IAG names Nick Hawkins as new CEO

IAG has named Nick Hawkins as its new managing director and chief executive officer.

Nick Hawkins will take over from Peter Harmer as IAG CEO.

IAG incoming chief executive Nick Hawkins is confident a looming business interruption test case will go the insurance industry’s way, despite a similar case in the UK last week finding in favour of policyholders on the majority of the key issues.

Speaking to The Australian after he was confirmed as Peter Harmer’s successor to lead IAG, Mr Hawkins also flagged the insurer would take a conservative approach over the next two years as the nation battles through through the COVID-19 induced recession.

“Certainly the settings of our company are going to be relatively conservative. We know our customers have been impacted by COVID-19, and that flows through to what that means for their relationship with us.

“So we’ll be appropriately conservative in how we’re running IAG, making sure we have an appropriately strong balance sheet and being conservative with our capital.”

On the business interruption test case brought by the Australian Financial Complaints Authority and the Insurance Council of Australia and scheduled to begin early next month, Mr Hawkins said local insurers never intended for business interruption to be covered in a pandemic scenario.

“It was not our intention to cover in the scenario of a pandemic. We never indicated we were (providing cover for a pandemic) and we didn’t collect a premium that covered that risk.

“I’ve seen contract law disputes around the mechanisms and mechanics of policy wording, but our strong view is that we don’t cover business interruption on a pandemic scenario.”

The concepts of the test cases in the UK and Australia were different, he said, with the UK case centring on policy wording, unlike in Australia where the intention was to exclude pandemic coverage.

New IAG CEO Nick Hawkins.

One of the central issues that will come under scrutiny in the NSW Court of Appeal test case will be whether policies that reference the Quarantine Act, which was replaced by the Biosecurity Act in 2016, validly exclude human diseases such as COVID-19. IAG’s policies refer to the outdated Quarantine Act.

Downplaying the potential exposure the insurer is facing pending the outcome of the case, Mr Hawkins said IAG had not received many pandemic-related business interruption claims.

UBS last week warned that IAG would be most exposed if the Australian test case doesn’t go in the insurance industry’s favour.

“While the insurers’ view is that pandemic exclusions referencing the Quarantine Act are enforceable, a negative outcome on this issue would see IAG most exposed relative to Suncorp in our view,” the broker told clients.

“While IAG/Suncorp may have limited scope for catastrophe reinsurance recoveries, benefits from lower motor frequency may temper impacts.”

Early estimates for the UK case put insurance payouts at more than $2bn.

IAG earlier on Monday named Mr Hawkins as its new managing director and chief executive officer following a months-long search to find a replacement for outgoing boss Mr Harmer.

Mr Hawkins, who takes on the top job on November 2, was the insurer’s chief financial officer for 12 years before being appointed its deputy chief executive in April, when Mr Harmer announced his retirement.

Departing IAG CEO Peter Harmer. Picture: Britta Campion

Mr Harmer will leave the company on November 1 after five years in the CEO role.

Chairman Elizabeth Bryan said Mr Hawkins’ appointment reflected the strength of the insurer’s leadership team and would deliver continuity and stability for the company.

“Nick has a deep understanding of both global and domestic general insurance along with operational and financial experience, and this will ensure a smooth transition for IAG,” she added.

Bell Potter analyst TS Lim said the internal appointment of Mr Hawkins to the top job was the right call as it would see the insurer retain its current strategy.

“He’s a steady pair of hands and he’s been around, so that’s good. It shows continuity.

“Just keep on doing what they‘ve been doing, managing costs pretty well and ensuring that they have enough reinsurance.”

IAG in August posted a net profit of $435m for the 12 months through June 30, down 60 per cent on the prior year, as volatile investment markets, higher natural disaster claims and COVID-19 impacts hit its bottom line. It was the lowest annual profit the insurer had reported since a $207m result in 2012.

Mr Hawkins’ appointment comes as peer QBE also hunts for a new CEO following the swift departure of boss Pat Regan, who was stood down late last month following a complaint from a US-based female staff member and an external investigation into emails and texts sent to the employee.

IAG shares finished Monday’s trade up 0.22 per cent at $4.54.