Insurance Australia Group Limited (IAG) today announced it has increased its catastrophe reinsurance program by over half a billion AUD.
The company’s program for the period starting January 1, 2012 includes protection of up to AUD4.7 billion (£3.1 billion), compared to AUD4.1 billion (£2.7 billion) in 2011.
“In challenging market conditions, we are pleased to have concluded a programme which provides us with increased coverage and the additional security of some multi-year protection,” said Mike Wilkins, IAG’s Chief Executive Officer and Managing Director.
“While the overall cost of the programme has risen, the outcome is consistent with the assumptions contained in the insurance margin guidance of 10 to 12% provided by the Group at the outset of the financial year,” he added.
The 2012 reinsurance programme includes cover for flood, which will be extended into Queensland and Victoria early this year.
IAG’s catastrophe reinsurance protection runs to a calendar year and operates on an excess of loss basis. The programme for 2012 comprises the following key components:
– A main catastrophe cover for losses up to AUD4.2 billion (£2.77 billion), including one prepaid reinstatement. The Group retains the first AUD250 million (£165 million) of each loss, with the lower layer of the main programme fixed for a period of three years. Two reinstatements of this layer have been secured;
– An upper layer, from AUD4.2 billion to AUD4.7 billion (£3.1 billion), providing earthquake cover in respect of Australia and New Zealand for a period of three years at agreed prices;
– A buydown arrangement that reduces the maximum cost of a first event to AUD150 million (£99 million);
– Subsequent event cover providing protection above AUD150 million (£99 million); and
– An aggregate sideways cover of AUD250 million (£165 million) excess of AUD300 million (£198 million), with qualifying events capped at a maximum contribution of AUD125 million (£82.4 million) excess of AUD25 million (£16.5 million), per event.
The combination of covers in place at 1 January 2012 results in maximum first event retentions of AUD150 million (£99 million) for Australia, AUD130 million (£86 million) for New Zealand and AUD50 million (£33 million) for the UK. The overall credit quality of the programme is high and has improved over that of 2011, with more than 90% placed with entities rated A+ or better.
For the financial year ended 30 June 2012, the Group expects to report a total reinsurance expense of between AUD700 million (£462 million) and AUD720 million (£475 million). This compares to a total reported reinsurance expense of $620 million (£409 million) the year before.
The financial year expenses and the reinsurance program don’t take into account the AMI business deal the company has recently undergone.
