Insurance Australia Group Limited has revised its FY14 reported insurance margin guidance to 14.5-16.5%, up from the previously advised 12.5-14.5% following a review of expected performance in the first half of the year.
IAG has reduced its FY14 gross written premium (GWP) growth guidance to 3-5%, compared to the previously held 5-7%. The Group expects to report GWP growth of approximately 4% in 1H14 (6% after allowing for the cessation of the Victorian Fire Services Levy).
The revised guidance for FY14 does not include contributions from the Wesfarmers insurance underwriting businesses in Australia and New Zealand, the acquisition of which was announced on 16 December 2013. It remains the group’s expectation that this transaction will complete in complete in the second quarter of calendar 2014 following the receipt of all necessary regulatory approvals.
IAG CEO Mike Wilkins, said the group anticipated reporting an insurance margin of around 17.5% for the six months ended 31 December 2013 (1H14), when it announces its results for that period on 21 February 2014.
Expected features of the first half performance are: An underlying insurance margin of around 13.5%; net natural peril claim costs slightly in excess of the related allowance of $320m; reserve releases of over 4% of net earned premium (NEP) following favourable experience in Australian long tail classes; and a favourable credit spread impact of around $40m.
“While our financial results for 1H14 remain subject to finalisation, including board approval, we expect to record a strong first half underlying performance which builds on the improvement evident in prior periods,” said Wilkins. “The reported result is also expected to benefit from higher than originally anticipated reserve releases.”
“This expected first half outcome includes strong underlying performances from each of the businesses in Australia and New Zealand, as well as a small contribution from our Asian operations,” said Wilkins.
The revised reported insurance margin guidance for FY14 includes an unchanged assumption regarding full year net natural peril claim costs, of $640m, and the expectation of no material movement in foreign exchange rates or investment markets in 2H14. Prior period reserve releases are now expected to represent around 3% of NEP in FY14, compared to the previous expectation of 1-2%.
