Insurance Australia Group Lowers Fiscal Year 2008 Growth Targets

Insurance Australia Group has revised its guidance for the fiscal year 2008 (IAG’s fiscal year runs from July 1 to June 30). The insurer said it now expects gross written premiums (GWP) to grow between 7 and 9 percent “and an insurance margin [subject to natural catastrophes, currency fluctuations, etc.] of 11-13 percent.”

IAG had previously indicated GWP growth would be in the 10 to 12 percent range and a “return of 1.5x weighted average cost of capital (WACC).” The Company indicated that the “major component of the GWP change is lower GWP expectations from its Advantage (UK) and Australian commercial businesses while the Australian personal lines business continues to perform well.”

“The lower GWP outlook for Advantage reflects tightening underwriting criteria and raising rates in the soft private motor car market and reduced participation by it in new business due to issues with its rating systems.”

The revisions are mainly due to the soft market conditions and increased competition in the Australian auto market – IAG subsidiary NRMA is Australia’s largest car insurer – and in the UK, where the Group has three operating companies

CEO Michael Hawker was philosophical. He stated: “Changing our outlook for FY08 is disappointing but it needs to be considered in the context of our disciplined approach to not continuing to write under performing business.”

Nonetheless there will be additional fallout, as IAG is expected to postpone any major acquisitions, notably in the Asian market, while it solidifies and improves the results of the businesses it already has.

IAG is hosting its annual investor briefing today Monday October 29 and will discuss its present situation and future plans. The materials for the briefing will be released to the market prior to the briefing which will be web cast at: www.iag.com.au

Source: Insurance Australia Group.

Topics Trends Australia