Insurance Australia Group Ltd (ASX: IAG) said that claims from the recent Tropical Cyclone Marcia could be as high as $90 million. In an update to the market today, the general insurer said it was expecting a net claim cost from the natural disaster to be between $60-90 million, stemming from approximately 3,500 claims.
Most of these have come from customers holding Personal Insurance policies with NRMA Insurance, CGY, Lumley Insurance, Coles and WFI brands. While still a significant expense, Insurance Australia Group's estimate is nowhere near that provided by rival insurance business Suncorp Group Ltd (ASX: SUN). Yesterday, it revealed expectations of net claim costs of $120-$150 million, casting a cloud over its earnings guidance for this financial year.
In the first half of 2015, Insurance Australia Group reported $421 million of natural peril claim costs. While the insurer has a natural peril allowance of $700 million for the full year, it also has a separate reinsurance cover for retained perils which provides an excess $150 million protection. It also confirmed it still expects to deliver a reported insurance margin between 13.5 – 15.5% for the year, while gross written premium growth should be at the lower end of its 17%-20% guidance range.
Insurance Australia Group's shares rose 1.4% early in the session, suggesting the claims may not be as high as what some investors had been expecting.
Should you buy? Although the insurer disappointed the market with its most recent earnings report, the stock is worth a closer look for long-term investors. While it is trading at just 12.2x this year's forecast earnings, it's also tipped to yield 6.2%, fully franked. That amounts to an 8.8% dividend yield when grossed up for franking credits.
