IAG sinks after revised FY22 guidance

Insurance Australia Group’s shares fell heavily on Tuesday after it revealed claims related to wild weather had exceeded its budget again, forcing profit margins down.

IAG updated its net natural perils claim costs for FY22 year-to-date, after severe storm and hail activity experienced over the course of October.

In the most recent event, which impacted South Australia, Victoria and SE Queensland at the end of October, IAG had received approximately 14,000 claims by Nov 1 and this is expected to rise further over the coming days. IAG estimated that the net cost for these events is anticipated to be $169 million, the maximum retention for a first loss under IAG’s catastrophe program.

IAG has already raised its natural perils allowance significantly from FY21 to FY22, however, claims experienced year to date have been seasonally unexpected has exceeded the company’s assumptions underpinning the increase.

Following the latest events, and others that impacted the second half of October, IAG total expectation for FY22 net natural perils claim costs have risen to $1,045 million, compared to the previous assumption of $765 million. The revised FY22 expectation also includes approximately $510 million for perils events for the remainder of the financial year. The $280 million increase resulted in IAG lowering its FY22 reported insurance margin guidance range from 13.5 - 15.5% to 10.0 - 12.0%.

IAG noted that after allowing for quota share arrangements, the combination of all catastrophe covers at 1 November results in IAG having a maximum event retention of $95 million.

IAG Managing Director and CEO Nick Hawkins said: “Our priority is to help affected customers across our NRMA Insurance, SGIC, CGU and WFI brands as soon as possible. We remain confident in IAG’s operational momentum in FY22, after the strong start in the first quarter that we reported at the recent AGM”