Suncorp looking to reinsurance “alternatives” for next renewal

This content is copyright to www.artemis.bm and should not appear anywhere else, or an infringement has occurred.

Australian primary insurance giant Suncorp Group is assessing “alternative” reinsurance structures for its next renewal at the mid-year, as the company looks to optimise its protection arrangements.

Last July, Suncorp renewed its main reinsurance program arrangements for its fiscal year 2025, adding $350 million to the top of its catastrophe reinsurance tower, taking it to $6.75 billion.

The insurer also has dropdown reinsurance covers in-force that will reduce its second, third and fourth event retention to $250 million and for a third and fourth event in Australia to $150 million.

As a result, Suncorp has some frequency protection as well as severity, but having been impacted by severe weather losses in recent years and with reinsurance more expensive, the company is looking to re-think its reinsurance arrangements.

In the first half of its fiscal year 2025, H2 of calendar year 2024, Suncorp said that, after a period of hardening reinsurance rates, now reinsurance markets remain “constructive”.

This is reflected in lower reinsurance premiums being reported for the latest six month period.

CEO Steve Johnstone highlighted, “Severity and frequency of extreme weather is becoming an increasingly large part of everyone’s premiums through natural hazard budgets and reinsurance protection.”

For the first half of its fiscal year, Suncorp’s natural hazard losses came in below budget at $503 million, compared to the budgeted $780 million, which will leave the company with a buffer going into the second-half.

“There have been no property reinsurance recoveries triggered over the half. The full limit of the property reinsurance program remains available for natural hazard events in the second half of the financial year,” the company said today.

In the past, Suncorp has had aggregate reinsurance coverage that might have responded, but this had been dropped at the mid-year 2023 renewal due to hard market pricing.

Reinsurance “alternatives” could refer to a desire to bring back some level of aggregate cover into the tower. But we’ll have to wait and see what transpires at the mid-year renewal.

“Suncorp continues to assess alternative reinsurance structures to optimise its current program against a framework seeking to generate sustainable shareholder value through the cycle. An update will be provided in early July once the structure of the FY26 program has been finalised,” Suncorp explained today.

This could also hint at a desire to lock-in more multi-year reinsurance protection, that would work through the cycle for Suncorp and insulate it from hardening market price swings. Whether catastrophe bonds could be a component remains to be seen, but with regulator the Australian Prudential Regulation Authority recognising insurance market participants in Australia want easier access to solutions such as catastrophe bonds, you never know.

As reinsurance prices stabilise, while at least at the top of the reinsurance tower catastrophe bond pricing has diverged somewhat from traditional, resulting in significant value being created for cat bond sponsors, it would be no surprise to see major protection buyers like Suncorp exploring alternatives from the capital markets more meaningfully this year.

Suncorp looking to reinsurance “alternatives” for next renewal was published by: www.Artemis.bm
Our catastrophe bond deal directory
Sign up for our free weekly email newsletter here.