How hard is IAG going to run?, page-99

So just some further thoughts on business interruption insurance cases currently before the courts. As we know this is the major unknown holding the IAG share price back in my opinion. The market wants to make sure we have provided enough in reserves. IAG has provided $700-$800 million for this at the moment.

Now my last post on this issue was focussing on 3 scenarios and likelihood’s.
a) To be in range of what has been provided -40%
b) The payout to be less -40%
c) Worst case the payout to be more than what’s provided -20%

Based on the first test case there is no doubt that some payout will be required for some policy holders. But based on my readings I know think scenario b above will be the final outcome. That is the payout will be less than originally estimated. This is based on the following:

1- Pandemics wasn’t the intention of the policy and if it were the insurance industry can prove the cost of the policy would be so expensive
2- This isn’t a isolated issue with one insurer that got it wrong It’s industry wide and the courts wouldn’t decimate the entire industry.
3- Most business we’re able to trade during the pandemic albeit perhaps in a different way. They weren’t shut although the business owners may have deemed it uneconomic to operate.
4- Note the government has already made compensation payments to business
5- Any compensation isn’t to cover the business’ profits but rather bear minimum to turn over. This has already been partially been provided by the government in jobkeeper and other business payments
6- Some business would have negotiated smaller lease payments during the pandemic
7- Most big business operated during the pandemic remotely.
8- Most effected business’ were hairdressers and gyms which remember received job keeper, government business payments and possibly reduced rent. BI does not cover paying their business loans. Note these also could be deferred by talking to their financial institutions.

So really any payout will not be as much as first thought. All in my opinion dyor as always. Gltah and enjoy the weekend.