Suncorp [ASX:SUN] FY22 Natural Hazard Claims Hit $1.1 Billion

Suncorp [ASX:SUN] FY22 Natural Hazard Claims Hit $1.1 Billion

Australian insurer Suncorp Group [ASX:SUN] dealt with 35 events and more than 120,000 natural hazard claims in FY22, at an expected cost of $1.1 billion, net of reinsurance recoveries.

The claim cost was in line with previous guidance released in March.

Suncorp shares have been flat this year, although volatile. Over the past 12 months, SUN is down 3% but is currently trading below its 200-day moving average.

ASX:SUN stock price chart


Suncorp’s insurance update

On Monday, Suncorp released an update regarding the floods in NSW and parts of Queensland, shedding light on the company’s FY22 claims costs and reinsurance program.

SUN received more than 120,000 natural hazard claims across 35 separate events, incurring an expected cost of $1.1 billion in net reinsurance recoveries.

While in line with guidance, the number of claims is straining SUN’s capacity.

Suncorp CEO Steve Johnson said the company has recruited 1,000 additional staff to process claims.

SUN’s reinsurance placement

Suncorp also update the market about its reinsurance strategy on Monday.

Reinsurance is also known as insurance for insurers or stop-loss insurance. Insurers, like SUN, can transfer some of their risk portfolios to others to reduce the likelihood of paying out a large claim.

As the Insurance Information Institute notes:

By law, an insurer must have sufficient capital to ensure it will be able to pay all potential future claims related to the policies it issues. This requirement protects consumers but limits the amount of business an insurer can take on.

However, if the insurer can reduce its responsibility, or liability, for these claims by transferring a part of the liability to another insurer, it can lower the amount of capital it must maintain to satisfy regulators that it is in good financial health and will be able to pay the claims of its policyholders.

Capital freed up in this way can support more or larger insurance policies. 

Suncorp said that its reinsurance strategy targets balance between cost, earnings, and capital volatility with a similar structure to previous years.

Suncorp flagged that recent ‘elevated natural hazard activity’ prompted some changes:

While the overall structure of the program remains similar to prior years, changes have been made to reflect the material hardening of the global reinsurance market following elevated natural hazard activity in recent years.

The Group’s maximum event retention has been maintained at $250 million with the upper limit increased from $6.5 billion to $6.8 billion which covers the Home, Motor and Commercial property portfolios across Australia and New Zealand.

One prepaid reinstatement covers losses up to $6.8 billion and two further prepaid reinstatements cover losses up to $500 million.

Given the elevated levels of natural hazard events, Suncorp said that total reinsurance premiums for FY23 have ‘increased significantly’.

As a result, SUN’s natural hazard allowance for FY23 will increase from FY22’s $960 million to $1.16 billion.

SUN share price outlook

Suncorp offered some reflective comments in its Monday announcement:

Suncorp continues to advocate for a more resilient Australia to help underpin insurance accessibility and affordability into the future.

While more needs to be done we are pleased to see progress is being made with the new Federal Government’s $200 million a year Disaster Ready Fund, and the Queensland Government’s Resilient Homes Fund.

Now, the elevated number of severe weather events is adding to a plethora of other problems.

Households and businesses are now dealing with heightened inflation and rising costs of debt with recession fears growing to boot.

Many businesses are forced to make some difficult choices.

But is this the case for every business?

Our experts at The Daily Reckoning Australia believe there are actually some stocks out there that can protect your income right now.

Check out the free report ‘Five ‘Inflation Buster’ Stocks for 2022’ to find out more.



Kiryll Prakapenka,

For The Daily Reckoning Australia