The insurer’s latest confession about old claims creeping up means it should have missed a key earnings target from last year.
Older claims had crept up, helping pressure margins.The barbs in the analyst assessments didn’t miss insurance giant IAG.And that would squeeze profit margins this financial year – not in the past year in which they actually struck.
Yet enthusiasm remains for the company and the sector as premiums rise; of five specialist insurance analysts, three have buy recommendations for IAG. Damage from “short-tail” claims, such as a house burning down, are usually more obvious early on, so predictions are more accurate.But claims development can still strike short-tail insurance too. IAG this month said inflationary trends remained “elevated” particularly in car claims, resulting in “prior period development in our first half result as we finalise the settlement of short-tail claims for amounts more than we expected at 30 June”.
More pain included an additional $47 million in claims from wild weather events that actually occurred last financial year, but IAG said the final damage bill had only now become apparent. But that would have been about 9.2 per cent if that $47 million had been booked earlier. If the unspecified motor-inflation problem is included, the figure is potentially worse.
Many customers also “didn’t identify damage until sometime after the event and as a result we’ve seen a large number of late property claims since .”Despite the downgrade, analysts such as Hunter Green’s Mark Tomlins remain positive with buy recommendations.
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