IAG (ASX:IAG) share price climbs following these announcements

The IAG share price is edging higher after the company announced the finalisation of its reinsurance program and clarifed its BI provisions.
The post IAG (ASX:IAG) share price climbs following these announcements appeared first on The Motley Fool Australia. –

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Insurance Australia Group Ltd (ASX: IAG) shares are on the rise this morning after the company announced the finalisation of its catastrophe reinsurance program for 2021. As part of the same update, the company also clarified its business interruption provisions on its balance sheet.

At the time of writing, the Insurance Australia Group (IAG) share price is trading 0.43% higher at $4.68.

Reinsurance program finalised

Insurance Australia Group revealed today it has finalised its catastrophe reinsurance program for the 2021 calendar year, maintaining its gross reinsurance protection cover at up to $10 billion, the same level as 2020.

Reinsurance is basically insurance for insurers. It’s the practice whereby insurers transfer portions of their risk portfolios to other parties to reduce the likelihood of paying a large obligation resulting from an insurance claim.

The main features of this program include Insurance Australia Group retaining the first $250 million of each loss, as well as an aggregate sideways cover for the 12-month period to 30 June 2021, which provides $350 million of protection in excess of $400 million.

Also, with effect from 1 January 2021, qualifying events are capped at $50 million per event.

The company says it experienced a modest increase in reinsurance rates during this renewal process, with the overall expense outcome in line with expectations.

Business interruption provisions update

For the purposes of preparing its management reports, IAG has reported it will include the $1.15 billion pre-tax earnings impact from the provision for business interruption claims announced on 20 November 2020 as part of net corporate expenses.

Insurance Australia Group says it will report this expense item during its FY21 first half reporting on 10 February 2021.

About the IAG share price

Insurance Australia Group surprised the market in November by announcing a $750 million capital raising to repair the capital damage expected from business interruption claims related to COVID-19.

The company said it has provided its best estimate for potential claims, but the risk that claims have been underestimated, or additional lockdowns occur before old policies are replaced with new wording, has left a degree of uncertainty.

As a result of potential COVID-19 claims, the IAG share price has lost almost 40% of its value over the past year. At the current price, the company commands a market capitalisation of around $11.5 billion.

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Motley Fool contributor Eddy Sunarto has no position in any of the stocks mentioned. The Motley Fool Australia has no position in any of the stocks mentioned. The Motley Fool has a disclosure policy. This article contains general investment advice only (under AFSL 400691). Authorised by Bruce Jackson.

The post IAG (ASX:IAG) share price climbs following these announcements appeared first on The Motley Fool Australia.

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