The Insurance Australia Group Ltd (ASX: IAG) share price dropped 10% after reporting its HY25 result, which disappointed the market.
IAG is one of the largest insurers in Australia, with brands including NRMA, CGU, WFI and Swann Insurance.
HY25 result
Let’s look at some of the highlights from the six months to 31 December 2024:
- Gross written premium (GWP – the amount of insurance sold) up 6% to $8.4 billion
- Net earned premium up 9.7% to $4.93 billion
- Claims paid $5.2 billion
- Insurance profit up 55.9% to $957 million
- Net profit after tax (NPAT) up 91.2% to $778 million
- Interim dividend per share up 20% to $0.12
The profit growth was mainly driven by the $140 million after-tax release of its accounting provision for the COVID business interruption, an increase in net earned premiums and a rise in the insurance profit.
IAG said its natural perils costs were $215 million below its allowance for HY25 and this had a significantly positive impact on the insurance profit.
The key retail insurance Australia (RIA) division saw its GWP rise 6.1% to $4.3 billion and insurance profit rise to $476 million (up from $229 million in HY24), with a reported insurance margin of 19% (up from 10% in HY24), thanks to previous insurance premium rises.
Management commentary
IAG Managing Director and CEO Nick Hawkins said:
Today’s result was delivered in a period of favourable weather and benefited from a $200m release from the COVID Business Interruption provision. Our results reflect the volatility of our sector and the fact we’re often subject to factors outside our control – the good years help us weather the bad and be well positioned to pay future customer claims.
We continue to focus on customers as we help keep communities safe and support those experiencing cost of living pressures. Recent storms, floods and the LA fires are a stark reminder of the need to be a well-prepared nation.
In Australia, our strategic alliance with RACQ, once complete, will further increase the reach of our retail insurance products through some of the most trusted brands in financial services.
Inflation is beginning to ease, which is a positive sign, contributing to a moderation in premium increases across our portfolios. Our investment in our multi-year natural perils protection will help reduce volatility from extreme weather events and further stabilise costs for our customers.
Outlook for the IAG share price
It gave some commentary about the outlook for FY25.
The reported insurance profit is forecast to be between $1.4 billion to $1.6 billion, with the reported insurance margin towards the top end of the 13.5% to 15.5% range.
GWP growth is expected to be “towards the lower end of mid-to-high single digit” growth. This is based on improving claims trends and lower reinsurance costs, leading to a reduction in premium increases.
The second half natural peril costs are forecast to be $857 million, up from $426 million in the first half.
It’s clear the market was hoping for more, after such a large decline in today’s trading. I wouldn’t call it a buy because the insurance tailwinds are lessening. There are other ASX dividend shares I’d buy first.
