Insurance Australia tops the benchmark index because of its reinsurance business

Shares in Insurance Australia Group rose 9% on Friday after the company bought reinsurance protection from Berkshire Hathaway and Canada Life Reinsurance Co to reduce financial volatility for the next five years.

The insurance company's shares rose 9.3% to trade at A$7,280 at 0049 GMT, the highest since January 24, 2020. The stock was the biggest gainer in the S&P/ASX 200 index.

The Sydney-based insurer said the contracts would provide additional protection worth 680 million Australian dollars ($451.86 million) a year and up to $2.8 billion over five years.

IAG noted that reinsurance would help curb natural catastrophe costs by A$1.28 billion in FY25.

Nick Hawkins, IAG's managing director and chief executive, said the deals would “give clients greater certainty over the cost of covering natural risks, stabilize returns and reduce capital requirements”.

The general insurer affirmed its annual target for insurance profit and profit margin at the upper end of the forecast range.

Analysts at Citi explained that IAG's forecast was broadly in line with the brokerage's 14.8% and Visible Alpha's consensus forecast of 14.6%, while also pointing out that “the reported margin benefit could be due to favorable weather”.

The company expects gross written premiums for fiscal 2024 to be in line with the “low double-digit” guidance it issued in February.

($1 = 1.5049 Australian dollars)