Shares of Insurance Australia Group Ltd (ASX: IAG) fell by as much as 6.1% to a low of $5.53 today. The decline came after the insurance giant shed light on the financial impact the recent storms in Sydney would have on its business with a bill of up to $300 million currently expected.
So What: In a market-sensitive announcement, the insurer said that it had been forced to lift its net natural peril claim cost assumption for the year to $1 billion, up from a prior assumption of $700 million. It also revised its insurance margin guidance for the financial year down to 10.5%-12.5% from a much more appealing range of 13.5%-15.5%.
By 28 April, Insurance Australia Group had received almost 30,000 claims in relation to the storms that battered New South Wales last week with the expectation being a net cost of $250 million. The more recent hailstorm that hit Sydney over the weekend is expected to cost another $50 million, while the cost for Tropical Cyclone Marcia in February is now tipped to cost $140 million, up from previous guidance of $60-90 million provided in March.
Neither QBE Insurance Group Ltd (ASX: QBE) nor Suncorp Group Ltd (ASX: SUN) have declared a damage total at this point in time, although the pair are trading 1.9% and 2.1% lower today respectively, indicating investors may be expecting the worst.
Now What: Although the recent storms in NSW will impact the insurer's overall financial results for the year, it could also lead to stronger growth in policy numbers in the future from individuals and businesses looking to insure their property. While the stock could have further to fall in the near term, investors could certainly look to take advantage of the dip and start building a position. After all, legendary investor Warren Buffett made much of his fortune by investing in insurance companies, and the best time to buy them could be when they are out of the market's favour.