Australian insurer IAG has reported that at AUD 627 million, natural peril claims costs for the full-year 2019 exceeded its allowance by AUD 19 million, after the exhaustion of its FY19 stop-loss reinsurance protection, which provided the firm with AUD 101 million of cover in the second-half of the year.
For the first-half of the 2019 fiscal year, IAG experienced net natural peril claims of AUD 414 million, which is AUD 110 million above the AUD 304 million allowance.
For the second-half of the 2019 fiscal year, the insurer has reported net natural peril claims of AUD 213 million, which is below the AUD 304 million allowance for the month, but not low enough to offset the experience in H1 2019.
Overall, net natural peril claims resulted in a AUD 19 million negative impact on the company’s insurance margin in FY19, which compares to an AUD 84 million positive impact in FY18.
The insurer notes four significant natural catastrophe events in the year, a low pressure system that hit the Sydney region in November 2018; the December 2018 Sydney hailstorm; the north Queensland flooding in January 2019; and severe thunderstorm activity in Sydney and other parts of New South Wales and Queensland in March 2019.
IAG says that modest reinsurance recoveries occurred under its calendar 2018 aggregate cover in the first-half of 2019, compared with the calendar year 2017 aggregate cover providing AUD 120 million of reinsurance cover in the first-half of 2018.
As well as the full-use of its FY19 stop-loss reinsurance cover, IAG has revealed that its aggregate 2019 cover, which operates on a calendar year basis and which provides gross protection of AUD 475 million excess of AUD 375 million, has seen AUD 200 million of the gross deductible eroded as at June 30th, 2019.
This means that more than half of the deductible has already been eroded, leaving AUD 175 million of further erosion required before reinsurance recoveries can occur.
For FY20, IAG has increased its natural perils allowance to AUD 641 million, which is up on the previous year and also up on the FY18 allowance of AUD 625 million. The firm has also secured FY20 stop-loss reinsurance protection of AUD 101 million in excess of AUD 675 million, leaving a gap of AUD 34 million above allowance.
At the same time, IAG has lowered its overall maximum even retention (MER) to ~AUD 135 million as at June 30th 2019, compared with AUD 169 million as at January 1st, 2019. IAG states that this reflects the partial erosion of deductible on the 2019 aggregate cover.
IAG has been acquiring more reinsurance protection in recent years, and when compared with 2018, the Australian insurer’s reinsurance expense hit AUD 4.7 billion, which is up from the AUD 3.85 billion in 2018.
As shown by the above chart provided by IAG, it has boosted its natural peril allowance in the quarter, so it seems that as losses continue to hit the firm year-after-year, it’s increasingly leveraging greater volumes of reinsurance protection to offset losses.
Overall, IAG has reported an insurance profit of AUD 1.22 billion in FY19, which is down 13% on FY18. However, a strong investment return of AUD 227 million compared with AUD 165 million, helped the firm produce a FY19 profit of AUD 1.07 billion, which is up by almost 17% on the AUD 923 million posted in FY18.
“We have had a successful year which reflects the work we have done to better connect with our customers.
“Over the last year we have significantly increased our focus on risk, strengthening our business so we can continue to deliver the best outcomes for our customers – and all those who depend on us.
“We are using data to gain insightful risk perspectives and support rapid decision making, and we are strengthening our enterprise-wide capabilities to better manage current and emerging risks,” said IAG Managing Director and Chief Executive Officer (CEO), Peter Harmer.
