Broker Watch

Despite rainy outlooks, Macquarie highlights these two insurers as beneficiaries of inflation

Mon 30 Jan 23, 3:54pm (AEST)
Australian currency placed on a tabletop alongside calculator, pen and magnifier
Source: iStock

Key Points

  • Macquarie Bank sees inflation benefitting two insurance stocks into FY24
  • The bank has also outlined that underwriting of Electric Vehicles (EVs) is an “increasingly important” metric to track in motor claims
  • However, climate-related impacts on both of today’s highlighted companies stand to dampen bank’s sentiment somewhat

Inflation isn’t exactly a good thing for miners and retail stocks, which Macquarie Bank noted on Monday in separate research notes are both sectors likely to see rising capital expenditure (capex) through 2023. It isn’t great for construction, either. 

The good news, however, is for Insurance providers. 

Broadly speaking, the bank estimates claims inflation for Personal Motor in the insurance sector will reflect approximately 11.5% growth in the December 2022 quarter. 

For Home, it expects to see growth slightly higher at 11.9%.

On the back of its analysis, Macquarie Research has today picked out two insurance stocks it perceives can provide shareholders gains due purely to the dynamics of inflation impacting the Australian economy.

Inflation expectations underestimated: Macquarie 

Macquarie has retained an Outperform rating on two different stocks. 

The first is Insurance Australia Group (ASX:IAG), the second is Suncorp (ASX:SUN).

“Although IAG and SUN might be repricing ahead of claims inflation trends now, we do not believe pricing 12 months ago incorporated claims inflation at these levels, thus underlying margins should continue to improve into FY24,” the bank wrote. 

Insurance Australia Group (ASX:IAG)

  • Macquarie bank has given IAG a target price of $5.90. 

  • As at 1400 AEST Monday 30 January 2023, the company’s share price is $4.92. 

Worth noting: Macquarie highlighted IAG’s own claims it underwrites roughly 50% of EVs in Australia. 

EV repairs, the bank says, are more expensive than that for internal combustion engine vehicles, which left Macquarie describing EV coverage as “an increasingly important metric to track.”

IAG's six month charts heading into close on Monday
IAG's six month charts heading into close on Monday

Suncorp (ASX:SUN)

  • Macquarie bank has given SUN a target price of $15.80.

  • As at 1410 AEST Monday 30 January 2023, the company’s share price is $12.62. 

SUN's six month charts heading into close on Monday
SUN's six month charts heading into close on Monday

Don’t forget to check the radar

Worth noting is that both companies are conversely seeing pressure related to extreme weather conditions exacerbated by a warming planet. 

Suncorp revealed last November that its entire FY23 disaster payout was already 35% used up due to floods between July and October. 

IAG also separately announced to the market on Monday it was seeing a higher number of claims coming from NZ, where wet weather similar to that on Australia’s east coast in the last twelve months will impact the books. 

IAG shares were down -3.2% in the second hour of afternoon trades. 

Literal storms and economic ones

Wet weather is also causing headaches for the construction sector, prompting Morgan Stanley to downgrade four ASX-stocks back in December. So too is it causing problems in agriculture

Dropping the weather thematic, and looking at inflation on its own right: Oz Minerals (ASX:OZL) on Monday highlighted electricity costs (and general inflation) are pushing up the price of producing copper, which will remain elevated through 2023. 

Written By

Jonathon Davidson

Finance Writer

Jonathon is a journalism graduate and avid market watcher with exposure to governance, NGO and mining environments. He was most recently hired as an oil and gas specialist for a trade publication.

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