Australian borrowers hit by bushfires face risk of inadequate insurance coverage

Disruptions on local employment could drive arrears up.

Borrowers affected by the current bushfires in Australia may lead experience debt-serviceability pressures and face heightened risk of inadequate insurance coverage for properties affected by the incidences, reports S&P.

This risk could increase loss-severity risk for loans in residential-mortgage backed securities (RMBS) transactions in bushfire-affected areas, added S&P.

Although most Australian RMBS transactions do not have significant exposure to areas where bushfires have been most severe, arrears are bound to remain high in the near-term, according to S&P credit analyst Erin Kitson.

"Arrears are likely to remain elevated for some time in areas already affected by drought conditions, particularly where agriculture forms a large share of local employment," said Kitson. In particular,

Overall, arrears are forecasted to remain in high levels particularly for transactions with higher exposures to nonmetropolitan areas of New South Wales and Victoria.

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