IAG Reinsurance Costs Balloon
Leading Australian insurer IAG has seen its reinsurance costs balloon for 2012 following pay-outs for a series of costly catastrophes last year — and the beleagured firm reportedly received a cool reception from the Bermuda industry during its recent roadshow presentation here.
The “Sydney Morning Herald” reports today [Jan.4] that after one of the worst years of natural disasters in the Southern hemisphere — including storms, tsunamis, earthquakes, tornadoes and the recent $12 billion flood in Thailand — IAG Australia’s increased reinsurance costs, estimated to be up to 40 per cent higher, will translate into sharp rises in insurance premiums for customers.
“Being the last of the big [Australian] insurers to renegotiate its catastrophe reinsurance policy for the year, IAG was always going to face a challenge, particularly given the massive losses endured by global reinsurers over the past few years,” said the newspaper.
A release to the Australian Stock Exchange this week states that IAG’s catastrophe reinsurance expense has gone from $620 million last year to between $700 million and $720 million this year.
However, the $620 million figure included more than $100 million worth of unexpected costs and if these are stripped out then IAG’s reinsurance costs have actually increased by up to $200 million.
More importantly, IAG’s retention rate has also increased. This means the risks to the company have increased.
“When IAG kicked off a series of roadshows in London and Bermuda in November and December to potential reinsurers, the reception wasn’t warm,” said the newspaper. “It is understood that during the trip the IAG team was forced to disclose to reinsurance brokers its Christchurch earthquake gross claims loss had blown out from $US1.9 billion to $US2.9 billion, which resulted in the wrath of the reinsurance marketplace falling upon them.
“One well-placed industry source said meetings in London raised a few eyebrows, as it looked like IAG was intending for the meeting to go by without mentioning the latest Christchurch earthquake losses.
“Likewise in Bermuda, the talk was that IAG did a market presentation and that discussion of the gross claims losses was left until question time. The company denies this and could not comment on the size of the gross claims in New Zealand.”
