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Berkshire Hathaway Specialty Insurance
Berkshire Hathaway Specialty Insurance

IAG cuts earnings outlook as catastrophe costs mount

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IAG today lowered its earnings guidance for this financial year to account partly for the impact of this month’s hailstorm that severely damaged cars and homes in Canberra, Sydney and Melbourne.

The revised outlook comes ahead of the release next month of IAG’s first-half results for the period to December.

The insurance margin in the 2019/20 year is now expected to be in the range of 14.5-16.5%, down from its previous 16-18% forecast.

The insurer has also reaffirmed its “low single-digit” gross written premium (GWP) growth expectations.

“We are pleased with our underlying business performance, which continues to track in line with our expectations, both at the GWP and underlying margin levels, and in terms of the net benefits being realised from our optimisation program,” CEO and MD Peter Harmer said.

“We have, however, revised our reported insurance margin guidance for the full year to reflect the recent heavy natural peril activity and a reduced expectation for prior period reserve releases following the lower than anticipated first-half net reserve release outcome.”

IAG, the country’s largest personal lines insurer, expects a pre-tax cost of $169 million from the hailstorm. The business has so far received more than 28,000 claims, with the majority related to residential property and motor damage.

Taking into account the hailstorm catastrophe, IAG has raised its net natural peril claim costs for this financial year by $74 million to $715 million.

Bell Potter Securities analyst TS Lim told insuranceNEWS.com.au the 2019/20 downgrade underscores “the big hit” to earnings from the hailstorm and other natural perils.

IAG has also flagged its December half results will contain a net post-tax provision of about $80 million for a customer remediation program. The refund is related to a specific multi-year pricing issue where eligible clients may not have received the full premium discount.

The reported insurance margin for the first-half is expected to slow to 13.5% from 13.7% in the previous corresponding period.