General insurance company, IAG (ASX:IAG) inked agreements with three reinsurers to quota share a combined 12.5 per cent of its consolidated business as of 1 January 2018, which will reduce its earnings volatility and improve its capital efficiency.
As a result, the three reinsurers (for an average term of over five years) will receive a total of 12.5 per cent of IAG’s consolidated gross earned premium and respectively pay IAG 12.5 per cent of claims and expenses.
IAG will also receive exchange commissions from the other parties (Munich Re, Swiss Re and Hannover RE) for having access to the insurer’s franchise.
IAG bumped up its insurance guidance margin for this financial year by 125 basis points (to 13.75 per cent to 15.75 per cent).
IAG shares are trading about 1.3 per cent higher to $7.23.