The Insurance Australia Group Ltd (ASX: IAG) share price will be on watch this morning.
This follows the release of the insurance giant's preliminary full-year results for FY 2022.
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IAG share price on watch following mixed result
- Gross written premium (GWP) growth up 1.9 percentage points to 5.7%
- Reported net profit after tax of $347 million, compared to a loss of $427 million in FY21
- Reported insurance profit of $586 million
- Reported insurance profit margin misses guidance and down 6.1 percentage points to 7.4%
What happened in FY 2022?
For the 12 months ended 30 June, IAG delivered a reported net profit after tax of $347 million, which is up from a loss of $427 million a year earlier.
Management advised that this reflects the strengthening of prior period reserves, a challenging operating environment with a high incidence of natural perils, volatile investment markets, and a higher inflationary environment. There was also a $200 million pre-tax release from the business interruption provision.
And while the company's GWP growth of 5.7% was in line with its mid-single digit growth guidance, the same could not be said for its reported insurance profit margin. It came in at 7.4%, which was well short of its 10% to 12% guidance.
Management blamed this largely on its net natural peril costs of $1,119 million, which were $354 million above the original allowance of $765 million.
Management commentary
IAG's managing director and CEO, Nick Hawkins, acknowledged that FY 2022 was a difficult year but remains positive on the future. He said:
Our preliminary FY22 financial results reflect high natural perils and volatile investment markets. We have also strengthened our reserves following adverse experience in our commercial liability portfolio from prior accident years.
The FY22 preliminary underlying results reflect the positive momentum we've achieved as we build a stronger, more resilient IAG. Despite the challenges we have seen in the external environment over the year, our businesses have performed well, delivering strong GWP growth.
Our direct insurance business in Australia is growing in key segments, particularly as we roll out the NRMA Insurance brand in Western Australia and South Australia.
FY 2023 guidance
IAG is expecting "strong underlying business momentum" in FY 2023.
It is aiming for mid-to-high single digit growth. This is expected to be primarily rate driven to cover claims inflation, higher reinsurance costs and an increased natural peril allowance.
Management is also guiding to a much-improved reported insurance margin in the range of 14% to 16%.
Hawkins concluded:
As we enter FY23, our guidance demonstrates both top-line and margin improvement. We have been impacted by claims inflation in our key home and motor portfolios and have significantly increased our natural perils allowance to help ensure the business can withstand the impact of increasing frequency and severity of natural perils.
In our intermediated business, the steps we've taken to improve the performance are showing promising signs and positions us well to deliver the targeted insurance profit of $250 million in FY24. By creating a more focused operating model, a leadership team with deep expertise, and a clear strategy for growth we have confidence in the future.
