All major insurers required to join the Federal Government-backed Cyclone Reinsurance Pool have come on board, with about 94% of the scheme’s expected exposure now covered.

The Australian Reinsurance Pool Corporation (ARPC), which administers the pool, has this week released a Financial Outlook Report, the first in an annual series required under the scheme.

ARPC CEO Chris Wallace says feedback from communities and individuals has shown that insurance affordability and availability benefits are starting to flow through. Since the outlook report, based on last fiscal year, more insurers have joined the scheme and impacts will be clearer in future updates, he says.

“We have actually seen a lot of green shoots,” Dr Wallace tells insuranceNEWS.com.au. “But we’re going to need a bit more time for that to show up in the data for the whole pool.”

The report shows that nine insurers had joined as of July 1, while IAG and Auto & General have since joined.

The ARPC says cyclone pool premium discounts for household mitigation activity totalled $4.9 million as of June 30. The scheme is looking to expand mitigation incentives and is encouraging insurers to collect information.

“In the areas of SME and strata, we will develop that over the next 12 months” Dr Wallace said. “We are working with James Cook University in Townsville to help us develop rating factors to go into the premium formula. It will take a little while to develop, and we have to give advance notice to insurers.”

After a benign past cyclone season the pool built up a small net asset position of $43 million at the end of its first year of operation, the report shows.

Earned premium of $737.7 million, an underwriting loss of $4.2 million, investment income of $1.7 million and an operating loss of $2.5 million are projected for this fiscal year.

The cyclone pool is projected to also make a small underwriting loss for the following two years due to a higher expense ratio in the start-up phase, with investment income leading to a small operating profit from fiscal 2025.

Actual experience will deviate from the projections due to the volatility of cyclone activity. Currently, ARPC is monitoring Cyclone Jasper after declaring the system as its first event for this season. 

Dr Wallace says the ARPC is keeping a watch on other financial influences such as inflation, but the report overall shows the cyclone pool is operating as expected at this early stage.

 “The premiums that we’ve set seem to be performing as we’d hoped for, and unless there’s some significant change in our modelling, we’re not expecting to make any material changes in the short term,” he said.

Dr Wallace says reports following the mid-year commercial reinsurance renewals had shown that insurers purchased less capacity, with the pool a factor, as cover was sought following a period that included record flooding in eastern Australia. 

“We have seen evidence that the pool has helped the reinsurance market by enabling capacity that’s available to be deployed to those other risks,” he said.

Large insurers had until the end of this year to join the cyclone reinsurance pool, while smaller insurers were given an additional 12 months.

The report is available here.