Storms blow Suncorp’s natural hazard allowance

Wild weather in NSW and Queensland blew out Suncorp’s natural hazards costs by up to $250m over the past six months.

IAG estimated December’s NSW hailstorm would cost it $169 million before reinsurance. Source: Twitter

The wild December storms in NSW and Queensland have pushed insurance group Suncorp $250 million over its first-half allowance for natural hazards.

In a statement to the ASX on Thursday, Suncorp said total natural hazard costs had jumped to $600m to $610m in the six months ended December 31, above its allowance for such events of $360 million.

That means natural hazard costs exceed Suncorp’s allocated allowance by $240m to $250m.

The statement cited several events including severe storms at Wide Bay Burnett in October, a NSW severe low in November and in December an east coast low and the NSW and South East Queensland hailstorms.

“Following the significant weather system which resulted in hailstorms across the Sydney, Central Coast and South East Queensland regions in December 2018, Suncorp has received 24,800 claims and expects this number to rise over coming weeks as customers return from holidays,” Suncorp’s statement said.

“Total claims costs are now expected to exceed the maximum first event retention within Suncorp’s reinsurance program, which limits the financial impact of this event to $250 million pre-tax.”

In late December, Suncorp, which operates a stable of insurance brands including AAMI, GIO, bingle, Apia and Shannons, told the market its reinsurance program meant the maximum financial impact of the hailstorms would be $250m.

Suncorp’s latest estimates for natural hazard costs across Australia and New Zealand are subject to final actuarial and audit review.

The company is scheduled to provide a further update on natural hazard costs with its interim results on February 14.

Meanwhile in a separate announcement, rival Insurance Australia Group told the ASX it had bolstered its reinsurance program for catastrophes by $1 billion to $9 billion for 2019. The insurer said that would provide “additional protection” above its expectations on extreme events for the year.

In a statement to the ASX issued on Thursday, IAG said it had finalised its catastrophe reinsurance program for calendar 2019. The program is constructed in a similar way to past years, but with increased gross reinsurance to reflect expectations of more claims across the Tasman, as its insurance business in NZ grows in size.

Reinsurance lets insurance groups like IAG lower their risks and potential exposures by entering into to a payment and policy agreement with a reinsurer.

“Compared to calendar 2018, underlying aggregate exposure is expected to show a modest increase in Australia and growth of approximately 5 per cent in New Zealand,” IAG said.

Listed insurers including IAG are tallying the cost of a mammoth hailstorm in NSW in late December and this year are monitoring heatwave conditions in many states and cyclone risks in north Queensland.

IAG – whose brands include NRMA - said gross reinsurance protection increases to up to $9 billion this year, from $8 billion in 2018.

“Consistent with 2018, the program has been placed to the extent of 67.5 per cent to reflect the cumulative whole-of-account quota share position of 32.5 per cent,” the statement said. “This comprises the original 20 per cent quota share agreement with Berkshire Hathaway, which commenced 1 July 2015, and the combined 12.5 per cent quota share agreements with Munich Re, Swiss Re and Hannover Re which came into force from 1 January 2018.”

The 2019 reinsurance program has two main components. In IAG’s main catastrophe cover for losses up to $9 billion the company retains the first $250 million of each loss ($169 million post-quota share with reinsurers). There are also “three prepaid reinstatements” for a lower layer of the main program.

Prepaid reinstatements are tranches of the cover that allow IAG to reinstate the reinsurance program. That would occur if an extreme weather event or peril puts a large dent in the main catastrophe cover.

“The overall credit quality of the 2019 program is strong, with over 92 per cent placed with entities rated A+ or higher,” IAG said.

“IAG experienced relatively flat reinsurance rates during the renewal process, with the overall expense outcome in line with the associated assumption in its FY19 reported margin guidance.”

In a December, IAG said the NSW hailstorm would cost it $169m before reinsurance kicked in, while rival Suncorp, which operates a stable of insurance brands including AAMI, GIO, bingle, Apia and Shannons, told the market its reinsurance program meant the maximum financial impact would be $250m.