IAG has revised its margin guidance to 12.5-14.5% citing catastrophic weather events as having a financial impact on business performance. On 24 January 2020, it revised its reported margin guidance to 14.5 – 16.5% after the devastating bushfires and the hail event in Melbourne, Canberra and Sydney.
"With the recent heavy rain event in south‑east Australia in early February, we have further lowered guidance for the full year to 12.5‑14.5%, a reduction of 200 basis points, in what is proving to be an exceptionally harsh perils season. We expect the cost of this event will be capped at $135 million, in line with our second maximum event retention under our calendar 2020 reinsurance program," Peter Harmer IAG Managing Director and Chief Executive Officer said.
He went on to say that IAG's underlying business had a strong performance over the half, with Australian business generating solid underlying profitability while meeting the challenge of a series of devastating bushfires. "New Zealand continues to perform well, delivering strong margins and solid gross written premium (GWP) growth.
"In Australia, while we achieved sound growth in our short tail personal lines, overall GWP growth was flat. This reflected business exits and continued remediation in our commercial business, and lower CTP premiums in the wake of scheme changes.
"Our overall GWP growth was 1.4% and incorporated strong GWP growth of 6.3% in New Zealand, reflecting volume and rate growth, as well as a favourable foreign exchange effect," he said.
The underlying insurance margin of 16.9% was an improvement on 1H19 (16.2%) and similar to 2H19 "as we continued to realise benefits from our optimisation program. This was offset to an extent by increased regulatory and compliance costs as previously flagged as well as lower interest rates impacting investment income."
The company said it expected strong performance in the second half of the year. One of its 2020 priorities is the integration of the recently acquired MotorServe business, within the motor repair model, providing a one-stop-shop for repairs and servicing. Another priority is the expansion of Carbar, the digital car trading and subscription platform, to respond to customer appetite for alternative forms of vehicle ownership.