Insurance industry profit rose by billions in 2022, so could this be a good sign for ASX 200 shares such as Insurance Australia Group Ltd (ASX: IAG)?
IAG shares have risen 3% since market close on 23 March and are currently fetching $4.695, up 0.54%. For perspective, the S&P/ASX 200 Index (ASX: XJO) is 0.91% higher at the time of writing.
Let's take a look at the outlook for IAG shares in light of recent insurance data.
What could be ahead?
IAG is a major insurance company operating in Australia and New Zealand.
A KMPG review, released on Wednesday, reveals insurer profits jumped massively in 2022 to a five-year high.
Industry insurance profit overall rose 42% year on year to $4.95 billion in 2022. Higher premium prices led to a 10% rise in the gross written premium to $0.59 billion.
IAG reported a net profit after tax (NPAT) of $468 million in the first half of FY23, 171% higher than the prior corresponding half. The company delivered an interim dividend of 6 cents per share, 30% franked.
Wilsons equity strategist Rob Crookston recently touted "pricing power" as the "best defence against cost inflation" and named five stocks Wilsons holds, including IAG. He also noted IAG's ability to raise premiums, stating:
Number 1 general insurer in Australia, which has been [raising] premium rates strongly to offset rising perils costs (albeit there is a timing lag to margins).
Even with higher premiums, customer retention rates remain high.
In the insurance sector overall, KMPG is forecasting there will be another 10% rise in premiums this year. KMPG Insurance partner Scott Guse said:
The expectation of increasing frequency and severity of natural hazards, rising reinsurance costs, increasing inflation, supply chain issues and labour shortages will continue to put upwards pressure on premiums pricing.
We anticipate that on average, premiums will rise by at least 10 percent throughout 2023
IAG share price snapshot
The IAG share price has climbed nearly 7% in the last 12 months.
This ASX 200 share has a market capitalisation of about $11.5 billion based on the current share price.
