IAG’s insurance profit grew strongly from July to December, rising 75.4% or $264 million to $614 million in the half, the insurer announced this morning. 

Higher premium increases across IAG’s three divisions – Direct Insurance Australia, Intermediated Insurance Australia and New Zealand – drove the first-half result, leading gross written premium (GWP) to increase 12.5% to $7.94 billion. That rise is the strongest in nine years and exceeds the 7.5% increase from a year earlier.

The rate rises have affected new business volume growth but retention levels have stayed strong around 90%, IAG says.

Group net profit after tax declined 13% compared with a year earlier to $407 million, with the weaker result attributed to the previous corresponding half benefiting from a $360 million pre-tax business interruption claim provision release. 

CEO Nick Hawkins expects upward pressure on premiums to persist, particularly for the home portfolio, because of elevated natural peril risk, higher reinsurance costs, claims inflation and post-covid strains on the building supply chain.

“What we are seeing with property ... unfortunately, we see the outlook for increasing perils, increasing frequency for larger perils ... so we feel like that unfortunately is an upward trend and so is then the cost of reinsurance ... and add to that some inflationary pressure that we have,” Mr Hawkins told insuranceNEWS.com.au.

“So the outlook on property insurance in Australia ... I still see that as sort of continuing pricing up. I know that’s presenting challenges around affordability.”

At Direct Insurance Australia, the personal lines business made an insurance profit of $248 million, up from $167 million a year earlier. GWP growth of 13.3% to $3.64 billion was largely driven by premium increases in response to high claims inflation in the motor and home portfolios.

Motor GWP grew 14%, predominantly due to premium increases, with volumes broadly flat. Customer retention levels “softened” but remained close to 90% across the major states.

Home GWP growth was 16%, with mid-teens rate growth partially offset by lower new business volumes. Retention rates remained strong at above 90%.

“Essentially, our volumes are pretty flat,” Mr Hawkins said in this morning’s earnings conference call with analysts.

Direct Insurance Australia recorded net growth of only about 21,000 new customers in the first half, reflecting the price pressures facing consumers.

“I would describe it as a very tough environment. We know there are all sorts of challenges with affordability,” Mr Hawkins said of the personal lines market.

“Affordability, obviously it’s pretty tough for our customers, and so that’s definitely slowed down that sort of customer growth over the past six months ... importantly, our retention levels are still pretty high ... but new businesses is really quite difficult.”

Intermediated Insurance Australia’s insurance profit increased to $162 million from $49 million, driven by a higher underlying margin of 9.5%, up from 5.7%. GWP grew 5.8% to $2.4 billion, including 3.1% growth in commercial short tail, with low double-digit average rate rises being offset by lower volumes.

IAG says volume growth was achieved in agencies, but this was more than offset by reductions in country and business packages following specific rating and portfolio actions.

Personal lines GWP grew 22.8%, including about $100 million of premium associated with the new distribution partnership with ANZ for home, landlord and motor insurance products for the bank’s customers.

“Strong double-digit rate increases across home and motor policies resulted in a reduction in new business volumes and lower retention rates,” IAG said of personal products sold through intermediaries.

IAG is confident Intermediated Insurance Australia is on course to achieve a $250 million profit this financial year, as planned.

“[The division] continues active portfolio management and will continue to remediate underperforming portfolios,” IAG said.

In New Zealand, insurance profit went up to $204 million from $136 million, and GWP grew 21.1% to $1.86 billion, mainly driven by rate increases to address claims inflation, an increase in the natural perils allowance and higher reinsurance costs.

IAG is on track to meet its 2023-24 earnings guidance of “low double-digit” GWP growth and a reported insurance margin of 13.5-15.5% after the first-half results, the business says.

“Our financial guidance ... remains unchanged,” Mr Hawkins said in the earnings call. “In terms of insurance profit in [2023-24], that’s expected to deliver something in the order of $1.2 billion to $1.45 billion. Going forward, our guidance will be increasingly focused on the report of insurance profit as we further transition to the new accounting standard.”