Wesfarmers Insurance predicts better year ahead

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19 November 2012

Fewer catastrophes, rising premiums and better risk selection have given Wesfarmers Insurance confidence of a “significant improvement” in its full-year result.

MD Richard Goyder told shareholders at last week’s AGM in Perth that earnings and new business in the insurance division are tracking ahead of last financial year.

The upbeat assessment follows the release of the group’s annual report last month, which states improved underwriting earnings from premium rate increases, a disciplined approach to risk selection and business efficiencies pushed the group into positive territory.

Mr Goyder says early indicators are positive for the insurance division, which in 2011/12 contributed less than 1% of total earnings before interest and tax (EBIT).

“Our insurance business has to date benefitted from improved underwriting performance and lower claims experience,” he said.

“Improvements in premium rates, risk selection and underwriting disciplines in Australia and New Zealand have resulted in stronger earnings in the first four months of the [financial] year compared with the prior year.

“New business written is tracking ahead of lapse rates in key segments, particularly in Australian personal lines.”

Last year’s Christchurch earthquakes hit Wesfarmers Insurance’s 2011/12 profits, slashing EBIT to $5 million from $20 million the previous year – its worst result in more than four years.

However, with total revenue up 10.1% to $1.91 billon and broking revenue up 18.7% to $267 million, Wesfarmers Insurance MD Rob Scott said at the time he was pleased with the division’s underlying performance.

While conditions in the SME sector, particularly cost pressures, remain “challenging”, Mr Goyder says Wesfarmers Insurance is on course to reverse the 2011/12 result, barring any catastrophic events.

Wesfarmers says all divisions except resources, which contributes about 12% of the group’s total EBIT, are tracking ahead of 2011/12.

Investors were largely unmoved by the update, pushing shares 0.5% higher on Wednesday trading last week to $33.94.