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AS THE country feels its heart in its mouth watching the fallout of the devastating Queensland floods, investors will take a more clinical approach to the disaster on the equities market when it opens today.

After the market closed at a 20-month high on Friday, hedge funds, day traders and others will punt on the impact of the wild weather on tourism, aviation, Queensland coalmines and insurance stocks.

Not surprisingly, the biggest focus is likely to be on insurance stocks, particularly analysing the retention rates that the big three listed companies, IAG, QBE and Suncorp, managed to negotiate with their reinsurers on property catastrophe events.

QBE, IAG and Suncorp will release their profit results between February 20 and 26, with the expectation that they will issue a statement well before then on estimates of likely volumes and claims costs relating to the floods. Suncorp has already arranged a 100-strong team to manage the expected claims influx.

With so many catastrophes hitting the insurance industry between 2009 and 2011, including earthquakes in New Zealand and Japan, floods in Queensland and a superstorm in the United States, reinsurance rates in some areas soared and so did the size of retention rates. A retention rate is the portion of a claim that is paid by the general insurer rather than the reinsurer.

IAG ran the gauntlet and renegotiated its reinsurance policies on December 31. In a statement to the market on January 3, it said it had capped its catastrophe events in 2013 at $150 million. This means it will have to pay out the first $150 million of claims lodged by customers affected by the Queensland floods. After that its reinsurance kicks in and picks up the rest. In 2012 IAG made an insurance profit of $258 million on its Australian operations and a group net profit of $207 million for the full year.

Suncorp also has a big exposure to Queensland and renegotiated its property catastrophe reinsurance program on June 30 last year. The program, largely with Warren Buffett’s Berkshire Hathaway, states that it has a maximum event retention of $250 million, with additional cover purchased to reduce the retention to $200 million for a second Australian event and $50 million for a third and fourth events.

In a statement released to the ASX in July, Suncorp said due to its significant share of the Queensland home insurance market it had entered into a ”30 per cent, multi-year, proportional quota share arrangement” for its portfolio.

But it is far too early for any assessment or likely volume of claim costs.

Queensland Premier Campbell Newman held news conferences on Monday as conditions deteriorated. He said the costs would be ”significant” and described the situation as a ”disaster crisis” as the rising flood waters were expected to sweep houses away in some areas.

Suncorp is believed to be the first of the insurers to get fully mobilised for the event and has already arranged a team numbering as high as 100 to manage the claims influx. A spokeswoman said on Monday the events were not expected to be of the magnitude of the 2011 floods.

The other big listed general insurance company, QBE, has a more complicated reinsurance program, with its retention exposure on catastrophes estimated at $200 million.

But it is worth noting that QBE has a proportionally smaller exposure to Australia and its portfolio is more weighted towards long-tail insurance rather than homes and cars. So far it has received 200 claims and the company’s expectation is that total claims will be less than those recorded in 2011, which totalled $US142 million.

It is just as well, given that QBE left investors stunned in November when it announced a profit downgrade of more than $500 million on market expectations, a downgrade of more than 30 per cent on its forecast insurance margin, a $500 million capital raising and a $1.1 billion run-off on a portfolio of claims in the US.

The tipping point for QBE’s bad news was its exposure to superstorm Sandy, which battered the US and has cost the public and private sector $US28 billion, according to the latest modelling by Aon.

But the latest Queensland floods, just two years after a similar disaster cost the country $6 billion, is a chilling reminder that investing in insurance companies is risky business.

Hurricanes, floods and earthquakes are costly. Hurricane Katrina cost the insurance industry an estimated $US81 billion in 2005, the Japanese earthquake and tsunami is expected to cost more than $250 billion and the Queensland floods of 2011 cost $6 billion and a lot of grief.

This time around the State Emergency Service seems more prepared and more people are insured, so let’s hope this is a far less crippling disaster.