Insurance Australia Group Ltd (ASX: IAG) shares had a good year in 2024, climbing more than 47% across the 12 months.
Today, the company announced its 2025 catastrophe reinsurance cover in place, which provides coverage for two catastrophic events "up to $10 billion".
While today's update isn't price-sensitive, IAG shares are more than 2.1% in the red at the time of writing.
But zooming out, shares in the insurance giant have retreated 2% in the past week and 3.1% this past month. So, I think today's downside could be more a function of this broader recent downtrend. Let's take a closer look.
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'Re'-insurance? What's that?
IAG said today that its 2025 'reinsurance' program was in place. Reinsurance refers to policies that insurance companies take out specifically to cover natural disasters.
This way, insurance companies don't go under themselves when these events do occur.
IAG advised that it has secured coverage up to $10 billion for 2025. The policy provides cover for two natural disasters with combined damages totalling this amount.
In order to qualify, the natural disaster or disasters will require an activation, or 'attachment' point where estimated damages exceed $500 million.
IAG also rehashed another reinsurance policy it had in place from FY25 to FY29:
…as announced on 28 June 2024, from FY25 to FY29, IAG's reinsurance cover also includes long-term natural perils volatility protection, which in combination with the [whole of account quota share] WAQS 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.
In total, the insurer aims to keep its risks under wraps. As an insurer, you are waging an event that won't happen but must pay out if it does.
The reinsurance policies prevent any surprises that could hurt its earnings, which in turn could also hurt IAG shares.
Chief financial officer William McDonnell even said that reinsurance was "a key component" of IAG's
"low volatility strategy". This is where it aims to keep profits stable, and not fluctuating year to year.
Today's announcement also builds on IAG's five-year reinsurance agreement announced in June with National Indemnity Company. This is a subsidiary of the conglomerate Berkshire Hathaway, legendary investor Warren Buffett's company.
That agreement provides cover totalling $2.8 billion until 2029. Whether any of this will be activated depends quite literally on the weather. Good luck trying to predict that.
Broker views on IAG shares
The consensus of analyst estimates currently rates IAG shares a buy, according to CommSec data.
That's a split of six buys, six holds, and one sell recommendation on the insurance stock.
Ord Minnett is in the bullish camp of analysts covering IAG shares and rates the company a buy with a $9.30 price target.
As reported by my colleague James in December, Ord is more constructive on IAG following its investor day held that month.
The broker raised its FY26 and FY27 profit estimates by 2% and 5%, respectively, following the event, citing IAG's focus on car and home insurance.
IAG shares takeout
IAG also announced today it plans to report its half-year financial results on 13 February 2025.
Anyone keen on the company's story should tune in then. In the meantime, it has reinsurance cover in place for 2025.
IAG shares have had a soft start to the year, down less than 1% on last check.
