Australian insurer IAG has posted a 59.6% downturn in net profits for the fiscal year ended June 30th, 2020, offset by AU $700 million (US $504 million) of recoveries from its catastrophe reinsurance program.
IAG’s net profit after tax came to $435 million for FY20, compared with $1.08 billion in the previous year.
This was mainly due to the extensive natural peril activity in the middle of the year, which brought the company’s claim costs to $904 million, exceeding the revised guidance of $850 million and original allowance of $641 million.
Notable perils included the devastating bushfires in Australia, which were exacerbated by prolonged drought and extreme weather conditions.
Altogether, the bushfires resulted in around 2,000 claims for IAG and a net claim cost of over $170 million, predominantly in 1H20.
Adding to this was a major hailstorm event in January 2020 that impacted parts of Melbourne, Canberra and Sydney and produced over 40,000 claims and a net claim cost of $169m.
IAG also reported over 30,000 claims and a net claim cost of $127 million following an east coast low that affected NSW and Queensland in early February.
However, the impact of these catastrophe events was mitigated by IAG’s large reinsurance recoveries, which included $150 million under its calendar 2019 main catastrophe cover, and a further $150 million under its 2020 main cover.
The company also recovered more than $300 million under its calendar 2019 aggregate cover, $101 million from its FY20 stop-loss cover, and $16 million under its 2020 aggregate cover, following full erosion of the attached deductible during 2H20.
As previously announced, IAG has since opted to further strengthen its overall reinsurance position with the purchase of a new aggregate catastrophe reinsurance cover and a stop-loss protection for retained natural perils.
IAG’s combination of covers in place at 1 July 2020 results in an estimated maximum event retention of $41 million based on current estimates of losses incurred in 2H20 and a gross next event in excess of $250 million.
The insurer also continues to have a cumulative whole-of-account quota share position of 32.5% which comprises a 10-year 20% agreement with Berkshire Hathaway, as well as combined 12.5% agreements with Munich Re, Swiss Re, and Hannover Re.
In addition, IAG has purchased a new aggregate catastrophe cover for the 12 months to June 30th, 2021, which provides $350 million of gross protection in excess of $400 million ($236 million in excess of $270 million post-quota share).
Further reinsurance cover includes a stop-loss protection for retained natural perils that provides$100 million in excess of $1.1 billion ($67 million in excess of $742 million post-quota share), and attaches at $84 million above the firm’s FY21 perils allowance of $658 million (post-quota share).
“The catastrophic natural peril events we saw over the year had a profound impact on our customers and communities – with the terrible bushfires that swept through Australia, followed by hailstorms in Canterbury and then Melbourne, the ACT and Sydney,” said IAG Managing Director and CEO Peter Harmer.
“The high level of natural peril activity over the year underscores the importance of climate action, and the mitigation of its effects, to help make our communities safer, and we continue to advocate for businesses, government and communities to work together on this important issue,” Harmer noted.
