insurance tragicomedy continues to run

The Financial Services Royal Commission has put out a discussion paper with a request for information: Natural Disaster Insurance. This includes some discussion of insurance in Northern Australia.

While the Royal Commission is certain to provide better theatre it is the ACCC inquiry which remains the most promising. The ACCC has also recently published an update report following public submissions. The list of public submissions received is rather long. Mostly more anecdotal ‘war stories’ with limited substantive contribution.

There are a couple of items of interest on a quick first perusal of the ACCC update:

ACCC preliminary 2ACCC preliminary 1

First. The order in both does actually represent relative cyclone risk despite common misconceptions and media misrepresentations in FNQ. It is North West highest, then Queensland, then NT. Could be better represented on a log scale though.

The question a financial and economic wonk wants answered though is why these were so significantly different between houses and strata properties? There are differences between these classes of insurance but they are unrelated to geographic risk.

The big Australian insurers (IAG and Suncorp) report these classes separately in their results. Strata is in commercial distributed through brokers. House and contents is its own division. I wonder how many unit owners are aware that it is the body corporate managers who take the biggest slice of the 20% commission (typically 15% for large body corporate managers) and not the broker?

The relative geographic difference here in premiums between the classes has changed quite significantly since the previous reports by the Australian Government Actuary.

I have tried to aggregate links to the trail of successive inquiries at Insurance.


Not this year, next year

Noted at Brisbane apartment slump over with values set to rise

This latest CoreLogic-Moody’s Analytics Australian Home Value Index Forecast is available from CoreLogic at a bargain price of just $1,500. However a cropped snippet of Table 4 has thoughtfully been posted at the above link which includes Cairns.

Corelogic Forecast Index

Not this year Rick, next year: “if it doesn’t happen in 2018, it never will”

Disclaimer: The linked post doesn’t specify whether these are calendar years or financial years.

May is a boring month …. or maybe not.

Cairns Airport have posted numbers for May this morning. May is typically a quiet uneventful period anyway. This year it is the first month not under the influence of some unmonthly lunar event. If only the Chinese had adopted a civilised western calendar like we did with Easter.

Results: Domestic +2.2%; International -0.9%; Total +1.8% (ex transits & transfers).

How does that look in growth terms which is what matters:

Airport May

A three (3) month moving average returns to negative for the first time since 2011. It would be unfair to draw too much attention to this given volatility of previous months and whether it is plus or minus 0.2% is neither here nor there.

Commentary from the Airport was more limited than for some time. It must have been a boring month.

Coincidentally Sydney Airport also posted May stats to ASX today with domestic +1.1%; International +5.6%; Total +2.6%.


Gaming data conundrums

I have no idea what I’m trying to do with the monthly Queensland EGM (pokie) data. Maybe it’s just that it continues to throw up interesting stats.

Gaming May 2018 1Gaming May 2018 2

Interesting convergence there. Also interesting is this:

Gaming May 2018 3

Yes. In less than four (4) years the number of pokies in Queensland which are approved but not operational has grown from 3.9% of approved to 7.1% of approved numbers. The Queensland Government has a policy of capping approved pokie numbers.

Meanwhile the win/machine has escalated in hotels relative to clubs to compensate:

Gaming May 2018 4

Oops. Series 1 is pubs. Series 2 is clubs.

Anyway. This can be controversial as a social issue and was significant in the recent Tasmanian election. There was a paper last year from Prof John Mangan from UQ on this: Removing poker machines from hotels and clubs in Tasmania: Economic considerations

The particular circumstances of Tasmania can’t necessarily be translated to Queensland.

if it doesn’t happen in 2018, it never will

Beyond HTW CairnsWatch there is also a regular monthly publication from HTW covering national markets. Cairns commentary from most recent report today:

2018 thus far has proved to be a stodgy year for the Cairns property market. Residential property demand has remained constant, prices have remained flat and the market has remained stuck in a steady state position.
The latest trended median price readings in Cairns for sales during April 2018 stood at $405,000 for houses and $209,000 for units. Technically, these represent price changes during the past twelve months of -2.4% for houses and -5.5% for units.
Our own in-market assessment is that individual property value movements over the past 12 months have been varied by no more than plus or minus 5%. The upshot is that even though solid fundamentals are in place with low rental vacancy rates, no obvious oversupply in any market sector and continued economic improvement, the Cairns property market is still being hampered by a lack of confidence and a constrained fiscal environment.
We have been on record expecting demand for most residential property to revitalise during 2018 as a result of ongoing economic improvement. Sales volumes have been expected to come back to a slow but steady increase and flow through to modestly rising prices. So far it hasn’t happened. What’s more, if it doesn’t happen in 2018, it never will.

