IAG stays steady with $10bn reinsurance program for catastrophes

Insurance Australia Group has stood by its 2020 catastrophe cover, saying it has strong support from its reinsurance partners.

IAG, led by CEO Nick Hawkins, was forced to increase its $9bn cover limit in 2020 after a wild year of perils claims. Picture: Gaye Gerard.

Listed insurer IAG has doubled down on its catastrophe reinsurance program, maintaining its $10bn cover from last year.

The main catastrophe program for IAG will cover losses up to $10bn, including one prepaid reinstatement.

IAG will retain the first $250m of loss, with drop-down cover of $50m to cover future events up to $200m.

Three prepaid reinstatements secure IAG’s lower layer of the main catastrophe program, at $250m excess of $250m each.

IAG has retained its 67.5 per cent quota of the whole of ­account quota, with its multi-year reinsurance plans paying dividends.

Berkshire Hathaway holds 20 per cent of the quota under a deal set to run until 2025.

Munich Re holds 2.5 per cent of the quota, with its deal set to expire at the end of the current ­financial year. Reinsurers Swiss Re, which covers 7 per cent of the quota, and Hannover Re, which holds 3 per cent, have deals that expire in 2023.

IAG noted that the cost of its latest catastrophe reinsurance program had “increased by mid-single digits” in line with “internal planning processes”. This came after last year, when IAG was affected by “a modest increase in reinsurance rates”.

After allowing for quota share arrangements on catastrophe, IAG faces a maximum event ­retention of $95m.

IAG chief financial officer ­Michelle McPherson said the ­catastrophe program was “an ­intrinsic part of IAG’s capital management strategy”.

“The structure of the new program is similar to that of prior years, and we received strong support from our reinsurance partners with whom we have long-term relationships,” Ms ­McPherson said.

IAG was forced to increase its 2021 catastrophe reinsurance program from its $9bn level in 2020 after a wild year of perils claims.

One of Australia’s largest insurers, IAG had been hit with a barrage of claims in 2020 and last year.

At the company’s recent results, Ms McPherson noted the insurer was “currently anticipating” that it would exceed its perils allowance in the 2022 financial year.

IAG lifted its 2022 financial year net natural perils claims cost to $1.04bn, from its previous $765m assumption.

In response, IAG made a significant lift in its perils allowance to almost 10 per cent of net earned premium.

In its guidance for the coming 2023 financial year, Ms McPherson said IAG was “factoring further increases over future years into our planning and most importantly our pricing”.

IAG shares fell 0.7 per cent to $4.36 on Thursday.

Originally published as IAG stays steady with $10bn reinsurance program for catastrophes