IAG negotiates multi-year coverage, improves credit quality of annual renewal

Insurance Australia Group (IAG) has renewed its catastrophe reinsurance programme for 2017 at a similar size to previous years but it has added an additional multi-year dimension to the coverage.

The programme provides gross reinsurance protection of up to A$7 billion ($5 billion) – the same as in 2016.

The company said the gross protection is consistent with 2016, reflecting a relatively stable overall aggregate exposure, where growth in short tail personal lines has been offset by reduced commercial portfolios, in both Australia and New Zealand.

The programme has been placed to the extent of 80 percent after allowance for a 20 percent quota share agreement with Berkshire Hathaway.

The main difference to 2016 is that this deal contains an increased multi-year component, which IAG said involves several counterparties. The programme covers all territories in which IAG operates, with the exception of its joint venture interest in India which has its own reinsurance arrangements.

The reinsurance programme comprises two main components.

A main catastrophe cover is in place for losses up to A$7 billion, including one prepaid reinstatement. IAG retains the first A$250 million of each loss (A$200 million post-quota share), with three prepaid reinstatements secured for the lower layer of the main programme (A $200 million excess of A $200 million post-quota share).

An increased aggregate sideways cover reduces the cost of a second event to A$125 million (A$100 million post-quota share) and a subsequent event to A$25 million (A$20 million post-quota share).

The aggregate provides protection of A$475 million excess of A$325 million (A$380 million excess of A$260 million post-quota share), with qualifying events capped at a maximum contribution of A$225 million excess of A$25 million per event (A$180 million excess of A$20 million post-quota share).

IAG also said that the overall credit quality of the 2017 programme is stronger, with over 92 percent (2016: 88.5 percent) placed with entities rated A+ or better.

In addition, IAG has a separate natural perils cover of $96 million in excess of $680 million (post-quota share), which runs in line with the financial year ending 30 June 2017.

The combination of all catastrophe covers in place at 1 January 2017 results in post-quota share first event retentions of A$200 million for Australia, NZ$200 million for New Zealand, A$20 million for Thailand and Malaysia, and approximately A$1 million for Vietnam and Indonesia.