Strong profit increase for IAG

RICHARD MEADOWS
Last updated 13:03 21/02/2014

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Insurer IAG's half-year profit has cracked the $100 million mark in New Zealand, soaring higher on the back of hiked premiums and fewer losses.

IAG is the country's biggest general insurer, selling most of its products through the State, AMI and NZI brands.

It is seeking Commerce Commission approval to expand its market share with the purchase of Lumley.

The Australian-owned company's New Zealand business made an A$92m (NZ$100m) profit before tax for the six months to December 31, compared to A$52m in the previous corresponding period.

Gross written premiums rose a solid 4.7 per cent to A$884m, or 18 per cent when accounting for favourable foreign exchange movements.

In a half-year report released to the ASX, the company said the growth was driven mainly by further rate increases in the domestic homeowners portfolio "across all channels".

The increases were aimed at recovering higher reinsurance costs associated with the Canterbury earthquakes, and to "appropriately price for risk".

IAG's insurance margin on this side of the Tasman, which is a key measure of profitability, rose sharply from 8.3 per cent to 12.4 per cent, while its loss ratio shrank from 64 per cent to 52 per cent.

The company said it had made "good progress" on the Christchurch rebuild, with 51 per cent of claims settled as at the end of December.

While 80 per cent of commercial claims had been resolved, only 45 per cent of residential claims were settled.

Residual expenses from AMI's integration helped push costs up by 17 per cent, along with increased investment and regulatory costs.

The company's A$140m reinsurance expense was also 24 per cent higher, a reflection of higher catastrophe cover costs as a result of increased regulation and the Canterbury earthquakes.

The IAG group as a whole made a net profit of A$642m, up 39 per cent.

The jump was largely due to a one-off A$182m loss in the previous year associated with the discontinued British business.

However, it also improved underlying margins from 12.1 per cent to 13.7 per cent.

IAG will pay an A13 cents per share interim dividend to shareholders, up from the A11c per share paid in 2013.

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- Fairfax Media

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