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IAG ups catastrophe reinsurance program to $5.6 billion for 2014

Insurance Australia Group Limited (ASX: IAG) announced today that it is upping its catastrophe reinsurance programme by $600 million to $5.6 billion for the new year.

According to CFO Nick Hawkins, favourable reinsurance market conditions allowed Insurance Australia Group to increase the amount for 2014. “Our catastrophe reinsurance programme remains an intrinsic part of our capital management strategy,” said Mr. Hawkins in a statement. “The structure of the programme is similar to that of prior years, and contains an element of multi-year cover, notably up to the $500 million layer and above $4 billion.”

The full $5.6 billion is available to first-time earthquake catastrophes in Australia and New Zealand, a natural disaster that has been increasingly scrutinized after magnitude 7.1 and 6.3 earthquakes caused severe damage in Christchurch, New Zealand, in 2010 and 2011, respectively.

In addition to this latest dollar amount increase, IAG also recently announced that it will integrate New Zealand subsidiary AMI into its main reinsurance program this year, twelve months ahead of schedule.

For IAG customers, the new insurance amounts come down to maximum first event retentions of $175 million in Australia, NZ$175 million for New Zealand, $25 million for Thailand and Malaysia, and less than $1 million for Vietnam. Joint venture interests in India and China aren’t included, and 88% of the entities covered under the program have a credit rating of A+ or higher.

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Motley Fool contributor Justin Loiseau has no position in any stocks mentioned in this article. You can follow him on Twitter @TMFJLo.

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