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Insurance Australia Group share price higher after bushfire update

James Mickleboro

The Insurance Australia Group Ltd (ASX: IAG) share price has been a positive performer on Friday.

In morning trade the insurance giant’s shares are up 1.5% to $7.69.

Why is the Insurance Australia Group share price pushing higher?

Investors have responded positively to an announcement this morning relating to the finalisation of its catastrophe reinsurance for calendar year 2020 and an update on its perils.

According to the release, the insurance company has finalised its catastrophe reinsurance program, increasing its gross reinsurance protection to up to $10 billion. This compares to $9 billion in 2019.

Management advised that this has been placed to the extent of 67.5% to reflect its cumulative whole-of-account quota share arrangements.

IAG’s Chief Financial Officer, Nick Hawkins, said “Our reinsurance program is an integral part of our capital platform. While the structure of the 2020 program is similar to prior years, we continue to expand our catastrophe reinsurance cover in a cost-effective manner, while providing additional protection above our modelled exposure.”

“We have also increased the multi-year arrangements we have with some of our largest reinsurance counterparties. Combined with our existing quota share arrangements, this means around 70% of our gross main catastrophe program for calendar 2020 is protected by multi-year coverage, providing greater certainty of future reinsurance cover,” added Hawkins.

Pleasingly, the company’s reinsurance rates were relatively stable during the renewal process. As a result, the overall expense outcome is in line with the associated assumption in its FY 2020 reported margin guidance.

Furthermore, the overall credit quality of the 2020 program is strong, with over 92% placed with entities rated A+ or higher.

Perils update.

The company notes that Australia has experienced a sequence of bushfire events since September across a number of states. This has been exacerbated by prolonged drought and extreme weather conditions.

In response to this, the company has provided an update on the net natural peril claim costs for the financial year-to-date, inclusive of bushfire events.

As of yesterday, Insurance Australia Group had received over 2,800 bushfire-related claims since the beginning of September. In excess of 1,500 of these have been lodged since the start of December, with the majority of claims relating to residential properties.

Whilst it notes that it is too early to provide a precise outcome, based on its initial estimates, management expects its net natural peril claim costs for the six months ending December 31 to be approximately $400 million post-quota share. This compares to its perils allowance of $320 million.

The first half perils estimate includes three ongoing bushfire events which have been capped by reinsurance recoveries under the aggregate cover, following full erosion of the associated deductible.

Overall bushfire events are anticipated to contribute over $160 million of net claim costs in the first half, post-quota share. Also contributing to its net claim costs were significant hailstorm events in Queensland and New Zealand in November.

The post Insurance Australia Group share price higher after bushfire update appeared first on Motley Fool Australia.

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Motley Fool contributor James Mickleboro has no position in any of the stocks mentioned. The Motley Fool Australia owns shares of Insurance Australia Group Limited. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy. This article contains general investment advice only (under AFSL 400691). Authorised by Scott Phillips.

The Motley Fool's purpose is to help the world invest, better. Click here now for your free subscription to Take Stock, The Motley Fool's free investing newsletter. Packed with stock ideas and investing advice, it is essential reading for anyone looking to build and grow their wealth in the years ahead. This article contains general investment advice only (under AFSL 400691). Authorised by Bruce Jackson. 2020