So far in the insurance group of the ASX World Cup, Suncorp Group Ltd (ASX: SUN) is top of the table and Insurance Australia Group Limited (ASX: IAG) is coming off a draw with QBE Insurance Group Ltd (ASX: QBE).
Pre-match commentary and stats
Suncorp Group may be playing in the insurance group, but it also has a banking division. This makes it extremely difficult to compare to IAG on a like-for-like basis. It also makes the business more difficult to value generally. However, the banking division is nowhere near as profitable as the big four banks, and this commentator does not believe it will be much of an advantage.
Insurance Australia Group, on the other hand, is focussed on insurance, mostly in Australia, but also in Asia. IAG has recently reported a standout underwriting profit and acquired new businesses from Wesfarmers Ltd (ASX: WES).
| Suncorp | IAG | |
| Market Capitalisation | $17.36 billion | $13.76 billion |
| Forecast FY 14 P/E ratio | 17.6 | 11.22 |
| Forecast FY 14 Yield | 6% fully franked | 6.02% fully franked |
| P/B ratio | 1.24 | 2.55 |
| Average underwriting profit last 3 years | Loss of $1.12 billion | Profit of $1.079 billion |
Notes: Thompson Consensus Forecasts
GAME ON
When it comes to price, IAG streaks past Suncorp in the opening 10 minutes, but Suncorp admirably deflects the first attempt on goal with its high dividend yield. However, it turns out that Suncorp has a history of unpredictable cashflows and making acquisitions at the top of the market, so it struggles to get a shot off on target, despite having a relatively low Price to Book Value ratio.
Neither team can get the ball into the net, the score is locked at 0 – 0.
It would appear that IAG is much more successful at turning an underwriting profit than is Suncorp Group. And that holds true over much longer periods than the three years shown above (though the difference is less stark).
Suncorp's decision to end crop insurance is a strong defence, but alas, the company is overexposed to farming through its banking arm. Going into the El Nino cycle, that sounds like a recipe for bad debts.
IAG scores the opening goal with its higher underwriting standards!
The score is 1 – 0 to IAG going into the second half.
The second half is all about growth and IAG looks to have the momentum. Thanks to recent acquisitions and also the clear goal of sourcing 10% of gross written premium from Asian countries, IAG manages another goal, easily beating a weak defence by Suncorp, resulting from the latter company's ill-timed acquisition activity in 2007.
2 – 0 to IAG!
Just when Suncorp supporters begin to lose hope, it looks like their team will score a goal with their strong brand and suite of superannuation products. Alas, the shot veers wide because the company recently reduced its growth target to 4% – 6%.
The game ends with a solid victory for Insurance Australia Group, 2 – 0.
