IAG (ASX:IAG) share price drops on FY 2021 update and guidance

This insurance giant has just updated the market on its performance in FY 2021 and expectations for FY 2022…
The post IAG (ASX:IAG) share price drops on FY 2021 update and guidance appeared first on The Motley Fool Australia. –

The Insurance Australia Group Ltd (ASX: IAG) share price is dropping on Friday morning.

At the time of writing, the insurance giant’s shares are down 1.5% to $4.79.

Why is the IAG share price falling?

The IAG share price is under pressure today after it revealed a preliminary result that was a touch below expectations.

According to the release, the company reported Gross Written Premium (GWP) growth of 3.8% and a 1.5% increase in net earned premium to $7,473 million in FY 2021.

IAG also revealed that its underlying insurance margin came in at 14.7% for the year. This was down from 16% a year earlier and dragged lower by a second half result of 13.5%.

This ultimately led to the insurance giant revealing full year cash earnings of $747 million for the year. This is up 168% on FY 2020’s cash earnings of $279 million.

However, things weren’t quite as positive on a reported basis, with IAG revealing a reported net loss of $427 million. This follows total pre-tax net corporate expenses of $1.51 billion in FY 2021, including a $1.15 billion business interruption provision.

How does this compare to expectations?

As you might have guessed from the weakness in the IAG share price, this fell short of expectations.

For example, Goldman Sachs was forecasting GWP growth of 4% and an underlying insurance margin of 15.4%.

It also pencilled in a cash profit of $764 million in FY 2021, which means IAG also missed on this key metric.

FY 2022 guidance

Management advised that it is able to provide guidance for FY 2022 due to its sound underlying financial performance in FY 2021, the new operating model now embedded with new executive responsibilities, and less uncertainty in the economic outlook.

The release explains that it is expecting GWP growth in the low single digits. This incorporates modest growth in customer numbers in Direct Insurance Australia (DIA), ongoing rate increases across personal and commercial lines, and further portfolio remediation.

As for IAG’s reported insurance margin guidance, that guidance range is quite broad. It is forecasting a reported insurance margin of 13.5% to 15.5%.

And finally, it management is guiding to an increase in the natural perils allowance to $765 million (post-quota share) reflecting underlying exposure growth. This has increased from $658 million in FY 2021, which benefitted from additional reinsurance cover provided by the calendar year 2020 aggregate catastrophe cover.

IAG’s CEO, Nick Hawkins, commented: “While our adjusted underlying FY21 performance delivered an insurance margin of around 14%, I’m confident that, with the steps we have in place, we will deliver business and customer growth. Our direct insurance businesses in Australia and New Zealand are growing and we expect this growth to continue as we build out our premium brands across Australia.”

“We recognise that our Intermediated business has underperformed which is why I have set specific goals for this business to simplify its structure, upgrade its risk and underwriting disciplines, further strengthen relationships with broker partners, and improve its financial returns,” he concluded.

The post IAG (ASX:IAG) share price drops on FY 2021 update and guidance appeared first on The Motley Fool Australia.

Should you invest $1,000 in IAG right now?

Before you consider IAG, you’ll want to hear this.

Motley Fool Investing expert Scott Phillips just revealed what he believes are the 5 best stocks for investors to buy right now… and IAG wasn’t one of them.

The online investing service he’s run for nearly a decade, Motley Fool Share Advisor, has provided thousands of paying members with stock picks that have doubled, tripled or even more.* And right now, Scott thinks there are 5 stocks that are better buys.

*Returns as of May 24th 2021

More reading

IAG (ASX:IAG) share price climbs on new leadership appointment
Here’s why the IAG (ASX:IAG) share price is down 7% this last month
IAG (ASX:IAG) share price on watch following asset sale update
Brokers using the lockdown to upgrade earnings forecasts on these ASX 200 shares

What’s weighing down the IAG (ASX:IAG) share price lately?

Motley Fool contributor James Mickleboro has no position in any of the stocks mentioned. The Motley Fool Australia’s parent company Motley Fool Holdings Inc. has no position in any of the stocks mentioned. The Motley Fool Australia owns shares of and has recommended Insurance Australia Group Limited. The Motley Fool has a disclosure policy. This article contains general investment advice only (under AFSL 400691). Authorised by Bruce Jackson.

Trade The World Anywhere & Anytime!

Mobile app platform with over 50,000 global listed securities across 12 markets (over 70% global market capitalisation), right from your Android or iOS device.

Integrated with exclusive trading idea and investment analysis tools to help you find actionable insight on virtually every financial instrument across our 12 global markets, to help you optimise your trading strategies.

Refer Your Friends

Tell your friends about Monex and gift them FREE access to our trading tools.

We respect your privacy and will only send this one email notification to your friends. 

Share With Your Friends

Share on facebook
Share on twitter
Share on linkedin

Monex Trading Tools Access and Usage Terms

The Monex Trading Tools (referred to as ‘tools’ hereafter) are available to you inside your client portal;

To activate access to the tools, you must have a verified and approved trading account and have made a deposit of at least AUD $1000.

An active and funded account with a positive trading balance is required to continue to have access to the tools;

Although the tools are available to you indefinitely, Monex Securities may at it’s discretion disable access to the tools in the future;

Monex securities reserves the right to change these terms and conditions from time to time, as it sees fit, without notice.

Important Notice
iOS & Android App - 12 International Markets & Over 70% Global Market Cap. $0 Brokerage On US Trades. Click Here!