An estimated A$2.5bn of reinsurance covers saved Australian general insurers from needing to have up to A$70bn of capital to cover the cost of natural disasters and other losses in the last financial year according to a new paper published by the Australian Actuaries Institute.
The 33-page Dialogue Paper Reinsurance Explained: A Pillar of Strength for General Insurers published in September 2025 provides an overview of reinsurance.
Aon’s Reinsurance Solutions chief actuary in Australia and New Zealand and the paper’s author Kate Bible estimates that local general insurers spent A$2.5bn on reinsurance last year to protect their portfolios against natural disasters, which have become more frequent and severe.
She said, “The industry currently holds A$34bn in capital but without reinsurance, general insurers would need to raise an additional A$23bn, if they were to meet minimum capital requirements, or A$70bn, if they were to meet their current capital levels.”
“This capital relief that reinsurance provides insurers, along with the stability of returns to their investors, represents the difference between an insurance market that can serve consumers affordably and one that may become inaccessible to many consumers.”
Climate change, along with increases in densely populated areas and costs to repair and replace buildings is fundamentally restructuring insurance costs. The paper states that during the past 25 years insured losses from natural disasters averaged nearly $100 billion a year, globally. But during that time total accumulated annual losses from ‘secondary perils’ (severe thunderstorms, floods, droughts, wildfires and landslides) have gradually surpassed those from ‘primary perils’ (less frequent natural disasters such as hurricanes and earthquakes).
Australia and New Zealand are home to some of the largest catastrophe reinsurance programmes in the world given their significant exposure to cyclones and earthquakes. However, unlike their global peers, Australian insurers have less choice when it comes to the range of reinsurance products they can use to gain regulatory credit.
The Australian Prudential Regulation Authority in late 2024 began consulting about ways that could provide insurers greater access to the full range of reinsurance solutions, including alternative reinsurance products. It is due to report by the end of this year.
Ms Bible described the reinsurance market as one that is evolving rapidly, with alternative capital sources such as catastrophe bonds growing to $115bn and outstripping growth in traditional reinsurer’s capital.
“However, Australian regulations currently limit credit to these potentially cheaper funding sources. Material adjustments to these regulations could help unlock access to these alternative capital sources, leading to improved pricing and terms for some components of reinsurance,” she said.
“Ongoing attention to risk mitigation and resilience, as well as regulatory barriers, will still remain crucial to maintaining affordable coverage for Australian households and businesses.”