Investment managers continue to flag the potential of insurance companies following their strong performance last year.
According to Martin Currie, although expectations for Australian profit growth show a modest 3 per cent lift for the year ahead, growth pockets do reside in insurers alongside other areas including real assets and industrials.
Following an exceptional 2023, in which insurance stocks benefited from rising rates via their investment earnings, Reece Birtles, chief investment officer at Martin Currie Australia, said: “We see them as well placed in 2024 to grow dividends.”
Martin Currie noted it is finding opportunities in insurance names exposed to strong premium rate increases.
Speaking at a GSFM media briefing in Sydney, Tribeca’s Alpha Plus Fund lead portfolio manager, Jun Bei Liu, also observed that insurance stocks present an “interesting” opportunity, given strong performance feedback so far and double-digit increases in premium rates.
“So, when interest rates start going higher, they take a couple of years to start washing through and get high earnings. Right now, the operating environment is fantastic for those companies,” she told InvestorDaily.
In August 2023, one of Australia and New Zealand’s largest general insurance companies, Insurance Australia Group, reported net profit after tax (NPAT) of $832 million in its full year results, up 140 per cent from the previous year.
Similarly, Suncorp, whose services include home, motor, and life insurance, reported net profit after tax of $755 million from its Australian insurance operations, up 10.6 per cent year-on-year.
“Earnings are looking at double-digit growth and the claim environment is not too bad, except recently, we’ve had the floods in Queensland for example, and that’s impacting IAG and a few others,” Ms Liu said.
“The net outlook is insurance is in a really good spot and it does look like they can continue to increase those [rates] for another 12 to 18 months.”
The emerging challenge for the industry will be cost-of-living pressures putting consumers under the pump, she pointed out.
According to the latest Consumer Price Index (CPI), insurance and financial services delivered some of the most significant price increases of 8.8 per cent in the 12 months to November, alongside housing (6.6 per cent), food and non-alcoholic beverages (4.6 per cent), and alcohol and tobacco (6.4 per cent).
The monthly CPI indicator rose 4.3 per cent during that time period.
Ms Liu forecast the insurance sector’s earnings to continue to climb in the months ahead, however, the multiple may start to contract in the face of potential rate cuts in 2024.
“There’s been discussion about how much premiums have gone up and the churn is going to pick up quite quickly from potentially, regulators and others,” Ms Liu said.
“In the next 12 months, you could see insurance potentially disappoint on a lot of those increases they want to push through. But right now, it looks good.”
