Judging by the relatively muted response from the market to the severe NSW storms over the past week, it can be assumed that investors aren't overly concerned with the expected impact on two of the most exposed insurers to the event, namely Suncorp Group Ltd (ASX: SUN) and Insurance Australia Group Ltd (ASX: IAG).
Over the past five trading sessions Suncorp's share price is down just 1.3% and IAG's share price is off 1.1%. In comparison, the S&P/ASX 200 (Index: ^AXJO) (ASX: XJO) has gained 0.6%.
While it will take time for full details of the claims liability to emerge, shareholders in Suncorp can rest easy with the banking and insurance giant issuing a statement yesterday that the maximum financial impact on the group from the NSW storms is capped at $135 million.
This limited exposure, thanks to a comprehensive reinsurance program, has no doubt quelled investors' fear of a blow out in claims. However, it does need to be kept in context that this $135 million limit reflects the financial impact which both the Brisbane Hailstorm last November and Tropical Cyclone Marcia in February had on Suncorp's total claims exposure.
Meanwhile, shareholders in IAG are still somewhat in the dark as to what to expect. Yesterday, the insurer did release an update which stated that the group had received over 10,000 claims, this figure is higher than the 7,500 claims Suncorp reported to have received. So while it is early days, on first data and intuitively it would appear that IAG may be more exposed to the NSW storm event than Suncorp.
Devil in the detail
Dealing with weather events and claims liabilities is of course the 'bread and butter' of an insurance company. Long-term investors know that the insurance sector, like most other sectors, is cyclical to some degree. This reality means taking a through-the-cycle view of earnings in determining a valuation for an insurance company is a key step, and understanding the details of an insurer's liabilities and reinsurance programs.
Because not all market participants take a long-term perspective, at times this can create appealing buying opportunities – the market has a habit of shooting first and asking questions later. For long-term value hunters on this occasion however, the recent NSW storms don't appear to have created that opportunity.
