IAG outlines details of capital raising following test case verdict

"Decisive action" in response to industry's court loss

IAG outlines details of capital raising following test case verdict

Insurance News

By Terry Gangcuangco

Insurance Australia Group has confirmed it is raising as much as $750 million in new equity capital following the New South Wales Court of Appeal’s (NSWCA) business interruption test case ruling in favour of policyholders.

“Given the NSWCA’s decision, IAG intends to recognise a post-tax provision of $865 million and is taking decisive action to strengthen its balance sheet via a fully underwritten institutional placement of $650 million and a non-underwritten share purchase plan to raise up to $100 million,” said IAG today (November 20) in an ASX filing.

The insurance giant went on to note that the move is subject to scale-back and the company’s ability to raise less or more in its absolute discretion.

Additionally, according to IAG, it has so far received “a small number” of claims related to business interruption.

It stated: “However, in light of the NSWCA’s judgement, IAG has estimated the potential claims impact in its reserving position for the half year ending December 31, 2020. Based on a detailed assessment of its underwriting exposure at October 31, 2020, IAG estimates a post-tax provision of approximately $865 million is required to reflect the potential impact of the NSWCA judgement.

“Significant judgement has 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.”

IAG also reiterated the insurer’s view that the intent of its business interruption policies is to not provide cover for losses related to pandemics such as the coronavirus outbreak.

Separately, fellow behemoth Suncorp had this to say in an update: “The [court’s] decision does not mean that business interruption policies referencing the Quarantine Act will automatically respond to COVID-19 related claims.

“When assessing whether a business interruption claim may be triggered, each policyholder’s individual circumstances will need to be considered against the various other clauses relevant to their policy.”

QBE, meanwhile, similarly noted that the particular wording of its business interruption policies require a number of triggers to be met in order for insureds to be entitled to indemnity.

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