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Suncorp says “unprecedented” catastrophes will drive reinsurance recoveries


Australian primary insurance giant Suncorp has referred to an “unprecedented” start to the season for catastrophe losses this morning, saying that it now expects to make recoveries across its reinsurance program, including its main program, drop-downs and aggregate reinsurance including perhaps its stop-loss.

suncorp-logoSuncorp had already warned earlier this month that its rising losses from the Australian bushfire disasters had the potential to trigger its drop-down and aggregate reinsurance layers of its program.

At that stage Suncorp had estimated its losses from all bushfire events of the year at up to A$345 million, also putting the most severe and recent event since November that affected Victoria, New South Wales and Tasmania at $145 million.

The company has now added a further $75-105 million to its estimated claims from that bushfire outbreak, adding losses recognised so far this calendar year, taking the total estimated gross loss from the event to between $220-250 million.

In addition, since the start of 2020, Suncorp is also facing losses from a severe rainfall event in South East Queensland and New South Wales from 17th to 18th January and of course the much publicised severe storm and large hail event that struck southeaster Australia from 19th to 20th of January.

These three events look set to take Suncorp into its reinsurance provisions, as the company said that its costs from those three will be limited to $300 million thanks to protections from its main catastrophe program, recoveries made under its the drop-down reinsurance and recoveries from its Natural Hazard Aggregate Protection (NHAP).

Suncorp Group CEO Steve Johnston stated this morning, “This has been an unprecedented start to the bushfire and storm season in Australia.”

As of 28th January, Suncorp said more than 25,000 claims have been received in relation to the severe hailstorms and over 1,400 claims in relation to the heavy rain event, both of which figures are expected to keep rising.

With some $519 million of catastrophe losses already reported for the first half of the current financial year, which rusn mid-year to mid-year for Australian primary carriers, Suncorp expects the claims from catastrophes suffered in calendar year 2020 so far will be capped at $300 million by its reinsurance.

Suncorp said that it expects its reinsurance protection will help it stay within its natural catastrophe budget of $820 million for the full financial year. But with that allowance now used up it seems reinsurers could be on the hook for any further events that strike over the course of the final half of its financial year, as well as rising claims from the recent storms and the bushfires.

The insurer said that for the catastrophe losses to-date in its financial year it expects losses fully erode the $515 million deductible of its aggregate catastrophe reinsurance and that it expects to begin making recoveries under the program.

After the deductible is eroded, the aggregate program provides $300 million of protection for events greater than $10 million, with some additional premium payable proportionate to the first $100 million of recoveries, but capped at $35 million.

Suncorp purchased a stop-loss for the aggregate reinsurance, which it seems there is every chance it could now bump up against as claims from these events mount.

This provides an additional $200 million of reinsurance protection for all retained natural hazard losses, once the allowance of $820 million is reached, which appears to be where the company currently sits.

Full details of how the reinsurance program reacts to these rising catastrophe loss costs is expected to be released by Suncorp when its results are reported.

The costly and devastating recent catastrophes in Australia look set to create a rising toll for the reinsurance players operating there, which could include some ILS fund participation in the programs of major carriers such as Suncorp, as well as some losses flowing through quota share arrangements.

Suncorp is not the only one, as IAG has also revealed a rising cost and expectation of more reinsurance recoveries to support its claims from the bushfires and recent hailstorms.

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