IAG managing director and CEO Nick Hawkins, along with members of his leadership team, have provided an update on strategic initiatives and progress against ambitions that were outlined in its 2021 Business Update.
During an investor day, Hawkins shared insights into IAG's performance and future plans.
Hawkins highlighted the company's commitment to its core insurance business and simplification efforts.
“In December 2021, we put together a strategy that focused on our core insurance business, simplifying what we do, and resolving legacy issues," Hawkins said. "Our strategy remains unchanged, and we are creating a stronger and more resilient IAG."
Acknowledging the challenging operating environment, Hawkins pointed out that external factors have affected IAG's operations.
“Our business has been responding appropriately to the external environment," he said. "We have held our operating costs flat and implemented premium increases which appropriately anticipate future claims and reinsurance costs. "
Regarding the company's strategic ambitions, Hawkins provided updates on different business divisions.
"We are on track to deliver at least $250 million profit in our Intermediated Insurance Australia business in FY24 with a highly experienced commercial insurance team building better broker experiences and driving business efficiencies," he said. "We have added 207,000 new customers in our Direct Insurance Australia business since July 2021 as we took our trusted NRMA brand national and maintained very high customer retention rates.
“The business is also on track to deliver $400 million of value through increased claims and supply chain effectiveness."
Achieving the insurer’s one million customer growth target will take longer as the company prioritises margins, Hawkins said.
“However, our one million customer growth ambition will take longer to achieve as we prioritise margins, by focusing on reducing claims costs, streamlining operating and technology costs, and rolling out digital insurance options," he said. "Our $2.5 billion gross operating cost target was achieved in FY21 and FY22 and is on track for FY23.
“In FY24, we expect our key expense ratio to remain flat or reduce, however, we anticipate that ongoing inflationary pressures and additional technology investments may result in increased operating costs.”
Providing an update on the FY23 operating environment, Hawkins expressed confidence in achieving around 10% growth in gross written premiums (GWP) and reported insurance margins.
He noted that both the Direct Insurance Australia and Intermediated Insurance Australia divisions were expected to deliver improved margins in the second half of FY23. In New Zealand, top-line growth and increased earned premiums were projected, although margin improvements were slower due to the persistent high inflationary environment.
"Our Australian businesses are expected to deliver improved second-half results reflecting strong top-line growth, increased earned premiums, and improving claims trends," he said. "Our New Zealand business, after experiencing the second and third largest natural disaster loss events on record, is experiencing the elevated inflation impact on non-peril motor and home claims costs.
“We also anticipate a small net reserve release and favourable credit spread impacts in the second half.
“These two positives are likely to be offset by natural perils which will be moderately over the revised expectation, assuming an average June month."
Looking ahead, Hawkins announced an increased medium-term return on equity (ROE) target of 13%-14% and a medium-term insurance margin target of 15%.
"The strong top-line growth we're achieving, and the improved investment returns we are seeing on shareholder funds, means an increased ROE target of 13%-14% is realistic and achievable over the medium term," he said.
IAG will release its financial results for the year ending June 30, 2023, on August 21, 2023. A live video webcast of the investor day was made available on the company's website.
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