The insurance sector faces an uncertain outlook for investors, according to Melbourne-based fund manager Aviva Investors.

Investment Manager Andrew Hamilton says the threat of more heavy rainfall could lead to more serious flooding, which would further affect insurers’ profits.

“There remains significant uncertainty over the outlook for the insurance sector with the risk of continued heavy rain during the wet season,” he said.

The fund manager is predicting insurers’ profits will come under pressure from paying out on many policies and the increased cost of reinsurance, although it says this will eventually be passed on to consumers.

“Within the sector, Suncorp has the largest market share in Queensland and is likely to be worst affected as it does provide flood insurance under its branded policies,” Mr Hamilton said.

“The cost to Suncorp is estimated to be at least $200 million, at which time its aggregate reinsurance program will be triggered and the remaining cost will be covered by its reinsurers.”

He says the impact on IAG and QBE will be relatively minor, as neither of these companies insure against flood damage in Queensland.

“This lack of cover looks set to become a major ongoing political issue that has the potential to affect the industry’s approach to flood cover in the future.”