Something of a rarity today: an update from Insurance Australia Group (ASX: IAG) that didn’t cause a share selloff.
The company’s November 2 statement to the ASX saw the shares slide sharply after IAG revealed the adverse impact rising disasters and claims were having on costs, its re-insurance and its insurance margin which was slashed from the August guidance at annual result time.
Yesterday IAG reaffirmed its margin and premium guidance for next year for a 10%-12% reported insurance margin and low single-digit gross written premium growth.
That’s below the 13.5% and 15.5% target that it outlined in its FY21 results presentation in August.
The shortfall has been largely driven by a $280 million increase in its natural perils allowance to just over $1 billion, which equates to a 350-basis point (3.5 percentage points) cut to its initial reported margin for next year.
But on the plus side, the lockdowns in NSW, Victoria and the ACR this year have meant fewer cars on the roads, fewer insurance claims and lower costs.
“We haven’t changed our value proposition since we presented it in February this year. Over the medium-term, we are aiming to deliver a targeted cash [return on equity] of 12-13 per cent, an insurance margin of 15-17 per cent, and a growth profile. Our aspiration is to deliver these financial goals on a sustainable basis,” he said.
In the investor briefing CEO Nick Hawkins revealed ambitions including signing up one million new customers (from Australia and NZ) in the next five years.
“Over the past couple of years, as an industry and particularly as a company, we’ve had to face some serious challenges. We’ve appropriately provided for these and restored capital where required to address all the issues from a balance sheet point of view. I’ve also made some fundamental changes to our strategy and organisational design,” Mr Hawkins told analysts.
That will be on top of the 8.5 million at the moment. It plans to get new customers by targeting new regions and market segments and using technology to increase efficiency and reach.
IAG wants to have more than 80% of customer activity coming through digital channels, as the insurance industry embraces technology to streamline the claims process. Its Direct Insurance Australia division and New Zealand business will have key roles in this ambitious growth strategy.
IAG told the briefing that investors it should have confidence in the group’s longer-term outlook. The turnaround in its Intermediated Insurance Australia business should add at least $250 million of insurance profit by its 2024 financial year
IAG shares ended the day up 1.4% at $4.36.
