MP111 Insurance Australia Group Limited Analysis Assignment Sample

• Subject Code : MP111
• University : Wentworth Institute of Technology My Assignment Services is not sponsored or endorsed by this college or university.
• Subject Name : Accounting and Finance

Accounting for Management Decisions

Table of Contents

Background.

Analysis of company’s industry / competitors.

Key financial results.

Key ratios.

Liquidity.

Solvency.

Utilisation.

Profitability.

Market based.

Conclusion.

References.

Background of Insurance Australia Group Limited Analysis

Insurance Australia Group Limited is one of the leading general insurance based companies carrying out its operations in New Zealand and Australia. It sells insurance under several leading brands like CGU, Swann Insurance, WFI, NZI, NRMA Insurance, SGIO, SGIC, Lumley, AMI and State. It acts as the largest personal lines insurer in Australia and offers short tail motor and home products along with long tail CTP offerings. It also sells a wide range of commercial insurance products as well as niche products and has a strong emphasis towards SME. Elizabeth Bryan is the Chairman and Peter Harmer is the Managing Director of the company (IAG, 2020). There are 8 Independent Non-Executive Directors in the Board to safeguard the interest of the shareholders. There are three components of the remuneration, namely, fixed pay, short term incentives and long term incentives. Fixed pay is regarded as the basic salary and superannuation set as per the skills and experience of the individual, short term incentives are paid on annual basis and long term incentives are paid on the basis of four year performance of the executive. It has been analysed that cash earnings of the company has reduced as a result of several unprecedented environmental and economic challenges followed by the COVID – 19 pandemic (IAG, 2020). There is a loss in investment income because of COVID – 19 financial market volatility. It has been decided by the Board that there will be no rise in fixed pay in 2021 financial year and directors and executives will not be paid short term incentives.

Analysis of Company’s Industry / Competitors

Insurance Australia Group Limited belong to Insurance industry and underwrites over $11.4 billion of premiums in a year. The major competitors of this company include Gjensidige, CGU Insurance, Allianz Australia and Suncorp Group. It has been forecasted that there will be growth in revenue at a lower rate of 0.7% in 2020-21 due to COVID – 19 outbreak. Earlier, it was forecasted that the insurance will grow at a faster rate. There has been a significant rise in claims before COVID – 19 pandemic because of catastrophic bushfire and hailstorms across Victoria, Canberra and NSW (IBIS World, 2020). Because of the imposition of lockdowns and measures related to social distancing, lifestyles of the people have completely changed. These measures led the people to stay in their homes and travel less. This resulted in fewer claims for car insurance and home and content insurance claims. Now, it has been projected that the revenue of insurance industry will rise over the next 5 years after recovering from COVID – 19 recession. There will be steady demand for general insurance claims leading to the rise in revenue for the operators of the entire industry.

Key Financial Results

There is a growth in GWP from $12005 million to $12135 million from 2019 to 2020. The margin has fell down because of the higher natural peril events (IAG, 2020). The net profit of the company has fallen by 59.6% and dividends has reduced by 68.8%. There has a significant fall in return on equity from 14.4% to 4.5% from 2019 to 2020. This has impacted the business operations. The company has set up A COVID – 19 team to maintain steady flow of work. However, the company is forming strategy to optimise and simplify the core insurance business while establishing future growth opportunities. Therefore, it can be claimed that the company will soon recover from this pandemic situation and will grow at a faster rate in the coming years.

Key Ratios

Liquidity

The liquidity position of the company has improved as there is a rise in current ratio and quick ratio (IAG, 2020). This indicates that current assets of the company has increased in comparison to current liabilities.

Solvency

The solvency position of the company remained consistent for both the years. The company financed its operations largely with the help of equity which indicates that the company does not have to bear large amount of interest expenses that is required to be paid irrespective of the amount of profits earned by the firm.

Utilisation

There is significant decline in fixed assets turnover ratio from 50.21 to 21.04 from 2019 to 2020. This indicates that fixed assets are not being optimally by the management of the company. However, asset turnover ratio has remained same for both the years.

Profitability

There is a significant fall in net profit margin from 11.87 % in 2019 to 4.90% in 2020. The company has generated less than half of the return on assets that were generated in 2019. The return on equity has fallen from 16.46% in 2019 to 6.97% in 2020 (IAG, 2020). This indicates that the equity shareholders have earned lower return on the amount invested by them in the shares of the company.

Market Based

The Price earnings ratio has increased from 22.13 to 26 in 2020. The enterprise value has also increased as the enterprise value / EBIT has increased from 13.50 in 2019 to 18.98 in 2020.

Conclusion on Insurance Australia Group Limited Analysis

It can be concluded that the company has higher future growth prospects and investors will definitely receive benefits in the future period. Investors can buy the shares and those who already have them must hold for a longer period of time as it has been projected that the revenue of insurance will rise continuously in the next 5 years.

References for Insurance Australia Group Limited Analysis

IAG. (2020). IAG announces FY20 results. Retrieved from https://www.iag.com.au/sites/default/files/Documents/Results%20%26%20reports/IAG-announces-FY20-results.pdf

IBIS World. (2020). General insurance in Australia – Market research report. Retrieved from https://www.ibisworld.com/au/industry/general-insurance/526/

IAG. (2020). What we do. Retrieved from https://www.iag.com.au/about-us/what-we-do

IAG. (2020). About us. Retrieved from https://www.iag.com.au/about-us

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