Insurance Australia Group 

IAG Details

Revised margin guidance upwards: Shares of Insurance Australia Group Ltd (ASX: IAG) moved up 6.4%, after announcing the review of its reserve releases. IAG has completed a preliminary review of prior period reserve releases for the financial year ended 30 June 2017 (FY17) as part of its regular year end processes, and indicated an outcome equivalent to a minimum 5% of net earned premium (NEP) against the previous guidance of 2% of NEP. The reserve releases predominantly relate to Australian long tail classes, comprising CTP, liability, professional risks and workers’ compensation. The higher indicated outcome, compared to previous expectations, reflects further favorable experience against underlying assumptions for claim size and inflation.As a result of the expected increase in reserve releases, IAG has raised its reported margin guidance range from 10.5-12.5% to 13.5-15.5% for FY17. Further, other underlying assumptions behind IAG’s FY17 reported margin guidance are unchanged, including net losses from natural perils of $850 million.

Further, IAG has strengthened its reinsurance cover through the purchase of additional catastrophe protection, which include $1 billion of gross protection more than $7 billion (including one prepaid reinstatement), placement to the extent of 80% to reflect existing quota share arrangements, and a contractual period of 19 months commencing 1 June 2017 and concluding on 31 December 2018. The stock has moved up 19.7% in the past one year (as on June 28, 2017) and currently trading at its 52 week elevated levels. We give an “Expensive" recommendation on the stock at the current price of $6.97
 

IAG Daily chart; (Source: Thomson Reuters)

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