Storms erode 55% of Suncorp’s aggregate reinsurance deductible

Australian primary insurance giant Suncorp said today that its catastrophe losses for the first-half of its financial year, to the end of December 2020, reached $516 million, coming in above allowance and eroding the deductible sitting beneath its aggregate reinsurance protection.

At the beginning of November Suncorp had estimated $348 million to $408 million of catastrophe losses for the first four months of its financial year, but that figure kept rising through to the end of the year.

As a result, while the catastrophe and severe storm activity has not yet driven any reinsurance recoveries, Suncorp said that they continue to erode the aggregate deductible on several reinsurance treaties, including its Aggregate Excess of Loss (AXL) treaty.

In fact, the heavy natural catastrophe activity and impacts of storms and hail had by the end of 2020 eroded some $358 million of the $650 million deductible sitting beneath Suncorp’s aggregate reinsurance protection.

So with around 55% of the aggregate retention now eroded by qualifying natural hazard claims, the second-half of Suncorp’s financial year looks like another period when those reinsurance capital providers backing the program will be on-watch for the rising possibility of the aggregate treaty facing some losses.

Jeremy Robson, Group CFO of Suncorp, said this morning that, “As you are aware, our reinsurance protection is more responsive in the second half. There remains significant capacity with all pre-paid dropdown covers remaining fully intact. In addition, the full $400 million of capacity under the new Aggregate Excess of Loss (AXL) also remains available, with just over half of the $650 million deductible eroded as at the end of the first half.”

Suncorp has a strong reinsurance program in place, with its main catastrophe program and aggregate protection, as well as 3 drop-down covers and reinstatements.

The full-year natural hazard allowance is set at $950 million, equally spread across the first and second-half of the year, but being over-budget already suggests a greater chance of the same in Suncorp’s H2, placing the aggregate layer reinsurers on-watch over the coming months.

Suncorp’s quota share reinsurance partners will likely already have been feeling some of the elevated natural hazards claims burden, with that set to continue throughout the second-half.