Insurance Australia Group has increased its budget for natural disaster claims by $550 million to $1.1 billion after the recent flooding in NSW and Queensland, which has left it with 24,000 claims as of 6am Wednesday.
IAG said the these claims came from across its brands which include NRMA and CGU and that the figure will rise as it is still receiving claims from the flooding affecting Sydney this week.
But it re-iterated that its net claim costs from the flooding would be capped due to deals it holds with some of the world’s biggest reinsurance groups.
These include quota share arrangements it has with big shareholder, Warren Buffett’s Berkshire Hathaway through the one of the latter’s reinsurance arms, National Indemnity (NI) and with three other global giants, Munich Re, Swiss Re and Hannover Re.
The quota share deals total 32.5% and see the four companies receive a percentage of IAG’s consolidated gross earned premium – NI, 20%, and 12.5% for the trio. In exchange they will pay a total of 32.5% of the company’s claims and expenses. There are added reinsurance deals as well to give IAG greater protection.
It said the net costs from the disaster would be capped at about $74 million. But at the same time, it also lifted its allowance for natural peril claim costs for the 2022 financial year by $500 million.
The company re-affirmed its guidance for an insurance margin between 10% and 12%, but it said this was now more likely to be in the lower half of the guidance range due to higher perils allowance.
IAG said it had so far received 3,500 claims from the latest Sydney flooding, but it expected this number to rise in days ahead, noting that wild weather was still affecting parts of the state.
CEO Nick Hawkins said insurance assessors had started inspecting damaged property, and he joined other insurance bosses in calling for a greater focus on mitigation and land planning in at-risk areas.
“Our communities continue to battle through this extraordinary sequence of weather events and it is distressing to see people suffer through multiple storms and floods up and down the east coast,” Mr Hawkins said.
IAG shares ended steady at $4.26 because the update was a bit better than analysts had been fearing – for the moment.
