Insurance Australia Group Limited (IAG) has raised its reported margin guidance range for full-year 2017 to 13.5% – 15.5% in response to an expected increase in reserve releases, following the completion of its preliminary review of prior period reserve releases for the financial year ended 30th June, 2017.
The insurer’s latest preliminary review of reserves shows an outcome that is equivalent to at least 5% of net earned premiums, compared with previously held guidance of at least 2% of net earned premiums.
The company has said that it maintains its long-term expectation that reserve releases will be equivalent to roughly 1% of net earned premiums in any given year, which is incorporated within its underlying margin calculation.
The expected increase in reserve releases for the financial year ended 30th June, 2017, has led the insurer to increase its reported margin guidance range for the year to 13.5% – 15.5%, from the previous 10.5% – 12.5%.
IAG explained that the reserve releases mostly relate to Australian long tail classes of business, comprising CTP, liability, professional risks and workers’ compensation.
“The higher indicated outcome, compared to previous expectations, reflects further favourable experience against underlying assumptions for claim size and inflation,” said IAG.
Excluding the expected increase in reserve releases, IAG highlighted that other underlying assumptions that drive its full-year 2017 reported margin guidance remain unchanged, and include; Net losses from natural perils of $850 million; No material movement in foreign exchange rates or investment markets in 2H17; and, a small net negative from optimisation program initiatives, as early benefits are outweighed by related costs.