IAG agrees reinsurance deal with Berkshire Hathaway over Canterbury earthquakes
Insurance Australia Group (IAG) has announced an innovative reinsurance transaction with US holding company Berkshire Hathaway that mitigates the group’s exposure to the Canterbury earthquakes and asbestos related liabilities.
Having exceeded its pre-existing NZ$4 billion reinsurance limit for the February 2011 Canterbury earthquake, IAG has reduced future uncertainty by entering an adverse development cover (ADC) which provides NZ$600 million of protection in excess of NZ$4.4 billion. This provides effective cover of up to NZ$5 billion on the February event after inclusion of IAG’s related risk margin.
The ADC is part of a package of reinsurance which also provides reinsurance protection relating to legacy liability and workers’ compensation policies with exposure to asbestos risk, the majority of the exposure arising from business written by CGU in the 1970s and 80s.
This cover does not affect the management of these portfolios, with IAG continuing to assess, manage and pay claims.
The combined effect of these transactions reduces future uncertainty in relation to these exposures, strengthening the group’s overall risk profile, it said.
The net impact of the premium paid and the reserves released from the asbestos portfolio is a small net loss, which will be recognised in IAG’s second half 2016 results and disclosed in the group’s net corporate expense line.
