Traditional reinsurers have the edge over ILS Down Under
The regulatory environment in Australia and New Zealand means that traditional reinsurance remains a more favoured option than the use of insurance-linked securities (ILS), according to Anthony Day, the chief executive of insurance at Suncorp, with responsibility for one of the largest placements of reinsurance in the world.
Day told Monte Carlo Today that the insurer constantly monitors and engages with the ILS market, but “the traditional reinsurance market provides us with the most effective solutions within the Australian and New Zealand regulatory environment,” he said.
He stressed that he finds the traditional markets more conducive to the ability to develop good, personal relationships within reinsurers. This gives Suncorp the right mixture of stability and flexibility to tweak its reinsurance programme as required.
“Suncorp renewed all its treaty reinsurance at July 1 and we are pleased with our negotiations with reinsurers,” Day said. “The key is the relationships—from both a company perspective and a personal one—that Suncorp has developed over the years. These make the reinsurance industry such a dynamic and unique place to work.
“As one of the largest buyers of catastrophe capacity, Suncorp’s number one priority is having a consistent source of viable experienced capacity that is available year on year. This is why we spend a lot of time meeting and talking to reinsurers globally and sharing information on Suncorp.
“Suncorp has a very stable and trusted panel of reinsurance partners and we do not expect to see major changes in the coming years. However, we do see minor changes from year to year should our reinsurance business plans or strategy change. If, for example, we place a large number of smaller treaties and facultative reinsurance separately, can we aggregate these risks in a vehicle and reinsure as a bundled treaty?”
Day stressed that despite the stability of the company’s reinsurance programme, it is still prone to changes to pricing in the aftermath of large losses. He does not anticipate any changes but this has happened to a certain extent following several large catastrophes in the region in recent years.
“Suncorp is a major insurer in Australia and New Zealand and is subject to major risks such as seismic activity in New Zealand and cyclones in north Queensland, which impacted on the pricing of our programme in the last 12 months,” he said.
He praised the work of his reinsurers in keeping the insurer abreast of new and emerging risks.
“Suncorp is constantly receiving excellent up-to-date information from our reinsurance partners on developments and trends around the world in an endeavour to be prepared for any new developments in the Australian and New Zealand markets. There is never any lack of information or potential solutions in this area,” he said.
Day added that he expects the main talking points in Monte Carlo this year to revolve around the ongoing flow of capacity, the impact on pricing and the appropriate levels of capacity.
“In our experience, rate terms and conditions are stable,” he said.
Mergers and acquisitions activity will also remain an ongoing theme. “We believe change is a constant in both the reinsurance industry and the primary insurance markets and, as a result, M&A will continue to occur in the industry.”
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