Australia –SUNCORP has been stung by its global reinsurers after making billions of dollars in claims following a string of deadly disasters since September.
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, but its reinsurance premiums are believed to be up as much as 50 per cent.
Talks with reinsurers had dragged on for months, with the reinsurers demanding hefty price rises to cover losses of billions of dollars. At one stage, Suncorp chief executive Patrick Snowball labelled the negotiations a ”Mexican standoff”.
Insurers buy reinsurance from global insurers to protect against large losses due to natural catastrophes. It is often the biggest single expense for general insurers but is crucial to cap the cost of payouts.
While Suncorp confirmed that reinsurance costs were ”higher”, a spokesman declined to to be specific, citing the confidential nature of the talks. However, London-based insurance trade publication Insurance Insider cited unnamed reinsurance sources as saying reinsurance prices for Suncorp’s home, motor and commercial property portfolios had 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 has already increased home and car insurance premiums by 10 per cent and 2.5 per cent respectively.
”The program 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 hit. IAG is likely to be hit with big price rises when it renews 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. Suncorp has a slightly higher exposure to catastrophe payouts. It will pay the first $250 million when it comes to disaster, up $50 million from last year.
Even with higher reinsurance costs and the bigger exposure to natural hazard claims, Suncorp is sticking to its forecast that its underlying insurance margin for 2011-12 will be at least 12 per cent.
Last year ranked as the sixth-most costly for the world’s reinsurance industry, which is dominated by European and US companies. The global payout for catastrophes was $US37 billion.