Release Date: August 21, 2024
For the complete transcript of the earnings call, please refer to the full earnings call transcript.
Positive Points
- Insurance Australia Group Ltd (IAUGF, Financial) reported a strong net profit of $898 million, with an insurance result up 79%.
- The company declared a $0.17 per share final dividend, bringing the total FY24 dividends to $0.27 per share, an 80% increase from the previous year.
- IAUGF announced a further on-market share buyback of up to $350 million, reflecting a strong capital position.
- The company has invested in new technology and people, enhancing customer experience and claims processing efficiency.
- IAUGF's intermediated business in Australia delivered a reported insurance profit of $328 million, surpassing the $250 million target.
Negative Points
- The company faces ongoing challenges with claims inflation, particularly in property classes, with labor rates and building supply costs remaining high.
- Premium increases have been necessary due to inflation and natural perils, impacting customer affordability.
- The business interruption provision remains high at $380 million, with less than $20 million paid out in claims, indicating potential over-reservation.
- IAUGF's fee-based business reported a loss of $36 million, including impacts from Motorserve and Carbar.
- The company anticipates a 17% increase in the natural perils allowance for FY25, which could impact margins.
Q & A Highlights
Q: Could you comment on the rates and claims inflation you've been seeing and some of the key lines in the second half?
A: Nicholas Hawkins, CEO: We're seeing some inflationary pressure come back, particularly in motor repair costs, which have moderated to 5-10% from double digits. Property inflation remains high, especially in labor rates and building supply costs. Commercial renewals are still strong but showing a slight slowdown in rate increases.
Q: Your guidance for FY25 seems softer than your exit margin in the second half of FY24. Can you unpack the key drivers?
A: William McDonnell, CFO: The 17% increase in the natural perils allowance for FY25 is a significant factor. The reinsurance deals provide strong downside protection but have a slight margin impact in year one. Despite this, the midpoint of our guidance for insurance profit in FY25 is ahead of FY24.
Q: What problem are you trying to solve by seeking an additional apparel license for the IIA division?
A: Nicholas Hawkins, CEO: We see our retail and commercial businesses as distinct entities with different products, market cycles, and technology needs. Having a separate license for the intermediated business will allow us to focus more effectively on its unique requirements.
Q: How should we think about the targets for the IIA division going forward?
A: Nicholas Hawkins, CEO: We expect the IIA division to deliver double-digit margins, likely lower than our retail business but still strong. The New Zealand intermediated business is already delivering this level of performance.
Q: Can you talk about the shape of the group margin guidance for FY25 half to half?
A: Nicholas Hawkins, CEO: Due to the accounting treatment of the increased perils allowance, we expect a slight drag in the first half and a stronger second half as we continue to earn through the pricing adjustments.
Q: Can you comment on the premium rate increases towards the end of the second half of FY24?
A: Nicholas Hawkins, CEO: Motor rate increases have moderated, while property rates remain high due to ongoing inflationary pressures. Commercial rates are also moderating, particularly at the top end.
Q: How should we think about the GWP growth guidance for FY25 in terms of rates and volumes?
A: Nicholas Hawkins, CEO: We expect 1-2% volume growth in our retail businesses, with the balance coming from price increases. We're optimistic about growth in FY25.
Q: What does the exit of Coles Insurance mean for your strategy and GWP impact?
A: Nicholas Hawkins, CEO: The exit represents a couple of hundred million in premium, which is not material in the context of our $16 billion premium pool. We see opportunities for growth in other brands like NRMA and ROLLiN'.
Q: Can you clarify your approach to motor repairs in Australia versus New Zealand?
A: Nicholas Hawkins, CEO: We're not scaling back; we're optimizing our process. The concept of owning motor repair businesses to improve customer experience and financial outcomes is consistent across both markets.
Q: Is the $380 million business interruption provision conservative given the low payout during the year?
A: William McDonnell, CFO: The provision is driven by a class action lawsuit and remains unchanged. We continue to remind small business claimants to submit their claims.
For the complete transcript of the earnings call, please refer to the full earnings call transcript.
