Australian primary insurance carrier Suncorp said this morning that its natural catastrophe costs went above budget in the last financial year, but that it only utilised its reinsurance protection on a single event.
The insurer reported that group net profit after tax increased by 13.1% to $1.033 billion for the full financial year to June 30th 2021, with its core Australian insurance division reporting its strongest top-line growth since 2013, as premiums rose 5.5%.
The company cited the La Niña weather pattern as driving a higher number of weather-related catastrophe costs.
This resulted in a higher number of events during the financial year, leading to Suncorp’s natural hazard costs reaching $1.01 billion.
This was above budget by some $60 million, higher than the natural catastrophe allowance of $950 million.
Which implies some support from catastrophe reinsurance, but Suncorp said this morning that this appears to have been relatively minor.
The insurer said that its reinsurance was only used on one event this year, driving the company to retain higher risk margins compared to the previous year.
Group CFO Jeremy Robson commented this morning, “Natural hazard costs for the year exceeded our allowance by $60 million. While disappointing, this is in the context of the La Nina weather pattern, with a significant number of smaller events. Only one event resulted in a modest reinsurance recovery this year.”
He also highlighted the renewal of Suncorp’s reinsurance in July, which we covered in detail previously here.
“We announced in July that we’ve successfully placed our FY22 reinsurance program with the structure unchanged from FY21. The Group’s maximum event retention will remain at $250 million with an upper limit of $6.5 billion. Limits for the dropdown and AXL treaties have also been maintained,” Robson explained.
Adding that, “The natural hazard allowance will increase to $980 million in FY22, reflecting portfolio growth, inflation and a modest strengthening in assumptions, offset by the impact of the exited portfolios.
“We believe the reinsurance program and natural hazard allowance strike the right balance between ROE optimisation, and earnings and capital volatility protection.
“Pleasingly, the cost of reinsurance and the increase in natural hazard allowance for FY22 are in line with the assumptions embedded in our three-year plan.”
Suncorp has been responding to higher catastrophe claims costs and reinsurance pricing by increasing its front-end insurance rates.
In particular, its homeowners products have been repriced upwards, to account for the two negative cost trends.
The relatively minor approximately $32 million reinsurance recovery made during the year from its excess-of-loss tower also had ramifications for Suncorp’s reinsurance renewals, its executives said today.
CFO Robson explained, “Because the recoveries against the reinsurance program are always an important part of that renewal process and as we said this FY21 we only had one relatively small modest recovery against the program which also helped get us to where we need to get to.”