Rick is known as a perennial optimist and also for his sense of humour so who knows.

Source: HTW Month in Review

Debbie destroys data

BITRE have now updated airport numbers to March which provides a better indication of the combined impacts of an earlier Easter and last year’s Cyclone Debbie.

BITRE 0318_1

Debbie made landfall in the Whitsundays on March 28 2017. As a consequence Hamilton Island has now been removed from the top 20 summary to be replaced by Proserpine. This is unlikely to be sustained. It also results in some big monthly growth numbers for Mackay and Townsville compared to last year.

The earlier Easter looks to have bumped up the national March numbers around 2-3%. A comparison of annual top 20 growth performance (ex Proserpine):

BITRE 0318_2

Meanwhile Cairns has reverted below the mean:

BITRE 0318_3

The largest airports at Sydney and Melbourne above the national average is a consequence of their position as the largest international gateways:

BITRE 0318_4

Worth a look at the recent March quarter commentary from Qantas.

Group Domestic Unit Revenue increased by 8.0 per cent compared to the prior corresponding period. This reflects strong demand across key markets, including continued recovery of the resources sector and gains within the small-to-medium enterprise segment. The timing of Easter, which fell partly in the third quarter in FY18 compared with the fourth quarter of FY17, also increased demand for leisure travel compared with the prior corresponding period. Group Domestic capacity decreased by 1.9 per cent.

Guess Alan Joyce could enjoy another adequate bonus this year.

Source: BITRE (BITRE data is revenue passengers on scheduled flights so will vary slightly from that posted by Cairns Airport)

Hotel Futures 2018 Report

Dransfield last month released their Hotel Futures 2018. A point of interest in there is that ABS has discontinued the Tourist Accommodation series as at FY2016. This was previously an input to the Hotel Futures report. Anyway with funding from Austrade (which is where Tourism Research Australia resides) a replacement Australian Accommodation Monitor series has apparently been outsourced to STR which is to be published later this year.

In the meantime STR have provided data to Dransfield for their report which comes with multiple disclaimers that any republication or re-use of any STR data is naughty. There is useful analysis by Dransfield of differences between the ABS and STR sample. It is pointed out that STR don’t have the ability to compel information providers as the ABS does.

In most cases the STR sample has a higher room rate than the census as it represents the larger, more professional establishments in the relevant geography. In many cases these also have higher occupancy. From the perspective of the majority of readers of Hotel Futures, we think this STR data is more relevant because it is more representative of the investment class hotel assets that our readership is interested in.

Anyway there is good general commentary and analysis of what this all means for Cairns and Port Douglas in the report so will restrict this post to the city outlook summary:

Material development activity is planned, although focussed on Cairns. It is expected to be absorbed despite a minor downgrade in the demand growth outlook. Long term RevPAR expectations are for 3.4% growth p.a., an upgrade on prior expectations driven by short term outperformance.

The long term RevPAR forecast there to FY2026 comes in just below the national forecast for Australia at 4% growth. We will await the Australian Accommodation Monitor from Austrade TRA.

Turbulence at Airport

The seasonally volatile period continues at the airport with rather a rough April impacted by shifts in Easter and Cyclone Debbie the previous year.

2017 had the highest April passenger number on record due to the timing of Easter and impacts from Cyclone Debbie which crossed the Queensland coast on 28 March 2017. Easter fell on 1 April this year rather than 16 April in 2017, which shifted passengers from April into March. April 2017 passenger numbers were increased by people travelling to Cairns instead of areas in central Queensland that had been affected by Cyclone Debbie.

It’s certainly to be hoped this explains the decline with domestic down 4.9% and international down 4.2% on last year. You would have to go back to the GFC aftermath years to find a previous domestic monthly decline that size.

Airport April 2Airport April 1

Difficult to determine the impact of these seasonal events from commentary provided. BITRE comparative national airport and route data is currently only updated to February. ASX listed Sydney Airport has updated April stats and actually recorded domestic growth above their annual number.

Sydney Airport CEO Geoff Culbert said, “Passenger numbers have strengthened at Sydney Airport increasing 2.6% in the month of April over the prior corresponding period (pcp). International traffic grew 1.8% in April, with increased capacity of 6.5% being offset by lower load factors. Load factors were impacted by the earlier Easter holiday period for 2018 compared to 2017, resulting in a very strong comparative period.
“Domestic growth was a robust 3.1% for April compared to the pcp, driven by a 0.6 percentage point improvement in load factors and a 2.3% increase in capacity.”

Hopefully a less eventful period ahead will provide a better indicator of underlying trends.

Source: Cairns Airport