Aussie results reiterate vast scale of reinsurance recoveries
The "big three" primary commercial insurers in Australasia retained less than $1.5bn of combined losses from the string of Antipodean disasters that cost the (re)insurance industry an estimated $21bn, their recent results show.
Suncorp, IAG and QBE all benefited from hefty reinsurance recoveries as their excess of loss and aggregate cat programmes rescued them from an unparalleled string of major insurance losses.
It is difficult to determine the exact recoveries on the three Christchurch earthquakes, the winter flooding centred on Queensland and the impact of Cyclone Yasi.
However, the scale of payments from reinsurers can be illustrated.
Suncorp makes the fullest disclosures of the trio. It revealed net losses of A$416mn from this string of catastrophes, with recoveries on cat losses of A$3.4bn.
For example, Suncorp has lodged a gross loss forecast of A$2.024bn with its reinsurers, of which it will retain only A$45mn. Almost as dramatic is the A$45mn retained loss that Suncorp is expecting on the A$429mn gross loss it reported on the September quake.
Suncorp reports elsewhere that its "reinsurance and other recoveries income" for the 12 months to 30 June is A$4.786bn, up from A$1.506bn in the prior year.
Neither IAG nor QBE explicitly discloses gross losses for individual events. However, according to sources IAG is telling its reinsurers to expect gross losses of $1.9bn from the February earthquake in Queensland, despite its reported (net) losses for the February and June quakes being just A$83mn.
The latest loss notifications to come to the attention of The Insurance Insider place the IAG gross loss from the first quake at NZ$919mn ($762mn). IAG has told investors that it will book no net losses from this event, even though it describes itself as the biggest insurer in New Zealand.
A dramatic increase in the volume of "reinsurance and other recoveries on outstanding claims" is again evident on the company's balance sheet.
Recoverables soared from A$2.76bn for 2009/10 to A$6.168bn for 2010-11. It should, however, be noted that IAG has significant non-cat protection in place, including quota shares, and it recovered substantial sums in this period from the adverse development cover that it purchased for its loss-struck Lloyd's motor business, Equity.
QBE's $639mn loss total for the prescribed events dwarfs the $398mn that they cost IAG and the $433mn that they took from Suncorp.
Nevertheless, it is still evident that the insurer has handed significant losses on to its reinsurers, although the extent of the recoveries is obscured by potential interference from the Japanese earthquake and US tornadoes.
The insurer's main $1.3bn xs $200mn cat excess of loss has been eroded by $400mn and it has also lost $170mn of its aggregate cover, prompting it to return to the markets to buy a back-up aggregate product.
QBE said that its reinsurance recoveries in the half-year to 30 June had increased to $4.0bn from $3.2bn at 31 December "mainly due to the impact of large catastrophe claims in the period and recent acquisitions".
Against this data, we can measure industry-wide loss estimates for the events in question. Munich Re has placed the insured cost of the September Christchurch quake at $5bn. Guy Carpenter has estimated costs from the Australian flooding either side of the New Year and Cyclone Yasi at around $4bn. Guy Carpenter forecast losses from the February New Zealand quake of up to $12bn, taking the running total to $21bn.
Suncorp only succeeded in posting its full-year profit of A$453mn due to its comprehensive reinsurance programme.
IAG's overall insurance profit of A$660mn in the 12 months to 30 June was similarly dependent on the support of reinsurers. The same is true to a lesser extent of QBE, which booked net income of $673mn for the half year.
The spate of losses seems to have finally convinced the international reinsurance market that it has been underpricing Australasian risks. However, a lot of work will have to be done to bring about a permanent re-rating and to secure payback within a reasonable timeframe.
The placement of Suncorp's A$5.8bn-limit programme on 1 July was the first step, as the programme priced up 70 percent overall, with variation by layer. However, some reinsurers were still disappointed with the size of the increases that they were able to negotiate from placing broker Aon Benfield, which brought the programme to market very late.
Pricing for IAG's cover has been complicated by its 1 January renewal date, which meant that the losses straddled the renewal of the programme. At 1 January IAG paid 10 percent more for a Guy Carpenter-placed programme that was substantively unchanged. It acknowledged, however, in its results presentation that it was already expecting to absorb an additional cat-driven increase when it next renews.
QBE's main cat cover was around 75 percent-placed last year with Munich Re and Swiss Re on a three-year basis, with rates pegged to premium increases. The remaining quarter of the limit was placed on an annual basis in the open market by Aon Benfield and is likely to see further tough negotiations when it comes up for renewal on 1 January.