IAG boosts catastrophe reinsurance as natural disasters bite deep

INSURANCE Australia Group, the country's biggest insurer, has increased its catastrophe reinsurance to $5 billion for 2013, from $4.7 billion last year.

Catastrophe reinsurance allows insurers to share the risk against major natural disasters, such as Hurricane Sandy in the US.

IAG's reinsurance covers all territories in which IAG operates, except its AMI business in New Zealand and the group's joint-venture interests in Asia.

IAG chief financial officer Nick Hawkins said the structure of the program was similar to that for 2012, but included "increased coverage, both at the upper and lower end of the main program and with respect to the aggregate cover".

"The overall cost of the program is in line with the assumptions incorporated into our full-year 2013 insurance margin guidance," he said.

The company said 87 per cent of its credit was rated A+ or higher.

Commonwealth Bank analyst Ross Curran said the move took pressure off the insurer to raise capital. "Regulators and credit agencies are always pushing for insurers to hold more capital," he said. "[IAG is] taking the opportunity, when pricing is good, to increase their reinsurance slightly."

Mr Curran said insurers were likely to continue to push through price rises in Australia to recover losses made during the 2011 floods in Brisbane and the New Zealand earthquake last year. "It will take years to recover from those," he said.

IAG's share price fell slightly on the news but after a rally rose to $4.75 from a previous close of $4.69.

IAG owns the NRMA and CGU insurance brands in Australia.