Natural Disasters and Catastrophes: Why Property and Casualty Reinsurance Makes Sense

This week, Cyclone Debbie ripped its way through eastern Australia. It tore up the Whitsunday Islands and moved through the Bowen region before moving south. A category four storm, the cyclone caused flooding, closed highways, and took down power lines and means of communication. It also destroyed numerous homes and buildings in its path with its wind gusts up to 163 miles per hour.

Authorities expect that more than 300 houses were flooded out in Logan City. Some suffered minor damage, while others were totally flattened. At least 273 homes have been damaged so badly that they’re no longer habitable. Insurance companies are bracing for a large number of claims.

Suncorp Braces for the Worst

In the days leading up to the storm, Suncorp, an Australian insurer, was very vocal in its expectation that it would need to rely on aggregate reinsurance in order to recoup the losses it would face due to the high number of expected claims. Suncorp has an aggregate reinsurance layer of AUS$300 million, or US$230 million.

Suncorp had previously reported that it had eroded over half of the deductible of its aggregate reinsurance program. Experts point to this as an example of how reinsurance protection can help protect company balance sheets from the financial impact caused by a large number of catastrophic claims.

The company now expects that any losses resulting from Cyclone Debbie will be covered by reinsurers participating in Suncorp’s aggregate program. Coverage will also be provided by Suncorp’s main catastrophe program, which covers from AUS$250 million to $6.9 billion.

“Suncorp’s reinsurance protection program means it is well protected against the financial impact of Cyclone Debbie,” the company said in a statement.

“Claims costs from the cyclone are expected to be fully covered by a combination of Suncorp’s main catastrophe program and the additional natural hazard aggregate protection that was purchased for the 2017 financial year.”

In addition to bracing for the financial impact of the storm, Suncorp had been preparing teams that would be sent out to assess damage, as well as planning for more customer service representatives to be available to handle an increased number of calls due to claims.

Cyclones make up three of the disasters on the top 10 disasters lists compiled by the Insurance Council of Australia. Just one of these storms – Cyclone Yasi – caused AUS$1.3 billion in damage when it hit in 2011.

The Value of Property and Casualty Reinsurance

These numbers serve to highlight the extreme importance of insurance companies throughout the world reducing their financial risk by purchasing property and casualty reinsurance. This not only covers them in the case of an unexpected catastrophe or natural disaster; it also allows them to provide coverage in areas that are known to be high-risk for things such as flooding or wildfires.

Increased retention limits on individual policies and reduced required reserves are another benefit of having property and casualty reinsurance coverage. No matter where in the world an insurance company is focused, less risk and being able to market to a broader customer base simply make good business sense.

At Stratis Risk Solutions Insurance Services, LLC, our business is understanding your business and applying our industry expertise to achieve “best in class” risk solutions. We use a collaborative and analytical approach to assist your business with reinsurance strategy and program design, placement of provider excess and HMO reinsurance, alternative risk financing solutions, employer stop-loss solutions, pharmaceutical purchasing and management solutions, claims management and program administration, catastrophe exposure management, and much more!