IAG expects to exceed its FY14 insurance margin guidance of 14.5 to 16.5%, now anticipating a margin between 18% and 18.3%.
The group expects to report gross written premium of 3% for FY14. This compares to the 3 to 5% GWP growth guidance range presented on 24 January. IAG said it reflects an ongoing relative absence of input cost pressures and associated need for premium rate increases.
Allowing for the cessation of the Victorian Fire Services Levy at the end of FY13, GWP growth in FY14 is expected to be over 4%.
IAG managing director and CEO Mike Wilkins said the group’s higher insurance margin for FY14 benefited from favourable natural peril and credit spread outcomes in the second half of the financial year, which caused full year insurance margin expectations to be revised upwards.
The net natural peril claim expense is $555m, compared to a guidance assumption of $640m; the credit spread impact of $100m compared to a guidance assumption of $39m, and a further narrowing of spreads applicable to the group’s fixed interest portfolio occurred in 2H14.
Reserve releases were just below 3% of net earned premium compared to a previous expectation of around 3%.
The FY14 results are expected to include a total pre-tax net corporate expense of $70m, including the $50m restricting costs associated with the new model in Australia, and the $20m transaction costs related to the Wesfarmers acquisition.
The new operating model revealed in May is expected to result in associated one-off pre-tax restructuring costs of approximately $100m, of which $50m will be recognised in FY14. A related annualised pre-tax benefit of $90m is expected to be realised within a two-year timeframe.
The group will post the full details of its FY14 results on 19 August.
