ARPC releases 2024 Financial Outlook Report

22 October 2024

Australian Reinsurance Pool Corporation (ARPC) today released its 2024 Financial Outlook Report.

As at 30 June 2024, the cyclone pool was close to having full coverage of eligible insured properties, reinsuring 98 per cent of Home, close to 100 per cent of Strata, and 87 per cent of small to medium enterprises (SME) properties. Coverage will reach 100 per cent with the final remaining eligible insurers joining by 31 December 2024.

The Financial Outlook Report provides a view of recent and projected financial outcomes, assesses the adequacy of premium rates and of reserves, and offers observations on capital management and on broader risks affecting the pool’s financial outlook. The overall financial outlook for the pool remains consistent with what was expected when it commenced.

 Key findings from the Financial Outlook Report include:

• The pool experienced modest operating surpluses in each of its first two years of operation, due to lower-than-average cyclone claims during the 2022-23 and 2023-24 cyclone seasons.  Given the volatile nature of cyclone events, it is expected that financial outcomes will vary considerably from year to year.
• Accumulated operating surpluses will be used to fund future cyclone pool claims.
• The total premium pool for the 2023-24 financial year was lower than initial expectations, with fewer properties taking out insurance than originally assumed in modelling.  While lower premiums are offset by lower claims, non-insurance is an important social issue, and ARPC will undertake further analysis to better understand levels and drivers of both non and underinsurance.
• Premium rates remain consistent with the pool’s objectives.  Margins on the large number of properties in high-population, low-risk areas have successfully been used to reduce premiums for less populated areas at considerably greater risk of cyclone damage.
• Risk mitigation remains a key focus area.  The total discount for mitigation applied to in-force Home premiums as at 31 March 2024 is $5.8 million, and ARPC will pursue further initiatives to improve take-up rates. Mitigation discounts will be effective for Strata from April 2025 and will be considered for SME in future pricing reviews.
• Potential risks to rising costs and premiums for the cyclone pool generally develop over longer periods of time and include changes to the mix of properties reinsured (impacting the pool’s ability to allocate margins between properties), climate change, buildings cost inflation and underinsurance.  ARPC will monitor risks on an ongoing basis, and work with insurers to appropriately address emerging risks.

Going forward

The FOR is an annual publication from ARPC. The FOR is provided to the Assistant Treasurer no later than 15 October each year and released publicly within 10 business days.

Background on the cyclone pool

The cyclone pool was launched by ARPC in 2022 and is intended to help make insurance more affordable and more available in areas with medium to high cyclone risk, in three classes of business – household, strata (residential and some commercial), and for small to medium enterprises (SMEs).

For media inquiries, please contact Alexander Drake, Head of Public Affairs and Communications on (02) 8223-6777 or [email protected]