Australian primary insurer Insurance Australia Group Limited (IAG) has successfully renewed its catastrophe reinsurance protection at an expanded size of $9 billion, up from $8 billion in the prior year.
The 12.5% increases in catastrophe reinsurance limit has been secured in a similar structure to 2018, to provide IAG with gross reinsurance protection amounting to $9 billion across the calendar year ahead.
67.5% of the program has been placed, to account for the cumulative quota-share reinsurance (20% from the whole account quota-share with Berkshire Hathaway, 12.5% from the 2018 arrangement with Munich Re, Swiss Re and Hannover Re) that covers the other 32.5% of the cat exposure for IAG.
IAG’s catastrophe reinsurance program for 2019 consists of a main per-occurrence catastrophe cover for losses up to $9 billion, which includes one prepaid reinstatement. IAG will hold onto the first $250 million of each loss (or $169 million post-quota share), and has secured three prepaid reinstatements for the lower layer of the main program (which attaches at $169 million excess of $169 million post-quota share).
In addition, IAG has its sideways aggregate reinsurance protection as well, which will help to lower the cost of a second catastrophe event to $175 million ($118 million after the quota share) and any subsequent event to $25 million ($17 million post-quota share).
IAG’s aggregate catastrophe reinsurance provides $475 million of cover excess of $375 million ($321 million excess of $253 million post-quota share), meaning that qualifying events will be capped at a maximum contribution of $225 million excess of $25 million per loss event ($152 million excess of $17 million post-quota share).
IAG has increased the size of its catastrophe reinsurance program to $9 billion to increase its cover above modelled exposure. The insurer expects that underlying aggregate exposure will show a modest increase in Australia and growth of approximately 5% in New Zealand in 2019.
More than 92% of the program was placed with reinsurers rated as A+ or higher, IAG said.
The insurer said that it experienced relatively flat reinsurance renewal rates, adding that the overall cost of the program was in line with its assumptions.