IAG rallies as rates and volume deliver swing
INSURANCE Australia Group shares rallied 4.2 per cent after the company swung back into profit for the December half year.
IAG reported a 6.2 per cent lift to $6.57bn in gross written premium for the six months to December 31, driven by higher rates and volume growth across its direct and intermediated lines in the last six months.
That helped IAG deliver an underlying insurance margin on policies sold to its customers to 15.1 per cent.
Customer retention, despite the price increases on insurance policies, helped IAG deliver a net profit of $173m. That compares to the $460m loss in the same period last year. The lift in premiums comes after IAG warned of inflationary pressures in December, noting the insurer was expecting price rises in materials and wage pressure from its employees.
IAG’s profits would have been all the sweeter if not for the $681m in natural catastrophe losses from a string of storms and wild weather that swept Australia in October.
However, this was offset by reinsurance, leaving IAG with a $299m natural peril cost above allowance, in line with its November updates.
IAG chief executive Nick Hawkins said the insurer was planning for further wild weather in the years ahead.
“Our view is mitigation has to be the key here,” he said.
“That’s the responsibility of individuals and communities, state and federal governments and companies like ours to incentivise behaviour.”
But IAG was able to bank a bonus from Covid-19, after low motor claims from fewer Australians on the road helped the insurer to reap a $55-65m net benefit.
IAG is also awaiting the outcome of the Business Interruption Test case in the Federal Court, which if insurers win could see almost $1.15bn in provisions unlocked.
The listed insurer’s deals with Repairhub and Motorserve allowed it to keep a lid on costs, but Mr Hawkins noted there was price inflation creeping in through parts and labour costs. Even so, the company said it was still stung by higher average claims costs and increased operating expenses during the period.
The company is aiming to add another one million customers across its Australia and New Zealand operations, taking it from its current level of 8.5 million. “IAG today is a much stronger, more resilient company than in recent years and we have the right foundations to position us well for the future,” Mr Hawkins said.
Mr Hawkins reaffirmed IAG’s insurance margin guidance of 10-12 per cent.
AG declared an interim dividend of 6c, with a total payout of $176m to investors.
IAG shares, which traded as high as $5.51 in August, closed 19c higher at $4.74 on Friday.