IAG urged to come clean on COVID costs

Insurance Australia Group investors are putting the board on notice to swiftly address the topic of potential exposure to business interruption policies during COVID-19, given the heightened uncertainty has weighed on the company’s value.

Several insurance analysts have estimated IAG’s stock is pricing in heavy $1bn to $2bn losses from business interruption claims, yet investors are frustrated the company has not publicly addressed the risk or provided modelling on possible outcomes.

IAG — which counts brands including NRMA, CGU and Swann Insurance in its stable — is among large local insurers navigating the pandemic and tough questions around the validity of related policies.

Ethical Partners Funds Management, which holds $100m in IAG shares, has hit out on the issue. The firm has been asking management about it since April, and raised the matter with the insurer’s board last month ahead of its annual general meeting.

“It is certainly holding the stock back so the board is actually standing in the way of realising value for shareholders,” said Ethical Partners’ investment director Nathan Parkin.

“We think that by explaining their position more fulsomely that will unlock the value and it won’t be vulnerable (to a take over).

“The board needs to take this issue off the table … they need to say something sooner rather than later.”

Ethical Partners’ letter to the board — sighted by The Australian — also raised concerns around IAG’s continuous disclosure obligations given large estimates in the market around business interruption claims.

“We believe IAG should better inform the market on this important issue, with appropriate BI (business interruption) disclosures, rather than allowing the information vacuum to be filled with broker and analyst speculation,” the letter said.

“Given the potential materiality (or immateriality as the case may be) of IAG’s BI claims, it could even be argued that the company now has an ASX Listing Rule 3.1 disclosure obligation in view of the analysis.”

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