IAG lowers margin guidance

IAG has increased its FY20 natural peril claims cost assumptions to $850m – up from $715m – and lowered its margin guidance to 12.5-14.5%.

On reporting IAG’s 1H20 financial results, MD and CEO Peter Harmer said that, apart from the toll on its customers and communities, several “extreme weather events” had affected its business financially.

Harmer said IAG was “looking at what we can do” over the longer term to help communities recover.

He said the “devastating bushfires and the hail event in Melbourne, Canberra and Sydney”, leading to high perils incidence above allowance at 2.7% of net earned premium, had compelled IAG in January to revise its reported margin guidance to 14.5-16.5%. But after February’s heavy rain event in south-east Australia, it had further lowered its FY20 guidance to 12.3-14.5%.

The drop in margin guidance took into account a reduction in expected contribution from prior period reserve releases, following the lower than anticipated reserve releases in the first half, and the increased net natural peril claim cost assumption.

IAG said its FY20 perils assumption was $100m above allowance, reflecting the severe effect of bushfire events, costing $180m and significant reinsurance recoveries, including $280m from its CY19 aggregate cover.

Year-to-date net perils cost totalled $645m until the end of January, while the cost from February’s heavy rain was $135m.

Harmer said IAG’s Australian business in 1H20 had generated “solid underlying profitability” while meeting the challenge of several devastating bushfires.

IAG reported $5.96bn in gross written premium, up 1.4% on 1H19. Underwriting profit was up 1% to $420m, while net profit after tax was down 43.4% to 283m.

Harmer said its 2H20 GWP guidance of low single digit growth had been reaffirmed and the underlying performance of IAG was expected to remain strong.