SUNCORP has been stung by global reinsurers after the Australian underwriter made billions of dollars in claims following a string of deadly disasters since September, ranging from floods to earthquakes.
Suncorp has finally locked in $5.8 billion worth of reinsurance protection for payouts linked to major disasters such as earthquakes, cyclones, storms, floods and bushfires, although its reinsurance premiums are believed to be up as much as 50 per cent.
Unlike in previous years, talks with reinsurers have been dragging on for months with reinsurers demanding hefty price increases to cover billions of dollars in losses.
At one stage, the Suncorp chief executive, Patrick Snowball, labelled the discussions a "Mexican standoff".
Reinsurance is bought from global insurers to protect against large natural catastrophe losses. While it is often the biggest single expense for general insurers, it is crucial for capping the cost of payouts.
A Suncorp spokesman confirmed the reinsurance costs were higher but declined to to be specific, citing the confidential nature of the talks.
However, London-based insurance trade publication Insurance Insider has cited unnamed reinsurance sources as saying reinsurance prices across Suncorp's home, motor and commercial property portfolios have risen as much as 50 per cent.
Suncorp, which operates insurance brands such as AAMI and GIO, had been bracing for a reinsurance pricing shock and had been increasing home and car insurance premiums by 10 per cent and 2.5 per cent respectively.
"The program we have placed for this financial year is broadly similar to last year's in terms of the protection it provides but, as expected, this protection comes at a higher price following a year of earthquakes, cyclones and floods in our region," Mr Snowball said yesterday.
Rival player Insurance Australia Group locked in its annual reinsurance program at the end of December, before the worst of the disasters struck. It is likely to face huge price increases when it is due to renew its contract at the end of the year.
For Suncorp, the latest program has increased protection to $5.8 billion from $5.6 billion last year. Critically, Suncorp has a slightly higher exposure to catastrophe payouts. The insurer will pay the first $250 million when it comes to disaster, up $50 million from last year.
Additional cover has been purchased to reduce the retention for Suncorp's New Zealand risks to $38.5 million, down from $46 million last year.
Suncorp is sticking to its previous forecast of an underlying insurance margin for the 2012 financial year of at least 12 per cent.
Frequently Asked Questions about this Article…
Why have Suncorp reinsurance costs risen and what caused the price hikes?
Suncorp's reinsurance costs rose after the insurer paid billions in claims from a string of natural disasters since September — including floods, earthquakes, cyclones, storms and bushfires. Global reinsurers pushed for hefty price increases to cover those losses, with industry sources saying some reinsurance prices rose by as much as 50%.
How much reinsurance protection has Suncorp secured for the year?
Suncorp has locked in $5.8 billion of reinsurance protection for payouts linked to major disasters, up from $5.6 billion the previous year.
Will higher reinsurance costs affect home and car insurance premiums?
Yes — Suncorp had already been increasing premiums in anticipation of higher reinsurance costs, raising home insurance by about 10% and car insurance by about 2.5%, reflecting the insurer's response to rising reinsurance prices.
What is Suncorp's catastrophe retention (the amount it pays before reinsurance kicks in)?
For this year Suncorp will pay the first $250 million of catastrophe losses itself, which is $50 million higher than last year.
Has Suncorp changed its reinsurance cover for New Zealand risks?
Yes. Suncorp purchased additional cover to reduce the retention on its New Zealand risks to $38.5 million, down from $46 million last year.
How did Suncorp describe its reinsurance negotiations with global reinsurers?
Suncorp's CEO Patrick Snowball described the drawn-out negotiations as a 'Mexican standoff' — talks dragged on for months as reinsurers demanded significant price increases to cover billions in losses.
What impact do these reinsurance developments have on Suncorp's profit outlook and insurance margin?
Despite higher reinsurance costs, Suncorp said the protection purchased is broadly similar to last year’s program and maintained its previous forecast of an underlying insurance margin of at least 12% for the 2012 financial year.
Could rival insurers like Insurance Australia Group (IAG) be affected by rising reinsurance prices?
Yes. The article notes IAG locked in its reinsurance program at the end of December before the worst of the disasters, but it is likely to face significant price increases when it renews its contract at the end of the year.
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