IAG profits bounce as home and car cover is set to rise
After recording a strong bounce in profits in the latest half, IAG said on Thursday the cost of meeting claims continued to rise faster than inflation.
Claims from recent flooding and bushfires were within its allowances but the chief executive, Mike Wilkins, said "underlying longer-term cost trends" were likely to result in higher prices for customers.
"On a blended basis, we could see prices moving in the 5 to 10 per cent range," Mr Wilkins said.
He said the price pressure was not due to any individual event but was caused by continued rises in costs such as salaries.
IAG handed down earnings of $461 million in the six months to December, more than triple the result in the previous corresponding period.
The result was helped by strong growth in earnings from its core Australian and New Zealand operations, which helped expand group profit margins to 19.9 per cent, from 7.7 per cent.
Its Asian businesses, which include investments in Thailand, Malaysia, China and Vietnam, contributed to almost 6 per cent of gross revenue from premiums.
IAG, the group behind the NRMA, RACV and CGU brands, is the nation's biggest insurer of cars and homes.
Australian consumers are regarded as less likely to shop around for insurance than buyers in some other countries, and analysts expect IAG will be able to pass on most of its price rises.
But an analyst at Nomura, Toby Langley, said if wage growth were to slow, it could result in consumers becoming more discerning about their insurance policy purchases.
Investors welcomed the latest bounce in profits, lifting IAG shares by 15¢, or 2.8 per cent to $5.57.
"The market seems to have underestimated the benefit of price rises that IAG has managed to put through its business in recent periods," Mr Langley said.
The bounce in earnings helped increase the group's capital ratio above its own benchmarks but Mr Wilkins said any talk of capital management, such as a special dividend, was "premature".
Frequently Asked Questions about this Article…
Yes. Insurance Australia Group (IAG) says premiums for home and car insurance could rise on a blended basis in the 5–10% range, and up to 10% over the next 12 to 18 months as it passes on higher claim costs.
IAG’s CEO Mike Wilkins says the increase is driven by underlying longer‑term cost trends — the cost of meeting claims is rising faster than inflation, including higher salaries — not any single event, although recent flood and bushfire claims were within allowances.
IAG reported earnings of $461 million for the six months to December, more than triple the result from the previous corresponding period, with group profit margins widening to 19.9% from 7.7%.
IAG’s Asian businesses — including investments in Thailand, Malaysia, China and Vietnam — contributed almost 6% of the group’s gross revenue from premiums, supporting overall earnings growth.
Analysts expect IAG can pass on most price rises because Australian consumers are generally less likely to shop around, though Nomura analyst Toby Langley warns that weaker wage growth could make consumers more discerning.
Investors responded positively: IAG shares rose by 15 cents, or 2.8%, to $5.57 after the company announced the stronger earnings.
Although the profit bounce pushed IAG’s capital ratio above its own benchmarks, CEO Mike Wilkins said talk of capital management measures like a special dividend is "premature."
IAG is the group behind well-known brands such as NRMA, RACV and CGU and is Australia’s biggest insurer of cars and homes — a strong market position that helps its ability to raise prices and expand margins.
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