Insurance Australia Group (IAG, ASX:IAG) has increased its catastrophe reinsurance cover by 12 per cent for 2012 following a year that included cyclones and flooding in Australia and earthquakes in New Zealand.
The general insurer said it finalised its catastrophe re-insurance program starting January 1 with protection of up to A$4.7 billion (US$4.86 billion), compared with $4.1 billion in 2011.
“In challenging market conditions, we are pleased to have concluded a program which provides us with increased coverage and the additional security of some multi-year protection,” IAG’s CEO Mike Wilkins said in a statement on Wednesday.
Mr Wilkins said that while the overall cost had risen, “the outcome is consistent with the assumptions contained in the insurance margin guidance of 10 to 12 per cent provided by the group at the outset of the financial year”.
The insurer, which owns the NRMA Insurance, CGU, SGIO and SGIC brands, has predicted that there will be more severe cyclones and hailstorms over the coming decades.
In 2011, floods and storms in Queensland and Victoria, combined with bushfires in Perth, cost the industry $4.2 billion, according to estimates by the Insurance Council of Australia.
Local insurers were also hit by the Christchurch earthquakes, which New Zealand authorities estimate have caused around $NZ23 billion ($A18.3 billion) in total losses.
Mr Wilkins said the company had been able to keep the maximum it pays out for a single catastrophe at $250 million until 2014 at agreed prices.
IAG had also retained a buydown arrangement, which commenced in 2011, that reduced the maximum cost of subsequent catastrophes to $150 million.
The re-insurance program included cover for flood, which was being introduced Australia-wide by CGU, and extended into Queensland and Victoria by Australia Direct, in early calendar 2012, the statement said.
There was also an upper layer of reinsurance for earthquake cover over three years.