On 3 January 2019, Australia’s general insurance group, Insurance Australia Group Limited (ASX: IAG) announced regarding its catastrophe reinsurance program for CY19, following which the share price of IAG increased by 1.447 percent as on 3 January 2019.
In 2018, catastrophe reinsurance program was providing gross reinsurance protection of around $8 billion, this year IAG has increased the protection by $1 billion, and now the program is providing protection of up to $9 billion.
As per the announcement, the reinsurance program has been placed to the extent of 67.5 percent to reflect the cumulative whole-of-account quota share position of 32.5 percent. The whole-of-account quota share includes 20 percent quota share agreement with Berkshire Hathaway and the combined 12.5 percent quota share agreements with Munich Re, Swiss Re, and Hannover Re.
The insurance group has increased the limit of its main catastrophe cover to $9 billion. As per catastrophe reinsurance program, out of the cover of $9 billion, the first $250 million of each loss will be retained by IAG. In the second event, IAG will retain around $175 million, and in the subsequent event, it will retain $25 million. The Aggregate coverage of the reinsurance program will provide protection of $475M excess of $375M with qualifying events providing protection of $225M excess of $25M per event.
As per the announcement, the main catastrophe cover of $9 billion will provide additional protection above the modeled exposure. It is expected that the underlying aggregate exposure will show a modest increase in Australia and growth of around 5 percent in New Zealand.
Ninety-two percent of the entities covered under the reinsurance program are rated A+ or higher which demonstrate that the overall credit quality of the 2019 program is very strong.
Recently on 21 December 2018, the insurance group provided an update on net natural peril claim costs for FY 2019, following the severe storms which impacted the Sydney region on 20 December 2018. Till 21 December 2018, the claim costs for FY 2019 was around $410M -430M pre-tax, post-quota share which included a claim cost of $150M for events which occurred in the five months ending 30 November 2018. It also included around $70 million from the southern low which affected several regions of New South Wales (NSW), Victoria and Queensland in December 2018.
In FY 2018, the gross written premium of IAG increased by 1.8 percent to $11,647 million as compared to FY 2017. During the financial year 2018, IAG announced various significant transactions which include 12.5 percent combined quota share reinsurance program which started from 1 January 2018.
Meanwhile, the share price of IAG decreased by 17.36 percent as on 2 January 2019 and is trading at a PE ratio of 17.31x. IAG’s shares traded at $7.010 with the market capitalization of circa $15.97 billion as on 3 January 2019 (AEST 4:00 PM).