Originally Posted by
Antipodean
A fair response, and looking back at my comment the tone wasn't great and I wasn't offering anything better on the information front so my apologies there.
Treaty reinsurance covers the book in general beyond the ability of the company to cover perils, in a not dissimilar way to individual insurance is designed to cover events a person cannot reasonably cover themselves. You have excesses and other similar features, but reinsurance treaties are typically more bespoke. So while I can speak in generalities the specifics of one companies treaty may differ so keep that in mind.
One of the big differences is how companies can 'top up' cover during the year. Not something featured in typical insurance contracts. However not usually something needed in insurance contracts - if you get multiple burglaries in a single year your policy will likely respond each time - so long as any individual claim doesn't exceed any policy terms and conditions (ie payout caps). With reinsurance, typically cover exhausts throughout the year and there are in built 'top ups' that the company can execute through the year. These are often at different rates to the initial purchase (to represent the lesser risk of multiple such covers being required in any one year)
So instead of having to re buy top up cover at the same rate - it is likely and possible the rate is much lower than the original cost (and I expect based on the wording of the announcement is build into the new projections for the company). Without seeing the treaty cannot be sure but will be mixed in with reinsurance costs in the annual reports when released.
This is a large event, and following another large event so early in the year for Tower that providing new guidance is expected.
However like a homeowner who has a total loss on their risk - the excess hurts and next years premium is going to be higher - but their exposure is limited to the excess and based on the current figures and market slice I don't expect either of these events to approach the 'sum insured' or in this case the treaty reinsurance cost.
Which means so far as I can tell there is still a large amount of reinsurance cover still available for the year, and 1-2 further large events already budgeted for in terms of costs (excesses and administration). Prudence would imply assuming these will be used up as when in recent times has large event caps not been used up? Noting however in recent years even when large event caps are fully used companies like Tower and similar in Australia still post profits. When/If the year comes around they aren't used things could be different.
Longer term items like continual increases in GWP, investment holdings and return, loss ratios and receivables are where I'm aiming my assessment when I look at this company. If you are only looking 12m out, or you think insurance companies fail when storms happen or get more frequent, then this possibly is a poor place to look for parking funds.