IAG held its Investor Day to provide an update on its strategic execution, operating environment and financial targets, with Managing Director and CEO Nick Hawkins explaining that the firm expects to moderately exceed its natural catastrophe budget again.
Hawkins explained that the insurer anticipates a small net reserve release and favourable credit spread impacts in the second half of the year, adding that these “two positives are likely to be offset by natural perils which will be moderately over the revised expectation, assuming an average June month.”
As the chart shows, natural peril losses have come in above allowance since 2018, and this is again expected to be the case for FY23. The peril allowance extends up to what appears to be roughly $2.6 billion, with natural peril losses above allowance seemingly surpassing the $2.9 billion mark, suggesting losses above budget of at least $300 million.
During the update, Hawkins also noted that results to date provide confidence in the guidance of around 10% GWP growth, and the business is trending towards around 10% reported insurance margin for the full year.
The company confirmed that its Australian divisions, Direct Insurance Australia and Intermediated Insurance Australia, are expected to deliver a material improvement in reported and underlying margins in the second half of FY23.
“Our Australian businesses are expected to deliver improved second-half results reflecting strong top-line growth, increased earned premiums, and improving claims trends,” said Hawkins.
New Zealand business’ top-line growth and increased earned premiums will reflect similar themes to Australia, however, margin improvements have been slower to emerge, driven by the continued high inflationary environment post the North Island events.
Hawkins commented, “Our New Zealand business, after experiencing the second and third largest natural disaster loss events on record, is experiencing the elevated inflation impact on non-peril motor and home claims costs.”
Other targets that have been laid out are the increase in its medium-term return on equity (ROE) target by one percentage point to 13% – 14%. The improved ROE is based on a medium-term insurance margin target of 15%.
Hawkins explained that, “The strong top-line growth we’re achieving, and the improved investment returns we are seeing on shareholder funds, means an increased ROE target of 13% – 14% is realistic and achievable over the medium term.”
The company has a $2.5bn gross operating cost target that was achieved in financial years 21 and 22 and is on track for 2023 as well.
“In FY24, we expect our key expense ratio to remain flat or reduce, however, we anticipate that ongoing inflationary pressures and additional technology investments may result in increased operating costs,” said Hawkins.
