Why IAG Shares Rose Today

Shares of Insurance Australia Group [ASX:IAG] have experienced strong surges of growth throughout the year.

The insurance company managed to improve its underlying insurance margin of 12.6% over the second half of 2017. This helped IAG turn over high profits across its motor and life sectors.

With its shares rising by 2.07% earlier today, IAG continues to grow.

How IAG managed its costs with work placements

During 2017, IAG began to send its admin and processing work offshore.

As a result, many of its workers were made redundant, allowing IAG to utilise cheaper labour in order to cut costs and increase the company’s profit.

By improving its margin, IAG reduced pressure on motor insurance profitability, while increasing its rates.

IAG reported on its half year results:

This is an encouraging result for IAG. It reflects solid like-for-like gross written premium (GWP) growth of nearly 4%, primarily achieved through rate increases in commercial and consumer, along with some volume growth in motor. At a reported level, our comprehensive reinsurance protection in the half saw net natural peril claim costs below allowance while a higher favourable credit spread impact and larger than anticipated reserve releases also helped boost our reported margin.

The main strength of IAG is consistent growth that has taken place over time, in line with expectations.

Motor insurance is its strongest division. Work is coming in at such a high rate, productivity has been pushed to a higher degree.

IAG have been able to offer discounts to its customers, allowing the insurance group to maintain its customers.

Their strong capital position was bolstered by the effects of its quota share agreement, which took place late last year.

Cutting costs and managing its profit balance has been the focus of IAG for a long time. Hopefully their share value will continue to grow alongside strengthening services and decreasing costs.


Ryan Dinse,
Editor, Money Morning

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