Australian primary insurer IAG expects to incur net costs of around AUD 74 million for the storm and flooding event that started in February 2022, which represents a decline on the March 1st estimate as the carrier utilises $95 million of its aggregate reinsurance protection, post-quota share.
IAG says that as of March 9th, 2022, it had received some 24,000 claims across its business for the floods and storms, including roughly 3,500 claims from the flooding in Sydney over the last few days.
With severe and damaging weather still impacting the eastern seaboard, coupled with access issues to affected areas, IAG says it’s too early to determine both the number and nature of claims, but says that it does expect the claims count to increase in the coming days.
Thanks to its “extensive reinsurance protection”, IAG estimates that it will incur a net claims cost of roughly $74 million related to the storms and flooding. This represents a decline of $21 million from the insurer’s March 1st estimate of $95 million, attributable to development on previous claims which IAG says further eroded the FY22 deductible and lowered the total claims cost.
Following this event, IAG has utilised around $95 million of the $236 million of its aggregate reinsurance cover, post-quota share.
This layer of protection attaches at $350 million of losses in excess of a $400 million retention with the firm’s quota share arrangements coming into play first, meaning the aggregate cover has been placed to 67.5%, or $236 million.
As we wrote in January, the impacts of severe weather and catastrophe loss activity in that annual term for the aggregate reinsurance layer, meant it provided the insurer with $350 million of protection in excess of $90 million, as some $310 million of the $400 million deductible had been eroded during the six months to December 31st, 2021.
But the storm and flooding events that commenced in February 2022 have now eroded IAG’s aggregate reinsurance retention, meaning that any further qualifying losses will flow to reinsurers.
Now, IAG says that after taking its quota share arrangements into account, the combination of all catastrophe covers results in the firm having a maximum event retention of just $34 million.
As a result of the February 2022 storms and flooding, IAG has again raised its expectation for FY22 net natural peril claims costs to roughly $1.1 billion. The primary insurance giant increased this estimate to $1.045 billion in November 2021 from the previous assumption of $765 million, after severe storms and hail in Australia in October.
The revised catastrophe losses are broken down as: $920 million for the eight months to 28 February 2022, including the $74 million net cost; and $180 million for the remaining four months of the year to 30 June 2022, representing an inflation-adjusted seasonal average for the period, taking into consideration the current weather system.
At the January 1st, 2022, reinsurance renewals, IAG completed the renewal of its main catastrophe reinsurance tower, keeping the amount of coverage it has flat at $10 billion.