Charting Out the Deeper Pockets for Insurance Australia Group

During the time of mishappening, people often seek refuge in the security of an insurance policy. An insurance policy come to an individual’s or business’ rescue, during the time of emergencies like financial losses, accidents and so forth.

In this article we would be discussing about one of the leading ASX-listed insurance companies- Insurance Australia Group Limited, involved with the underwriting of general insurance and associated corporate services and investing related work.

At the close of trading session on 28^th October 2019, the benchmark index S&P/ ASX200 closed at 6,740.7 points with a rise of 1.5 points or 0.0% from its last close. However, S&P/ASX 200 Financials (Sector) closed at 6,427.2 points with a drop of 17.8 points or 0.28% compared to its last close.

Let’s have a look at the insurance player:

Insurance Australia Group Limited (ASX: IAG)

The biggest general insurance entity in Australia and New Zealand region, Insurance Australia Group Limited (ASX: IAG) has businesses, which underwrites ~$12 billion of premium/year and sells insurance through numerous leading brands. The market capitalisation of the IAG stood at $18.58 billion as on 28^th October 2019.

Takeaways from CEO Presentation to 2019 AGM

IAG has recently published a presentation, wherein, the CEO of the company communicated about operational and financial performance for the year ended 30^th June 2019:

• Mr Peter Harmer (IAG’s CEO & MD) stated that FY 2019 witnessed pleasing result and added that the company experienced a rise of 3% in gross written premium front, primarily due to increased prices, which was supplemented by a favourable foreign exchange translation effect in New Zealand. However, LFL (like-for-like) premium growth throughout the Group was around 4%.
• The underlying insurance margin witnessed a continuous improvement to 16.6% as it experienced the same momentum in FY18.
• IAG mentioned that at the stated margin level, an increase in underlying performance was a result of credit spread movements, claim cost from natural disasters, as well as substantially lower previous period reserve releases.
• The net profit after tax amounted to $1,076 million, which witnessed a surge of 16% in comparison to FY18.

Customer Focus

• In the financial year 2019, closed 30 June this year, the company enhanced customer digital experiences through simpler motor and home claim processes.
• IAG adopted a customer journey design framework in order to deliver offerings and experiences, which is accessible to all customers.
• During FY19, the company developed a real time, interactive customers insights portal, which provides the employees of the company a deeper customer understanding.
• IAG’s priorities for FY20 period is to fast-track the utilisation of the public cloud to more completely access its advantages, enabling further promptness in both efficiency and flexibility in consumer’s decisions.

Six Ethical Principles

On 25 October 2019, IAG’s chairperson Ms. Elizabeth Bryan AM stated that the board accepts Commissioner Hayne’s six ethical principles and believes that it was well positioned to meet the principles, which can be seen in the below picture:

Sale of interest in SBI General

• The company through a release dated 17^th October 2019 announced that it has agreed to sell the whole of its 26% stake in its joint venture with the State Bank of India, SBI General Insurance Company. This would take place in two transactions via agreements as mentioned below:
• It has reached to agreements with Napean Opportunities LLP for acquiring a 16.01% interest and an affiliate of Warburg Pincus LLC in order to acquire a 9.99% interest.
• Also, in order to sharpen focus on its core territories of ANZ region, the company believes that it was the right time for them to exit its investment in SBI General Insurance Company.
• It added that the transactions, were anticipated to wrap up during the company’s financial year 2020, subject to regulatory processes and approvals.
• When it comes to the consideration for the transaction, it amounted to more than $640 million, which was based on the exchange rate.

Reset Exchangeable Securities

• During the last month, (on 20^th September 2019), IAG updated the market on the redemption of $550 million Reset Exchangeable Securities. The company and its wholly owned subsidiary, IAG Finance (New Zealand) Limited stated that all outstanding Reset Exchangeable Securities would be Redeemed on 16 December 2019, i.e. Reset Date in line with the terms of RES.
• It was mentioned in the release that subject to the terms of RES, every RES Holder would be receiving the face value of $100 and the final Interest Payment of $0.9656 for each RES, to be held on 6 December 2019.

Future Guidance

• The company has increased its future focus on customer engagement, as well as growth. With respect to customers, it is planning to address the changing customer needs through accelerating the investment in artificial intelligence (AI), innovation, and data in order to build out new businesses.
• It is also planning to accelerate the utilisation of the public cloud to more fully access its benefits, enabling more efficient, flexible and rapid customer decisions. In addition to future of customer segment, the company is planning to apply behavioural science insights to future products in order to create value for customers as well as improve their safety.
• The company’s strategies are to optimise its core insurance business while creating future growth options.
• The company believes that its purpose would allow it to become a more sustainable business over the long-term duration, as well as deliver a stronger and more consistent returns to its shareholders.
• With respect to Agility, the company stated that as part of MyFlex program, it was planning the roll out of Switch shift management tool, which would allow a greater workforce flexibility in a cost-effective and customer-centric manner.

The stock of IAG last traded at $7.950, with a fall of 1.119% from its previous closing price, as on 28^th October 2019. As per ASX, the IAG’s outstanding shares were noted at 2.31 billion. The stock made a high and low of $8.740 and $6.530 during the last 52 weeks period. The stock has generated return of -7.80% and 1.90% during the last three-month and six-month, respectively.

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