Australia's IAG profit more than halves in FY20 due to severe natural perils
Insurance Australia Group (IAG) saw its profit plummet nearly 60 percent in the financial year 2020 after experiencing a challenging second half due to high natural perils, a deterioration in long tail reserving in Australia, and extreme investment market volatility triggered by the COVID-19 pandemic.
However, the FY20 net perils outcome benefited from over A$700 million ($503 million) of reinsurance recoveries.
The Australian insurer's FY20 net profit after tax came to A$435 million, a 59.6 percent drop from A$1.076 billion in FY19.
The company saw a ‘low single digit’ gross premium written growth. GWP grew 1.1 percent to A$12.135 billion in FY20, compared to A$12.005 billion in FY19.
IAG said its GWP growth was reduced by approximately A$80 million due to the adverse COVID-19 impact, primarily from lower new business opportunities in the months of March to May.
The year also saw IAG exit its investment in India, realising a post-tax profit of $326 million.
IAG stated that its focus is on its core Australian and New Zealand businesses, and as a consequence, the company will continue to weigh up options for its remaining Asian general insurance interests, including divestments.
“Our top line GWP growth was in line with our guidance, despite incurring a slight negative effect from COVID-19 in the second half from lower new business volumes, said Peter Harmer, IAG managing director and chief executive officer. "Our FY20 reported margin of 10.1% fell outside our guidance of 12.5-14.5% due to the higher than expected level of natural peril events, a strengthening of our reserves mainly in the liability, professional risks and workers’ compensation areas, and credit spread effects. COVID-19 impacts on our underwriting profit largely offset each other."
Harmer added: "The catastrophic natural peril events we saw over the year had a profound impact on our customers and communities – with the terrible bushfires that swept through Australia, followed by hailstorms in Canterbury and then Melbourne, the ACT and Sydney.
"The severe natural peril events have of course had a financial impact on our business and in the final quarter, a number of smaller ‘attritional’ natural perils brought our net natural perils claim costs to $904 million, exceeding our revised guidance of $850 million and original allowance of $641 million."
Harmer concluded: "Over the past four years, our strategy has been to simplify and optimise our core insurance business while creating future growth opportunities. We will continue to shift our focus towards customer-led growth – leveraging our data, customer reach and brands to enhance our core insurance business. The COVID-19 pandemic has accelerated customers’ adoption of digital channels and we are assessing the opportunities this presents to build on our existing strategy.
"We face the future with the confidence that we have a resilient business and we are well-equipped to rise to the challenges presented by the current environment, as well as the opportunities we see in a post-COVID-19 world.”
