Suncorp still has reinsurance available to cover its February 2011 Canterbury earthquake costs, unlike its competitors

Suncorp still has reinsurance available to cover its February 2011 Canterbury earthquake costs, unlike its competitors

New Zealand’s second largest general insurer, Suncorp Group New Zealand, appears to be in a different position to its competitors, which are finding it more difficult to recover from the Canterbury earthquakes.

Suncorp - the parent company of Vero and AA Insurance - confirms it still has reinsurance available to cover its outstanding February 2011 quake claims.

A spokesperson has told Interest.co.nz: “We also have ADC [adverse development cover] in place, and once the ADC is exhausted we are still well protected by the cover in our main cat [catastrophe] programme and our escalation options.

“Suncorp does not anticipate the need to purchase any additional cover. Whilst uncertainty still exists, we are comfortable that our existing reinsurance programme will protect us from any material impact on our profit.”

The company’s results for the year ended June 2015 confirm the insurer has paid $4.9 billion to cover 92% of its expected quake claim costs.

Suncorp hasn’t responded to Interest.co.nz’s questions around how much of the costly ADC cover it has bought and how much of this it has used up.

Other general insurers digging into their own pockets to cover Feb quake claims

New Zealand’s largest general insurer, IAG, which owns State, AMI, Lumley and NZI, has used up the $5b of reinsurance it’s bought for the February 2011 quake.

As at December 2015, it had spent $5.3b settling 85% of its claims from all the Canterbury quakes by number.

IAG has been making up the shortfall by getting help from its Group. Berkshire Hathaway mid-last year also bought a 3.7% stake in company, that would inject A$700 million of capital over the next five years and see Warren Buffett’s company pay 20% of its claims in return for 20% of its premiums.

We will have a clearer idea on where things are at with IAG when its 2016 annual results are released on August 19.

Tower is in a similar position. It expects to foot a $75m bill, as its reinsurance cover for the February event has run out.

And, the Medical Insurance Society, more commonly known as MAS, has made provisions to cover $59m of its February quake claims not covered by reinsurance.

Growth in motor insurance boosts NZ business’s 2016 profit

Looking at Suncorp’s results more broadly, its New Zealand general insurance business increased profit by 12% over the year, to $178 million.  

Its Gross Written Premium (GWP) increased by 3% to $1.34b, as it grew both its direct and intermediated distribution channels.

During the year Vero partnered with The Warehouse Group Financial Services to underwrite Warehouse Money’s personal insurance products.

Suncorp’s New Zealand Motor business increased its GWP by 12%. It says this was “driven by strong unit growth underpinned by favourable market conditions and expansion into new channels”.

Its Home GWP increased by 7%, “due to a combination of increases in new business, stable retention and premium increases as a result of improved product offerings”.

However Suncorp New Zealand’s commercial lines suffered a 4% GWP drop “due to continued underwriting discipline in a competitive market for existing and new business”.

Its loss ratio decreased to 53.8%, from 54.0%, meaning that for every $100 it receives in premiums, it pays $53.80 in claims. 

As for the company’s New Zealand life insurance business, which consists of Asteron Life and AA Life, it grew its in-force portfolio by 8% to $230m, “through its sustainable intermediary relationships and a market leading customer retention strategy”.

Across the wider group, Suncorp's net profit fell 8% to A$1.04b. A final dividend of A38c per share took the annual payment to A68c.

Suncorp Group’s results announcement has seen its share price increase to A$13.50.

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6 Comments

Why would Suncorp buy expensive ADC cover if they haven't exhausted catastrophe reinsurance protection? Sounds like selective data sharing or creative accounting to me

The way insurers arrange their reinsurance can be complex. There are often multiple layers with different reinsurers. Some will come into effect when the cost of an event reaches a certain point and then cease when the cost rises to another agreed point. But a layer may not be for the full exposure between those two points, it could be for a partial percentage. An insurer then, could be up for the full cost of an event below the agreed 'attachment' point but between that and the detachment point reinsurers might cover all or part of the loss, with the balance to the insurers account. So an insurer may have reinsurance in place to cover the increasing cost of an event, just not for the full percentage. ADC is not simply an additional layer of cover tacked on as you appear to think. You (and I) don't have sufficient insight into suncorps reinsurance arrangements to justify an accusation of 'creative accounting'. It seems likely however they have been smarter than the others in the way they organised their reinsurance program.

“Suncorp does not anticipate the need to purchase any additional cover. Whilst uncertainty still exists, we are comfortable that our existing reinsurance programme will protect us from any material impact on our PROFIT.”

Interesting statement! So if their profit is at risk, they'll need a bail out? I would like to own a business whose profit is underwritten by the tributaries; who wouldn't?

I don't understand why you interpret their statement that they are confident their reinsurance program is sufficient to preserve their profit margin, as in any way suggesting they would look for a govt bail out if they got into trouble. You are drawing lines between dots that don't exist.

We just bailed out an insurance company a few days ago who claimed the earthquake was more damaging that they had re-insurance for, and therefore they now needed a bailout. In other words, we made a mistake and we don't want to pay for it! Furthermore, privatize profits and socialize losses!

Yes, that was AMI which failed to understand differences in performance characteristics of the Darfield fault, compared to the alpine fault on which their reinsurance was modelled. The article was about a very different beast, Suncorp, saying their reinsurance program continues to provide cover in respect of the earthquakes and their ADC is not exhausted. It is nonsense then to suggest Suncorp, the best reinsured player in the CHCH scene, could be looking for a taxpayer bailout. I’m no cheer leader for the BS spin machines of big corporates like Suncorp but draw the line at illogical conflations such as yours.