IAG taps market in wake of court hit

INSURANCE Australia Group has begun an emergency $750m capital raising program following a shock court decision that makes it liable to pay for business interruptions caused by the pandemic.

The insurance heavyweight, which is in talks with the Insurance Council of Australia about launching a High Court appeal, will put aside $865m to cover possible payouts.

It has tapped major investors for $650m and launched a $100m, non-underwritten share purchase plan.

The capital raising program comes after a New South Wales court on Wednesday ruled pandemic exclusions referring to the Quarantine Act rather than the Biosecurity Act failed to exclude cover for losses associated with COVID-19.

If an appeal to the High Court proceeded, an outcome was expected next year, the group said. IAG’s businesses underwrite more than $12bn of annual premium, selling insurance under brands including CGU, NRMA Insurance and SGIO.

The company said it had only received a small number of business interruption claims, but it had estimated the potential claims impact for the December half year.

The provision covers all policies that refer to the Quarantine Act without specific reference to the Biosecurity Act replacement legislation.

It also covers policies with prevention-of-access extensions that reference the Biosecurity Act.

Prevention-of-access clauses generally operate when actions of governments or other authorities cause business interruption by preventing or restricting access to premises.

While the prevention-ofaccess issue was not subjected to the test case, IAG said it believed that overarching pandemic exclusions also applied in that situation.