IAG will undertake an on-market share buy-back of up to $350 million, funded by a reduction in its business interruption (BI) provision, after the High Court denied special leave to appeal against pandemic-related business interruption insurance claims. In a win for insurers, the ruling means the Full Court of the Federal Court of Australia’s decision regarding the second test case made in February this year will stand.
As a result, the company has reduced its net BI provision from $975 million to $615 million. Subject to market conditions, IAG intends to buy back up to $350 million of its ordinary shares on-market from early November 2022.
In previous statements to the market, IAG foreshadowed that it would refine its BI provision as the legal position became more certain. According to IAG, the revised BI provision is based on the company’s actuarial modelling and includes a significant risk margin. As further information becomes available, IAG said it will review the provision and adjust accordingly – this may occur in phases over a period of time.
IAG said it will continue to provide updates in relation to the second test case to customers who have lodged BI claims. The company will also contact customers who held policies with applicable BI cover to advise of the final outcome and how to lodge a claim.
“On a pro-forma basis, taking into account the reduction in the BI provision, the $350 million buy-back, payment of the final FY2022 dividend, and completion of sale of the Malaysian business, the 30 June 2022 CET1 ratio would be 0.99, comfortably within the target range of 0.9 to 1.1 times the prescribed capital amount,” the company said.
The timing and number of shares purchased under the buy-back will depend on market conditions, the prevailing share price, and other considerations.