ASX insurance stocks to watch out for

Highlights

• Insurance sector is amongst the key industries of Australian economy.
• The country witnessed many natural disasters in 2022, and the insurance sector has since been navigating and creating opportunities from consequent changes.
• Insurance stocks have always been an investor favorite, as not only do they have the potential to produce brilliant long-term returns, but it is also a business that works in good times and bad.

Australia has an advanced, well-regulated, sophisticated, and competitive insurance sector. The insurance market comprises of three sectors- health insurance, general insurance, and life insurance.

The financial services sector in Australia witnessed astonishing levels of uncertainty and volatility in past couple of years. Key triggers of this have been impacts of Covid-19 pandemic, interest rate hikes, mounting inflation and escalating climate-led disasters. However, challenges make way for opportunities, and amid the mayhem, there was a noticeable increase in new financial products and services in the insurance sector. The insurance industry is employing new technologies to revamp itself and create a fresh roadmap to the future.

Let us look at some key statistics furnished by the Australian Financial Complaints Authority (AFCA) in its 2021-2022 annual review report shared in November 2022.

In this backdrop, let us understand how some of the most important insurance companies listed on the ASX are faring. The companies discussed feature QBE Insurance Group Limited (ASX:QBE), Insurance Australia Group Limited (ASX:IAG) and Suncorp Group Limited (ASX:SUN).

QBE Insurance Group Limited (ASX:QBE)

Headquartered in Sydney, this Australian insurance firm holds a market capitalisation of AU$19.10 billion. QBE deals in commercial, personal as well as specialty products along with risk management solutions. It claims to support people and businesses manage risks and strengthen their portfolios.

In November 2022, QBE Insurance shared its trading performance. The company stated that while its performance in the third quarter of FY 2022 remained resilient, more than expected catastrophe costs have posed some risk to its full-year outlook.

Growth in gross written premium was strong in this reporting period, up 6% on the prior corresponding period. Group-wide renewal rate increases were 8.4%. Increased catastrophe activities continued in the second half. To October, the net cost of catastrophe claims in the second half was approximately AU$430 million. Total net cost of catastrophe claims were close to AU$880 million in the year to October.

Looking at the recent share price performance of the company on the ASX, in the previous month, shares of QBE have lost 1.37%. In the last six months, shares have gained 10.51% and in the last one year, they have moved up by 6.24%. On a year-to-date basis, QBE shares have shed 1.15% (as of 4:10 PM AEDT, 12 January).

Suncorp Group Limited (ASX:SUN)

Headquartered in Brisbane, Suncorp Group operates financial services brands via three functions – Suncorp Bank, Suncorp New Zealand, and Insurance Australia. The company’s market capitalisation stands at AU$14.72 billion.

In December 2022, Suncorp shared an acknowledgement regarding the sale of Suncorp Bank to ANZ. ANZ had sent out an authorisation application to the Australian Competition and Consumer Commission (ACCC). As per Suncorp Group CEO Steve Johnston, the sale of Suncorp Bank could make way for a Trans-Tasman insurance firm, especially when the value of insurance is great.

In November 2022, Suncorp reaffirmed its key FY23 targets of an underlying Insurance Trading Ratio in the range of 10% to 12% and bank cost-to-income ratio of close to 50%.

Meanwhile, shares of the insurance company were 2.10% down on a monthly basis as of 12 January 2023. During the past six months of trading, shares have gained 4.85%. In the last one year, the shares have shed 0.26% and on a year-to-date basis, they shed 1.27% (as of 4:10 PM AEDT, 12 January 2023).

Insurance Australia Group Limited (ASX:IAG)

This insurance company has a market capitalisation of AU$11.66 billion as of 12 January 2023. Headquartered in Sydney, it is one of the leading general insurance companies in Australia and the largest in New Zealand, via its subsidiary IAG New Zealand.

On 9 January 2023, IAG updated its reinsurance protections, affirming that it has placed its catastrophe reinsurance programme for 2023 and renewed a couple of Whole of Account Quota Share agreements.

During the last one month of trade on the ASX, IAG has gained 0.21% while in the last six months, the stock has gained 10.09%. In the last one year, IAG shares have moved up by 8.84% and on a year-to-date basis, shares have gained 3.00% (as of 12 January 2023).

The road to the front is marked with several hurdles—soaring inflation, interest rates, and loss costs; coupled with the impending threats of recession, climate change, and geopolitical turmoil; not to miss the competition from InsurTechs and noninsurance entities. It will be interesting to see how these companies demonstrate flexibility and resilience in an era where change is the only constant.