Australian primary insurance giant Suncorp reported its fiscal year 2022 results to June 30th this morning, revealing that its natural hazard losses ran above budget during the year, resulting in “significant recoveries” from its reinsurance.
In fact, revenues from reinsurance and other recoveries for its Australian insurance business was reported to have reached AU $2.26 billion for the fiscal year, 170% up on the prior year’s AU $837 million.
The majority of those recoveries came during the first-half of the 2022 calendar year, after Suncorp’s reinsurance towers all began to pay out, delivering benefits from its aggregate reinsurance and per-occurrence protection.
Precisely how much of the figure is related to catastrophe and severe weather losses during the period is hard to derive, given the figure of reinsurance and other recoveries also includes prior year development and perhaps some other inputs, we understand.
But clearly Suncorp’s reinsurance has proved incredibly important for the insurer in the last financial year of record, helping to offset the severe losses it has faced.
Suncorp’s group net profit after tax dropped 34.1% to $681 million for the 2022 fiscal year.
“The prevailing La Niña weather pattern across Australia and New Zealand led to 35 separate weather events and around 130,000 natural hazard claims,” the insurer explained.
Natural hazard costs reached AU $1.08 billion for the year, up on the prior year’s $1.01 billion, Suncorp said.
Adding that, “This resulted in the Group exceeding its natural hazard allowance by $101 million, with significant recoveries made under the Group’s reinsurance program.”
Suncorp reported 35 natural hazard loss events that cost it more than AU $5 million during the fiscal year, but because of its reinsurance program structure events from late February 2022 onwards saw their losses capped at that amount, as the aggregate reinsurance kicked in.
This has meant that Suncorp only suffered a $5 million loss for the severe flooding and storms in March this year, a significant event that would have had a particularly high cost for the company, if its reinsurance wasn’t available.
Suncorp had already topped up its aggregate reinsurance earlier this year, which provided additional cover.
The company then said in March that the March floods and storms would be counted as four events for reinsurance purposes and that it expected to trigger its aggregate catastrophe reinsurance, its drop-down protection and its main catastrophe excess-of-loss tower.
It seems, given the size of the recoveries made in the last year, that Suncorp likely tapped all of those reinsurance arrangements after the floods in March.
Suncorp has boosted its natural hazards allowance to $1.16 billion for the next calendar year, up from the $980 million it had been set at and easily exceeded in 2022.
When renewing its reinsurance the company has lifted its aggregate reinsurance attachment point, likely in response to higher pricing and demands from reinsurers, having tapped it for recoveries in recent years.
Suncorp Group CEO Steve Johnston commented, “First and foremost, we have thrown our full support behind our customers, many of whom have been displaced by the far-reaching impacts of the La Niña weather pattern.
“At the same time, we have maintained our focus on executing our strategic initiatives and this has allowed us to offset increasing inflationary pressures, particularly in home and motor vehicle repairs.
“A highlight of this result is the GWP growth that has been delivered and the increased underlying ITR, which demonstrates that we can meet the needs of customers and make good progress against our strategic initiatives.
“We are proud of what we have delivered this year and the hard work we have done over the past three years means we are able to reaffirm our FY23 targets.”