The Insurance Australia Group Ltd (ASX: IAG) share price is down more than 1% after the financial giant revealed an important insurance update.
IAG operates some of the most recognised insurance brands in Australia and New Zealand such as NRMA Insurance, CGU, WFI, ROLLiN’, AMI, State, NZI and Lumley. The general insurance business underwrites over $16 billion of insurance premium per year.
Reinsurance protection
The insurance giant confirmed today it has successfully placed its catastrophe reinsurance program for the 2025 calendar year.
Together with IAG’s ‘whole of account quota share’ (WAQS) arrangements, the 2025 catastrophe reinsurance program provides a main catastrophe cover for two events up to $10 billion, with an ‘attachment’ at $500 million.
On top of that, as announced on 28 June 2024, from FY25 to FY29, IAG’s reinsurance cover also includes long-term natural perils volatility protection. When combined with the WAQS, this provides around $1 billion in additional protection annually, and up to $4 billion over the entire five-year period, for natural peril event costs under $500 million.
Management comments
The IAG chief financial officer William McDonnell said:
IAG received strong support from reinsurance partners in placing the annual catastrophe program. Reinsurance is a key component of our low volatility strategy providing downside protection against natural perils costs exceeding our FY25 allowance of $1,283 million.
Is the IAG share price a buy?
Insurance Australia Group shares have soared in the past 12 months, rising by 44%. That made it one of the stronger-performing ASX 200 (ASX: XJO) shares of the last year.
I think IAG has done a lot of what it needs to impress the market. It has benefited from inflation because that has led to higher premiums, boosting profit margins for IAG.
Next, the higher interest rates have increased the income of IAG’s investment portfolio, such as its bonds.
Finally, the company has reduced the risk of a catastrophe wiping out its profit by buying reinsurance, so it is smoothing out its profit generation.
However, I think the valuation captures all of those positives, so there are other ASX dividend shares I’d rather buy.
