IAG shares tumbled last week after it forecast full-year gross written premium growth towards the lower end of its “mid to high single digit” guidance range as claims inflation slows.

First-half GWP rose 6% to $8.43 billion, compared with an increase of 12.5% a year-earlier and a gain of 11.3% for fiscal 2024.

CEO Nick Hawkins says labour and supply chain cost pressures have eased, with the trend more apparent in New Zealand than Australia, and the reinsurance market has stabilised.  

“This moderation in premium increases we’re seeing across our portfolios is, of course, a positive for our customers,” he told an earnings briefing.  

The company’s shares slumped 12.5% to $7.80 on Thursday despite a surge in earnings. The shares were at $7.56 in mid-morning trade today.

IAG first-half net profit jumped 91% to $778 million, lifted by a business interruption provision release and lower natural disaster costs. It forecast the full-year reported insurance margin would be towards the top of its 13.5%-15.5% range.

Morningstar says the strong result is largely as expected but the company faces market pressures.

“Management commentary that cooling inflation is seeing premium rate increases moderate, plus competitive pressures in commercial insurance, appeared to disappoint the market,” analyst Nathan Zaia said in a research report.

“This might be as good as it gets, and we expect profits to ease in the next two years.”

Morningstar expects 6% GWP growth for the full year and about 4% over the medium term.

JP Morgan says the result shows “healthy underlying margin trends”, while the disappointment is in the softer than expected GWP growth and an increase in reinsurance costs.

“There are concerns that the hard pricing cycle is over, and competition may return at the expense of margins,” it says. “While rates may have peaked in FY24, we note that commentary from ... [Suncorp], IAG and peers indicates that pricing is rational and rate continues to cover inflation.”

IAG’s insurance profit, excluding the business interruption benefit, rose 55.9% to $957 million, led by the Australian retail division.

A quiet first half for perils has been followed by the monsoonal north Queensland floods and other east coast storms. January and February net perils costs are about $100 million above expectations, but the company is still ahead of allowance for the year to date. 

Mr Hawkins says IAG is scaling up its retail Enterprise technology platform, has improved claims management capability and now has the lowest level of unresolved claims since the 2022 floods. 

“Across our businesses in Australia and New Zealand we continue to improve customer experiences while focusing on underwriting discipline and driving efficiency,” he said.