- Insurance companies have supported their customers with an array of measures to secure the customers against the financial impact of COVID-19.
- Insurance businesses have seen a shift in customer preferences towards online mode.
- Companies like TWR and TRA have adopted digital channels for connecting with customers and have witnessed significant sales through these channels.
- IGA looks forward to rethinking its final shareholder distribution in August 2020 after assessing the FY20 financial performance of the business.
The insurance sector plays a pivotal role in navigating the unrest of a worldwide economic crisis by maintaining a balance between the interests of the customer and buoyant solvency. Insurance Council of New Zealand believes that NZ Insurers have extended their support by modifying terms of payment arrangements and lowering costs for the customers through several measures to maintain their security while dampening the financial impact for those undergoing financial difficulty.
With a fall in the interest rates asset value, insurers are facing a drop in income. The future premium income is expected to be impacted by the general economic downturn and looming business closures.
Moreover, insurance companies are adopting digital platforms to match with the changing scenario and navigate through these uncertain times with ease and convenience for their customers and maintaining growth in their business.
Let us look at some insurance stocks listed on the NZX.
Tower Limited (NZX:TWR)
A major general insurer in private insurance lines throughout New Zealand and the Pacific Islands, Tower Limited witnessed a continuous growth through digital channels for the half-year ended 31 March 2020 and a stabilised claims ratio for the period. This offers validation to the Company’s successful implementation of its strategy.
Moreover, the Company reported a profit after tax of $14.9 million, representing an increase of $3 million as compared to the pcp. The Company believes that these achievements are the output of the transformation in the business and offering something better to the customers.
Source: Company’s Results Presentation
The Company’s strategy has been focused on transforming into a digital challenger brand, through charging on the big incumbents and challenging old industry norms. As a result of the Company’s efforts, approximately 60% of the new business came through the digital channels.
The COVID-19-induced lockdown has created the need for businesses to adapt to digital channels to connect with customers and offer their products and services. Tower Limited has drawn significant benefit from the opportunity presented by the COVID-19.
In times when there is a shift in the preferences of the customers towards digital channels, Tower has placed itself suitable at the service of its customers through its new self-service portal. Tower reported that more than 40% claims were lodged through the online channel during March.
The Company is optimistic about achieving growth through digital channels in the upcoming times as the number of customers connecting through online mode is increasing. This further solidifies the Company’s wisdom regarding its future growth through online channels and that the Company is working in the right direction by adopting digital transformation.
Moreover, TWR is of the view that along with delivering growth and fortifying digital position for Tower, the new technology has simplified and automated functionality, further enabling productivity gains.
However, the uncertain environment is likely to impact the Company’s planned growth, and it is expected that TWR will implement cost reduction measures to offset the impact of a slowdown in growth.
The Company had updated its guidance for FY20 and now expects underlying NPAT to lie between $25 million and $28 million, after considering the impact of Tropical Cyclone Harold, Timaru hailstorm, reduced expenses, and depressed growth.
The TWR stock settled at $0.610 on 2 June 2020, in line with the previous close. The Company has a market capitalisation of $257.205 million.
Turners Automotive Group Limited (NZX:TRA)
Formed through the merger of Turners Auctions, and Dorchester in 2014, Turners Automotive Group Limited has three core operating divisions, namely,
- The Automotive Retail Division
- The Finance and Insurance Division
- The Debt Management and Credit Collection Division
The Company was set to open its business entirely during the Level 2 restrictions, and customers can visit its retail sites that operate with prudent distancing and other health precautions ensuring the safety of both staff and customers.
During the Level 4 restrictions of the lockdown, the Company was able to sell several hundred vehicles to essential workers through online channels. Moreover, several hundred more vehicles were sold through similar mode in Level 3, which have all now been delivered.
Moreover, the Company believes that the customers buying vehicles through online mode without inspection and the receipt of the 2020 Readers Digest Trusted Brand Award as New Zealand’s most trusted used car dealer reflects the high trust and awareness of the Turners brand among the public.
The Company’s businesses, Oxford Finance, Autosure Insurance and EC Credit Control performed beyond expectations for the April month and were trading in profit.
Moreover, the Company expects its FY20 result to be within earlier stated guidance of $28 million to $30 million net profit before tax and confirmed that the group remains to operate comfortably within its bank covenants.
On 2 June 2020, the TRA stock settled at $1.630, in line with the previous close. The Company has a market capitalisation of $139.45 million.
Insurance Australia Group Limited
A Company with a portfolio of general insurance businesses with leading as well as established brands, Insurance Australia Group Limited is the largest general insurance company in Australia and New Zealand. The Company underwrites more than $11 billion of premium per annum through the sale of insurance under several leading brands, including:
- NRMA Insurance
- Swann Insurance and WFI
- Lumley Insurance
Lately, the Company shared its concerns regarding the limited scope to pay a final dividend in September 2020 based on year-to-date investment income outcomes and its forecast FY20 insurance profit. This occurs because of allowing for the 10-cent interim dividend paid in March 2020 and application of the upper end of IAG’s 60-80% of full-year cash earnings payout policy.
The Company further looks forward to determining the quantum of any final dividend in August 2020 considering the Company’s FY20 financial performance.
IAG’s underlying business performance has remained steady for the nine months ended 31 March 2020. However, in the concluding months of FY20, business and financial performance of IAG is subject to ongoing uncertainty from the impact of the following:
- COVID-19 related challenges
- Surrounding economic conditions
- The direction of investment markets
After considering the impact of these uncertainties, IAG has retained its existing FY20 market guidance, of a reported insurance margin of 12.5-14.5% and low, single-digit growth in gross written premium.
Moreover, the Company has maintained a robust capital position with a Common Equity Tier 1 (CET1) ratio at the top end of its targeted range, of 0.9 to 1.1.
NOTE: $ denotes New Zealand Dollar unless stated otherwise.