Much to the delight of its shareholders, the Insurance Australia Group Ltd (ASX: IAG) share price smashed the market in FY 2023.
During the 12 months, the insurance giant’s shares rose approximately 31%.
This was more than triple the return of the S&P/ASX 200 Index (ASX: XJO) over the same period.
Why did the IAG share price smash the market?
Investors were scrambling to buy IAG’s shares in response to a major improvement in its financial performance.
For example, during the first half of FY 2023, IAG reported a 7.5% increase in gross written premiums (GWP) to $7,061 million, a 24.1% lift in insurance profit to $350 million, and a 170.5% jump in net profit after tax to $468 million.
This growth was underpinned by the company’s premium rate increases and strong customer retention.
Positive outlook
The good news is that management revealed that its performance has remained strong since then and it expects more of the same in the near term.
Last month, the company released its investor day update and revealed that it is confident it will achieve its guidance of around 10% gross written premium (GWP) growth in FY 2023.
CEO, Nick Hawkins, advised that its Australian businesses were the driver of its strong form. He explains:
Our Australian businesses are expected to deliver improved second half results reflecting strong top-line growth, increased earned premiums, and improving claims trends.
Looking ahead, Hawkins also revealed that the company has increased its medium-term return on equity (ROE) target by one percentage point to 13%-14%. This is based on a medium-term insurance margin target of 15%.
And while this is well ahead of current levels, Hawkins believes it is realistic. He adds:
The strong top-line growth we’re achieving, and the improved investment returns we are seeing on shareholder funds, means an increased ROE target of 13% – 14% is realistic and achievable over the medium term.
Judging by the IAG share price performance over the last 12 months, it’s fair to say that the market agrees.
