Australian general insurer Insurance Australia Group (IAG) has strengthened its reinsurance cover through the purchase of an additional $1 billion catastrophe protection on top of its existing $7 billion programme.
The $1 billion reinsurance deal includes one prepaid reinstatement and begins on 1st of June running for a contractual period of 19 months before concluding on 31st December 2018.
IAG Chief Financial Officer, Nick Hawkins, commented; “We are always looking for ways to strengthen our reinsurance protection in a cost-effective manner, and this purchase meets those requirements. It significantly extends the upper end of our gross protection.”
The $7 billion gross of IAG’s existing main catastrophe tower is renewed every calendar year and is subject to renewal on January 1st 2018.
The placement covers 80% of the layer (so $750m of losses), which reflects the insurers existing quota share arrangement that it has with Warren Buffett’s Berkshire Hathaway (so allows for the 20% quota share agreement with Buffett’s reinsurer).
This has been constructed in a similar manner to prior years, and provides gross reinsurance protection of up to $7 billion (2016: $7 billion).
The additional $1 billion reinsurance catastrophe cover comes after IAG saw its perils budget depleted and was forced to reach into its reinsurance cover earlier this year, facing heavy payouts in the aftermath of Cyclone Debbie and the Sydney hailstorms.
The Insurance Australia Group (IAG) announced it expected to fully use up its FY17-specific reinsurance cover of $96 million – which is set to kick in if claims rise above the $680 million mark- after Cyclone Debbie raised the insurer’s FY17 net natural peril claim cost estimations to $850 million.
The insurer’s peril costs budget had already been under strain from the Sydney storms, with two-thirds of the AU$680 million total natural perils allowance for the 2017 fiscal already eaten up in the first half of the fiscal year.