Australian insurer IAG has revealed that it’s increased its full year 2020 net perils expectation to AUD 850 million after 1H20 natural catastrophe losses exceeded its allowance by around AUD 100 million, leading to significant reinsurance recoveries.
The firm has released its results for the half year ended December 31st, 2019 and underlines the significant and damaging series of catastrophe events that have hit Australia in recent times.
Overall, IAG has reported an insurance profit of AUD 501 million in 1H20, compared with AUD 496 million in 1H19, while the reported insurance margin fell slightly to 13.5% as a result of its significant catastrophe experience, and also lower than expected prior year reserve releases for the period.
Net profit after-tax fell by more than 43% to AUD 283 million, which the firm attributes to the absence of the prior year period’s profit on the sale of its Thailand business, and also the inclusion of a post-tax provision of AUD 82 million to address a specific customer pricing issue.
Discussing the catastrophe events of the period, and IAG states that the impacts of hailstorms, bushfires, and more recently heavy rain have pushed the insurer to lower its guidance for the full year to 12.5% – 14.5%, and, IAG has raised its FY20 catastrophe assumption from AUD 715 million to AUD 850 million.
IAG had said previously that it expected to claim on its reinsurance protection for the recent bushfire events, and has now revealed that during 1H20 it made “significant reinsurance recoveries”, which includes around AUD 280 million under its calendar year 2019 aggregate cover.
That will be on top of quota share reinsurance that the firm has in place, which sees Berkshire Hathaway take 20% of its claims through one arrangement, while Munich Re, Swiss Re, and Hannover Re all share in another 12.5% through a second arrangement.
Towards the end of January, IAG said that losses as a result of hailstorms which hit parts of Melbourne, Canberra, and Sydney, will see it make a claim under its 2020 main catastrophe reinsurance program.
This event was followed by heavy rainfall at the start of February, and IAG reveals that it expects the cost of this event to be capped at AUD 135 million, which is in line with the second maximum event retention under its calendar year 2020 reinsurance program.
Peter Harmer, IAG Managing Director and Chief Executive Officer (CEO), commented: “We have lowered our reported margin guidance range for FY20, from 16‑18% to 12.5‑14.5%. This takes into account a reduction in expected contribution from prior period reserve releases, following the lower than anticipated reserve releases in the first half, and an increased net natural peril claim cost assumption following the significant January hailstorm across parts of Melbourne, Canberra and Sydney and the heavy rain event which affected south‑east Australia in February.
“GWP guidance, of low single digit growth, has been reaffirmed, and the underlying performance of IAG is expected to remain strong in 2H20.”
