Losses suffered by Australian insurance group IAG from the recent Sydney area hailstorm event are assumed to be within its catastrophe budget and reinsurance coverage, according to the firm, but already it is running over-budget and has claimed AU$106 million from its aggregate coverage
In announcing its results today, IAG said that the hailstorm event that struck the area on the 18th February 2017 was assumed to fall within its catastrophe budget and reinsurance, suggesting that the company does not expect a huge rise in the industry loss associated with the storm.
IAG said that it has received more than 13,000 claims to date from the hailstorm, with the majority being motor related. The company underwrites through the NRMA Insurance, CGU Insurance, Coles Insurance and WFI Insurance brands in the area affected by the storm.
The insurer stressed that it is “too early to determine the net cost of the Northern Sydney hailstorm,” but it assumes that this hailstorm and other perils that struck the firm in the last half-year fall within budget and its available reinsurance cover.
IAG is already running ahead of budget though, as it has reported natural peril claim costs of $420 million for the half-year, but only has a natural perils allowance for the full-year of $680 million, so that’s $80 million above allowance so far leaving a smaller budget for H2 of its financial year.
IAG breaks down its catastrophe and weather losses in the last half-year as $156 million of attritional losses, $61 million of losses greater than $15m each, $117 million from the Kaikoura earthquake in New Zealand and $86 million from Adelaide and New Zealand storms.
The company still believes it can come in under its full-year peril allowance, but with the Sydney hailstorm an early addition in the second-half of its fiscal year there is a good chance it could blow through that figure to eat into reinsurance cover that sits atop the allowance.
In the first-half of its financial year, just ended, IAG said it has benefited from $106 million of aggregate reinsurance coverage, part of its aggregate reinsurance program that provides $380 million of protection excess of $260 million, with qualifying events capped at $180 million excess of $20 million per event.
The company also has reinsurance from its main catastrophe program which limits a first event exposure to $200 million, and a catastrophe specific top-up which provides $96 million of protection directly above its $680 million perils allowance. All of this coverage is of course after the 20% quota share that IAG has set up with Warren Buffett’s Berkshire Hathaway.
IAG continues to make increasing use of reinsurance capacity in recent years, with the collateralised markets and ILS funds also playing a role in its programs. It’s use of multiple sources of reinsurance capacity, as well as its own reinsurance captives which subsequently utilise retrocession, means that the ILS market plays a growing role in its program, particularly via rated fronting or parent reinsurers to ILS entities.
With the catastrophe budget remaining diminished for the second-half of its financial year, the recent Sydney hailstorm set to reduce the remainder further and aggregate reinsurance already in use, IAG looks likely to require reinsurer support throughout the rest of its year.