Reinsurance News

Suncorp states that bushfire losses could hit its reinsurance as claims soar

9th January 2020 - Author: Luke Gallin

Suncorp Group has announced that it has received more than 2,600 bushfire-related claims since September 2019 with a total estimated cost of up to AUD 345 million (USD 237 million), and has noted that losses from the event could trigger its reinsurance protection.

suncorp-logoThe large Australian primary insurer is the latest to provide an update on losses from the ongoing bushfires impacting parts of Australia, stating that so far, it expects to incur losses of between AUD 315 million (USD 216 million) and AUD 345 million (USD 237 million).

The latest figures from the Insurance Council of Australia (ICA) put the market loss from the bushfires at AUD 700 million as of January 7th, but this number is expected to rise in the coming days and weeks as more claims filter through and the full extent of the damage is understood.

Recently, Australian insurer IAG said that it had called on its aggregate reinsurance protection as a result of the ongoing wildfires, and should the claims rise as expected, it might well be the same story for Suncorp.

Commenting on the bushfires and the firm’s commitment to supporting its customers, Suncorp’s Chief Executive Officer (CEO), Steve Johnston, said: “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.

“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.”

Exactly how high the ultimate re/insurance industry loss is from the ongoing bushfires will determine how much, if any at all, of its reinsurance programme Suncorp leverages as a result of the catastrophe.

The insurer states that in the six-month period to December 31st, 2019 it recorded seven natural catastrophe events greater than AUD 10 million, and attritional claims of AUD 159 million.

Of this attritional claims figure, AUD 26 million relates to bushfire claims which Suncorp says were incurred outside of the three designated bushfire events. Overall, Suncorp’s total natural hazard costs for the six-month period hit AUD 519 million, which it says is AUD 109 million above its 1H20 natural hazard allowance. In addition to this, warns Suncorp, costs for claims incurred between the 1st and 5th of January, 2020 are already estimated at between AUD 75 million and AUD 105 million.

Last year, catastrophe losses from the flooding in the city of Townsville, Queensland triggered the insurer’s Natural Hazards Aggregate Protection (NHAP) reinsurance programme, leading the firm to purchase additional stop loss cover.

The firm’s CEO has highlighted that it has a broad reinsurance program with enhanced nat cat cover for the FY2020.

“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 dropdown,” said Johnston.

  • 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.

The insurer adds that to the extent to which the deductibles on the dropdown cover will be eroded following these events depends on the ultimate cost of the 30 December 2019 to 5th January 2020 Vic/NSW/Tas bushfire event, which continues to develop. At the same time, Suncorp states that the maximum net exposure to the Vic/NSW/Tas bushfire event including claims after December 31st 2019, will be AUD 250 million.

The firm also has natural hazard aggregate protection cover in place for 2020, which provides it with AUD 300 million of protection for events greater than AUD 10 million after aggregate costs have reached AUD 515 million.

So far, adds Suncorp, events to the end of December 2019 have eroded AUD 360 million of this AUD 515 million deductible. And, once the costs are factored in associated with the Vic/NSW/Tas bushfires since Jan 1st 2020, the erosion of this deductible is now between AUD 435 million and AUD 465 million, excluding any reinsurance recoveries from its dropdown cover.

The primary insurer also notes the purchase of some aggregate stop loss protection designed to limit its natural hazard exposure to the AUD 820 million natural hazard allowance. This slice of protection provides the firm with an additional AUD 200 million of cover for all retained nat cat losses, and not just ones above AUD 10 million, in excess of the natural hazards allowance of AUD 820 million. Suncorp notes that events to December 31st 2019, eroded AUD 519 million of this deductible.

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