Australian insurer Suncorp expects that any losses it faces from claims due to the approaching cyclone Debbie, which is anticipated to strike Australia as a Category 4 storm, will cause it to call on its AUS$300 million (US$230mn) aggregate reinsurance layer.
Earlier this year Suncorp said that it was eating through its retention layer or deductible that sits beneath its aggregate reinsurance programme, with AUS$232 million (US$180mn) of the AUS$460 million (US$355mn) eroded by the end of 2016.
Now, Suncorp has revealed that it has eroded all of that retention layer, saying today that while it remains well protected for any losses caused by cyclone Debbie’s expected impact on Australia’s North Queensland coast, any losses that do occur could now fall to reinsurers participating in its aggregate program as well as to its main catastrophe program.
Cyclone Debbie is expected to make landfall on Tuesday morning local time between Cape Upstart and Cape Hillsborough near the town of Bowen, home to come 9,500 residents. Much larger towns, such as Mackay, will also be affected by cyclone force winds as the storm comes ashore.
Cyclone Debbie is currently a Category 4 storm, with sustained winds of around 105mph, with gusts to 155mph. Some strengthening is expected as Debbie approaches landfall.
Reinsurers are on alert for cyclone Debbie’s impacts and as a result some insurance-linked securities (ILS) and collateralised reinsurance markets will be as well, given their participation in some Australian primary insurers protection programs.
Suncorp itself has a main catastrophe reinsurance program, that provides for protection from $250 million up to $6.9 billion of losses, as well as its Natural Hazard Aggregate Protection that provides $300 million of cover, once the retained portion of events greater than $5 million exceeds the $460 million total.
Suncorp said that as of today, 27th March 2017, it estimates that losses from events greater than $5 million have reached approximately $460 million.
This suggests that the aggregate layer will be hit if Suncorp’s losses from cyclone Debbie surpass $5 million. It also suggests that Suncorp’s aggregate layer reinsurance capital providers will be on the hook for any further major events that occur throughout the year up to its next renewal.
That could cause some participation by ILS funds to come into play, as the aggregate layer shares in Suncorp’s losses from cyclone Debbie and any future events through the rest of the risk period.
No announcement has been made by IAG, the other large reinsurer in the region, but we’d anticipate they too will likely be calling on their reinsurance cover if cyclone Debbie causes a reasonably large loss.
With both of these major Australian insurers utilising their reinsurance support, the chances of the ILS funds and collateralised reinsurance market taking a share throughout the remainder of their fiscal years is likely rising all the time.