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MarketScreener Homepage  >  Equities  >  AUSTRALIAN SECURITIES EXCHANGE LIMITED  >  Insurance Australia Group Ltd    IAG   AU000000IAG3

INSURANCE AUSTRALIA GROUP LTD (IAG)
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Insurance Australia Inks Quota-Share Deals with Three Reinsurers

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12/08/2017 | 12:18am CEST
   By Robb M. Stewart 
 

MELBOURNE, Australia--Insurance Australia Group Ltd. has struck deals with a trio of European reinsurers to swap a share of the premiums it collects in exchange for help paying claims and expenses, in a bid to reduce earnings volatility and bolster capital.

The agreements, which take effect from January, build on a larger deal Insurance Australia signed more than two years ago with billionaire investor Warren Buffett's Berkshire Hathaway Inc.

The Australian insurer said Friday it had entered three quota-share agreements with Germany's Munich Re AG and Hannover Re AG and Swiss Re AG covering its businesses in Australia, New Zealand and Thailand. The agreements, which have an average initial period of more than five years, will see the reinsurers receive a combined 12.5% of Insurance Australia's consolidated gross earned premium and pay 12.5% of claims and expenses.

Insurance Australia also will receive a percentage-based fee for access to its franchise.

The agreements will lower Insurance Australia's requirements for natural-disaster reinsurance and reduce its exposure to volatility in associated premium rates, the company said. It also will reduce its regulatory capital requirement by about 435 million Australian dollars (US$326.8 million) over a three year period, but will be broadly earnings and return-on-equity neutral.

In tandem with the Berkshire Hathaway deal, the company had removed earnings risk from a third of its business but retains exposure to earnings potential from profit sharing arrangements, Managing Director and Chief Executive Peter Harmer said.

Insurance Australia, one of Australia's largest general insurers, in mid-2015 agreed to sell a 3.7% stake to Berkshire Hathaway for A$500 million as part of a 10-year partnership that sees it collect 20% of the Australian company's gross written premiums and pay 20% of claims.

Insurance Australia's core businesses are in Australia and New Zealand, where it competes with the likes of QBE Insurance Group Ltd. and Suncorp Group Ltd. Underwriting more than A$11 billion in premiums a year, it also has operations in Thailand, Vietnam and Indonesia and interests in general-insurance ventures in Malaysia and India.

Insurance Australia raised its target for its reported insurance margin by 1.25 percentage points to 13.75%-15.75% for the current financial year, which will cover six months with the new quota-share agreements. Its natural-disasters allowance also reduced to A$627 million from A$680 million.

Write to Robb M. Stewart at robb.stewart@wsj.com

Stocks mentioned in the article
ChangeLast1st jan.
BERKSHIRE HATHAWAY 0.15% 313465 Delayed Quote.5.17%
HANNOVER RÜCKVERSICHERUNG 1.15% 113.9 Delayed Quote.8.58%
INSURANCE AUSTRALIA GROUP LTD -2.51% 7.78 End-of-day quote.7.46%
MUENCHENER RUECKVERSICHERUNG -0.27% 184.35 Delayed Quote.1.99%
SWISS RE -0.89% 86.72 Delayed Quote.-4.96%
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2017INSURANCE AUSTRALIA GROUP : 4.3% Yield With Room For Growth 
Financials (AUD)
Sales 2019 7 613 M
EBIT 2019 1 551 M
Net income 2019 1 075 M
Debt 2019 -
Yield 2019 4,60%
P/E ratio 2019 18,14
P/E ratio 2020 17,90
Capi. / Sales 2019 2,42x
Capi. / Sales 2020 2,09x
Capitalization 18 419 M
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Mean consensus HOLD
Number of Analysts 12
Average target price 7,54  AUD
Spread / Average Target -3,0%
EPS Revisions
Managers
NameTitle
Peter Harmer Chief Executive Officer, Executive Director & MD
Elizabeth Blomfield Bryan Chairman
Nicholas Barrie Hawkins Chief Financial Officer
Hugh Alasdair Fletcher Independent Non-Executive Director
Philip Johnson Twyman Independent Non-Executive Director
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