Insurance Australia Group

Here is an update on Insurance Australia Group (IAG) from sharemarket analyst Macquarie Research Equities.

Insurance Australia Group (IAG) Revised proposal deemed 'inadequate'

Event: Cannot recommend QBE's latest proposal to shareholders:

IAG's Board today announced that it cannot recommend QBE's latest scheme proposal ($0.90 cash + 0.145 QBE shares) to its shareholders. The Board considers the revised proposal to be (1) priced opportunistically (2) not reflective of IAG's underlying value and potential deal synergies (3) not fully developed.

Insurance Australia Group Limited (IAG) has signed an agreement with State Bank of India (SBI) from sharemarket analyst Macquarie Research Equities.

Insurance Australia Group (IAG) a step closer to India

Event: Signs agreement with State Bank of India:

Insurance Australia Group (IAG) have a Buy 2 broker call and a $7.05 share price target from sharemarket analyst UBS. Q1 2007 AA British motor rates stay high: According to the AA, comprehensive motor rates fell 0.4% in Q1, with non-comprehensive rates down 0.6%. The trend, however, remains solid, with rates up 5.8% & 3.8% respectively on pcp. Moreover, the reduction in the quarter looks to have been caused by introductory discounts offered by some participants, which appear unsustainable. The analyst estimates that IAG will derive c16% of group GWP from the UK in FY08. These businesses are almost exclusively exposed to motor risks, with a small home book. AA data hint at flat home rates. Their preferred exposures are QBE and IAG: preferred exposures in the Australian insurance sector are QBE (Buy 2: locked-in growth, acqn upside, strong RoE) and IAG (Buy 2: better personal lines trend, offshore opportunities, value play). We have Neutral 2 ratings on SUN (potential upside but integration risk), AMP (domestic mkt strength, uncompelling valn) & AXA (capital initiatives, Asia upside, but AUD impact & fair valuation). The analyst values Insurance Australia Group (IAG) using an EVA/DCF methodology applying 5.25% long-term premium growth, 10% long-term insurance margin and a 9.9% discount rate. Our valuation and price target are unchanged at $7.05 and we retain our Buy 2 rating.

Insurance Australia Group (IAG) have a Buy 2 share trading recommendation and a price target of $7.05 from analyst UBS. IAG has reported NPAT of $345m on an insurance margin of 13.3% (UBSe 13.4%). While 2.3% ahead of our expectations, the 25% drop in NPAT may have disappointed some. Operational performance was ahead of the analysts' expectations ($244m underwriting result beat us by 15%), assisted by expense management. Flat GWP in the Australian business showed top line momentum improvement, in our view. More positive expectations for international businesses (ex-NZ), and a lift in fee income forecasts have supported modest net EPS upgrades to FY07E, FY08E and FY09E. The analyst believes that there us upside risk in FY08/09 estimates. They believe their 3 year forecasts incorporate an increasing level of conservatism given the 1H07 domestic business result, today's commentary on better than anticipated results from UK businesses and potential opportunity offered by the likely SUN/PMN merger next month. They valued IAGby using an EVA/DCF methodology using 5.25% long-term premium growth, 10% long-term insurance margin and a 9.9% discount rate.

Insurance Australia Group (IAG) have a Buy 2 share trading recommendation and a price target of $7.05 from analyst UBS. UBS is voicing come opinions on the upcoming 1H07E result. Post positive November data, the analysts are looking for further evidence of domestic improvement with the 1H07E result (Feb 22nd), noting the lag between GWP and reported profit. Consequently our focus will be on top line leading indicators, looking for continued momentum in domestic personal lines. At the bottom line, the analyst sees some downside risk to our 1H07E NPAT forecast (lagged impacts of slower growth and softening commercial rates in previous periods). However, the potential for improved Australian business performance and for creation of additional value in offshore markets (particularly the UK) presents upside risk to their FY07/08/09 forecasts and valuation, in our view.They have a positive view on IAG, noting further upside potential if the SUN/PMN integration is poorly executed. Key risks identified by the analyst, UBS include: (1) stalling of domestic turnaround; (2) extended delay or failure to complete stake in CPPI currently under negotiation; and (3) execution risk as international expansion efforts continue.They figure the value of IAG using an EVA/DCF methodology with key assumptions of 5.25% long-term premium growth, 10% long-term insurance margin, and 9.9% discount rate. They estimate that IAG is trading on a 14.4x FY08E PE.