Nick Hawkins, IAG Managing Director and CEO, has told investors that the company is likely to deliver a profit of at least $250 million in its Intermediated Insurance Australia business in FY 2024. In an Investor Day presentation providing an update on IAG’s strategic execution, operating environment and financial targets, Hawkins also revealed the business has achieved $400 million of value through increased claims and supply chain effectiveness.
IAG has added 207,000 new customers in its Direct Insurance Australia business since July 2021, helped by the rollout of the NRMA brand across the country and high customer retention rates. However, Hawkins said that reaching the company’s ‘one million customer growth ambition’ will take longer to achieve as the business prioritises margins by focusing on reducing claims costs, streamlining operating and technology costs, and rolling out digital insurance options.
According to Hawkins, IAG’s $2.5 billion gross operating cost target is on track for FY 2023. In FY 2024, the company expects its key expense ratio to remain flat or reduce, but it anticipates that ongoing inflationary pressures and additional technology investments may result in increased operating costs.
“In December 2021, we put together a strategy that focused on our core insurance business, simplifying what we do, and resolving legacy issues. Our strategy remains unchanged, and we are creating a stronger and more resilient IAG,” added Hawkins.
“We’ve made significant progress in simplifying our technology and consolidating multiple systems to create more value through digital, and we’ve developed and implemented an enterprise-wide claims management system that allows us to capitalise on the scale of our business.”
According to Hawkins, IAG made “excellent progress” in simplifying its operations and resolving legacy issues. However, some of this was masked by a challenging operating environment, including the sudden increase in inflation which immediately impacted claims costs, three years of a La Nina weather cycle, and material changes in global reinsurance markets.
“Our business has been responding appropriately to the external environment. We have held our operating costs flat and implemented premium increases, which appropriately anticipate future claims and reinsurance costs,” he added.
Updating the FY 2023 operating environment, Hawkins said that results to date provide confidence in the guidance of around 10 per cent GWP growth, and the business is trending towards around 10 per cent reported insurance margin for the full year.
Hawkins confirmed that both IAG’s Australian divisions, Direct Insurance Australia and Intermediated Insurance Australia, expect to deliver a material improvement in reported and underlying margins in the second half of FY 2023.
“Our Australian businesses are expected to deliver improved second half results reflecting strong top-line growth, increased earned premiums, and improving claims trends,” he said.
According to Hawkins, the company increased its medium-term return on equity (ROE) target by one percentage point, based on a medium-term insurance margin target of 15 per cent.
“The strong top-line growth we’re achieving, and the improved investment returns we are seeing on shareholder funds, means an increased ROE target of 13 per cent to 14 per cent is realistic and achievable over the medium term,” said Hawkins.