Losses from natural disasters in Australia and the Christchurch earthquake will top $11 billion for insurers regulated by the Australian Prudential and Regulation Authority (APRA).

APRA Chairman John Laker told the Senate Standing Committee on Economics last week that a large proportion of the losses would be borne by reinsurers and, “we are beginning to see signs of higher reinsurance costs being passed on to insurers and some changes in the structure of reinsurance programs, including increased retention of risk by the insurers themselves”.

Dr Laker says Australian insured losses are estimated at $5.3 billion, comprising $2.8 billion from the Brisbane flooding, slightly less than $1 billion for flooding elsewhere in Queensland, $1.1 billion from Cyclone Yasi, around $500 million from the Victorian floods and $35 million for the Perth bushfires.

He says reinsurance recoveries are just over $3.4 billion, leaving insurers to bear $1.9 billion.

Dr Laker told the committee that the Christchurch earthquake added to the strain on some Australian insurers, although most of the earthquake cover was provided by non-Australian entities. APRA-regulated insurers expect around $6.3 billion of gross insured claims, of which around $5 billion is reinsured. He says the figure is tentative, as much as the city is still off-limits to assessors.

The Japan earthquake has not raised any immediate concerns for insurers.

“Some low-value incidental property claims are likely, but the larger exposure will be downstream claims from corporate clients related to shortages of parts, the need to find alternative markets and, possibly, trade credit exposures,” Dr Laker said.

“The nature of these claims means that a longer timeframe will be needed before accurate quantification is possible.”

He says reinsurers are raising rates and tightening terms, but there is no sign that they are withdrawing cover from Australian insurers.

APRA remains confident that the local general insurance industry, which holds around $30 billion in shareholders’ equity, will meet all its claims obligations.

The regulator is monitoring the impact of disasters on the authorised deposit-taking institutions that it regulates, such as banks. Dr Laker says the Christchurch earthquake has not had a significant impact on the loan portfolios of Australian companies operating in New Zealand, in part because of the different disaster insurance arrangements there.