IAG has posted improved full-year insurance earnings, supported by price-driven growth at its key Direct Insurance Australia (DIA) and Intermediated Insurance Australia (IIA) divisions. 

Insurance profit rose 37% to $803 million in the 12 months to June 30 from a year earlier and gross written premium (GWP) gained 10.6% to $14.7 billion. The GWP growth is slightly better than IAG’s revised 10% guidance in June from mid-to-high single digits previously. 

The insurer paid out about $10.2 billion in claims, up 20% from a year earlier. 

“We have been responding to the operating environment with appropriate premium increases,” CEO Nick Hawkins said this morning in a briefing with analysts. 

“We have managed well through some unprecedented and unforeseeable challenges during the last financial year. In fact, we’ve had a couple of years like that. 

“Like others in the industry we have had to raise our premiums in response to some of the inflationary costs that we’ve experienced. 

“We’ve also seen increased volatility around weather and substantial decline in the global reinsurance market which have really driven up the cost of reinsurance that we’re buying.” 

Net profit after-tax more than doubled to $832 million from $347 million, benefiting partly from a post-tax business interruption release of $392 million. 

At DIA – IAG’s biggest division by revenue – insurance profit increased to $551 million from $469 million. Double digit average premium rises drove GWP growth of 10%, compared with 4.6% in the prior 2021/22 year. Motor GWP grew 10.2%, reflecting premium rises predominantly and home GWP gained 12.8%, also the result of price hikes to offset claims inflation. 

IIA is finally in the black, making an insurance profit of $209 million after losing $103 million a year earlier. The intermediary business recorded GWP growth of 12% across all major classes on an underlying basis. 

“Premium increases averaging 13% were the dominant driver of growth,” IAG says. 

The New Zealand division was significantly affected by the Auckland flooding and cyclone Gabrielle as reported insurance margin fell sharply to 2.4% from 12.8% and insurance profit shrank to $44 million from $220 million. 

The financial toll of elevated natural catastrophes caused IAG to exceed its natural perils allowance of $909 million by $297 million. 

For this financial year IAG has increased its natural perils allowance by $238 million or 26% to $1.147 billion. 

The insurer expects GWP growth to be in the “low double-digits” and that it will primarily be rate driven to cover claims inflation, higher reinsurance costs and the increased natural perils allowance. 

“We estimate around 20% of premiums we collect now cover reinsurance costs and the perils allowance,” Mr Hawkins said. 

Claims inflation of 5-10% is expected in this financial year and the second half should see a “stronger result” as the earn-through from higher prices kicks in, Mr Hawkins said. 

IAG is aiming for a reported insurance margin of 13.5-15.5%, which if achieved, will deliver an insurance profit of roughly between $1.2 billion and $1.45 billion. Reported insurance margin in the last financial year came in at 9.6%, up from 7.4% as the business benefited from credit spread gains and lower prior year reserve strengthening. 

But underlying insurance margin declined to 12.6% from 14.6%, reflecting an in increase in the claims ratio due to the inflationary impacts driving a significant increase in the average claims size of motor and home claims as well as a higher natural peril allowance. 

IAG defines underlying insurance margin as reported margin adjusted for net natural peril claim costs less the related allowance; reserve releases or strengthening and credit spread movements.