry on top,” said Martin, who is invested in insurers.
The northern hemisphere summer included record-breaking heatwaves this year, and the Bureau of Meteorology has said there is a 70 per chance of an El Nino event this summer.
In a sign of the surge in premiums, IAG reported in August that home insurance premiums had soared about 20 per cent a year on average, while premiums for car insurance had jumped by about 15 per cent.
UBS analyst Scott Russell also said the consensus view in the market was that El Nino weather systems were more favourable for insurers because they resulted in lower claim costs, and this had been priced in by investors.
“I think there’s a cycle that benefits insurance claims as we move to El Nino. I think investors are conscious of it,” Russell said.
IAG shares have risen more than 12 per cent since early June, and Russell said a key reason for the rally was the prospect of El Nino, alongside the sharp increase in premiums for home and motor cover.
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With spiralling premiums raising concerns about insurance affordability, the industry has defended price rises by pointing to higher costs from extreme weather; inflation in building materials, labour and car parts; and surging reinsurance costs.
KPMG’s insurance partner Scott Guse said Australian Prudential Regulation Authority data showed the nation’s insurers made an underwriting loss, on average, in their home insurance portfolios in the year to June.
“Obviously that is not sustainable for insurance companies,” he said, predicting premiums would keep rising, but at a slower pace.
IAG is expecting warmer conditions and lower risk of flooding this summer, with meteorologist at IAG’s NRMA Insurance, Dr Bruce Buckley, flagging the risks of grass fires and severe hailstorms.
“Some of the extreme weather drivers experienced in the northern hemisphere – such as widespread and increased sea temperatures, and El Nino – also apply to Australia, escalating the risks associated with higher temperatures this spring,” Buckley said.
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Based in New York, Stephen Freeman is a Senior Editor at Trending Insurance News. Previously he has worked for Forbes and The Huffington Post. Steven is a graduate of Risk Management at the University of New York.