Reinsurance Covers Suncorp, Yet Risks Remain

Australia | Jan 14 2020

Claims and property losses in the 2019/2020 bushfires so far have now exceeded the Black Saturday event in 2009 and brokers assess the risks to the outlook for Suncorp, and fellow insurers.

-Suncorp's purchase of comprehensive reinsurance could now be in its favour
-Reinsurers may question participation in comprehensive large-event cover
-Cost of renewal could create a headwind to Suncorp's net profit in FY21

By Eva Brocklehurst

Claims and property losses resulting from Australia's recent bushfires have now exceeded those of the Black Saturday event in February 2009, although the overall cost per claim is lower, the Insurance Council of Australia has reported. The average cost per claim has risen to around $89,000 which is still lower than the national average of $107,000 since 1994 and $101,000 since 1983.

Insurance Australia Group ((IAG)) now expects total net peril costs for the first half of FY20 to be $400m, or $80m above its $320m allowance. Bushfire events that commenced in December and extended into January 2020 are expected to be covered by the insurer's 2019 aggregate reinsurance protection and this should limit further downside risk.

Meanwhile, Suncorp ((SUN)) has indicated bushfire-related claims in the year to date are set to cost -$315-345m. Suncorp has reported receipt of 2600 claims relating to the fires.

That said, Bell Potter points out comparing the average net cost per claim for the two insurers is unlikely to be that meaningful, given differing insurer reviews as to what constitutes a claim, e.g. home and contents claims can be considered as either one or two claims, as well as a lack of consumer and business disclosures.

However, the broker assesses Insurance Australia Group appears to have a better track record in managing perils allowances because of its more extensive use of the quota share. Bell Potter, not one of the seven stockbrokers monitored daily on the FNArena database, has a Buy rating for both stocks with a target of $8.40 for Insurance Australia Group and $14.80 for Suncorp.

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