The Insurance Australia Group Ltd (ASX: IAG) share price is up after the insurance giant released an update about FY22.
IAG is an insurance giant across Australia, New Zealand and it has a presence in Malaysia with a joint venture. Some of its brands includes: NRMA Insurance, CGU, SGIO, SGIC, Swann Insurance, WFI and Poncho Insurance in Australia. In New Zealand it has NZI, State, AMI and Lumley (New Zealand).
FY22 update
IAG said that it was going to reaffirm its FY22 reported margin and gross written premium (GWP) guidance.
Over the medium-term, it is aiming to deliver a targeted cash return on equity (ROE) of between 12% to 13%, an insurance margin of between 15% to 17% and a growth profile. IAG said that its aspiration is to deliver those financial goals on a sustainable basis.
The company also provided some details about its growth agenda. It said that IAG’s ambition in the next five years is to add one million new customers to the 8.5 million that the company already serves, and to ensure more than 80% of customers’ activity occurs through digital channels.
Its direct business in Australia has launched its growth plan, taking NRMA Insurance national and setting itself up as a “serious player” in the youth market with Rollin’. IAG also said that its New Zealand business continues to strengthen its foundations and deliver ongoing strong results.
IAG’s largest operating business, Direct Insurance Australia, has an ambition to bring on board 750,000 of the 1 million customers the company aims to attract over the next five years and deliver $400 million of value through initiatives to increase claims and supply chain effectiveness.
FY22 guidance is for a reported insurance margin of between 10% to 12% and low single-digit GWP growth.
IAG Managing Director and CEO Nick Hawkins said:
“Our ability to invest time and effort in delivering on our growth agenda is rapidly improving. We’re already seeing a turnaround in our intermediated business in Australia as we work to deliver at least $250 million of insurance profit in that business by FY24.
“We are driving enterprise-wide efficiency, by simplifying the processes and technology that support our business. We are well on the way to establishing an enterprise platform that will simplify our back office, improve our risk processes, and reduce our costs to serve. This will create opportunities to grow and improve our customer experiences.
“We are focused on where our scale can deliver operating or structural advantages that can differentiate our company, particularly in areas of supply chain, claims handling and underwriting. Claims optimisation and supply chain efficiency are common threads across all our businesses and can deliver real financial benefits.”
Thoughts on IAG and the share price
IAG shares are down 17% over the last month and 45% from the middle of January 2020. There may be some value here if it can grow its underlying profit over the next few years.
But, it’s not the type of business I’m targeting. The ongoing difficulties with increasingly damaging storms could be a real dent on future profit for insurance providers.
There are other ASX dividend shares that I would rather invest in.
