Steep jump in premiums, more to come for home and car insurance

IAG, which has lagged rival Suncorp in recent times, said it would keep its interim dividend unchanged at 6¢ a share, to be paid on March 23.

The results confirmed IAG’s profit warning from earlier this month, reporting a contraction in its underlying insurance margin to 10.7 per cent. Net profit after tax recovered sharply to $468 million, from $173 million in the December half of 2021, mainly because it released provisions for “business interruption” cover.

The decline in its margin was driven by higher claims for disasters, including recent flooding in Auckland, and a blowout in the cost of paying out claims. The most dramatic surge in inflation occurred in its motor insurance business late last year, with a jump in the cost of repairs and parts, alongside delays, which Hawkins likened to a “perfect storm.”

UBS analyst Scott Russell, who has a “sell” on IAG, said the company’s guidance for a short-term recovery in its margins was based on it pushing through higher prices, a moderation in the cost of paying claims, better investment returns, and no strengthening its reserves.

“This scenario appears optimistic to us considering the scale and complexity of recent claims headwinds,” Russell said.

As consumers grapple with a budget squeeze, Hawkins said there had also been a small change towards some customers choosing to pay a higher excess to limit the increase in premiums, but it was not a material shift.

IAG shares rose 5.2 per cent to $4.96.

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