Australian primary insurer Suncorp is set to raise its budget for natural catastrophe losses and plans to buy A$200 million more reinsurance cover for the next financial year, while at the same time the insurers’ CEO acknowledged that climate change is driving more frequent losses for the firm.
Suncorp reported that it suffered A$580 million of natural catastrophe insured losses during the first-half of its current financial year, with natural hazard claims coming in A$220 million above its budget of $360 million for the period.
Driving the losses for Suncorp were a A$250 million hit from the severe storms and hail that struck the Sydney and surrounding area of Australia in December 2018, for which the firm has already called on its reinsurance panel for support.
It is the frequency of severe weather and disaster loss events that concerns Suncorp and this has led the insurer to say it would be increasing its budget for natural disaster losses for the next financial year.
The company plans to increase its FY 2020 disaster budget from A$720 million to A$820 million, to allow for the increasing frequency of losses.
In addition, Suncorp said that it will purchase an additional A$200 million of natural perils reinsurance cover that will sit above the allowance to provide additional cover that will work in conjunction with its main catastrophe program and natural hazard aggregate reinsurance program.
Suncorp CEO Michael Cameron told the Sydney Morning Herald that the frequency of disaster losses had increased “incredibly.”
He puts the increase down to climate change related factors, driving more severe weather and resulting in higher losses for his firm.
““The frequency is definitely linked to climate change, as a result of that we’ve spent a lot of time focusing on mitigation and how can get around some of the impacts of these things,” he told the newspaper.
Adding, “As a result of having re-done the exercise, and talking to our reinsurers who also do a lot of work on climate change, there is a very strong argument that says the weather is going to continue to be more volatile.”
Reinsurance provides a vital buffer for Suncorp in protecting the company and its shareholders against the impacts of severe weather and other natural catastrophe loss events.
Following the Sydney hailstorms in December, Suncorp said that it had eroded $415 million of the retention of its catastrophe aggregate reinsurance cover, which provides $300 million of protection for loss events greater than $10 million after aggregate loss costs reach $504 million.
That was up to the end of Suncorp’s first-half of the financial year, at December 31st 2018, but the recent Queensland flooding in the Townsville area have now eroded the rest of the retention.
Suncorp said that the Townsville floods are expected to cost the insurer A$97 million, which would mean a small payout for reinsurance firms and any ILS players backing its natural hazard aggregate program.
Going forwards into 2019, technically the second-half of Suncorp’s financial year, the aggregate reinsurance tower is likely to experience continued losses as further catastrophe events hit the insurer.
The natural hazard aggregate tower provides almost A$300 million of coverage for the rest of its financial year and now the plan to add A$200 million for the next year means reinsurers and participating ILS funds stand to secure larger lines, if they can, but may also be able to secure better pricing after paying some losses for Suncorp.