While reinsurance has sheltered insurers from the very worst of Queensland’s floods claims, treaties are now almost certain to rise, according to the world’s largest reinsurer.

Munich Re Australia MD Heinrich Eder says the cost of reinsurance is tied to the frequency and severity of weather events, which since 2008 have cost the industry more than $3.3 billion in Australia so far.

The Queensland floods are forecast to wipe at least $1.2 billion from insurers’ balance sheets, with around 50% of claims calculated.

Widespread flooding throughout Queensland comes less than 12 months after devastating hailstorms struck Perth and Melbourne at a total cost of $2.1 billion to insurers. The February 2009 Victorian bushfires incurred $1.07 billion in insurance claims.

“Reinsurance premiums have to be risk-adequate in the long term to maintain sustainability,” Mr Eder told ABC Radio. “And if you have higher loss costs then, naturally, you have to increase prices over time.”

But Swiss Re Head of Australia and NZ Mark Senkevics says it’s still too early to gauge the real impact of the floods on local insurers’ reinsurance treaties.

“The outcome will vary from client to client and the products they sell,” he told insuranceNEWS.com.au. “It remains to be seen where it all comes out.”

Related factors such as the 1974 Brisbane floods and the part played by the Wivenhoe Dam in the latest Brisbane event “may cause us to look at our flood models”.

Mr Senkevics says reinsurance rates tend to be “specific to geography”, and at present the market has strong capital surpluses and no losses from US hurricanes.

He agrees results from the region over the past year “aren’t looking too good” – the Christchurch earthquake and March hailstorms in Melbourne and Perth were also major reinsurance events – but warns there are many variables.

“While there has been an increase in frequency over the past year, it hasn’t harmed the accounts of insurers too much. That suggests the programs in place are adequate. And that’s what we’re here for – to protect our clients from volatility.”

Suncorp has the greatest exposure to the Queensland floods and carries catastrophe reinsurance of $5.6 billion, including $200 million per event.

Ratings agency Fitch says it’s likely Suncorp’s reinsurers will treat the state’s three floods – Central and North Queensland, the Toowoomba and Lockyer Valley, and Brisbane – as separate events, with each event in excess of $10 million counting towards the group’s aggregate cover, providing $400 million in protection.

Suncorp says its reinsurance program limits the cost of claims to between $70 million and $90 million. It will also incur additional reinsurance costs of around $120 million to reinstate multiple covers for the remainder of the financial year.

“As a consequence of the central and southwest Queensland weather event, as well as other natural hazard events during the course of the first half, the group expects to have eroded between $220 million and $240 million of retained costs under its aggregate reinsurance program,” the company said in a statement.

Fitch estimates any losses IAG incurs between $15 million and $50 million will be covered by its 2010 aggregate policy. Both JP Morgan and Credit Suisse estimate the damage to IAG’s balance sheet will be negligible.