IAG boosts catastrophe reinsurance
Catastrophe reinsurance allows insurers to share the risk against major natural disasters, such as hurricane Sandy in the US.
The reinsurance covers all territories in which IAG operates, except AMI in New Zealand and the group's joint venture interests in Asia.
IAG's 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.
The 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."
He said insurers would likely 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 rallied to close at $4.75 from $4.69.
IAG owns the NRMA and CGU insurance brands in Australia.
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IAG increased its catastrophe reinsurance to $5.0 billion for this year, up from $4.7 billion last year. Catastrophe reinsurance helps insurers share the risk of major natural disasters.
The reinsurance covers all territories in which IAG operates except for AMI in New Zealand and the group’s joint venture interests in Asia.
IAG’s CFO said the program structure is similar to 2012 but includes increased coverage at both the upper and lower ends of the main program and expanded aggregate cover. Analysts noted IAG took the opportunity to increase reinsurance while pricing was favourable, which reduces pressure to raise capital.
IAG said the overall cost of the reinsurance program is in line with the assumptions incorporated into its full-year 2013 insurance margin guidance, so the move was not expected to change that guidance.
The company said 87% of its reinsurance credit was rated A+ or higher, indicating a high proportion of strong-rated counterparties in the program.
A Commonwealth Bank analyst said the move takes pressure off IAG to raise capital and that insurers are likely to use favourable pricing to increase reinsurance. He also noted insurers will likely continue pushing price rises in Australia to recover losses from the 2011 Brisbane floods and last year’s New Zealand earthquake.
IAG’s share price fell slightly on the news but then rallied to close at $4.75, up from $4.69 earlier in the session.
IAG owns the NRMA and CGU insurance brands in Australia.
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