QBE expands cat reinsurance tower to $3.4bn in 2021

QBE Insurance Group has increased its main catastrophe tower by $100 million to $3.4 billion for its 2021 reinsurance programme, as well as raised its net catastrophe allowance by almost 25 percent to $685 million.

The Australian re/insurer has completed its January 1, 2021 renewals, stating that the programme was placed broadly in line with expectations, at terms "slightly better than allowed for in the Group’s business planning assumptions".

QBE said the 2021 reinsurance programme "strikes an appropriate balance between cost, capital and earnings volatility protection".

At the renewals, QBE increased the size of its main catastrophe tower to $3.4 billion, compared with $3.3 billion in 2020.

Additionally, it secured North America peak catastrophe retention of $200 million, against the 2020 initial retention of $400 million which was reduced to $150 million in April 2020 as part of COVID-19 de-risking initiatives.

For the US and Australia, it secured non-peak catastrophe retention of $175 million, up from $125 million in 2020, while the retention for all other non-peak perils remained unchanged at $100 million.

The catastrophe aggregate limit was unchanged at $500 million and attaching at $625 million (2020: $545 million) with a per occurrence deductible of $10 million (2020: $5 million).

The per risk XOL cover renewed materially as expired, while Equator Re 50 percent quota share also renewed as expired. QBE reported a largely unchanged divisional per risk and catastrophe retentions.

QBE said the multi-year nature of its main group catastrophe programme of $2.1 billion excess $400 million, limited the risk adjusted premium rate increase to less than 5 percent while the overall increase in reinsurance spend on the group’s XOL reinsurance programme was roughly $30 million or around 10 percent.

The renewing portions of the per risk XOL and main catastrophe treaties have been placed for 24 months.

According to QBE, the increase in the catastrophe aggregate 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 $685 million, up from $550 million 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.

QBE's interim Group CEO Richard Pryce said: “I am pleased that we have renewed the Group’s reinsurance structure broadly consistent with the expiring program 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.”