Assessing Another Queensland Flood


-Insurers can withstand this flood -Flood impact worst for Suncorp -Minimal impact so far on mines -Some coal haulage delays

By Eva Brocklehurst

Whatever the weather we'll weather the weather, whether we like it or not.

A rhyme from schooldays sums up the outlook of insurers for the first month of 2013, replete with fires and floods. This week's Queensland floods are somewhat of a problem for coal miners and haulage companies too, given the coal-intensive Bowen Basin has copped it again.

For insurers it looks like a 'modest' impact for Insurance Australia Group ((IAG)) and QBE ((QBE)) and 'significant' for Suncorp ((SUN)), with its heavier Queensland exposure. Nevertheless, Goldman Sachs believes, for Suncorp the impact will be less than 2011 because the capital, Brisbane, was greatly affected back then. Suncorp's worst case net cost is $250 million and while this may not be reached the broker expects the large claims will come in over budget in the second half, countering a benign first half. Deutsche Bank concurs, noting 22% of Suncorp's gross written premium comes from Queensland.

On FNArena's database Suncorp has five Buy ratings, although many of these have not been re-evaluated since the flood. Nevertheless, BA-ML, which has re-visited the stock, has retained a Buy rating and confirmed Suncorp as its number one pick in the insurance sector, believing there is more upside due. BA-ML raised the price target to $11.40. The price targets range from $10.11 (JP Morgan) to Citi's $12.20. Macquarie is the one with a Sell rating, having said earlier this month that it needs to see material improvement in the company's performance to change its opinion.

QBE's maximum event retention is $200m but Goldman considers it unlikely that figure will be reached and QBE is well able to absorb the costs in its global budget for losses. Deutsche Bank sees QBE's Queensland exposure as entailing just 3-4% of gross written premium. QBE has six Hold

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