IAG Updates FY14 Guidance: GWP Down, Margins Up

January 23, 2014

Insurance Australia Group Limited (IAG) announced an update to its guidance for the financial year ending 30 June 2014 (FY14) following a review of expected performance in the first half of the year.

IAG said it “has revised its FY14 reported insurance margin guidance to 14.5-16.5 percent, up from the previously advised 12.5-14.5 percent. In addition, the Group has reduced its FY14 gross written premium (GWP) growth guidance to 3-5 percent, compared to the previously held 5-7 percent. The Group expects to report GWP growth of approximately 4 percent in 1H14 (6 percent after allowing for the cessation of the Victorian Fire Services Levy).”

CEO Mike Wilkins, said the Group anticipated reporting an insurance margin of around 17.5 percent for the six months ended 31 December 2013 (1H14), when it announces its results for that period on 21 February 2014. “While our financial results for 1H14 remain subject to finalization, including Board approval, we expect to record a strong first half underlying performance which builds on the improvement evident in prior periods,” he said. “The reported result is also expected to benefit from higher than originally anticipated reserve releases.”

IAG listed some “expected features” of the first half performance as follows:
— An underlying insurance margin of around 13.5 percent;
— Net natural peril claim costs slightly in excess of the related allowance of $320 million;
— Reserve releases of over 4 percent of net earned premium (NEP) following favorable experience in Australian long tail classes; and
— A favorable credit spread impact of around $40 million.

“This expected first half outcome includes strong underlying performances from each of the businesses in Australia and New Zealand, as well as a small contribution from our Asian operations,” said Wilkins.

In addition IAG pointed out that the “revised reported insurance margin guidance for FY14 includes an unchanged assumption regarding full year net natural peril claim costs, of $640 million, and the expectation of no material movement in foreign exchange rates or investment markets in 2H14. Prior period reserve releases are now expected to represent around 3 percent of NEP in FY14, compared to the previous expectation of 1-2 percent.

“The revised guidance for FY14 includes no contribution from the Wesfarmers insurance underwriting businesses in Australia and New Zealand, the acquisition of which was announced on 16 December 2013. It remains the Group’s expectation that this transaction will complete in the second quarter of calendar 2014 following the receipt of all necessary regulatory approvals.”

Source: Insurance Australia Group (IAG)

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