IAG has completed the first stage of a $750 million capital-raising triggered after the NSW Court of Appeal last week ruled against insurers on a business interruption exclusion for COVID-19.

The insurer said this morning it has completed a $650 million institutional placement at a price of $5.05 a share and will invite retail shareholders to participate in an offer to raise up to $100 million.

IAG expects to make a full-year post-tax provision of $865 million, or $1.24 billion on a pre-tax basis, for its business interruption exposure.

The figure mainly reflects policies that cite the repealed Quarantine Act, which was the subject of the test case, and also includes $150 million for prevention-of-access extensions that are set to be examined in a second case.

“We have undertaken quite a comprehensive and rigorous process to come up with a potential exposure,” CEO Nick Hawkins told a briefing.

Mr Hawkins says IAG has taken a conservative position in basing the figures on court losses, but the company continues to believe pandemics are not covered and will “consider its position” if the Insurance Council of Australia (ICA) decides not to appeal.

The insurer has about 76,000 business interruption policies and earlier in the year about half of those referred to the Quarantine Act.

Mr Hawkins says wordings are being changed as renewals come due, in a process that will continue to run through the first half of next calendar year, while exposures are also reduced by claims limits.

Policies issued by Hollard and HDI Global Specialty were provided for the test case brought by ICA.

“Hollard recognises how important this case is for customers and the insurance industry alike,” the insurer said last week. “Along with other insurers we will study the judgment in detail over coming days, including in consideration of a potential appeal to the High Court.”