Australia | Jan 24 2025
Analysts anticipate buyback announcements during the February reporting season will help sustain ongoing share price gains for the big three general insurers on the ASX.
-Ongoing share price upside potential for ASX-listed general insurers
-Share buybacks a near-term positive catalyst
-Preferred sector exposures and potential risks
By Mark Woodruff
After material share price outperformance by the big three General Insurers on the ASX last year, new research reports out this week from several broking houses suggest further upside potential in 2025.
While the ASX200 gained 11% (total return) in 2024, shares in Insurance Australia Group ((IAG)), Suncorp Group ((SUN)), and QBE Insurance ((QBE) gained 54%, 44% and 34%, respectively, but are still only trading on mid-cycle multiples, highlights Morgan Stanley.
A near-term positive share price catalyst in 2025, according to this broker, will be the start of share buybacks following several years of strong profits and improving earnings quality, highlighted by catastrophe (CAT) costs coming in below budgets in the past six to twelve months.
On the flipside, the analysts suggest investors monitor lower margin momentum into FY26, should insurance pricing slow further following recent outsized price increases.
While pricing is slowing, it is still strong enough to drive healthy revenue growth for the insurers, which the broker believes will exceed claims inflation.
Due to lower pricing, Morgan Stanley expects gross written premium (GWP) growth to moderate to high single digits in FY25 for Suncorp and IAG, while QBE is projected to see a modest growth improvement as portfolio exits conclude.
Despite slowing GWP growth, double-digit profit growth remains achievable.
The broker explains premiums typically take 12-24 months to earn-through, which supports margin expansion as net earned premium (NEP) growth stays elevated while inflation continues to ease.
For instance, Suncorp is forecast to deliver 20% growth in underlying insurance profit in FY25, nearly matching the group's strong performance in 2024.
Capital returns
Citi expects the majority of Suncorp's $4.1bn in bank sale proceeds to be returned to shareholders through a capital reduction and share consolidation, with the potential for a small special dividend.
While these proceeds are well understood, Morgan Stanley forecasts an additional $625m in on-market buybacks beginning in the second half of FY25 and extending to FY27. In total, the analysts estimate Suncorp will return nearly $7.0bn of capital over several years.
For IAG, Morgan Stanley recalls the board paused its $350m buyback after completing just $37m due to the RACQ acquisition in late-2024. Following a strong first half of FY25, the broker anticipates a $350m buyback will be announced alongside first half results in February.
QBE Insurance will be releasing full year results next month and Morgan Stanley believes a US$300m (or around $485m) buyback will be revealed.
Preferred exposures and key risks
From updated research issued by four brokers in the FNArena database over the last week, QBE Insurance is the most favoured sector exposure.
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