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IAG set for sizeable capital raise following $865mn pandemic BI hit

20th November 2020 - Author: Charlie Wood

Australian insurance group IAG intends to recognise a $865 million hit from pandemic-related business interruption claims and as a result will be looking to raise $750 million in new equity capital.

iagIAG’s announcement follows a NSW Court of Appeal ruling that insurers could not decline business interruption claims due to incorrectly worded exclusions for “quarantinable diseases.”

The group’s Chief Executive Officer Nick Hawkins said “significant judgment” had been exercised to derive the provision estimate, which has been subject to independent peer review and includes a risk margin to derive a 90% level of confidence for the group’s total outstanding claim liabilities.

To achieve its proposed capital raise, IAG will look to bring in $750 million of new equity capital from the combination of a $650 million fully underwritten institutional placement raise at a fixed price of $5.05 per new share, and a non-underwritten retail share purchase plan targeting up to $100 million.

IAG says its provision covers all policies with wordings that include the Quarantine Act and without specific reference to the Biosecurity Act, which replaced the Quarantine Act.

Its provision also includes all policies with prevention of access extensions used on certain broker platforms which reference the Biosecurity Act.

Prevention of access clauses vary in terms but generally operate when actions of governments or other legal authorities cause business interruption by preventing or restricting access to premises.

Hawkins underlined how the planned capital raise would maintain the company’s position towards the top end of its capital targets and allow it to maintain a dividend payout ratio of between 60 and 80%.

However, he said the $865 million provision would result in a big tax loss for fiscal 2021.

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