Insurance Australia Group (IAG) is on track to top 2012-13’s solid result, if comments at yesterday’s annual meeting by CEO Mike Wilkins are any indication.
He told shareholders that the insurer has started the year positively, and is on track to meet guidance of 5% to 7% growth in gross written premium revenue.
Although that’s slower than the 11.8% growth seen in 2012-13, it will be off a much higher base, so the actual dollar figure will be larger.
Mr Wilkins said the insurer was also looking for an insurance (profit) margin of 12.5% to 14.5% – subject to the usual caveats of stable markets and no sudden disasters.
That is also lower than the 17.2% margin seen in 2012-13 which was boosted by the surge in premium growth (thanks to higher premiums) and absence of disasters and big claim events.
Premium growth has slowed, and eased for some lines of insurance. It remains to be seen if household and contents insurance in bushfire prone parts of NSW will rise as a result of the fires this month.
Reinsurance cost pressures have also eased for some lines, thanks to higher capacity in the huge US market, which has led to rising levels of rate cutting.
But this month’s bushfires in NSW, especially the Blue Mountains, west of Sydney, don’t seem to be a major concern for IAG at the moment, judging from Mr Wilkins’ comments yesterday.
He said that so far IAG had received 660 claims worth $65 to $85 million. That’s similar to what rival Suncorp said on Tuesday when it told the ASX that it had received around 400 claims so far with an estimated cost of $60 to $70 million.
IAG YTD – IAG confident of 2014, despite the NSW fires
Mr Wilkins said that IAG had a budgeted allowance for disasters of $640 million for 2013-14. Suncorp’s is over $530 million. That means the two big insurers have a billion dollars of capacity before reinsurance for natural disasters, which is ample, provided there’s not a nasty hailstorm or three, or a deadly cyclone or flood.
In IAG’s case, there’ll be a substantial amount of its allowance left after accounting for the fires to use for any storms, floods or more fires over the summer and autumn of next year.
IAG chairman Brian Schwarz told the meeting yesterday that the company remains well placed after a few hiccups in previous years.
" While we benefitted from lower peril costs compared to recent high years, we still experienced some natural disasters, and our people responded magnificently to customers affected by the extreme weather associated with ex-Tropical Cyclone Oswald in early 2013 and, more recently, to those affected by the bushfires in New South Wales.
"The results achieved by our businesses in 2013 are testament to the success of our strategic priorities over recent years to achieve profitable growth in Australia and New Zealand, and boost our Asian footprint.
"In Australia we are leveraging our strong brands, customer bases and strategic capabilities; in New Zealand, we are working hard to maintain our market-leading position; and in Asia, we are on track to have our share of this business represent 10% of our gross written premium by 2016.
"We have committed increased capability to the region to ensure we realise the potential of the broader Asian platform over the medium to longer term."
With the confidence shown at the AGM, it’s no wonder investors chased IAG shares higher yesterday. They gained 2.9% or 17c to end at $6.11.
