IAG (ASX:IAG) share price sinks 6% on guidance downgrade

IAG’s shares are deep in the red today…

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The Insurance Australia Group Ltd (ASX: IAG) share price is sinking on Tuesday.

In morning trade, the insurance giant’s shares are down almost 6% to $4.56.

Why is the IAG share price sinking?

Investors have been selling down the IAG share price after it provided an update on net natural perils claim costs for FY 2022. This follows severe storm and hail activity experienced over the course of October.

According to the release, the most recent event, which impacted South Australia and Victoria between 27 and 29 October and South East Queensland on 30 October, saw IAG receive approximately 14,000 claims by 4pm on 1 November. This is expected to rise further over the coming days.

IAG anticipates the net cost for this event to be $169 million, the maximum retention for a first loss under IAG’s catastrophe program.

What’s impact will this have on FY 2022?

In light of the above and other events that impacted the second half of October, IAG has increased its expectation for FY 2022 net natural perils claim costs. It now expects its claim costs to be $1,045 million, compared to the previous assumption of $765 million.

The $280 million increase in net natural perils claim costs equates to approximately 360 basis points at the reported insurance margin level.

As a result, IAG has lowered its FY 2022 reported insurance margin guidance range from 13.5% – 15.5% to 10% – 12%. Other assumptions remain unchanged.

Despite this, IAG’s Managing Director and CEO, Nick Hawkins, remains optimistic on the company’s outlook.

He commented: “We remain confident in IAG’s operational momentum in FY22, after the strong start in the first quarter that we reported at the recent AGM.”

Today’s decline means the IAG share price is now into negative territory year to date.

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Motley Fool contributor James Mickleboro has no position in any of the stocks mentioned. The Motley Fool Australia's parent company Motley Fool Holdings Inc. has no position in any of the stocks mentioned. The Motley Fool Australia owns shares of and has recommended Insurance Australia Group Limited. The Motley Fool has a disclosure policy. This article contains general investment advice only (under AFSL 400691). Authorised by Bruce Jackson.

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