Australian primary insurance group IAG has renewed its main catastrophe reinsurance tower to provide occurrence protection up to $10 billion, which is a reduction on the $10.5 billion tower purchased a year ago.But more notably, with a new volatility cover having been purchased last year the insurer has elected not to renew its aggregate reinsurance and drop-downs.Last year, that attached at $500 million of losses and extended coverage to the $10.5 billion level at the top-end.Also within the 2024 reinsurance tower were a calendar year aggregate reinsurance layer, a drop-down cover and third and fourth event covers.

For 2025, IAG has renewed its main per-occurrence catastrophe reinsurance tower to again attach at $500 million of losses, but for this year the tower has shrunk back to an exhaustion point at $10 billion of losses to the insurer.That main catastrophe cover works in conjunction with IAG’s whole of account quota share arrangements and provides cover for two events of up to $10 billion.More notably though, all of the aggregate and frequency type reinsurance covers, so the drop-down and third/fourth event covers, are not featured in IAG’s catastrophe reinsurance arrangements any more, it appears.

The reason these don’t feature is that IAG now has a new reinsurance arrangement included in its structure, .This recently entered into reinsurance provides IAG up to $680m of additional reinsurance protection annually, and up to $2.8 billion over the entire five-year period.It effectively limits the insurers natural perils costs, so serving to keep it to budget and providing a kind of frequency protection.

IAG said today that the long-term natural perils volatility protection cover, alongside the quota share arrangements, provides $1 billion in additional reinsurance protection annually, or up to $4 billion over the five-year period, for natural peril event costs under $500 million.You can see the new IAG catastrophe reinsurance structure below: As a result, it seems this new arrangement with Berkshire Hathaway and Canada Life Re has enabled IAG to step away from the aggregate and frequency type reinsurance covers it used to buy, which had been proving to be increasingly expensive and also less effective as terms tightened, in recent years.It will be interesting to see whether other major insurers look to replicate this type of volatility cover, as a way to consolidate multiple solutions such as aggregate reinsurance, drop-down features, second and subsequent event covers into one.

IAG Chief Financial Officer William McDonnell commented on the reinsurance renewal, “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.”.All of our Artemis Live insurance-linked securities (ILS), catastrophe bonds and reinsurance can be accessed online.

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