This is not to say that fire-related claims will not have an impact – they will likely continue to mount, particularly as there seems to be no immediate end in sight to the fires, and profits will probably be dented, but Moody’s predicts that the industry’s fundamentals (strong underwriting performance, high level of reserve adequacy and capital, strong reinsurance protection and so on) are solid enough to mitigate the overall consequences.

However, Moody’s warns, the bushfires do highlight the growing risk that insurers face from environmental disaster, and the industry is going to have to reckon with this going forward.

As of 7 January, according to the Insurance Council of Australia (ICA), 8,985 insurance claims related to bushfires had been reported since September last year. Total insurance losses could potentially reach AU$700 million, and the ICA expects many more claims to come in over the forthcoming weeks.

“Despite the manageable impact for insurers, the catastrophic fires highlight that the P&C insurance industry is at the forefront of environmental risk,” said Frank Mirenzi, Vice-President and Senior Credit Officer at Moody’s. “The industry is exposed to the economic consequences of climate change, primarily through the unpredictable effect of climate change on the frequency and severity of weather-related catastrophic events, such as hurricanes, floods, convective storms, drought and wildfires.”