Suncorp planning for worsening climate, as hailstorms bite: CEO

Australian primary insurer Suncorp is preparing itself for higher losses and more volatile results due to climate change, according to its CEO, as losses from a hailstorm in Victoria in December and other severe weather events reduced its profits for the half-year.

Suncorp’s natural catastrophe losses rose to AU $395 million, $65 million over its budget, with the Victoria hailstorm driving an estimated $167 million of the total.

CEO Michael Cameron said that the natural catastrophe tally was a sign of the worsening of the impacts insurers are feeling due to a changing climate, according to a report.

Discussing the rise in losses due to severe weather, Cameron said that impacts have been “dramatically” higher in the last decade, as a result of climate change and property development trends, both of which are driving Suncorp to try to increase its own resilience to catastrophe and weather loss events.

Reinsurance is a key lever for Suncorp and the insurer expects to make greater use of it to minimise the volatility that severe weather has been creating in insurers results.

Suncorp’s aggregate reinsurance protection, that provides for $300 million of cover above retention for events causing losses of $10 million and greater that excess a total cost of $475 million, has been helping the insurer reduce the volatility caused by severe weather impacts.

The insurer has been passing an increasing amount of losses on to reinsurers in recent years, as have regional counterparts including IAG.

Suncorp is investing in disaster mitigation, which Cameron says is being driven by increased catastrophe and severe weather costs.

Cameron highlighted the last decades disaster costs, saying, “The most staggering thing is over the last 20 years the average looks reasonable, but over the last 10 years, the average is dramatically high. It’s difficult to know with any precision what’s actually causing that in a 10 year period, but it really catches the industry out,” and adding that climate change is a factor.

Suncorp is making plans for things to worsen further, Cameron said, suggesting the insurer expects the higher severe weather losses will continue and even rise.

His comments demonstrate the importance of protection and planning for insurers and reinsurers, with reinsurance and retrocession arrangements designed to remove volatility from results likely to increase in popularity, should impacts from climate risks worsen as Suncorp believes they will.

Opportunities will abound for the structuring of intelligent solutions that can act as volatility buffers for re/insurers, as they get to grips with a new climate reality and the incidence of weather related losses.

Whether a changing climate or changing use and development of land, as well as rapid urbanisation in catastrophe and severe weather exposed areas, this is a new normal that re/insurers have to get used to and reinsurance capital as a lever for protecting profits will only get more important.

It’s clear the insurance-linked securities (ILS) market will have a role to play in providing climate risk and weather solutions, with the appetite of institutional investors for a relatively uncorrelated risk related asset high and expertise in ILS funds suited to creating solutions for climate risk.

If re/insurers are aware of the future volatility they may face, large corporations often aren’t yet and will need educating in the benefits of weather transfer and catastrophe insurance solutions. All of which will mean risk capital, from whatever source, is going to be a vital tool to protect communities against any impacts from climate change.