Genworth full year results – in line with guidance
- GMA reported statutory net profit after tax (NPAT) of AUD75.7m in FY18, down approximately 50% from AUD171.1m reported in FY17. The result was in line with management guidance provided throughout the year.
- The fall in profits was primarily attributed to a decline in net earned premium (NEP), the proportion of gross written premium earned during the year and adjusted for reinsurance costs, which fell 24% to AUD281.3m. The decline in NEP stems from a 2017 review into GMA’s “earnings curve”, which, in effect, lengthens the average duration of the period over which GMA recognises its revenue by approximately 12 months (i.e., no change to the quantum of revenue earnt, but rather the timing). Excluding this, NEP would have been down only 4.3%. Guidance for FY19 is plus or minus 5%, so basically a fairly benign outcome.
- New business volumes as measured by new insurance written (NIW) which decreased 7.0% to AUD22.2bn. The sustained decline in NIW appears to have bottomed, in our view, with GMA recently signing a new contract for the provision of ‘excess of loss’ cover with one of Australia’s largest banks.
- Gross written premium (GWP) was up 25% to AUD460m, benefiting from new business written by GMA’s newly established Bermudan insurance entity. Only a portion of the business written though the Bermudan entity will flow through to NEP, however. Net of this impact, GWP increased by a still healthy 8.4%.
- GMA’s loss ratio increased to 51.9%, from 38.3% in FY17, primarily stemming from lower NEP. Excluding this, the loss ratio would have been 38.6%, broadly unchanged year-on-year. Net claims were up modestly to AUD146m, with the average paid claim unchanged. Delinquency rates edged higher at 0.54%, from 0.47%. Western Australia remains the worst performer, with delinquencies at 0.98%, although there was a general deterioration across all states.
- GMA’s capital adequacy ratio remains strong. The group reported a regulatory solvency ratio of 1.94x, which continues to track well above the Board’s target capital range of 1.32x to 1.44x. The company announced a share buyback; on a pro-forma basis. The impact to GMA’s solvency ratio is modest with a decline of around 5%.
IAG 1H19 Results: Earnings from continuing operations impacted by Sydney hailstorm
- Insurance Australia group (IAG) reported a statutory net profit after tax (NPAT) of AUD500m in 1H19, down 9.3% year-on-year. Excluding the sale of its Thailand business, profit from continuing operations was down by nearly 50% to AUD322m, driven largely by a substantial increase in net natural peril claims, with the Sydney hailstorm in December 2018 accounting for 39% of this. The total cost of the Sydney hailstorm event was AUD162m after reinsurance.
- The underlying performance for IAG was otherwise solid. Gross written premiums (GWP) were up 4.1% to AUD5.9bn in 1H19, largely underpinned by increased margins (with volumes largely flat) in both Australia and New Zealand. IAG’s underlying insurance margin, as measured by underlying insurance profit (insurance profit adjusted for items including net natural peril claims) to net earned premium improved to 16.2%, from 13.0% in 1H18.
- Unsurprisingly, IAG’s loss ratio increased to 65.3%, from 60.1% in 1H18, largely owing to the Sydney hailstorm event and a lower prior period reserve release (basically, claims expenses were higher than assumed in prior reserving). IAG’s expense ratio (a measure of IAG’s operating efficiency) improved to 23.8% (from 25.0%). However, despite the improved efficiency, its reported combined ratio (a combination of the loss ratio and expense ratio, which is a measure of underwriting profitability) increased from 85.1% to 89.1% (A ratio below 100 percent indicates that the company is making underwriting profit).
- IAG’s capital adequacy remains strong, with a Common Equity Tier One regulatory solvency ratio of 1.18 (unchanged year-on-year), and 1.06x after allowance for the interim dividend, against IAG’s target benchmark of 0.9x – 1.1x. This is compares with a minimum regulatory requirement of 0.6x.