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Suncorp says BI intent clear ahead of test case

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Suncorp says it is confident it will not be significantly affected by a proposed industry test case on business interruption policy wordings that is expected to go to court next month.

“While there has been significant focus on insurer policy wordings relating to the now repealed Quarantine Act, we believe the intent of our policies remains clear,” CFO Jeremy Robson told a briefing today.

“Prior to COVID-19 we had updated the majority of our policy wordings to reflect the current legislation. While we do still have policies that refer to the Quarantine Act, we remain confident in the underwriting intention.”

Some lawyers are arguing that some pandemic exclusions may not be valid if they reference the Quarantine Act 1908, which was repealed and replaced by the Biosecurity Act 2015.

The Australian Financial Complaints Authority has proposed that a test case proceeding could provide an “authoritative decision” on how policies should respond in areas of contention, including whether the correct act is referenced.

Suncorp says the COVID-19 impact on the group’s profit and loss for the past financial year is expected to be “broadly neutral” excluding investment market movements and bank impairment losses.

In the Australian insurance business, the company has seen mark-to-market gains on the investment portfolio over the fourth quarter following losses in the third quarter.

“Motor frequency in the consumer portfolio fell as much as 40% in April but has subsequently been increasing as restrictions have eased,” Mr Robson said. “This trend has also been evident in the commercial motor portfolio, albeit more muted.”

On landlord insurance, there is expected to be an increase in loss of rent claims, although the impact may be more evident in the current financial year due to ongoing unemployment.

Suncorp also said today it had finalised its catastrophe reinsurance program for this financial year, locking in arrangements in a more difficult market given recent Australian catastrophe experience and international conditions.

“The global reinsurance market has been hardening with reinsurer capital being impacted by poor global loss experience, investment asset performance arising from COVID-19, and a hardening of the retro insurance market,” Mr Robson said.

The new program includes a lower level of profit and loss volatility cover than for last year, with Suncorp expecting the natural hazard allowance to increase by between $90-$130 million, while there will also be an increase to its common equity tier one target.

Mr Robson says the program strikes the right balance regarding natural hazard volatility protection and increasing reinsurance costs.

“We will look to price for this increase over time, as well as improving performance in other areas of the business, including claims and costs, which are enabled by the changes to the operating model,” he said.