IAG says it’s on track to deliver full-year guidance based on results to date, despite inflationary pressures and New Zealand reinsurance impacts affecting the current half.

CEO Nick Hawkins says elevated inflation is being particularly felt within motor claims costs, which is expected to result in some prior period development in the first half result as short-tail claims are finalised for amounts higher than previously expected.

“Combined with additional reinsurance reinstatement costs of around $70 million following the New Zealand events earlier this year, it is likely that our first half underlying margin will be around the lower end of our guidance range,” he told the annual general meeting today. “We expect a stronger second half as we benefit from the earn-through of pricing.”

IAG also says it has experienced a relatively benign start to the fiscal year from a natural perils perspective.

Costs to the end of September have been about $120 million, which includes $47 million in additional claims from events for the year to June, primarily from the Hunter hailstorm.  

The company assumes in its guidance that full year perils will be in line with the original allowance forecast, which was raised 26% to $1.147 billion for this year after perils in recent La Nina-affected years were well above expectations.

IAG at the annual meeting affirmed fiscal year guidance for a reported insurance margin of 13.5-15.5%, indicating an insurance profit of about $1.2-1.45 billion.

The company also continues to anticipate low double-digit growth in gross written premium, after increases last year were put through in response to inflation, perils and reinsurance.

“To help counter some of the increased costs that affect premiums, we are working to improve our efficiency and increase our use of digital solutions,” Mr Hawkins told the meeting, held as a hybrid event at the Wesley Conference Centre in Sydney and online.

“For example, we have simplified the range of products we offer our customers and increased the ways they can engage with us about their policies and claims.”

Chairman Tom Pockett said the last two years included the highest levels of peril events in Australia and New Zealand since the 2010 and 2011 earthquakes, and the insurer has dealt with more than 377,000 claims related to the events.

The drivers of premium increases, around inflation, supply shortages and reinsurance repricing, had happened “very quickly” and required the company to respond, while balancing the needs of customers and shareholders, with a view to long-term return on equity targets, he said.

“We are very conscious of not over-shooting the mark,” he said. “We are ensuring that we don’t increase prices too far, but still get a return to shareholders. It is that balance.”