IAG profits hit $832m, but 2024 forecast reveals disaster concerns

Australia’s biggest insurer has warned it expects to lift insurance premiums by double digits in the year ahead amid rising inflation pressures.

IAG CEO Nick Hawkins: ‘We obviously can see the impact of what we’re having to do in our prices.’ Picture: Nikki Short

Insurance Australia Group has warned it expects to lift insurance premiums by double digits in the year ahead amid rising inflation pressures.

Despite reporting a 10.6 per cent increase in prices across its brands – including NRMA, CGU, and RACV – IAG has reported customers continue to stick by their insurance.

Outside of its premium increases, which helped drive the insurer to a 140 per cent profit bump to $832m, IAG has continued to see customer numbers lift 1 per cent across its motor and home portfolios.

The premium increase, almost double the 5.7 per cent lift record last year, saw IAG’s insurance profit climb 37 per cent to $803m.

IAG chief executive Nick Hawkins said the insurer had lifted customer numbers by 132,000 as part of its goal to add a million new customers to the group.

“We’re managing that in the tough environment of inflationary pressure that households are experiencing,” he said.

“We obviously can see the impact of what we’re having to do in our prices.”

IAG’s reported insurance margin lifted to 9.6 per cent, up from 7.4 per cent in the prior year.

However, the underlying insurance margin took a hit, down to 12.6 per cent from the 14.6 per cent IAG printed last year. This was largely driven by IAG’s reinsurance reinstatement costs which snipped $67m from accounts.

But IAG faced high natural perils costs, which blew past the insurer’s already increased budget of $765m to $909m after storms and floods hit Australia and New Zealand.

IAG increased its natural perils allowance in 2024 to $1.14bn, up 26 per cent on its previous allowance, in what Mr Hawkins said was a recognition that worse and more frequent disasters were in the future. “We know the cost of reinsurance is reflecting that as well. This is a topic that is not going to go away,” he said.

IAG flagged almost 20 per cent of its premiums now cover elevated reinsurance costs and perils allowance.

The insurer has been troubled by breakout costs around natural disasters as well as the shock of Covid-19, which saw it rush to raise massive provisions to cover potential payouts.

However, insurers had several key court wins, dodging much of the payout, leaving it room to unwind $392m of provisions to cover business interruption insurance claims in the financial year.

IAG maintained its group operating costs, against a $2.5bn target, while the expense ratio was pulled back.

It declared a 9c dividend, taking total payouts for the year to 15c, or 83 per cent of IAG’s reported profits. This was up on IAG’s 11c payout last year.

IAG said it was entering the 2024 financial year with “positive momentum” across the insurer.

Gross written premium growth is forecast to be low double digits in the year ahead.

IAG noted this included “modest volume growth” expectations, with the insurer having repeatedly flagged aims to grow overall business by a million new customers.

Insurance margin is expected to increase to 13.5-15.5 per cent, in a bid to meet IAG’s long-stated goal of lifting its insurance margin to 15 per cent. UBS analysts said IAG’s core margin trends “look sound”, but warned the earnings had been a miss on insurance profit.

Shares in IAG close down 0.86 per cent at $5.79.