Large-scale disasters, such as the January floods and Cyclone Yasi in 2011, have prompted Suncorp to rethink its reinsurance.
IF disaster strikes during the year, insurer Suncorp may hope it descends in several large events, rather than a string of smaller calamities.
Suncorp would be better protected by its new reinsurance program in a large-events scenario, analysts say.
Suncorp last week unveiled new reinsurance, which caps payouts in a disaster.
It has dumped aggregate reinsurance. Aggregate reinsurance had capped Suncorp's exposure at $10 million for a series of small disasters, once events accumulated to a certain level.
Instead, Suncorp bought reinsurance for large-scale catastrophes.
Their bill for a first disaster is capped at $250 million, dropping to $200 million for a second, and $50 million for third and fourth events.
JP Morgan analysts said the new reinsurance, including other changes, offered both better and worse scenarios, compared to the old program.
"(It) provides better protection where losses are more concentrated in large events as opposed to several small events, when the aggregate would have kicked in," they said.
Citigroup said the downside "to not purchasing (aggregate cover) is if Suncorp experiences a high frequency of events just below $50 million".
Deutsche Bank said the new reinsurance was more cost-effective than aggregate cover.
A tie-up with Berkshire Hathaway to underwrite 30 per cent of Suncorp's market in Queensland would reduce risk but gnaw 1 per cent of profits, the analysts said.
Citigroup analysts predicted reinsurers lifted prices by 11 per cent.
Suncorp paid $806 million last year for reinsurance; but the overall size of the package will be different this year because of the partnership deal with Berkshire Hathaway.
Suncorp yesterday released a report, saying the perception insurers were reluctant to pay claims hampered efforts to convince businesses to get insurance.
The disasters also underscored industry challenges such as a chronic shortage of insurance assessors, the report said.
"A core team of experts needs to be available at all times. However, the ability to "bolt on" further personnel on a needs basis as a disaster escalates is vital," it said.
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24.7.12
