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IAG signs $8bn 2018 reinsurance, reduces retention with quota-shares

3rd January 2018 - Author: Steve Evans

Australian primary insurance giant Insurance Australia Group Limited (IAG) has successfully placed its 2018 reinsurance program, lowering its retentions thanks to its new quota-share arrangement and only experiencing modest rate pressure.

IAG logo

For 2018 IAG has secured an $8 billion catastrophe reinsurance program, but where as last year the program was 80% placed, taking into account the insurers 20% quota-share with Warren Buffett’s Berkshire Hathaway, this year the program only had to be 67.5% placed, allowing for the new 12.5% quota share reinsurance arrangements that IAG entered into with Munich Re, Swiss Re and Hannover Re and which are on-risk from 1st January 2018.

IAG renewed its catastrophe reinsurance program for the 2018 year using largely high-rated reinsurers, with 92% of entities rated A+ or higher.

The program covers IAG for all of its insurance operations aside from in India, where its joint-venture interest arranges its own reinsurance program.

The catastrophe reinsurance programs main component consists of cover for per-occurrence losses up to $8 billion, with one prepaid reinstatement.

Additionally, an aggregate sideways reinsurance cover provides $475 million excess of $325 million of protection ($321 million excess of $219 million after the quota share), and caps qualifying events at a maximum contribution of $225 million excess of $25 million per event ($152 million excess of $17 million after the quota share).

The aggregate cover lowers the maximum cost of a second event to $125 million ($84 million after the quota share) and a subsequent event to $25 million ($17 million after the quota share).

IAG’s retentions have come down thanks to the new quota-share arrangement with Munich Re, Swiss Re and Hannover Re, with the insurers retention now down to just $169 million after all quota shares, compared to $200 million in 2017.

Thanks to the quota-share reinsurance first event retentions have come down to $169 million for Australia, NZ$169 million for New Zealand, $20 million for Malaysia, $17 million for Thailand and approximately $1 million for Vietnam and Indonesia

At the same time the exposure is up slightly, as underlying aggregates have increased slightly, with growth in short tail personal lines underwriting at IAG offset slightly by shrunk commercial portfolios, in both Australia and New Zealand.

IAG noted that reinsurance rates were a little higher for its renewal, citing “modest upwards pressure on like-for-like reinsurance rates during the renewal process” although it said the overall expense of the program was in line with assumptions made in its FY18 guidance.

Full details of IAG’s 2018 catastrophe reinsurance program can be seen below:

IAG catastrophe reinsurance cover – 2018 program

IAG catastrophe reinsurance cover – 2018 program (gross)

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