IAG PROFITS HIT BY FLOODS AND INFLATION
INSURANCE Australia Group’s insurance profits have fallen sharply short of previous guidance, but the unwinding of pandemic provisions has lifted its bottom line into the black.
IAG said it expects to deliver $347m in net profit for the last financial year, after suffering a $427m loss the year before.
The preliminary unaudited figure was driven by an unwinding of provisions held to cover pandemic losses, balanced against the high cost of claims arising from recent natural disasters and long-tail losses. The insurer revealed the year of natural catastrophes had cost it $1.19bn, far more than initially guidance.
IAG had last August forecast natural peril costs of $765m, but this expectation blew out to approximately $1.1bn in March.
As a result, IAG’S reported insurance profit is likely to be around $586m, reflecting a 7.4 per cent margin on its policies.
That’s down sharply from 13.5 per cent in FY21 and previous guidance of 10-12 per cent.
IAG managing director and chief executive officer Nick Hawkins told the Australian 2022 was a “below expectations year”.
Mr Hawkins said IAG was facing inflation across its portfolios, which were worsening costs from a mammoth natural catastrophe bill.
As a result IAG will lift its natural perils allowance will be lifted to $909m post quota-share, an increase of $144m or nearly 19 per cent on the financial year 2022 allowance.
“It’s a challenge for our country, we want to be able to look after the communities of Australia and New Zealand and be their shock absorber,” he said. “What we’ve obviously seen was some of the worst flooding we’ve ever seen versus the average and unfortunately insurance is one that relies on averages.”
Meanwhile, the insurer said it would strengthen its reserves by $135m due to inflationary impacts and claims relating to silicosis from cut stone benches from 2017 and 2018 coming in.
It will also crack open $200m of provisions held to cover pandemic related insurance losses.
IAG will release final audited FY22 results on August 12.