Insurer IAG secures $7 billion in catastrophe reinsurance

by IBO 11 Jan 2016

Insurer IAG secures $7 billion in catastrophe reinsurance

IAG has finalised its catastrophe reinsurance program for 2016 providing gross reinsurance protection of up to $7 billion.

It has been placed to the extent of 80%, after allowance for the 20% quota share agreement with Berkshire Hathaway which commenced on 1 July 2015.

The company said this year’s program was constructed in a similar manner to prior years, reflecting a stable overall aggregate exposure, with modest growth in the underlying business offset by reduced exposure to large-corporate property.

Renewal rights to IAG’s large-corporate property book, which carry a relatively heavy reinsurance requirement, have passed to Berkshire Hathaway as part of the strategic relationship, the company said.

The key components for the reinsurance program are:
  • A main catastrophe cover for losses up to $7 billion, including one prepaid reinstatement. IAG retains the first $250 million of each loss ($200 million post-quota share), with three prepaid reinstatements secured for the lower layer of the main program ($200 million excess of $200 million, post-quota share); and
  • An aggregate sideways cover which reduces the cost of a second event to $175 million ($140 million post-quota share) and a subsequent event to $25 million ($20 million post-quota share). The aggregate provides protection of $450 million excess of $375 million ($360 million excess of $300 million, post-quota share), with qualifying events capped at a maximum contribution of $225 million excess of $25 million per event ($180 million excess of $20 million, post-quota share).
IAG said the catastrophe reinsurance covered all territories in which the company operated in, including New Zealand, with the exception of its joint venture interests in India and China which have their own reinsurance arrangements.

“The overall credit quality of the 2016 program remains high, with 88.5% (2015: over 89%) placed with entities rated A+ or better,” IAG said in a statement.

“In addition, IAG has a separate natural perils cover of $80 million in excess of $680 million (post-quota share), which runs in line with the financial year ending 30 June 2016.”

The combination of all catastrophe covers in place at 1 January 2016 results in post-quota share first event retentions of $200 million for Australia, NZ$200 million for New Zealand, $20 million for Thailand, and less than $1 million for Vietnam and Indonesia. The first event retention for Malaysia, which is not subject to the Berkshire Hathaway quota share agreement, is $25 million.