The Insurance Australia Group Ltd (ASX: IAG) share price is dropping on Friday morning.
At the time of writing, the insurance giant's shares are down 1.5% to $4.79.
Why is the IAG share price falling?
The IAG share price is under pressure today after it revealed a preliminary result that was a touch below expectations.
According to the release, the company reported Gross Written Premium (GWP) growth of 3.8% and a 1.5% increase in net earned premium to $7,473 million in FY 2021.
IAG also revealed that its underlying insurance margin came in at 14.7% for the year. This was down from 16% a year earlier and dragged lower by a second half result of 13.5%.
This ultimately led to the insurance giant revealing full year cash earnings of $747 million for the year. This is up 168% on FY 2020's cash earnings of $279 million.
However, things weren't quite as positive on a reported basis, with IAG revealing a reported net loss of $427 million. This follows total pre-tax net corporate expenses of $1.51 billion in FY 2021, including a $1.15 billion business interruption provision.
How does this compare to expectations?
As you might have guessed from the weakness in the IAG share price, this fell short of expectations.
For example, Goldman Sachs was forecasting GWP growth of 4% and an underlying insurance margin of 15.4%.
It also pencilled in a cash profit of $764 million in FY 2021, which means IAG also missed on this key metric.
FY 2022 guidance
Management advised that it is able to provide guidance for FY 2022 due to its sound underlying financial performance in FY 2021, the new operating model now embedded with new executive responsibilities, and less uncertainty in the economic outlook.
The release explains that it is expecting GWP growth in the low single digits. This incorporates modest growth in customer numbers in Direct Insurance Australia (DIA), ongoing rate increases across personal and commercial lines, and further portfolio remediation.
As for IAG's reported insurance margin guidance, that guidance range is quite broad. It is forecasting a reported insurance margin of 13.5% to 15.5%.
And finally, it management is guiding to an increase in the natural perils allowance to $765 million (post-quota share) reflecting underlying exposure growth. This has increased from $658 million in FY 2021, which benefitted from additional reinsurance cover provided by the calendar year 2020 aggregate catastrophe cover.
IAG's CEO, Nick Hawkins, commented: "While our adjusted underlying FY21 performance delivered an insurance margin of around 14%, I'm confident that, with the steps we have in place, we will deliver business and customer growth. Our direct insurance businesses in Australia and New Zealand are growing and we expect this growth to continue as we build out our premium brands across Australia."
"We recognise that our Intermediated business has underperformed which is why I have set specific goals for this business to simplify its structure, upgrade its risk and underwriting disciplines, further strengthen relationships with broker partners, and improve its financial returns," he concluded.