Australian primary insurer Suncorp has reported a 34% decline in net profit to AUD 681 million for fiscal year 2022, as natural hazard costs exceeded budget in the period by AUD 101 million, leading to significant reinsurance recoveries.
For the fiscal year ended June 30th, 2022, Suncorp has reported total natural hazard costs of AUD 1.08 billion against AUD 1.01 billion in the prior year.
“The prevailing La Niña weather pattern across Australia and New Zealand led to 35 separate weather events and around 130,000 natural hazard claims,” says Suncorp.
In its Australian insurance business alone, Suncorp notes that, overall, revenues from reinsurance and other recoveries hit AUD 2.26 billion for the year, which is up 170% on the AUD 837 million reported for FY21.
With this figure, it’s hard to tell exactly how much is related to catastrophe and severe weather losses, as it likely also includes prior year development and possibly some other inputs, but it shows that the carrier’s reinsurance has played a key role in the face of elevated natural catastrophe losses.
In fact, Suncorp explains in its financial release that as nat cat losses exceeded budget, it led to “significant recoveries made under the Group’s reinsurance program.”
Overall, Suncorp witnessed 35 events over AUD 5 million during the 2022 fiscal year, but its reinsurance program limited retained losses to AUD 5 million after the occurrence of the east coast heavy rain event in February capped losses as the aggregate reinsurance cover came into play.
As a result of the higher cat load and to reflect net exposure growth in the underlying portfolio, Suncorp has opted to restructure its reinsurance use and raise its natural hazard allowance to AUD 1.16 billion, after the AUD 980 million set for the prior year was exceeded.
Changes to its reinsurance program include an increase in the per event retention from AUD 5 million to AUD 10 million and an increase in the aggregate deductible from AUD 650 million to AUD 850 million within its aggregate excess of loss program. Additionally, Suncorp has increased the attachment point of dropdown 3 from AUD 50 million to AUD 100 million with the level of cover reducing to AUD 50 million.
And for the main catastrophe cover, the insurer has increased the top layer by AUD 300 million to AUD 6.8 billion.
Turning back to the firm’s fiscal year 2022 results, and Suncorp notes that alongside the elevated loss experience from catastrophes, volatile investment markets also played a role.
In fact, rapidly rising yields and widening credit spreads drove mark-to-market losses across the company’s AUD 14.9 billion investment portfolios. In total, the net loss from investment market volatility was AUD 190 million, compared with a gain of AUD 453 million a year earlier.
In terms of premiums, Suncorp says that it grew gross written premiums in the second half of the fiscal year across its Australian and New Zealand insurance businesses by 9.9%.
“First and foremost, we have thrown our full support behind our customers, many of whom have been displaced by the far-reaching impacts of the La Niña weather pattern,” said Steve Johnston, Chief Executive Officer (CEO). “At the same time, we have maintained our focus on executing our strategic initiatives and this has allowed us to offset increasing inflationary pressures, particularly in home and motor vehicle repairs.
“A highlight of this result is the GWP growth that has been delivered and the increased underlying ITR, which demonstrates that we can meet the needs of customers and make good progress against our strategic initiatives.
“We are proud of what we have delivered this year and the hard work we have done over the past three years means we are able to reaffirm our FY23 targets.”
