Australian primary insurance group IAG has revealed that its losses alone from the recent east coast low pressure storm system that affected the New South Wales Australia region, particularly Sydney, are likely to near the current industry loss estimate.
The insurance industry loss estimate had reached AUD$295m yesterday, according to the Insurance Council of Australia, but now IAG has come forward to say that it expects a hit of AUD$300m to its own business from storms in the area and will call on reinsurance protection to help it pay the claims.
IAG’s estimate includes $250m from the first New South Wales storm and an additional $50m for the severe hailstorm that followed and struck the Sydney area.
“As a result of recent events and other perils experience, IAG has revised its net natural peril claim cost assumption for the financial year ending 30 June 2015 (FY15) to $1 billion, after reinsurance recoveries,” IAG explained.
IAG said that it anticipates “full utilisation of the reinsurance cover which provides protection of $150 million in excess of $700 million for retained perils in FY15,” which guarantees another impact to global reinsurers, and perhaps to some collateralized reinsurance layers provided by ILS funds.
IAG Managing Director and CEO Mike Wilkins said; “As an insurer, managing events like those we have seen in the past few months is part of our normal business activity, but their incidence and size are unpredictable.”
IAG also revealed a worsening impact from Cyclone Marcia, reporting an; “Adverse development of claims associated with prior large events, notably Tropical Cyclone Marcia in February this year, which is now expected to cost approximately $140 million, compared to the $60-90 million range provided in March 2015. This is mainly due to the continued notification of commercial claims from remote areas.”
The reinsurance layer that IAG appears to have fully utilised is part of its main catastrophe programme it appears. The insurer said that it is now close to eating into its aggregate, sideways protection, that it put in place for 2015 for the first time.
The aggregate catastrophe reinsurance layer provides $450 million of protection in excess of $375 million for IAG.
The insurer explained; “Qualifying events for the aggregate cover are capped at a maximum contribution of $225 million excess of $25 million per event. Based on calendar year-to-date experience, including the events outlined above, approximately $365 million of the applicable deductible has been eroded. As a result, IAG’s current MER is estimated to have reduced to approximately $35 million.”
The overall impact to IAG is set to hit its results for the year, the insurer said; “Based on the updated net natural peril cost expectation, IAG has revised its FY15 insurance margin guidance range to 10.5-12.5%, down from 13.5-15.5%.”
So whether any ILS funds are hit by the losses from the New South Wales storm may come down to where in IAG’s programme they participate.
As a result of IAG’s disclosure it is expected that the Insurance Council will significantly increase its industry loss estimate, when it next announces it. We’ll update you when we hear anything.