News Reinsurance09 Jul 2024

Australia/New Zealand:Suncorp announces FY25 reinsurance programme

| 09 Jul 2024

Brisbane-headquartered Suncorp has announced that it has completed a successful placement of its reinsurance programme for the financial year ending 30 June 2025 (FY25).

FY25 reinsurance programme structure

Suncorp is maintaining its maximum event retention of A$350m ($236m) for a first large event and A$250m for a second large event, the company says in a stock market statement. The main catastrophe programme covers the home, motor and commercial property portfolios across Australia and New Zealand.

The cover provides protection for losses between A$350m and A$6.75bn. This is an increase over FY24’s A$6.40bn. It includes one full prepaid reinstatement. At A$6.75bn, the FY25 limit exceeds Australia and New Zealand regulatory requirements.

In line with last year, Group dropdown covers have also been purchased that reduce the second, third, and fourth event retention to A$250m, and the Australian dropdown programme continues to reduce retention for a third and fourth event in Australia to A$150m.

Suncorp Group CEO Steve Johnston said the programme aims to achieve an optimal balance between costs, earnings and capital volatility and appropriate returns.

It is pleasing to see stability return to global reinsurance markets after three years of disruption. Reinsurance is a major input cost to the price of insurance products and this, along with broader economy-wide inflation, has driven up the cost of insurance premiums for customers in Australia and New Zealand. With the completion of the Bank sale scheduled for 31 July and the reinsurance programme successfully renewed, we will now be in a position to consider other reinsurance covers that may be appropriate,” Mr Johnston said.

Cyclone Reinsurance Pool

Following a comprehensive review and the implementation of the Federal Government’s Cyclone Reinsurance Pool (CRP), Suncorp has decided not to renew its quota share agreement relating to the Queensland home portfolio. In addition to the CRP, improved risk selection and pricing have added resilience across the portfolio.

New Zealand

In New Zealand, buydown cover (including a prepaid reinstatement) has been 100% placed to provide cover between NZ$200m ($123m) and the Group’s maximum event retention. In FY24 the buydowns were only 52% placed with an attachment point of NZD$100m. The increase in retention reflects the continued impacts of the weather events in early calendar year 2023 on the economics and availability of reinsurance cover in the New Zealand market.

Impact of FY25 reinsurance renewal

The cost of the FY25 catastrophe reinsurance programme is expected to be broadly in line with FY24, reflecting changes to the structure of the programme, including the removal of the Queensland quota share, and increased exposure from growth in the portfolio, largely offset by improved reinsurance market conditions.

The natural hazard allowance for FY25 is expected to increase to A$1.565bn (FY24: A$1.36bn). This reflects unit growth, continued inflationary pressures across the insurance industry, and increased risk retention resulting from the changes to the structure of the reinsurance programme.

Suncorp continues to reflect input costs, including the costs of placing its reinsurance programme and the natural hazards allowance, into the pricing of its insurance policies, with a view to maintaining its underlying insurance margin within a 10% to 12% range.

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