The Insurance Australia Group Ltd (ASX: IAG) share price is one to watch in early trade. Shares in the Aussie insurer could be on the move after a perils update following recent floods in Queensland and New South Wales.
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Why is the IAG share price in focus?
IAG this morning provided an update on its FY21 natural perils claim costs. Widespread flooding and storm damage after heavy rains in south-east Queensland and northern New South Wales have increased claims for the Aussie insurer.
IAG received ~8,000 claims by 4pm on 25 March 2021 following the heavy rains. That is expected to rise further, the company added in today's release. The claims are predominantly for property damage.
CEO and managing director Nick Hawkins said, "Teams are on the ground supporting customers in the worst impacted areas". IAG has increased its call centre capacity while the group's dedicated major events team is managing claims.
It will be interesting to see how the IAG share price responds following the company's update on the estimated net cost. IAG is forecasting an approximate $135 million net cost impact, with net cost capped at $169 million. That cap comes from the maximum event retention (MER) for a first event under the group's 2021 catastrophe reinsurance program.
Following the March event, IAG is estimating FY21 net natural perils claim costs of ~$660 million to $700 million. That is higher than the $658 million perils allowance for the period. Those figures comprise the $375 million for the 8 months to 28 February 2021, the estimated March impact and $150 million to $190 million for further peril events from March to June 2021.
IAG estimated MER at 26 March 2021 remains unchanged at $169 million. The insurer has FY21 aggregate cover that provides $350 million of protection in excess of $400 million. The heavy rain and flooding is expected to remove $150 million from IAG's $400 million deductible.
Foolish takeaway
The IAG share price will be one to watch in early trade following today's update. Shares in the insurer have fallen 21.7% in the last 12 months but edged 1.6% higher in 2021 in line with the S&P/ASX 200 Index (ASX: XJO).
