Insurance Australia Group Earnings: Strong, but Tailwinds Have Played Out

Insurance Australia Group's fiscal 2024 net profit doubled to AUD 905 million. The strong result is no surprise, given earnings tailwinds from price increases and higher investment income on policyholder and shareholder funds, which, combined, more than offset claims inflation. The 5% miss against our forecast masks the strong underlying performance. Insurance profit—earnings on insurance policies plus investment income on policyholder funds—beat our forecast by around 9%. The claims ratio was lower than expected, thanks to the rare occurrence of lower-than-allowance natural peril costs. Claims inflation appears to be tracking below premium rate increases pushed into the market in recent years, and the insurer should also be benefiting from its motor repair centers keeping claims growth below industry. A higher tax rate and losses from minority investments took the shine off the result.