IAG lifts FY outlook

Strong second half with few natural perils spurs insurer to upwardly revise guidance.

Insurance Australia Group (IAG) has upwardly revised its full-year expectations after a strong second-half performance with few natural disasters.

For the twelve months to June 30, Insurance Australia Group expects to report an insurance margin between 18 and 18.3%, up from previous guidance of between 14.5 and 16.5%.

The insurer’s anticipated total insurance margin, which measures the contribution to profit from underwriting and investment income as a percentage of net earned premium (NEP), is based on expected NEP of $8.64 billion.

The group said relatively benign natural peril activity in Australia and favourable credit spread outcomes led to the improved second half results, despite significant storm activity in New Zealand. 

Insurers' profits have been battered by substantial natural disasters over recent years, including the Queensland floods and New Zealand earthquakes, although a reduction in perils by fiscal 2013 helped IAG to triple its output that year.

IAG also expects to report gross written premium growth of approximately 3 per cent for fiscal 2014, compared to the 3% to 5% guidance presented on January 23.

The group said the increase reflects an ongoing relative absence of input cost pressures and associated need for premium rate increases.

IAG will announce full details of its fiscal 2014 results on August 19, including the outlook for fiscal 2015.

The group has also acquired standalone reinsurance protection for the combined Wesfarmers insurance underwriting business it purchased for $1.845 billion this month.

The coverage comprises of catastrophe cover for losses up to $1.35bn, and as a result the group’s maximum event retention increased to $225 million on July 1, from $175 million.

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