Insurance Australia Group Limited (IAG) has strengthened its reinsurance protection for 2019 with the renewal of its additional stop loss cover, which it expects will contribute to higher non-quota share reinsurance expenses.
The Australian insurer reported a reinsurance expense of AU$2.24 billion in the second-half of 2018, an increase of 44% on the AU$1.55 billion recorded in the same period in 2017. IAG’s full-year 2018 reinsurance expense totaled AU$3.85 billion, which represents growth of 23% on the full-year 2017.
Part of this increase is likely due to the purchase of its stop loss cover, which provides AU$150 million of protection in excess of AU$900 million (pre-quota share) for the 12 months ending June 30th, 2019.
IAG states that this additional cover extends above its full-year 2019 natural perils allowance, meaning that it kicks in should natural catastrophe losses eat through its allowance, which has happened in recent times.
IAG notes that the combination of all catastrophe covers in place, as at June 30th, 2018, results in pre-quota share first event retentions of AU$169 million for Australia, NZ$169 million for New Zealand, and AU$20 million for Malaysia.
In its investor report, the insurer notes that the 2017 to 2018 year-on-year increase in reinsurance expense is primarily a result of the additional quota share arrangements it entered into from Jan 1, 2018, which covers 12.5% of the consolidated business.
Furthermore, IAG notes that a “minor increase in underlying reinsurance spend” was a result of various factors, including both aggregate growth and increased coverage.
As reported by Reinsurance News in January, IAG successfully placed its 2018 reinsurance program, lowering its retentions thanks to its new quota-share arrangement and only experiencing modest rate pressure.
Now, in its recently announced full-year 2018 results, the insurer has revealed that for the full-year 2019, it expects to incur a higher non-quota share reinsurance expense as a result of increased protection from its full-year 2019 stop loss cover, and, increased renewal costs associated to its commercial line per risk excess of loss protection, which reflects high large loss experience.
So, while the insurer spent more on reinsurance during the full-year 2018, it expects this trend to continue, and to see its non-quota share reinsurance expense increase over the next twelve months, although this is under increased protection with the insurer highlighting a stronger reinsurance programme.
