Morgan BellIAG Moves Out of Equities
December 4th 2006 11:12
Equity markets are heating-up too much and fund mangers backed IAG’s move to reduce its exposure to stocks. The S&P/ASX top 200 index increased by 15 per cent in the last 12 months. Should we get alarmed and sell our shares before prices fall?
The news today, 4 December 2006, is that “as reported by The Australian, IAG on Friday said it now held 55 per cent of the $2.5 billion in shareholder funds it controls invested in cash and fixed interest markets, up 21 per cent on less than six months ago.”
““Being a little bit more defensive at this point is probably a reasonable strategy to have in place,” Investors Mutual portfolio manager Monik Kotecha said.”
“But he said [Wilson Asset Management managing director Geoff Wilson] it was a “logical” move for IAG given concerns that forecast company earnings have the potential to be disappointing owing to potentially higher interest rates, a weakening US economy, rising costs from labour shortages and high oil and commodity prices. “What (IAG) have done is reasonably prudent. They could be giving away some of the upside, but they are protecting their downside,” he said.”
This news was published in the online version of The Australian under the title “Funds back IAG shift from equities” and was written by Andrew Trounson. Click here to open that page: theaustralian.news.com.au.
Australian insurance companies only in the last five years have had underwriting profits meaning that, in that period of time, they were able to make a profit from the insurance arm of their business. IAG’s (ASX: IAG) current underwriting profit is $533 million.
It’s interesting that Net Earned Premium grew in the last six years from $2634.0 million to $6132.0 million, an 18.4 per cent compound increase.
In the same period, Claims Expense grew from $2102.0 million to $3900.0 million or a 13.2 per cent compound increase. No wonder the profit. There have just been lesser claims.
Previously, insurance companies would make underwriting losses and cover with profits made by investing their insurance pool of premium funds.
This insurance pool is traditionally invested mostly in fixed interest and cash and partially in equities. IAG is now switching their $2.5 billion from equities to fixed interest and cash, representing these now 55 per cent of that value.
IAG’s current Net Profit is $759.0 million and Return on Investment is a reputable 20.7 per cent.
Its EPS have been growing at the rate of 35.6 per cent for the last six years, which is impressive, being currently 47.6 cents.
IAG’s P/E is 11.9 times and Price to Cash Flow 23.2 times being its price $5.64. I would say that, at this stage, IAG does not look overpriced.
These figures are based on data available at: http://money.ninemsn.com.au/shares-and-funds/research-a-company/.
One of the interesting things with an insurance company is the ability to invest its premium pool which is in excess of claims and multiply the company’s profits that way. But, as it appears, equities leave you exposed to some volatility.
End
The news today, 4 December 2006, is that “as reported by The Australian, IAG on Friday said it now held 55 per cent of the $2.5 billion in shareholder funds it controls invested in cash and fixed interest markets, up 21 per cent on less than six months ago.”
““Being a little bit more defensive at this point is probably a reasonable strategy to have in place,” Investors Mutual portfolio manager Monik Kotecha said.”
“But he said [Wilson Asset Management managing director Geoff Wilson] it was a “logical” move for IAG given concerns that forecast company earnings have the potential to be disappointing owing to potentially higher interest rates, a weakening US economy, rising costs from labour shortages and high oil and commodity prices. “What (IAG) have done is reasonably prudent. They could be giving away some of the upside, but they are protecting their downside,” he said.”
This news was published in the online version of The Australian under the title “Funds back IAG shift from equities” and was written by Andrew Trounson. Click here to open that page: theaustralian.news.com.au.
Australian insurance companies only in the last five years have had underwriting profits meaning that, in that period of time, they were able to make a profit from the insurance arm of their business. IAG’s (ASX: IAG) current underwriting profit is $533 million.
It’s interesting that Net Earned Premium grew in the last six years from $2634.0 million to $6132.0 million, an 18.4 per cent compound increase.
In the same period, Claims Expense grew from $2102.0 million to $3900.0 million or a 13.2 per cent compound increase. No wonder the profit. There have just been lesser claims.
Previously, insurance companies would make underwriting losses and cover with profits made by investing their insurance pool of premium funds.
This insurance pool is traditionally invested mostly in fixed interest and cash and partially in equities. IAG is now switching their $2.5 billion from equities to fixed interest and cash, representing these now 55 per cent of that value.
IAG’s current Net Profit is $759.0 million and Return on Investment is a reputable 20.7 per cent.
Its EPS have been growing at the rate of 35.6 per cent for the last six years, which is impressive, being currently 47.6 cents.
IAG’s P/E is 11.9 times and Price to Cash Flow 23.2 times being its price $5.64. I would say that, at this stage, IAG does not look overpriced.
These figures are based on data available at: http://money.ninemsn.com.au/shares-and-funds/research-a-company/.
One of the interesting things with an insurance company is the ability to invest its premium pool which is in excess of claims and multiply the company’s profits that way. But, as it appears, equities leave you exposed to some volatility.
End
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