QBE, Australia’s largest insurer in terms of premium income, has finalised renewal of the Group’s reinsurance programme effective 1 January 2021, the company says in a statement.
QBE interim Group CEO, Richard Pryce, said that the company has renewed the Group’s reinsurance structure broadly consistent with the expiring programme and at terms slightly better than budget. “The reinsurance renewal (including increased catastrophe allowance) has been factored into our pricing models and we remain confident of driving appropriate margin expansion in 2021,” he added.
The programme strikes an appropriate balance between cost, capital and earnings volatility protection, says QBE.
Key features of the Group’s 2021 reinsurance programme include:
• main catastrophe tower increased to $3.4bn (2020: $3.3bn);
• North America peak catastrophe retention of $200m (2020: initially $400m but reduced to $150m in April 2020 as part of COVID-19 de-risking initiatives);
• US and Australian non-peak catastrophe retention of $175m (2020: $125m) while retention for all other non-peak perils is unchanged at $100m;
• catastrophe aggregate limit unchanged at $500m and attaching at $625m (2020: $545m) with a per occurrence deductible of $10M (2020: $5m);
• per risk XOL cover renewed materially as expired;
• Equator Re 50% quota share renewed as expired;
• largely unchanged divisional per risk and catastrophe retentions;
• the multi-year nature of the main Group catastrophe programme of $2.1bn xs $400m limited the risk adjusted premium rate increase to less than 5% while the overall increase in reinsurance spend on the Group’s XOL reinsurance program was ~$30m or ~10%; and
• renewing portions of the per risk XOL and main catastrophe treaties have been placed for 24 months.
The increase in the catastrophe aggregate attachment reflects exposure growth, increased US and Australian non-peak retentions as well as recent industry-wide catastrophe frequency.
Anticipating the new structure and to allow for continued heightened catastrophe frequency, the Group’s 2021 financial plans and pricing assumptions include a net catastrophe allowance of $685m, up from $550m in 2020 and broadly in line with the 2020 retained experience. On a like-for-like basis, the probability of exceeding the Group’s increased 2021 catastrophe allowance is lower than in 2020.