Swiss Re Insurance-Linked Fund Management

Xactanalysis Insights and PCS

Aggregate reinsurance claim minimises catastrophe loss for IAG


Insurance Australia Group (IAG) has benefited from its aggregate reinsurance in the first-half of its financial year, with a $120 million recovery from its reinsurers helping to reduce volatility from catastrophe losses.

IAG said this morning that its net natural peril claims costs came in at $262 million, which is $78 million below its budget for the first-half of its 2018 financial year.

The reason for catastrophe claims coming in below budget was the firms aggregate reinsurance arrangements, which it recouped $120 million from, helping IAG to reduce volatility in its results.

In the prior year period IAG reported $420 million of natural peril claims, so the effects of having a larger aggregate layer in place for the current financial year is clear.

Peter Harmer, IAG Managing Director & CEO, commented, “Our comprehensive reinsurance protection in the half saw net natural peril claim costs below allowance.”

IAG has regularly called on its reinsurers that provide its aggregate reinsurance tower, which we understand also includes an element of ILS backed capacity.

In the last half-year three catastrophe events that hit the insurer had their losses capped at $20 million thanks to the aggregate reinsurance coverage, including the Melbourne hailstorm which could have been a much larger loss for IAG had the reinsurance not kicked in.

The aggregate reinsurance effectively protects IAG from the frequency events that have, in the past, so impacted the insurers results.

IAG’s reinsurance costs did go up in the first-half of its financial year, but the growth of its aggregate protection and the way this has now minimised the impact of certain catastrophe events, such as the Melbourne hailstorm, is evidence of the effectiveness of this program.

Additionally, IAG recently increased its quota share reinsurance protection, with a new 12.5% quota share arrangement with reinsurers Munich Re, Swiss Re and Hannover Re.

Harmer explained the benefit of this, saying, “We are in a strong capital position, bolstered by the initial effect of the combined 12.5% quota share agreements announced in December 2017 which will drive lower earnings volatility and reduced catastrophe reinsurance and regulatory capital needs.”

The company also said in its half-year report that the quota shares, “Improve IAG’s capital mix through greater use of more efficient reinsurance capital, serving to reduce earnings volatility, lower exposure to catastrophe reinsurance rates and reduce regulatory capital requirements.”

IAG renewed its catastrophe reinsurance program at the January 2018 renewals, citing modest upwards pressure on rates.

Register today for ILS NYC 2023, our next insurance-linked securities (ILS) market conference. Held in New York City, February 10th, 2023.

Artemis London 2022 - Insurance-linked securities conference in London

Get a ticket soon to ensure you can attend. Secure your place at the event here!

Print Friendly, PDF & Email

Artemis Newsletters and Email Alerts

Receive a regular weekly email newsletter update containing all the top news stories, deals and event information

  • This field is for validation purposes and should be left unchanged.

Receive alert notifications by email for every article from Artemis as it gets published.