Suncorp’s aggregate retention eroded as Australian cat losses escalate

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Australian primary insurance giant Suncorp revealed an estimated $348 million to $408 million of catastrophe losses for the first four months of its financial year, significantly eroding the deductible under its aggregate catastrophe reinsurance program even before the main catastrophe season in Australia begins.

suncorp-logoTypically, the main catastrophe loss activity portion of the year runs through Australia’s summer months, which are only on the verge of beginning, but already Suncorp has given a view of the costly late winter into spring months for the Australian insurance industry.

The recent Queensland hailstorm event is the driver for this update, with Suncorp estimating that it will pay between $180 million and $220 million of claims for the storm that hit in late October and was declared the first catastrophe of the season by the ICA.

Clearly that hailstorm is set to become a significant industry loss event, with potential ramifications for some reinsurance capital providers, especially those taking quota shares of losses from large Australian primary insurers.

Suncorp said that it alone has received 6,400 claims related to the Queensland hailstorm loss event, comprising approximately 3,300 motor claims, 2,800 home claims and 300 commercial claims.

The insurer expects these claims numbers will continue to increase.

Suncorp has a $950 million natural hazards allowance, which is divided equally between the first and second halves of its financial year.

With only four months gone, Suncorp is on-track to exceed budget for the first-half it seems, with potential ramifications for its reinsurance program partners.

Suncorp’s Aggregate Excess of Loss reinsurance cover provides $400 million of protection in excess of a retention of $650 million, after a per-event deductible of $5 million.

All of the events it has reported today have hit that deductible, suggesting the erosion of the retention layer is now well-underway.

In addition, Suncorp has a maximum retention for a single catastrophe event in Australia of $250 million under its main catastrophe reinsurance program.

With this recent hailstorm, should Suncorp’s estimate rise much further, it could hit that level of loss, potentially bringing its main reinsurance into play.

All of which may well heighten the concerns of reinsurance markets over Australian catastrophe activity, as with the storm season only beginning and the bushfire season not even started, at the pace of claims Suncorp has been seeing so far, it is easy to envisage the company exceeding its catastrophe budget and calling on its reinsurers for support throughout the rest of the year.

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