Why did the IAG share price get smashed today?

The Insurance Australia Group Ltd (ASX: IAG) share price tumbled on Friday on news of the company’s annual general meeting (AGM) and the impact of ongoing floods.

IAG CEO and managing director Nick Hawkins told the AGM the insurance company had experienced inflationary pressures and natural disasters as it anticipates higher reinsurance costs. To counter such impacts, it’s increasing some of its premiums.

The IAG share price was 2.16% lower, trading at $4.75 on Friday’s market close.

For context, the S&P/ASX 200 Index (ASX: XJO) was down 0.80% at the close. The S&P/ASX 200 Financials Index (ASX: XFJ) also underperformed on Friday, dumping 1.22%.

Let’s take a closer look at what might be weighing on the IAG share price today.

Inflation and reinsurance costs pressure IAG

The IAG share price is in the red after the company’s management outlined the new financial year 2023 guidance and flagged ongoing weights impacting its bottom line.

As previously announced, IAG expects to post mid-to-high single-digit growth in gross written premium this fiscal year. Its reported insurance margin is tipped to come in at between 14% and 16%.

Today, Hawkins said the company’s upcoming results would benefit from the pre-tax $360 million reduction in the COVID-19 business interruption provision. He also noted its retention rates remained strong.

However, the insurer is once again helping Australians through natural disasters. It comes after IAG’s extreme weather claims doubled in the 2022 financial year.  

Major floods have also hit New South Wales, Victoria, and Tasmania more recently and have yet to ease in some parts.

Meanwhile, the Bureau of Meteorology warns a low-pressure system could bring more heavy rainfall to parts of Victoria, New South Wales, and Tasmania from this afternoon. That has the potential to cause further flooding.

Under the weather

Hawkins said the insurer had received around 2,000 claims from the weather event so far, adding:

Like all businesses and our customers, we continue to experience the inflation which is a key feature of the Australian and New Zealand economies. And we have seen further natural disasters.

In response to these pressures, and in anticipation of higher reinsurance costs, we have been increasing our premiums across home, motor, and our commercial insurance classes.

You will see greater earn-through of that in the second half as policies are renewed.

Hawkins concluded by addressing issues previously facing the company. He said:

Some of the issues we’ve been forced to confront have been challenging for us. We’ve had to re-evaluate how we run and manage our company.

We’re confident those issues are behind us. We’ve fundamentally improved how we manage risk and I’ve set up my leadership team to ensure there is clear accountability going forward.

IAG share price snapshot

Fortunately, today’s tumble hasn’t been enough to send the IAG share price into the longer-term red.

The stock has gained 6% through 2022 so far. Though, it is 6% lower than it was this time last year.

Meanwhile, the ASX 200 has fallen 12% year to date and 10% over the last 12 months.

The post Why did the IAG share price get smashed today? appeared first on The Motley Fool Australia.

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Motley Fool contributor Brooke Cooper has no position in any of the stocks mentioned. The Motley Fool Australia’s parent company Motley Fool Holdings Inc. has no position in any of the stocks mentioned. The Motley Fool Australia has positions in and has recommended Insurance Australia Group Limited. The Motley Fool has a disclosure policy. This article contains general investment advice only (under AFSL 400691). Authorised by Scott Phillips.

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