IAG to stay ahead, driven by P&C lines in Australia and New Zealand – S&P Global Ratings

Affordability constraints may moderate premium growth, particularly in personal lines, amid a slowing economy.

IAG is expected to maintain its leading position in property and casualty insurance lines in Australia and New Zealand, driven by its significant market shares, said S&P Global Ratings.

The insurer's well-established brands and extensive data history provide a key underwriting advantage, contributing to strong and steady underwriting results.

While IAG's high reinsurance usage raises concerns about independence and underwriting risk appetite, controls are in place to manage potential risks. The reinsurance strategy, justified by balancing property risks, contributes to lower solvency and earnings volatility.

The insurer's underwriting earnings may strengthen with prudent risk selection and appropriate pricing. Fiscal 2023 saw a rebound in earnings, driven by rate increases, productivity gains, and unwinding of investment market valuations.

Affordability constraints may moderate premium growth, particularly in personal lines, amid a slowing economy. Technology investments will continue to support risk management and underwriting capabilities, helping IAG navigate challenges such as natural peril claims.

IAG's robust capital adequacy, coupled with enhanced reinsurance cover, is expected to contribute to financial strength and earnings stability. 

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The insurer's capital adequacy remains above its target range, and its well-structured reinsurance program safeguards against property concentration risks and minimizes earnings volatility.

The enhanced capital adequacy is attributed to the increase in total adjusted capital (TAC) resulting from the removal of haircuts to liability adjustments and the exclusion of non-life deferred acquisition costs. 

The recalibration of capital charges to higher confidence levels partially offsets these improvements, especially for reserve deficiency and natural catastrophe risks.

The stable outlook reflects confidence in IAG's ability to maintain a strong competitive position in its home markets and effectively manage associated risks. 

Potential downward pressure on ratings may arise from material shocks to IAG's business reputation or capital adequacy. Additionally, a substantial change in reinsurance cover cost or availability could impact the ratings negatively.

An upgrade is deemed unlikely due to IAG's limited geographic and business diversity compared to higher-rated peers.

The adjustment of criteria has strengthened IAG's TAC base, primarily due to fewer deductions. 

The impact of higher risk-based capital requirements and reduced natural catastrophe risk charges due to increased diversification credits further enhances the group's capital adequacy.