Australia’s insurance cycle has peaked but the downturn will be mild, with Insurance Australia Group expecting to trump rival Suncorp Group for better profit margins, CLSA argues.
Analyst Jan van der Schalk notes that IAG’s $1.85 billion deal to snap up Wesfarmers’ underwriting division puts the insurance giant in a leading position for personal and commercial cover, as well as in New Zealand.
“With normalising catastrophes, falling reinsurance rates, [a] bottoming of the investment cycle, Asian ventures starting to pay off and the medium-term strength of the domestic duopoly, the insurer is uniquely positioned to reap scale benefits and grow profitably,” van der Schalk says.
Meanwhile the broking house has downgraded Suncorp to “underperform” from “outperform”. The Brisbane-based insurance giant operates in a “favourable environment” for general insurance, while its life insurance division was also operating in a recovering cycle.
However, it is “parlaying savings from its ‘building blocks’ initiative into the business and focusing on margin preservation,” van der Schalk argues. “Meanwhile, it continues to reap benefits of its ongoing capital-management strategy. Sometimes uncorrelated ventures align in terms of prospects. This is the case for Suncorp.”
