Youi has responded to rising reinsurance cost, dropping a form of cover known as aggregate natural perils treaties in its catastrophe program for this financial year. 

The changes to Youi’s 2023/24 reinsurance program are also in response to the insurer joining the Commonwealth-backed cyclone reinsurance pool on July 1. 

“Youi’s reinsurance aggregate treaty has been discontinued for the 2024 financial year due to reduced supply of this cover in the Australian reinsurance market and the associated cost being uneconomical relative to the protection provided,” CEO Nathaniel Simpson told insuranceNEWS.com.au. 

The reinsurance program changes come as Youi earnings improved sharply in the last financial year, aided in part by lower catastrophe losses, parent company OUTsurance Group says in its 2023 financial report. 

Operating profit surged to $153 million from $57 million from the prior year and headline earnings tripled to $117 million from $37 million. 

Gross written premium (GWP) grew 21.5% to $1.36 billion, net earned premium 23.7% to $1.06 billion, and the combined ratio improved to 87.5% from 93.8%. 

“For the 2023 financial year, Youi incurred significantly lower natural perils losses which bolstered profitability. This is in contrast to the 2022 financial year where natural event losses were elevated,” Mr Simpson said. 

Personal lines GWP gained 17.5% to $1.247 billion, business GWP more than doubled to $51 million and compulsory third-party surged 62.8% to $70 million. 

Home products are a key component of Youi’s personal lines portfolio and Mr Simpson says the insurer is still offering flood as a standard inclusion. 

“While our risk tolerance for home insurance remains largely unchanged, we are committed to continuously improving our risk assessment by accessing accurate data to deliver positive outcomes for our customers and consumers,” he said. 

OUTsurance says while the more favourable natural peril experience in Australia provided a welcome tailwind, it was still a challenging year from a claims cost perspective as numerous other headwinds negatively affecting the net claims ratio were still present. 

The headwinds included higher reinsurance retention levels and premiums, increased claims cost inflation and reset in vehicle accident frequency post-covid. 

OUTsurance says premium inflation accelerated sharply since the latter part of the 2022 financial year. 

“The higher premium inflation is attributed to rising claims repair costs, pricing changes to reflect the increased frequency of natural events and catering for the effects of the hardening reinsurance market.” 

OUTsurance says the reinsurance market has experienced significant hardening since 2021 on account of increased global natural perils losses and in response to the escalating inflationary environment. 

“This outcome has been particularly prominent in Australia where the reinsurance market responded to a higher frequency and severity of natural perils events,” OUTsurance says in its 2023 financial report  

“Following the hardening of the reinsurance markets, aggregate natural perils treaties are no longer available at affordable outcomes and are no longer a feature of Youi’s reinsurance structure.” 

OUTsurance says Youi’s participation in the cyclone reinsurance pool “will reduce Youi’s exposure to large cyclone events and which has impacted the calibration of Youi’s reinsurance structure for 2024”. 

Suncorp has also cited cost as a factor behind the insurer’s decision not to renew its aggregate excess of loss cover for the 2023/24 year. 

Aggregate cover generally provides coverage for more frequent catastrophe events and also avoids interpretation issues related to the definition of an event, according to the Organisation for Economic Co-operation and Development. 

It can reduce volatility in annual catastrophe-related losses or protect against solvency risk of severe events.