Insurance Australia Group sinks again as company flags NZ flood costs over A$1bn

“To reflect the Auckland event, IAG’s FY23 forecast for natural perils has been increased by $236 million to $1,145 million.” 

Insurance Australia Group (ASX:IAG) shares were down more than four percent in Friday trade after it revealed the true cost of the Auckland floods on its balance sheet.

IAG has a higher level of exposure to NZ than Suncorp (ASX:SUN), which has also been battling with share price performance difficulties borne from disaster claims related to floods. 

IAG has been hit by floods in NZ, where SUN was hit by floods in Australia. 

How bad will the impact be?

One week ago, IAG shares were worth $5.08. 

As recently as last Monday, Macquarie Bank released a research note foreseeing cautious positivity in earnings for IAG. 

At that time, the bank foresaw IAG to be a beneficiary of inflation where motor and home insurance payment premiums from its own customers are involved. 

These higher payments to IAG would partially offset disaster-related payouts, Macquarie analysts forecasted. 

But the research note was not enough on its own to prevent IAG from slipping -3% on the same day as the company revealed the initial impact of NZ floods. 

And now, that impact has evolved into something worse. More than 15,000 claims have been lodged across IAG’s brands as of Friday 3 February 2023. 

Supply chain inflation also an issue 

“The Auckland event, combined with the escalation in supply chain inflation has delayed our ability to fully demonstrate our strategic and operational progress in FY23,” IAG CEO Nick Hawkins said. 

The insurance company was aiming for a 15% to 17% insurance margin for FY23. 

It now sees the margin at “around 10%,” revised down from 14% to 16%. 

Profits still to beat 1H22

Still, though, the company expects to deliver better returns when looking at the prior corresponding period. 

“1H23 Net Profit After Tax attributable to shareholders is expected to be $468 million (1H22: $173 million),” IAG wrote on Friday. 

“This includes the benefit of the post-tax $252 million reduction in the Business Interruption provision.” 

The company also added it has its own insurance program in place to cover the cost of any further catastrophe events in 2023.

The state of IAG's 1Y chart