QBE boosts cat reinsurance protection

Australia-based QBE has reduced catastrophe retention and increased protection against catastrophe severity in its 2019 reinsurance programme.

In a recently finalised 2019 reinsurance programme QBE “significantly” reduced catastrophe retention and “greatly” increased protection against catastrophe severity, according to a corporate statement. The programme includes protection against frequency of medium-sized catastrophes while “significantly” reducing large individual risk claim retention, improving protection against large individual risk claim severity and increasing quota share protection to further reduce claims volatility.

“We have moved to a more conventional reinsurance structure with significantly increased catastrophe protection that will deliver better profit outcomes in extreme (severe or benign) catastrophe years as would have been the case in 2017 and 2015 respectively,” the company said in the statement.

As a result of the reinsurance programme, QBE’s 1:20 and 1:200 year probable maximum loss (PML) for Australian cyclone events will fall by around 20 percent and 35 percent respectively, while its 1:20 and 1:200 year PML for North American hurricane will fall by around 20 percent and 25 percent respectively, the company said.

The 2019 reinsurance programme is expected to save around A$125 million ($90 million) in reinsurance costs but this will be more than offset by an increase in the budgeted allowance for large individual risk and catastrophe claims to around A$1.4 billion, up from around A$1.2 billion currently, given greater variability around reinsurance recoveries, according to the firm.

Notwithstanding the resulting headwind of around A$50 million-A$100 million, QBE remains confident of achieving an improved combined operating ratio and higher overall profitability in 2019 compared with 2018, underpinned by the premium rate increases it is achieving, expected ongoing improvement in the group’s attritional claims ratio and an efficiency programme.

Over time underwriting and claims standards being implemented are expected to drive a further reduction in claims costs due to improved pricing adequacy, better risk selection and more effective claims management.

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