The Insurance Australia Group Ltd (ASX: IAG) share price was trading more than 6% lower today after the company updated its FY20 guidance. Here’s what you need to know.

About Insurance Australia Group Ltd

Insurance Australia Group (IAG) is Australia’s largest insurance business — its direct heritage dates back to 1920.

IAG’s businesses underwrite over $11.4 billion of premium per annum, selling insurance under many brands, including: NRMA Insurance, CGU, SGIO, SGIC, Swann Insurance and WFI (Australia); and NZI, State, AMI and Lumley Insurance (New Zealand).

For a primer on the key insurance terms used in the industry and in this article, check out this Rask Education blog post and watch the video below.

What’s Happened?

This morning, IAG provided an update to its FY20 reported margin guidance, based on expected results for H1FY20 and on a revised view of full-year net natural peril claim costs in the wake of the recent hailstorm event.

The hailstorms which impacted parts of Melbourne, Canberra and Sydney over the course of last Sunday and Monday will be treated as one event under IAG’s reinsurance arrangements.

Based on projected claim volumes and the severity of related damage, it is anticipated this event will result in a pre-tax cost to IAG of $169 million.

By 5pm on 23 January 2020, IAG had received over 28,000 claims resulting from the hailstorm event, with this figure expected to increase over the coming days.

FY20 Guidance

The company now expects its FY20 reported insurance margin will be in the range of 14.5-16.5%, compared to the previous guidance of 16-18%.

The company also expects gross written premium (GWP) growth of around 4.1% for 1H20, consistent with the “low single digit” GWP growth guidance provided for the full year.

In addition, IAG indicated its H1FY20 results will contain a post-tax provision of approximately $80 million for a customer refund program.

Management Commentary

Commenting on the update, IAG Managing Director and CEO Peter Hamer said, “We are pleased with our underlying business performance, which continues to track in line with our expectations, both at the GWP and underlying margin levels,”.

“We have, however, revised our reported insurance margin guidance for the full year, to reflect the recent heavy natural peril activity and a reduced expectation for prior period reserve releases following the lower than anticipated first half net reserve release outcome,” he added.

What Now?

IAG shares were last trading on the ASX at $7.295 — down 5.5%.

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