has announced it entered into three agreements to quota-share a combined 12.5% of its consolidated business from Jan. 1, which will improve IAG
’s capital mix by placing greater emphasis on the application of more efficient reinsurance capital.
According to IAG
, the agreements, with reinsurers Munich Re
, Swiss Re
and Hannover Re, are on a whole-of-account basis, covering IAG
’s consolidated business in Australia, New Zealand and Thailand. They have an average initial period of more than five years.
Starting January, the reinsurers will receive a combined 12.5% of IAG
’s consolidated gross earned premium and pay 12.5% of claims and expenses. In addition, IAG
will receive an exchange commission.
The agreements build on the 10-year, 20% whole-of-account quota-share arrangement between IAG
and Berkshire Hathaway, which has been in place for over two years, and are expected to deliver similar benefits and financial effects on a pro rata basis:
- Reduced earnings volatility, with 12.5% of insurance risk effectively exchanged for a more stable fee income stream;
- Lower requirement for catastrophe reinsurance and reduced exposure to volatility in associated premium rates;
- A reduction in regulatory capital requirement of approximately $435 million over a three-year period; and
- Broadly neutral EPS and ROE effects, prior to consideration of potential capital management impacts.
managing director and chief executive officer Peter Harmer said the agreements are a logical next step for the company.
“In tandem with the Berkshire Hathaway quota share, we have removed downside earnings risk from 32.5% of our business while retaining significant exposure to earnings upside via the profit share arrangements,” Harmer said. “We believe this is a good outcome for IAG
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