Australian insurer IAG has completed its 2023 catastrophe reinsurance renewal, maintaining a flat gross protection cover at up to $10 billion, same as in 2022; its first event retention was increased “reflecting inflation and the global reinsurance market impacts”.
The main cover provides gross protection for catastrophe losses of up to $10 billion, for two events, with IAG retaining the first $338 million of each loss, a higher figure compared to last year’s $250 million.
IAG has also secured a further drop-down cover of $150 million reducing its retention on the two events to $236 million with an additional premium payable if the drop-down cover is utilised on a first event.
For a third and fourth event, the program provides $250 million of cover excess $250 million.
In addition, for the remainder of FY23, IAG’s reinsurance protection also includes drop-down cover of $100 million for third and fourth events.
This, according to the insurer, reduces the retention to $101 million and aggregate cover of $350 million excess of $500 million with qualifying events capped at $200 million excess of $50 million per event.
In line with last year’s programme, IAG has placed the 2023 programme to the extent of 67.5% to reflect its cumulative whole-of-account quota share arrangements.
IAG’s Chief Financial Officer Michelle McPherson commented: “Global reinsurance has become more challenging over the past year due to the impact of capital markets and Australian and international natural peril events, however IAG continues to have strong support from our long-term reinsurance partners.
“We have increased our first event retention reflecting inflation and global reinsurance market impacts. This was a rational economic decision balancing the interests of all our stakeholders including minimising the impact of additional reinsurance costs on our customers.”
IAG has also agreed terms to renew Whole of Account Quota Share (WAQS) agreements with partners Munich Re and Swiss Re. These represent 10% of the 12.5% whole of account program that is due to expire on 30 June 2023.
The new agreements will be effective from January 1, 2023 and have a term of five years. According to the insurer, renewal discussions in respect of the remaining 2.5% due to expire on June 30 2023, are expected to be completed over the coming months.
McPherson said: “In an environment of constrained reinsurance capacity, the renewed agreements provide IAG with materially consistent financial outcomes and support our 15% to 17% medium-term reported margin target.”
After allowance for the WAQS arrangements, the insurer noted, the combination of all catastrophe covers at January 1, 2023 results in IAG having a maximum first event retention of $236 million.
The total non-quota share reinsurance expense for FY23 has increased as expected, IAG added, and is currently anticipated to be in the range of $790 million to $820 million.
Additionally, the overall credit quality of the 2023 program is strong, with over 90% placed with entities rated A+ or higher, which is in line with 2022.
