Suncorp reveals bushfire losses, drop-down & aggregate reinsurance at-risk

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Australian primary insurance giant Suncorp is the latest to provide an update on its losses from the ongoing bushfire disaster in the country, saying that it currently counts losses of up to $345 million but notes that it has drop-down and aggregate reinsurance that could come into play.

suncorp-logoMarket losses from the Australian bushfires reached A$700 million as of January 7th, with that figure expected to increase, perhaps significantly, in the coming days.

Fellow Australian primary insurance giant IAG had already reported that the ongoing bushfires in Australia triggered its aggregate reinsurance protection.

Now, Suncorp has warned that specific drop-down aggregate reinsurance protection and its catastrophe aggregate program could face losses if claims from the bushfires continue to rise significantly for it.

The insurer has so far received more than 2,600 bushfire-related claims since September 2019, which it estimates will cost it between $315 million and 345 million.

Suncorp Group CEO Steve Johnston said his company is responding to customer needs at a difficult time, “Having visited some of the communities affected by these fires, it is difficult to describe the extent and indiscriminate nature of the damage that has been caused and how deeply traumatic and dangerous they have been for families, communities and emergency services personnel,” he said.

“Over the past decade, Suncorp has responded to numerous major natural disasters, including bushfires, hailstorms, cyclones, flooding and earthquakes. In each case our focus and commitment has been to rebuild and help customers’ lives return to normal.

“We fully recognise that these bushfires are particularly significant in terms of their duration; the geographic breadth of the fire zones; the sheer destruction of property; and the associated impacts on people’s lives, as well as local communities and economies.

“This recovery is going to take a long time – as one of Australia’s largest insurers we understand the role we need to play in that process. We are committed to continuing to do everything possible to help people and communities get back on their feet. ”

Suncorp updated on its natural hazards budget, which is all-important when it comes to identifying how much of its reinsurance arrangements could be called on to support claims from the current bushfire events.

The insurer said that in the six months to December 31st 2019 it experienced seven natural hazard events that caused losses of greater than $10 million and attritional claims of $159 million.

The company said that the attritional claims number includes another $26 million of bushfire claims incurred outside of the three designated bushfire events, detailed below.

Suncorp’s total natural hazard costs for the six-months reached $519 million, $109 million above its natural hazard allowance for the period. On top of this, costs for claims incurred in the 1–5 January 2020 period are pegged at another $75–$105 million.

Date Event Net costs $m
Nov-19 NSW/Qld Bushfires 35
Nov-19 South East Qld Hail 88
Nov-19 Northern Sydney Storms 22
Nov-19 NZ Canterbury Storms 18
Dec 19 South East Qld /Northern NSW Hail 18
Dec-19 NSW/SA Bushfires (15 to 21 December) 34
Dec-19 Vic/NSW/Tas Bushfires (30 to 31 December) 145
Total events over $10m as at 31 December 2019 360
Bushfire attritional claims 26
Other natural hazard attritional claims Aust & NZ 133
Total natural hazards as at 31 December 2019 519
Jan-20       Vic/NSW/Tas Bushfires (1-5 Jan) 75-105

Suncorp noted its “enhanced natural hazard” reinsurance protection that is in place for the current financial year, having lifted its arrangements last year.

Johnston explained, “Suncorp has significantly increased its reinsurance protection in FY20 providing strong additional cover to limit the impact of further natural hazard costs for the remainder of FY20. This is important given the severe threat of bushfires is ongoing.

”In addition to the main catastrophe program, Suncorp has additional dropdown aggregate protection in the form of three dropdowns.”

  • Dropdown 1: (50m xs 200m xs 50m) provides $50 million of cover, for events greater than $200 million once the cumulative impact of qualifying events reaches $50 million
  • Dropdown 2: (100m xs 150m xs 200m) provides $100 million of cover, for events greater than $150 million once the cumulative impact of qualifying events reaches $200 million
  • Dropdown 3: (100m xs 50m xs 200m) provides $100 million of cover, for events greater than $50 million once the cumulative impact of qualifying events reaches $200 million.

How much of the deductibles for these drop-down reinsurance contracts will ultimately be eroded depends on the final loss tally from the 30 December 2019 to 5 January 2020 Vic/NSW/Tas bushfire event, the company said.

In addition, it disclosed that whatever happens the maximum net exposure to the Vic/NSW/Tas bushfire event including claims after 31 December 2019 will be $250 million, after reinsurance kicks in.

Suncorp’s Natural Hazard Aggregate Protection also provides $300 million of protection for loss events of over $10 million, after the aggregate losses have reached a deductible of $515 million.

Up to 31 December 2019, loss events had eroded $360 million of this deductible, but including losses from the Vic/NSW/Tas bushfire event since 1 January 2020 the deductible is now eroded between $435 and $465 million, excluding any potential reinsurance recoveries under Suncorp’s dropdown program.

Suncorp has also an Aggregate Stop Loss protection it purchased this year, which aims to limit natural hazards exposure to the $820 million natural hazard allowance.

The stop loss reinsurance provides an extra $200 million of cover for all retained natural hazard losses, not just those greater than $10 million, above the natural hazards allowance of $820 million. Events to 31st December 2019 eroded $519 million of this deductible.

So the ongoing bushfires could push Suncorp to also claim on its reinsurance protection, if the claims soar as many predict they will.

With the bushfire weather having become a little less dangerous in recent days, the insurers in the country will be hoping fire fighting can make headway in terms of controlling the blazes before the next hot and dry period begins.

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