Claims from the hailstorm that battered Sydney before Christmas could eventually be as high as $2 billion and lead to more premium rises, according to an equity analyst.

While the Insurance Council of Australia’s current estimate for the December 20 event stands at $871 million, Scott Olsson from Firetrail Investments believes that figure could more than double as claims continue to roll in.

“Our analysis suggests the cost could eventually reach $1.5-2 billion once all claims are reported and paid, which would make it one of the top five most expensive weather events of the past 30 years and possibly the most damaging hailstorm since the Sydney hailstorm in 1999.”

Mr Olsson believes IAG and Suncorp, with a combined 60-70% share of the NSW home and motor markets, are most exposed and says “at face value such an event could be disastrous for … profits”.

However, he says both insurers have “very strong levels of protection” through reinsurance.

“The net costs of this event are capped at $169 million for IAG and $250 million for Suncorp, despite the gross cost likely being multiples of this amount.”

Reinsurance costs would be expected to increase after such a large event, but Mr Olsson says IAG and Suncorp have a strong track record of negotiating favourable terms.

He attributes this to surplus capacity in global reinsurance markets, IAG’s and Suncorp’s position as two of the largest reinsurance purchasers in the world, and “the attractiveness of Australia as a source of diversification for global reinsurers”.

The number of repairs needed after a significant weather event can strain insurer supply chains, Mr Olsson says.

Following hailstorms, motor repairer capacity typically becomes stretched and costs are pushed higher.

“While any claims blowouts from the hailstorm should be covered by reinsurers, it is inflation in the day-to-day claims over the following six months that can put pressure on IAG and Suncorp,” Mr Olsson said.

He believes the storm could ultimately affect premium rates for home and motor.

“The indirect impacts from higher reinsurance costs and supply chain inflation tend to affect all insurers, which typically drives a pricing response across the industry (albeit sometimes with a lag).

“We believe there is a case for recent price increases to continue or perhaps accelerate.”