Insurers’ profitability will likely take a hit this year amid a rise in claims costs and weak investment returns, according to Moody’s Investors Service.

Heavy storms that struck Brisbane in December and last month’s Cyclone Marcia in central Queensland have pushed up claims costs.

The ratings agency says Suncorp and IAG, the country’s two largest general insurers, reported a 34% rise in natural hazard claims costs in the six months to December 31.

“The thing to look out for is how many more natural hazard events are going to happen this year,” Moody’s VP Frank Mirenzi told insuranceNEWS.com.au.

“We could potentially have another one or two before the end of the financial year.”

Suncorp faced claims costs of $471 million for the six months to December 31, up from $331 million in the corresponding period of 2013, according to Moody’s.

IAG’s claims cost is estimated at $421 million for the half-year, up from $335 million.

The interest rate environment is adding to the misery.

“Low interest rates are not helping insurers’ profitability,” Mr Mirenzi said. Moody’s expects the Reserve Bank to maintain a loose monetary policy for the next year, which means insurers’ investments in interest-bearing securities will face further pressure.

“Despite the relatively stable underlying trend, in the current phase of the cycle the industry is now facing a more challenging environment, which may lead to lower profitability and insurance margins than in the previous two years,” Moody’s says.