IAG cuts guidance after hit by inflation, floods

The guidance cut is another setback for IAG, which missed its earnings guidance last year but argued at the time that business conditions were looking brighter and indicated broader margins.

Hawkins explained the cut in forecast by saying inflation was higher than the company expected, but he argued that longer term the company could still generate larger margins as premiums continue to rise sharply.

Hawkins said auto insurance premiums are now rising at least 10 percent a year, from “mid to high single-digit” increases, in response to higher costs.

“Mid to high single digit engine prices are now in the double digits everywhere,” Hawkins said.

Hawkins signaled that the insurer is expected to continue increasing premiums over the next 12 months, citing higher natural catastrophe costs, high reinsurance costs and persistent inflation. “Do I see a lot of that changing in the next 12 months? No,” he said.

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The company claimed inflation was moderate despite the recent rise in costs, and it said it still aims to achieve an insurance margin of 15 to 17 per cent “in the medium term”.

When asked about the risk of IAG losing market share if its competitors don’t raise prices as much, Hawkins replied that it would be “quite difficult” for other insurers to gain market share in this way. This was because the industry as a whole was facing higher costs, including from rising reinsurance costs and losses from natural catastrophes.

“I just think it’s a challenging environment,” he said.

The company will present its half-year results on February 13th.

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