IAG Cuts Full-Year Premium Growth, Shares Drop Most in One Month

Jan 23, 2014 1:36 am ET

(Updates with closing share price in second paragraph.)

Jan. 23 (Bloomberg) -- Insurance Australia Group Ltd., the country’s largest car and home insurer, cut the outlook for premiums for the fiscal year while increasing its forecast for margins. The stock fell the most in more than a month.

Gross written premiums are expected to rise 3 percent to 5 percent for the year ending June, down from an earlier estimate of 5 percent to 7 percent, the Sydney-based insurer said in a statement today. The stock dropped 3 percent to A$5.60, the biggest decline since Dec. 17.

“The downgrade in GWP guidance will likely get a lot of focus,” Andrew Adams, Sydney-based analyst at Credit Suisse Group AG, said in a note to investors. “We expect a mix across the business and a slowdown in premium rate increases to be the driver, as opposed to a large reduction in market share.”

Premium rates for insurance to individuals, as well as small-and-medium-sized businesses, fell significantly in the last quarter of 2013, according to the Credit Suisse note. The reduction in the outlook for premiums is due to a range of factors and is across all business units, Paul Marriage, a Sydney-based spokesman for IAG, said by phone.

IAG expects to report a 4 percent increase in gross written premium in its fiscal first half ended Dec. 31, according to the statement. The company will announce its results for the period on Feb. 21.

The company expects an insurance margin of between 14.5 percent and 16.5 percent for the year ending June, an increase from an earlier forecast of 12.5 percent to 14.5 percent, it said. The gain will be partly driven by higher-than expected releases from reserves set aside for prior year claims, it said.

IAG is benefiting from lower claims from natural disasters such as floods and bushfires in its main Australian market. Net income for 2013 more than tripled to A$776 million ($683 million), the insurer said Aug. 22.

For the full-year, prior period releases are expected to be 3 percent of net earned premium, up from a previous expectation of 1 percent to 2 percent.

--Editors: Linus Chua, Andreea Papuc