Suncorp: AUD$1.55Bn industry loss from recent severe weather

Australian primary insurance group Suncorp expects severe weather and catastrophe events of the last two months to cause an industry loss of around AUD$1.55 billion, resulting in Australian insurers calling on their catastrophe reinsurance programmes.

Insured losses have been rising steadily from a number of recent events, including the April severe low pressure storm in New South Wales, the ANZAC day hail storm in Sydney and another severe storm that struck in Brisbane in early May.

Suncorp’s CFO Steve Johnston told analysts at a recent conference that the insurance industry losses from these three recent events was set to hit AUD$1.55 billion, while the gross insured loss cost to Suncorp itself was likely to reach AUD$400m and the firm would be calling on its reinsurance to help pay for the losses.

The AUD$1.55 billion figure is Suncorp’s estimate for the insured losses that the industry will face from just three recent events in Australia.

These losses follow another AUD$500m from Cyclone Marcia in February and an estimated AUD$1.4 billion from hailstorms in Brisbane in November 2014, giving a total in the current catastrophe year of AUD$3.45 billion in loss to be borne by insurers in Australia and their reinsurance capital providers.

Suncorp’s own losses just from these three events are now approaching the AUD$1 billion level and the insurer expects to claim on its reinsurance coverage, with severe weather catastrophe events having eaten into its first event protection and now also into its sideways aggregate coverage. In total since its last reinsurance renewal Suncorp estimates a gross loss impact from weather events of $1.283 billion.

Johnston said that 2015 looks like the “worst year for medium-sized weather events in recent history” and that he expects the industry-wide impact of multi-billion dollar losses will result in “a stabilisation in some of the more aggressive pricing activities.”

Looking to its reinsurance programme renewal, which is due at the July 1st renewal period, Suncorp’s CFO said that he expects favourable conditions will persist, as despite the large amount of catastrophe losses it is unlikely have much impact on reinsurers.

It’s still difficult to know whether the losses from these recent events will seep into any insurance-linked securities (ILS) funds. With ILS fund managers participating in some of the larger Australian reinsurance programmes on a collateralized basis, or through fronting reinsurers, the potential for some impact is real.

Some ILS fund managers that have participated in Australian insurer reinsurance layers may reserve for the combined impact of these weather events, as the way the industry loss has crept up suggests further deterioration is possible.

Severe weather events in Australia have a habit of becoming much larger industry loss events than first anticipated. The sudden and catastrophic nature of weather in the country can cause significant losses very quickly and recent events will once again demonstrate the importance of reinsurance in this region.

Also read:

– Reinsurance mitigates recent catastrophe losses for Australian insurers.