The Insurance Australia Group Ltd (ASX: IAG) share price surged higher today following a positive market update this morning.
In an announcement to the ASX, Insurance Australia Group or IAG, the owner of brands such as CGU, NRMA and SGIO, provided its strategy day update which detailed its plans over the next three to five years. IAG's strategy is based on themes of 'leading' and 'fuelling'.
"Leading has our customers at the core, and aims to provide inspiring customer experiences through our people, technology, innovative products and smart ideas," IAG CEO, Peter Harmer, said. "Fuelling means making the necessary changes to the way we operate – simplifying processes and systems, and optimising resources to be more efficient so we can invest in leading."
He said the strategy will help the insurer deliver a top quartile total shareholder return and compound earnings per share growth of around 10%.
The strategy will focus on its core markets of Australia and New Zealand, but also Asia. An optimisation program will see $250 million of operating costs stripped from the business.
And subject to market conditions the company will continue to undertake share buybacks where possible, and make effective use of its franking credits.
Outlook
Over the full financial year, IAG expects flat gross written premiums with margins between 12.5% and 14.5%. This compares with the company's 2016 margin of 14.3%.
Foolish takeaway
IAG is one of Australia's leading insurers, alongside QBE Insurance Group Ltd (ASX: QBE) and to a lesser extent Suncorp Group Ltd (ASX: SUN).
While insurance can appear to be a lucrative endeavour, shares in these businesses are volatile. However, when shares rise or fall haphazardly, perhaps as a result of a natural disaster, it can be the perfect time build a position in the company.
