IAG expects full-year reported insurance profit will be at the upper end of a $1.2-$1.45 billion guidance range, and it has locked in a new long-term reinsurance arrangement to help stabilise future earnings. 

The insurer says the forecast assumes June perils experience in line with seasonal expectations, resulting in a 2023-24 net perils outcome of about $1 billion, $100 million below its allowance. 

The reported insurance margin is expected to be at the upper end of the 13.5%-15.5% guidance, while gross written premium is on track for “low double digit” growth.

CEO Nick Hawkins also says the company has put in place a simplified five-year reinsurance program that will sit alongside its existing quota share and traditional reinsurance program. 

“Our long-term relationships with leading global reinsurers have allowed us to secure an innovative reinsurance arrangement that benefits our customers and shareholders,” he said. 

“It will provide greater certainty over the cost of natural perils cover for our customers, stabilise our earnings and reduce our capital requirements.” 

The agreement with Berkshire Hathaway subsidiary National Indemnity Company and Canada Life Reinsurance starts from today and provides up to $680 million of additional protection a year, and up to $2.8 billion over the entire period. The overall program will cap natural perils costs at $1.283 billion this financial year under more than 90% of modelled scenarios. The natural perils allowance for fiscal 2024 was $1.098 billion.  

IAG has also purchased, subject to regulatory approval, an adverse development cover that provides $650 million of protection for long-tail reserves.

The transaction with Cavello Bay Reinsurance, a subsidiary of Enstar Group, applies to Australian portfolios including product and public liability, compulsory third-party motor, professional risks and workers’ compensation. It includes cover for molestation and silicosis up to a sublimit of $50 million. 

“We are confident that our long-tail liabilities are appropriately provisioned, complementing the improved underwriting risk profile of our intermediated business,” CFO William McDonnell said.

“This reinsurance protects against deterioration due to the inherent uncertainty of long-tail insurance risks such as adverse judicial developments and superimposed inflation.”  

As a result of the additional protections, IAG expects a reduction in its prescribed capital amount of about $350 million, subject to Australian Prudential Regulation Authority approval.