Australian insurers have been told their reinsurance protection programs will likely become more expensive in the wake of the latest NSW/Queensland flood catastrophe.

AM Best issued the warning in a report issued over the weekend as recovery efforts ramp up in affected communities, with NSW Premier Dominic Perrottet set to announce grants of up to $20,000 each for impacted households who are not insured.

The AM Best report says reinsurers are likely to bear the brunt of claims, which the Insurance Council of Australia estimates is about $2.367 billion from more than 169,000 claims lodged to date.

According to the rating agency, the final insurance bill and the likely medium-term implications for the price and availability of insurance cover will depend on a number of factors.

“But the response of the reinsurance community will be crucial,” AM Best said. “Reinsurers have borne the brunt of recent loss events and will likely do again in this instance.”

The rating agency says Australia has seen an increased frequency of extreme weather events, including in the last few years the 2019 Townsville floods, 2019/20 Black Summer bushfires and January 2020 hailstorms.

It estimates the total insured cost of declared catastrophe events between fiscal years 2019 and 2021 is approximately $11 billion, compared with $4.6 billion for the three previous years.

“Overall, the year-on-year catastrophe experience for Australia is highly volatile,” AM Best said.

“With the increased frequency of flood, cyclone and bushfire events resulting in large insured losses in Australia, AM Best expects to see an increased focus by (re)insurers on understanding, controlling and mitigating climate risk.

“The continued cession of material losses to reinsurers may result in further upward pressure on reinsurance rates and a tightening of terms and conditions in upcoming renewals for direct insurers.”

AM Best says there is likely to be concern among reinsurers over the number of large catastrophe events hitting the market year after year.

“For Australian insurers with significant reliance on reinsurance, reinsurance pricing may have a substantial impact on operating results in future years,” it said.

“Those covering property risks in cat-prone areas such as the North Queensland coast will be most vulnerable to an increase in the cost of purchase.”

Meanwhile the Bureau of Meteorology says in its latest Climate Driver Update that the 2021-22 La Nina event weakened slightly in the tropical Pacific over the past fortnight.

La Nina has been widely blamed for contributing to the severe rain weather conditions that led to the inundation in NSW and Queensland in recent weeks and months.