Suncorp has made key changes to its reinsurance program and increased its natural hazard allowance for this financial year in response to hardening reinsurance premiums and claims inflation pressure.

The insurer’s maximum event retention has been raised to $350 million for a first large event from $250 million in the last financial year, the business announced in a statement to the Australian Securities Exchange today.

Its main catastrophe program – which covers the home, motor and commercial property portfolios across Australia and New Zealand – will provide protection for losses between $350 million and $6.4 billion and includes one full prepaid reinstatement. In 2022/23 the program covered up to $6.8 billion.

The changes to the reinsurance program will result in an increase of about $340 million in the levels of capital required to be held by Suncorp’s general insurance businesses.

In relation to the natural hazard allowance, Suncorp has raised it to $1.36 billion from $1.16 billion in 2022/23, reflecting the increased retention arising from reinsurance program changes and the inflationary claims environment.

Suncorp says the combined cost of the 2023/24 catastrophe reinsurance premiums and the natural hazard allowance is expected to increase by about $250 million or 12% from the last financial year.

“This reflects the hardening global reinsurance market and the impact of adverse weather events through the La Nina cycle in recent years across Australia and New Zealand,” it says in the statement.

The insurer has also moved to address its risk exposure in Queensland, renewing its quota share arrangement to cede 30% from its home portfolio in the state.

“Suncorp maintains strong market share within this market and the quota share reduces concentration risk in this region,” the insurer says.

Suncorp Group CEO Steve Johnston says the renewal program “again underscores the challenges facing the insurance industry in Australia and New Zealand”.

“We continue to see a significant reassessment of risk by our reinsurance partners, which reflects elevated natural hazard activity in recent years both globally and in Australia and New Zealand,” he said.

“This, combined with broader inflationary pressures across the economy, continues to impact the cost of reinsurance across the industry.”

He says other forms of reinsurance cover, including a whole of account quota share, were considered and analysed.

“We believe the cover that has been placed provides the best outcome, balancing optimal returns with an acceptable level of volatility.”

Suncorp says it continues to reflect increased input costs, including around placing its reinsurance program and the natural hazards allowance, into the pricing of its policies, with a view to maintaining an underlying insurance margin of 10-12%.

The insurer will release its financial year results on August 9 and in the statement today also provided an update on natural hazard net costs.

Natural hazard events are estimated to cost $1.25-$1.28 billion, higher than its allowance of $1.16 billion.

The business also incurred restructuring costs of $47 million in the second-half, caused mainly by the impact of flexible working arrangements on the “real estate footprint”.