With the elections now over and Donald Trump set to assume office on January 20, 2025, it is now time to review the ASX sectors coming under the radar. While All Ordinaries Gold (XGD) felt the maximum heat, others like Real Estate (XRE) and Emerging Companies (XEC) were also dumped.
However, on the contrary, with bond yields spiking, some ASX stocks are likely to perform better in a higher rate environment. One such stock is
Insurance Australia Group Limited (ASX: IAG)
Insurance Australia Group Limited primary goal is to make the world safer, with a commitment to helping customers recover from unexpected losses. During the year, IAG paid out about $10.7 billion in claims, while maintaining a high acceptance rate of 98 percent for claims in Australia and New Zealand, though the company faced a few challenges arising from extreme weather events, increased costs of reinsurance, labor shortages, and inflation in repair costs. These factors led to higher premiums, which, combined with rising interest rates, created a tough environment for both IAG and its customers. Despite this, IAG has taken steps to support vulnerable customers, such as offering premium discounts for those taking steps to reduce risk.
In FY24, IAG's net profit after tax increased by nearly 8%, reaching $898 million. This was driven by higher insurance profits, a rise in premiums, and improved insurance margins. The absence of a large provision release for business interruption claims, compared to the previous year, and higher investment income also contributed to the strong result. The company concluded the year by declaring a final dividend of 17 cents per share. This would take the annual dividend to 27 cents per share, up by 80% from FY23. The shareholders were rewarded with a total return of around 30% through a combination of dividends and share buybacks, which in itself underlined a healthy capital position of IAG.
The main focus of IAG has been improving customer experience, particularly regarding claims management. The company has streamlined its claims process with new technology, speeding up settlements by up to two weeks and using digital tools and AI to finalize claims more efficiently. IAG has also introduced initiatives like the Bushfire Resilience Rating, offering discounts to customers who improve their property’s resilience. To further strengthen its commitment to vulnerable customers, IAG has made investments to enhance claims processes and ensure a timely, compassionate response during major weather events.
IAG plans to focus on three core areas: its retail business, intermediated business, and capital platform. The company is committed to investing in technology and people to support growth across these areas. A key development is the Enterprise Platform, which will bring all of IAG's retail customers onto a single system, helping streamline operations and improve service. Additionally, IAG is focusing on enhancing its underwriting and pricing capabilities. The group expects to report solid growth for the coming year, with an anticipated insurance margin of 13.5-15.5% as well as premium growth in the mid-to-high single-digit percentage range, together with better management of natural disaster risks.
If bond yields in Australia continue to rise, it may also have a further positive effect on IAG's share price.
Source: Company’s Report
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