Calliden plans to return to profit this year as it moves to a managing general agent model, CEO Nick Kirk says.

The company is targeting a modest profit in what will be a transitional year, he told an analysts’ briefing after the insurer announced a $10.2 million loss for calendar 2011, compared with a profit of $10.1 million in 2010.

Calliden incurred net catastrophe losses of $11.3 million, including $3 million from Melbourne’s Christmas Day hailstorm, and saw both its reinsurance costs and retentions rise.

The company had to increase its claims reserve due to the fall in government bond yields reducing the discount rate applied to its reserves. 

Describing the annual result as “disappointing”, Mr Kirk said there had also been an unexpected number of large claims.

The company booked an $8.3 million profit from the sale of its half share in Claims Services Australia.

Gross written premium rose by 16% to $245.65 million and revenue from ordinary activities was up 9% to $384 million, as Calliden raised premiums. It incurred net claims of $85.7 million compared with $58.4 million the previous year.

Mr Kirk expects higher premiums will flow into the 2012 result and says the company is aiming to cut expenses by 10%-15% this year.

Although home insurance is seeing a relatively uniform price increase, commercial business varies and remains price-sensitive.

This year more than 30% of the Calliden’s business will be written on behalf of other insurers and it is aiming to increase that to 50% by the end of the year.

Calliden is in discussions to expand its managing general agent relationships. It writes commercial business for Munich Re subsidiary Great Lakes, for Lloyd’s underwriters through Mansions of Australia, and NSW home builders’ warranty.

The managing general agent model will reduce the volatility of profits and release capital required to support underwriting, Mr Kirk says. This will enable the company to use its franking credits to pay regular dividends.

CFO Adrian Diggelmann told the briefing the 2012 result will have a higher proportion of income from claims and fees, less from gross written premium and a lower claims expense.

Mr Kirk sees premiums increasing gradually in personal and short-tail commercial lines, but says investment volatility is likely to continue and reinsurers have clearly flagged that their pricing is increasing.