The reporting season featured high earnings, but competition could make for a rocky path ahead
By Wendy Pugh
Insurers and brokers have delivered a positive set of financial results as moderating pricing reflected easing inflation and natural catastrophe losses fell within expectations.
Suncorp, IAG and QBE all reported catastrophe costs below allowances, previous premium increases flowing through and favourable investment returns. Reserves were released by the latter two groups.
Morningstar analyst Nathan Zaia says insurers have benefited as the challenges of a few years ago – including severe natural disaster impacts – have eased, but not all the recent tailwinds will persist.
“The question is: what happens from here?” he tells Insurance News. “This is pretty commoditised general insurance mostly, and you would expect competition to start to eat into these very, very healthy returns the general insurers are making at the moment.”
IAG’s net profit jumped 51.3% to $1.4 billion for the year to June 30 and the reported return on equity (ROE) rose to 19.4%. Suncorp’s earnings grew 52.3% to $1.82 billion, while QBE’s first-half result increased 27.4% to $US1.02 billion, with an adjusted ROE of 19.2%.
Macquarie Equity research analyst Andrew Buncombe says the insurance market is easing, with impacts for gross written premium, but products are mostly delivering required returns for insurers. Home remains an outlier.
“All have slower GWP growth, led by the pricing cycle, but their margins are still decent and reinsurance is becoming more favourable,” he says. “The talking point for all three was capital.”
In September, IAG completed its $855 million RACQ underwriting acquisition, and it plans to buy RAC Insurance in a $1.3 billion deal that hinges on competition regulator concerns.
Suncorp is undertaking share buybacks following its bank sale. Its chief executive, Steve Johnston, says GWP growth moderated to 6.3% last year from 13.9% in the previous year, reflecting lower input costs, easing inflation and the “outworkings of a competitive market”.
While natural hazards fell within allowance, flexi-hose and lithium battery issues are driving liquid and fire losses, and the company says pricing discipline will continue as it monitors claims inflation.
“What we know is, if you get behind in your pricing it takes a long time to catch up,” Mr Johnston told a briefing.
“We will always focus on making sure we are covering the cost of inflation with our pricing and that we’re maintaining the margin that we believe is appropriate across the portfolio.”
IAG chief executive Nick Hawkins says motor inflation is moderating more than home, and New Zealand is moderating more than Australia. He has reassured investors that rate increases are still going through.
“I hear that, ‘There’s no pricing happening in retail personal lines in Australia and New Zealand,’ and that’s not right,” he says. “We’ve got pricing flowing through all our businesses.”
IAG expects GWP growth this financial year in the “low to mid single digit” range, with retail at the middle level, intermediated low and New Zealand flat.
The forecast takes claims inflation moderation and direct customer and volume growth into account, but not motoring club underwriting acquisitions.
The insurer expects a 10% GWP increase when including the RACQ acquisition, concluded after the results.
QBE says its diversification across product lines and geographies – under the Australia Pacific, North America and international banners – provides balance for “more predictable performance and sustainable long-term growth”.
The company has reduced its natural peril exposures and catastrophe costs were well within the first-half allowance, despite global insured losses rising to the second-highest level on record as US disasters including wildfires and storms dominated.
Chief executive Andrew Horton says the property and casualty market “remains disciplined in aggregate”.
“We think this speaks to the inherent complexity in the commercial P&C landscape currently, and the need for more consistent industry returns,” he says.
QBE has flagged premium moderation in commercial property and Lloyd’s portfolios, but chief financial officer Inder Singh, who will join big four bank NAB next year, says the easing follows increases “well north of 50% in recent years”.
“Profitability is excellent, and giving up some modest rate will have limited near-term consequence for the overall group margin,” he told a results briefing.
QBE shares still slumped as investors focused on the premium rate slowdown. Renewal increases were 2.1% for the half, compared with 6.3% a year earlier.
The pace slowed from 3.4% in the first quarter to 0.8% in the second.
Insurers expect long-term efficiency benefits from technology modernisation programs that enhance underwriting and distribution, and have artificial intelligence on their radars.
On the broking side, Steadfast and AUB Group stress profitability does not hinge on pricing outlooks, with acquisitions and growth in existing businesses supporting earnings.
“The messaging from both of them is that they’re seeing more fees, rather than commissions, and that is how they are moving away from the softening in the pricing cycle and how they’ve been able to maintain revenue growth,” Mr Buncombe says.
On an underlying basis, Steadfast net profit rose 17.2% to $295.5 million and AUB’s result increased 17.1% to $200.2 million last financial year.
Steadfast chief executive Robert Kelly says commission and fee arrangements can be adjusted, and he notes rates are still rising where the group’s brokers are focused, despite talk of the market “dropping”.
“In broad terms, it is not a waterfall, it is a moderation and softening of compounding increases that we’ve seen over the past four or five years,” he says.
Last year, Steadfast acquired a specialty wholesale broker in London, and it has purchased a majority stake in Ohio-based Novum Underwriting Partners as part of its long-term US strategy.
Novum will expand market and tech capabilities for the ISU Steadfast network in the US, underwriting agencies in Australia and HWS Specialty in London, according to international chief executive Samantha Hollman.
The Steadfast results briefing featured the broader executive team amid changes at the top.
Chief financial officer Stephen Humphrys retired after the results and chairman Frank O’Halloran will step down at the October 31 annual general meeting, after holding the role since 2012.
Mr O’Halloran says, subject to Mr Kelly not wishing to extend his tenure, the board anticipates being able “to announce any changes at the senior executive level in mid-2026 and confirm Robert’s ongoing role at Steadfast”.
AUB has built on its 2022 Tysers acquisition in the UK, buying an 80% stake in Movo Group and a 40% holding in authorised representative network Momentum Broker Solutions last financial year.
Australian broking represented 38% of operating business profit before tax, with international at 29%, and agencies, New Zealand and Bizcover accounting for the remainder.
Chief executive Mike Emmett says the British retail investments have enabled AUB to start replicating its Australian shared equity model in that market.
“While relatively unfamiliar in the UK and other international markets, our engagement with industry participants suggests our owner-driver model is already being recognised as a clear competitive advantage for AUB,” he said.
Mr Emmett says premium rates in some geographies and classes have moderated over the past 18 months and “are the subject of speculation”, but rational pricing is expected to prevail.
Insurers will be wary of any profit reduction as interest and investment income softens, he says.
Like other executives this earning season, he says the company is well placed.
“We continue to have a range of levers available to outweigh the impact of premium rate movements – something we’ve already demonstrated through our performance.”
