As the cost spirals for insurers to protect themselves against disasters, analysts have raised the prospect of some major companies even dumping one specific form of reinsurance.
Signs of strain have already been emerging in tougher conditions for aggregate cover. Brisbane-based Suncorp, one of Australia’s two biggest home and car insurers and whose brands include Apia and AAMI, renewed its aggregate cover in July last year offering $400 million in protection. Aggregate reinsurance cover helps smooths earnings, where losses are mitigated as an insurer is theoretically covering less risk itself. But the downside is if insurers buy protection only for the year to be benign, money was spent on a non-event.
One industry source said that major catastrophe reinsurance – for big one off events – was more capital efficient for Australian Prudential Regulation Authority requirements.