Not the best way to start an investor day briefing for Insurance Australia management with news of another round of earthquakes and damage from Christchurch headlining news broadcasts and at the forefront of investor’s thinking.
The company played it straight at the briefing, saying it is expecting to see further claims following the cluster of earthquakes on Monday, after the quakes which hit Christchurch in September last year and February of this year.
But management made it clear it was early days from Christchurch insofar as precise figures for claims and extra costs from the third serious event to shake the city in nine months.
After the briefing the leading US catastrophe modeller Eqecat issued an update on the quakes and a possible damage bill in which the company has estimated the damage bill of up to $US5 billion.
"Today’s earthquake is not expected to cause significant damage to buildings undamaged by the February M6 event, but will cause incremental damage and loss.
"If today’s event occurred immediately following the February event, the amount of energy released would have been the equivalent of approximately a 0.1 magnitude increase, and probably an additional $1 to $2 Billion USD in insured losses.
"Today’s event—almost four months after February’s event—has likely caused from $3 to $5 Billion US in losses, with the incremental losses occurring to repaired structures and facilities," Eqecat said.
That’s on top of around $US15 billion in insured losses damage from the September 2010 and February 2011 quakes.
But the quake, the briefing and the estimate didn’t worry investors who sent the shares up 1.1%, or 5c, to a high of $3.61. They ended the day up 2c at $3.58.
Suncorp, the other big listed insurer, saw its shares rise 2.3%, or 19c, to $8.30.
That was in a market up half a per cent by the close after being down around that amount before the favourable Chinese economic data for May was issued around Midday.
In fact that probably had a bigger impact on the IAG and Suncorp share prices than anything else.
One point did emerge from the IAG briefing which was the pointed omission of the company’s floundering UK businesses from the new strategy outlined yesterday.
"Insurance Australia Group Limited (IAG) Managing Director and CEO, Mr Mike Wilkins, today announced the Group had reset its strategic priorities, with an emphasis on accelerating growth in Australia, New Zealand and Asia.
"Speaking at a market strategy briefing, Mr Wilkins said the actions taken by the Group during the past three years had delivered significant underlying improvement, and the time was right to build on the solid platform that had been established."
So the UK and its losses are bound for the scrapheap.
But it’s the second time the company has aimed at Europe in the past few years. Under former CEO Mike Hawker the company tried for around two years to get entry into the Chinese market and moved into other markets in the region.
IAG said it wants to get 10% of its gross written premiums from Asia by 2016.
"Our focus is to accelerate growth in Australia and New Zealand and to boost our Asian footprint," Mr Wilkins told the investor briefing.
Mr Wilkins said the company intended to expand its Asian business in existing markets of Malaysia, Thailand and India and in the target markets of China, Vietnam and Indonesia.
IAG aimed to return its UK business to profitability, and the company expects that business to move towards break-even in the next financial year.
Then it looks like being sold or gradually run off by not writing new business.
Before the quakes on Monday IAG had forecast that its insurance margin would be 8% to 10% for the full year.
And it said the company was on track to meet the forecast for underlying gross written premium growth of 3% to 5%.
IAG reports its full-year results on August 24 and with 15 days until balance date on June 30, there’s still time for the new costs in NZ to crunch the bottom line.
And IAG won’t know until early in 2012 just how much it will be paying for reinsurance, but the company should have an indication by December.
It will be more and the question then will be how much premiums for all classes of cover will rise, something that will be especially tough in a soft market for commercial cover.
Home, car and other personal lines will pay more, especially in NZ, Brisbane and parts of Queensland.
