IAG inks major deals with Berkshire, Canada Life & Enstar to cut risks, stabilise earnings
Australian insurer IAG has struck a strategic five-year deal with Berkshire Hathaway and Canada Life Reinsurance to gain long-term reinsurance protection against natural perils volatility, as well as secured adverse development protection for its A$2.5 billion long-tail reserves from Enstar.
The company said the two strategic agreements with global reinsurers will help improve its future financial stability.
IAG’s five-year natural perils reinsurance agreement with Berkshire subsidiary National Indemnity Company and Canada Life Re starts from July 2024, providing up to A$680 million of additional protection annually, and up to A$2.8 billion over the entire five-year period.
The company stated that its annual cost of the protection will be “flat” for the five years, with its annual natural perils allowance (capped at A$1.283 million for FY25) only increasing relative to the underlying exposures.
“Australians and New Zealanders have experienced multiple extreme weather events over the past five years which has resulted in increased reinsurance costs and ultimately property insurance premiums. This long-term agreement will help to provide greater certainty over natural perils cost as extreme weather events become more frequent and severe,” said IAG managing director and CEO Nick Hawkins. “For our shareholders, this transaction builds on IAG’s comprehensive reinsurance strategy and provides greater earnings stability and reduces our capital requirements.”
The agreement with Enstar subsidiary Cavello Bay Reinsurance will provide IAG the equivalent of $430 million of excess cover over the equivalent of $1.7 billion of underlying reserves related to certain long-tail insurance business. The ADC includes explicit cover for Molestation and Silicosis up to a sublimit of A$50 million.
This transaction includes product & public liability, compulsory third-party motor, professional risks and workers’ compensation for losses incurred on or prior to June 30, 2023.
IAG chief financial officer William McDonnell said: “This additional long-tail protection is a further demonstration of IAG’s ability and ongoing effort to reduce financial risk, capital requirements and earnings volatility.”
Dominic Silvester, chief executive officer, Enstar Group, said: “We are pleased to provide a bespoke reinsurance solution that will support IAG in reducing financial risk, capital requirements and earnings volatility. This transaction demonstrates our strong capabilities in the Australian market as we continue to strengthen our position as the partner of choice across global markets.”
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