Quote: I sometimes get the exposure meter reporting underexposure so why does it not increase the Iso.
The electronic analogue display in the viewfinder only shows how the ambient light relates to the current camera settings, the flash metering is quite separate.
Quote: So..why does it not alter the Iso automatically with flash?
The ISO will increase if the camera decides (after emitting pre-flashes) that the flash couldn't illuminate the scene with the current ISO.