IAG drops earnings forecast as Melbourne storm hits bottom line
ERIC JOHNSTONMarch 13, 2010
THE storm that pounded Melbourne last weekend is also hurting insurers, with Insurance Australia Group yesterday lowering its earnings guidance as payouts started to climb.
IAG, the insurer behind brands such as RACV and CGU, said it had received more than 24,000 claims related to the storm and warned that the $184 million budgeted for natural disaster costs in the second half was likely to rise by $105 million.
This prompted IAG to trim its insurance margin guidance to 10.5-12 per cent, from 11.5-13 per cent.
Rival Suncorp-Metway, which operates brands such as GIO and AAMI, is expected to update investors next week after receiving more than 12,000 claims so far. Suncorp is expected easily to hit its maximum event retention (MER) - the amount it must pay before reinsurers start paying - of $200 million. IAG is also set to hit its MER of $135 million.
The storm that lashed Melbourne is already the most expensive natural event to hit Australia since the devastating bushfires that swept through Victoria in February last year.
The Insurance Council of Australia says about 36,000 insurance claims have been lodged by owners of damaged cars, homes and businesses, and the price tag stands at $256 million. It will be weeks before the full extent of the insurance claims are known.
A violent hailstorm that hit Sydney in 1999 still ranks as the nation's most expensive insurance event, with payouts running to $1.7 billion.
Adjusted for inflation, this would exceed $3.3 billion in today's terms.
Fortunately for IAG, its MER drops with every major catastrophe. So in calendar 2010, it now reduces to $75 million. This is likely to limit further blows to IAG's earnings from other large one-off events.
Source: The Age