Shares in IAG have risen after the insurance giant signed a reinsurance deal with three European businesses to share a portion of its premiums and expenses from next year.
Under the deal, to start in January, reinsurers Munich Re, Swiss Re and Hannover Re will receive a combined 12.5 per cent of IAG’s gross earned premium and will pay the same percentage of claims and expenses across its Australia, New Zealand and Thailand divisions.
The announcement gave IAG shares a boost with stock up six cents, or 0.8 per cent, to $7.20 at 1320 AEDT on Friday.
The three agreements, which have an average initial period of more than five years, build on a similar, yet larger deal IAG signed with Warren Buffett’s Berkshire Hathaway more than two years ago and are expected to deliver similar benefits.
IAG says the new agreements will help reduce regulatory capital requirement by about $435 million over three years and reduce earnings volatility – with a portion of insurance risk effectively exchanged for a more stable fee income stream.
It will also receive an exchange commission for access to its franchise.
The insurer said the deal is expected to boost IAG’s reported insurance margin by about 250 basis points per year but will not have an effect on the company’s first-half results in the 2018 financial year.