IAG has provided an update to its FY20 reported margin guidance, based on expected results for the six months ended 31 December 2019 and on a revised view of full year net natural peril claim costs in the wake of the recent hailstorm event.
IAG now expects its FY20 reported insurance margin will be in the range of 14.5-16.5%, compared to previous guidance of 16-18%.
IAG will be releasing its detailed 1H20 results on 12 February 2020. Ahead of that, IAG advises that, subject to finalisation of audit review and Board approval, it expects its 1H20 results to contain the following features:
• Gross written premium (GWP) growth of around 1.4% (1H19: 4.1%), consistent with the ‘low single digit’ GWP growth guidance provided for the full year;
• An underlying insurance margin of 16.9% (1H19: 16.2%);
• A reported insurance margin of 13.5% (1H19: 13.7%), after inclusion of:
o Net natural peril claim costs of $419 million;
o Lower than anticipated net reserve releases of $5 million; and
o A modestly favourable credit spread effect;
• A loss from fee-based business of $2 million (1H19: profit of $5 million); and
• A post-tax provision of approximately $80 million for customer refunds.
IAG’s Managing Director and CEO Peter Harmer said: “We are pleased with our underlying business performance, which continues to track in line with our expectations, both at the GWP and underlying margin levels, and in terms of the net benefits being realised from our optimisation program.
“We have, however, revised our reported insurance margin guidance for the full year, to reflect the recent heavy natural peril activity and a reduced expectation for prior period reserve releases following the lower than anticipated first half net reserve release outcome,” Harmer said.
IAG’s 1H20 results will contain a net post-tax provision of approximately $80 million for customer refunds, interest attributable to those refunds and the cost of administering the associated remediation program.
This relates to a specific multi-year pricing issue identified by IAG where discounts were not always applied in full to premiums for all customers who may have been eligible. IAG reported this issue to the Australian Securities & Investments Commission (ASIC) in September 2019.
Since then, IAG says it has addressed the underlying cause of this issue and is now focused on identifying affected customers and providing refunds.
“We’re disappointed that some of our customers have not received the full premium discount they should have. We will put this right as quickly as possible. We have a team in place which is working hard to identify individual customers who have been affected and to arrange refunds.
“This issue was identified as part of a proactive review of our pricing systems and processes which is ongoing,” Harmer said.
The hailstorms which have impacted parts of Melbourne, Canberra and Sydney over the course of 19 and 20 January 2020 will be treated as one event under IAG’s reinsurance arrangements.
Based on projected claim volumes and the severity of related damage, it is anticipated this event will result in a pre-tax cost to IAG of $169 million in line with the maximum first event retention (MER) under IAG’s calendar 2020 catastrophe reinsurance protection.
By 5pm on 23 January 2020, IAG had received over 28,000 claims resulting from the hailstorm event, with this figure expected to increase over the coming days. The majority of claims relate to residential property and motor damage.
IAG Australia Division CEO Mark Milliner said: “We are doing all we can to help our impacted customers get back on their feet as swiftly as possible.
“We are scaling-up our support for customers in the affected areas and have increased our call centre capacity to help those affected lodge claims easily. This follows on from increasing staff levels to respond to the devastating bushfire season.
“We have also allocated additional staff to the claims and repair management teams and our online claim lodgement facility is helping with the rapid assessment of claims.
“We have set up seven specialist repair centres across Melbourne, Canberra and Sydney to help assess and repair hail-damaged vehicles,” Milliner said.