Australian insurer IAG has reported that Gross Written Premiums rose 7.5% to $7.1bn in H123 as strong rate rises countered higher inflation, perils expectation and reinsurance costs.
Net profit after tax was also up on the corresponding half year at $468m (1H22 $173m) and included a post-tax Covid business interruption provision benefit of $252m.
Meanwhile, net earned premium in H123 increased by 3.8% to $4.1bn.
Insurance profit was $350m, an increase of 24.1% compared with H122.
IAG’s expense ratio improved by 110 basis points to 22.9%, with the firm adding that it is on track to maintain its full-year cost base of approximately $2.5bn.
IAG’s reported insurance margin of 8.5% (1H22, 7.1%) reflects growth across the business, though this was offset by the ongoing impacts of higher inflation on claims costs in home and motor.
Further, net natural perils claims costs were $524m in (1H22, $681m). This was $70m above the allowance for the period, based on straight-line apportionment of the $909m FY23 allowance (1H22 $299m above allowance).
IAG notes that natural perils costs in 1H23 were driven by the La Nina weather pattern which delivered heavy rain and flooding across NSW, Victoria, South Australia and New Zealand.
The firm explains that none of the events in 1H23 were covered by IAG’s catastrophe reinsurance or aggregate cover.
At 31 December 2022, the $500m (pre-quota share) deductible attached to the FY23 aggregate cover had been eroded by $165m as a result of 1H23 peril events.
IAG released a preliminary assessment of expected claims from the Auckland flooding earlier this month, which suggested that the natural perils cost impact, after reinsurance, would be at the $236m retention level of its catastrophe and whole-of-account quota share arrangements.
At the time, the firm said that gross costs for the Auckland event were expected to be above $350m, and with an anticipated claims cost, net of reinsurance, at the $236m retention level, this suggested at least $114m would be recovered from its reinsurance protection.
IAG’s quota share-related reinsurance expense in H123 increased broadly in line with gross earned premium growth.
Non-quota share reinsurance expense increased by 22% to $415m (1H22 $341m) reflecting growth in IAG’s business and a hardening of the reinsurance market.
At the beginning of the year, the firm announced the renewal of its largest Whole of Account Quota Share (WAQS) agreement, with National Indemnity Company (NICO), a subsidiary of Berkshire Hathaway.
Nick Hawkins, IAG Managing Director and CEO, commented on the results, stating, “We are forecasting FY23 GWP growth to be around 10%, an increase from the previous guidance of mid to high-single-digit growth.
“We expect our FY23 reported insurance margin to be around 10% compared to our previous range of 14% to 16%.
“This is largely due to the expected higher natural perils costs from the Auckland flood event. Despite the challenges from the high inflation and perils experience impacting our business in the half, I believe we have a sound basis for confidence as we move into the second half.”
Hawkins continued, “We are well positioned on a number of fronts – the quality of our brands and customers, our strong capital position where we have a third of our business on multi-year quota share arrangements, and our focused strategy is delivering results.
“It’s this strong position which gives us confidence in our FY23 outlook, the financial return we can deliver to our shareholders, and the opportunities ahead.”
