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IAG completes $10bn catastrophe reinsurance renewal

6th January 2022 - Author: Luke Gallin

Australian insurer IAG has completed its 2022 catastrophe reinsurance renewal, securing flat gross protection cover at up to $10 billion at a higher cost than last year.

The main cover of the $10 billion 2022 calendar year catastrophe reinsurance programme includes one prepaid reinstatement, with IAG retaining the first $250 million of each loss, which is line with the 2021 programme.

Also, like the 2021 programme, IAG has secured second and third event drop-down covers of $50 million, which lowers the cost of these additional events to $200 million.

The primary insurer has also secured three prepaid reinstatements for the lower layer of the 2022 programme, which provides $250 million of cover excess $250 million.

In line with last year’s programme, IAG has placed the 2022 programme to the extent of 67.5% to reflect its cumulative whole-of-account quota share arrangements.

While the cost of the renewal was in line with assumptions incorporated into the firm’s internal planning process, IAG notes that the price of its cat reinsurance for 2022 has increased by mid-single digits.

“Our catastrophe reinsurance program remains 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,” said Michelle McPherson, IAG’s Chief Financial Officer (CFO).

iag-reinsurance-renewal-2022

For 2022, roughly 60% of the gross main catastrophe reinsurance programme is protected by multi-year cover, which IAG says provides certainty for future reinsurance cover. This compares to 65% of the 2021 programme being placed on a multi-year basis.

Another difference from last year is that the overall credit quality of the 2022 programme is stronger, with more than 90% placed with entities rated A+ or higher, compared to almost 90% in 2021.

As we wrote previously, IAG’s programme also features an aggregate sideways cover for the fiscal year ending June 30th, 2022. This layer now provides the firm with $350 million of protection in excess of $90 million, after an estimated $130 million erosion of the $400 million deductible during the six months to the end of December 2021 (pre-quota share).

Once the quota share arrangements are taking into account, the combination of all catastrophe covers at January 1st, 2022 results in the company having a maximum event retention of just $95 million.

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