Australian primary insurance giant Insurance Australia Group Limited has renewed its catastrophe reinsurance program for 2017 at a static size of $7 billion, but has added additional multi-year coverage from a number of counterparties.
A broking source told Artemis that collateralised capacity plays a significant role in the program, with a number of ILS funds and managers providing capacity both directly through their own reinsurance vehicles, or via a fronting reinsurer agreement. Details of how much of this program hails from the capital market are not available.
IAG said that it’s 2017 catastrophe reinsurance renewal has been constructed similarly to 2016, with the size of the program identical to provide coverage up to $7 billion.
Warren Buffett’s Berkshire Hathaway continues to play a key role in IAG’s reinsurance provision through the quota share arrangement, and so the 2017 renewal has been 80% placed, after allowing for the 20% quota share agreement with Buffett’s reinsurer.
The main components of the reinsurance program area an occurrence catastrophe cover protecting IAG from losses up to $7 billion, which includes a single prepaid reinstatement. IAG retains $250 million of every loss ($200 million after taking account of the Berkshire quota share), and there are three prepaid reinstatements on the lower layer of this main program ($200 million excess of $200 million after the quota share).
On the aggregate or sideways protection, IAG has secured reinsurance to reduces the cost of a second event to $125 million ($100 million after the quota share) and reducing a subsequent event loss to just $25 million ($20 million after the quota share). This aggregate cover provides for $475 million excess of $325 million ($380 million excess of $260 million post-quota share) of protection, with all qualifying events capped at $225 million excess of $25 million per event ($180 million excess of $20 million after the quota share).
The main change to the program for 2017 is the addition of a greater amount of multi-year reinsurance cover, which likely reflects better terms and pricing at the renewal enabling IAG to lock in pricing for longer. The multi-year reinsurance cover involves a number of counterparties, IAG said and covers all territories except its joint-venture in India, which has its own reinsurance arrangement.
The 2017 reinsurance program has been over 92% placed with A+ or better rated entities, an increase from 88.5% rated A+ or better in the 2016 renewal.
IAG also has a separate natural perils cover of $96 million, excess $680 million (after the quota share), which runs in line with the insurers financial year ending 30 June 2017.
With all of the catastrophe reinsurance and the Berkshire Hathaway quota-share in place at Jan 1st 2017 IAG has first event retentions of $200 million for Australia, NZ$200 million for New Zealand, $20 million for Thailand and Malaysia, and approximately $1 million for Vietnam and Indonesia.