The release of Insurance Group Australia’s (ASX: IAG) interim report this morning did little to excite the market with the share price of Australia’s biggest insurer up 0.33% at the open.
Embedded within IAG’s result – which includes NRMA and SGIO brands - was a mixed bag of numbers, which should remind investors to be wary of the numbers they focus on.
Commenting on IAG’s interim result this morning, Citi noted that the underlying theme seems to be of a better performance from the insurer than the broker anticipated, with core earnings well above forecasts.
The broker believes management’s lift in growth guidance for gross written premia to “mid-single digit" from “low single digit” was the single biggest positive from today’s announcement and maintains a Buy and price target of $5.60.
Firstly, within the result there were the brickbats, most notably including a 62% fall in half-year cash profits to $176m, and an underwhelming dividend of 6 cents, down 14.35% from 7 cents per share.
While by no means unexpected, especially given the difficult FY21 experienced by the sector at large - due in part to the weather- natural hazard claims - the result was nowhere near consensus first half cash profit of $285m and an interim dividend of 8 cents per share.
Then there were the bouquets, which based on increases in pricing on home and car insurance, included upgraded guidance on the amount of premiums it anticipates reaping this year.
In line with recent industry price hikes, IAG advised last week that its gross written premium could expect “mid-single digits” growth for the year.
IAG CEO Nick Hawkins also noted new customer growth and strong retention across key motor and home lines in the group’s direct Australia business.
Overall, IAG reported a net profit of $173m for the half-year ended December, after a loss of $460m in the previous period, on revenue of $9.2bn, which was down 4.4%.
Included within today’s interim highlights were:
Gross written premium (GWP) rose 6.2% to $6.57bn, with the company noting that “significant rate increases” were the “dominant feature”.
Underlying insurance margins improved to 15.1% from 14.7%.
Insurance profit down 57.8% to $282m.
Despite IAG’s challenges, Hawkins describes the overall performance as “solid” and reflected “the foundations recently implemented to create a stronger and more resilient IAG.
Hawkins also noted that a simplified claims platforms allowed the insurer to make faster decisions with less time and involvement from staff.
Hawkins also hopes to lift IAG’s insurance margins beyond the guided 10-12% to between 15-17% over the medium term.
Management also reassured the market there was no expected net insurance exposure to the collapse of Greensill Capital-linked businesses of Lex Greensill.
Consensus on IAG is Moderate Buy.
Going into lunch today the IAG share price was 2.42% higher.
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