Australian re/insurer QBE has announced that it plans to purchase additional catastrophe reinsurance as part of a new capital plan to withstand the impacts of the coronavirus (COVID-19) pandemic.
In response to the “unprecedented economic and investment market uncertainty” caused by COVID-19, QBE has said that it will pre-emptively lift regulatory capital from 1.6x PCA to 1.9x.
In line with this goal, the company will purchase additional reinsurance to reduce its North American peak peril catastrophe retention to US $150 million from $275 million.
QBE explained that this additional cover will significantly reduce the likelihood of the group materially exceeding its $550 million annual catastrophe allowance.
The North American division currently retains $150 million of the $400 million peak zone retention under QBE’s catastrophe XOL program, with $250 million retained by Equator Re that is protected by a 50% whole account quota share.
The company has already bolstered its catastrophe reinsurance program with additional protection for crop hail exposure, with 90% of this exposure now ceded to reinsurers.
As part of the new capital plan, QBE will also raise around $825 million through a $750 million equity issuance and a share repurchase plan of up to an additional $75 million.
Other initiatives include planned issuance of around $400 million of additional tier 1 capital, and a portfolio transfer with respect to around $300 million of North American excess & surplus lines reserves.
Notably, QBE is the first insurer to publicly announce plans to increase its catastrophe reinsurance spend in response to the COVID-19 crisis.
The move supports the findings of a recent market survey conducted by Reinsurance News and its sister publication, Artemis, in which 30% respondents said that they expect to have an increased appetite for buying reinsurance as a result of the pandemic.
QBE stated that, together, the elements of the new capital plan would position it to “withstand a range of severe economic and investment market downside scenarios while continuing to support customers, business partners, staff, shareholders and the community more broadly.”
CEO Pat Regan added: “Despite the extraordinarily difficult landscape, QBE commenced the year with strong pricing momentum and underlying premium growth.”
“The capital plan we have outlined positions us to navigate this period of extreme uncertainty with demonstrable strength and gives us the flexibility to pursue organic growth opportunities that may arise over the medium term.”
