IAG advises of higher reserve release expectation

IAG advises that, as part of its regular year end processes, it has just completed a preliminary review of prior period reserve releases for the financial year ended 30 June 2017 (FY17). This preliminary review indicates an outcome equivalent to at least 5% of net earned premium (NEP). This compares to previously held guidance of at least 2% of NEP.

The reserve releases predominantly relate to Australian long tail classes, comprising CTP, liability, professional risks and workers’ compensation. The higher indicated outcome, compared to previous expectations, reflects further favourable experience against underlying assumptions for claim size and inflation.

It remains IAG’s long term expectation that reserve releases will represent around 1% of NEP in any given year, as embodied in its underlying margin calculation.

As a result of the expected increase in reserve releases, IAG has raised its reported margin guidance range for FY17 from 10.5-12.5% to 13.5-15.5%.  

Other underlying assumptions behind IAG’s FY17 reported margin guidance are unchanged:

  • Net losses from natural perils of $850 million;
  • No material movement in foreign exchange rates or investment markets in 2H17; and
  • A small net negative from optimisation program initiatives, as early benefits are outweighed by related costs.

IAG will report its FY17 results on 23 August 2017.


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