Australian giant IAG has decided to expand its innovative quota share arrangements with more reinsurers next year.
From 1 January 2018 IAG will give 12.5% of its gross written premium in Australia, New Zealand and Thailand to Hannover Re, Munich Re and Swiss Re in return for an undisclosed commission and profit share agreement with the reinsurers paying 12.5% of claims and expenses; the deal is for an initial period of five years.
IAG’s managing director and CEO Peter Harmer, pictured, said the idea is to reduce downside volatility in earnings while maintaining the upside; the deals will reduce IAG’s regulatory capital requirement by A$435m (£244m) over three years; in addition IAG will reduce the placement of gross catastrophe renewal reinsurer cover from 80% to 67.5%.
IAG already has a deal with Berkshire Hathaway providing 20% of its premiums in return for 20% of its claims being paid; Harmer said the agreements are a logical next step for the company.
Harmer said: “While our strategic priorities of customer, simplification and agility go to the heart of maximising the value of our customer platform, it is important we continue to pursue initiatives that optimise the mix of the supporting capital platform. These transactions are a clear step forward on that front.”
“In tandem with the Berkshire Hathaway quota share, we have removed downside earnings risk from 32.5% of our business while retaining significant exposure to earnings upside via the profit share arrangements. We believe this is a good outcome for IAG shareholders.”
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