Suncorp’s new structure will mean reinsurers cut
Some reinsurers could struggle to get to grips with a new operational structure implemented by Suncorp, meaning the number of players with the sophistication and capacity to work with the Australian insurer could be reduced.
That is what Anthony Day, the chief executive of insurance at Suncorp, with responsibility for one of the largest placements of reinsurance in the world, told Monte Carlo Today.
He explained that Suncorp’s strategy when it comes to reinsurance buying is driven by the specific needs of the company at the time. At the moment, the company is looking to achieve something quite specific, which may well rule out many reinsurers from working with it.
“Each year we review our reinsurance programme and challenge ourselves around optimal design and how it meets the board’s risk appetite,” Day said. “This year, under our new CEO Michael Cameron, we increased our focus on managing earnings volatility, with a new purchase to protect our budgeted Natural Hazards Allowance.”
Day said that identifying this as the strategy was the first step in a journey to Suncorp’s fundamentally reviewing its approach to reinsurance. “We are keen to work with reinsurers who aren’t bound by traditional structures,” he said.
“With our new operating structure, we are managing all insurance products together—no longer in silos of life and non-life. This includes our reinsurance purchases, which are now managed by one team, with synergies expected to follow. This will be a challenge for many of our reinsurance partners who are not structured in this way.”
He added that the company was already limited in the number of companies it could work with because of the scale of its needs. Doing things in this new way, may well scale its options back further in terms of potential reinsurance partners.
“The size of our placement, one of the largest in the world, does affect the number of partners we have. We focus on sustainability of capacity, as well as price and security—looking for partners who can grow with us,” he said.
“Our biggest challenge is how to maximise the synergies between life and general insurance, challenging traditional thinking.”
Day also stressed the importance of assessing all options including alternative structures and markets, “with a focus on the economic options”.
He added that many other insurers are reviewing the way they approach reinsurance. “I believe insurers are looking at their reinsurance purchases differently now. We are focused on the risk appetite of the business, and considering new ways to approach our reinsurance,” he said.
He believes reinsurers remain concerned about pricing as they move into the renewals. In Monte Carlo, he believes, rates will be a key talking point.
“How much lower can pricing go? That will be heavily discussed,” Day said. “The sustainability of current return on capital levels is likely to put pressure on rates. The amount of capital in the industry, however, is keeping rates competitive. It will be interesting to watch the January 1 renewals.”
He added that the potential for M&A will also be on the table. “It is hard to imagine that the M&A activity is finished, given the current pressures on pricing and capital returns,” he said. “Combined reinsurers are usually stronger, which is good for buyers. Key for us is the impact on capacity in the Australian market—to date we have not had any concerns.”
