Calliden remains “on the right track” despite a drastic downgrade in its profit target for this year, according to CEO Nick Kirk.

In May the company flagged net income of $10 million, but the figure has now been adjusted to $5-7 million.

Calliden is undergoing a transition from pure underwriter to hybrid managing general agent – a move that is intended to reduce the company’s earnings volatility.

Mr Kirk says the target reduction is mainly due to reserve strengthening of $3-4 million in the builders’ warranty insurance (BWI) portfolio.

Without that, it would be “within shouting distance” of the original target, he told insuranceNEWS.com.au.

Mr Kirk says the situation was not anticipated, but changes to the company’s position in the BWI market will “take out another area of volatility”.

Calliden recently signed reinsurance deals with the SA and WA governments and withdrew from the licensed builders market in Victoria.

“The whole transformation journey has been about trying to reduce volatility in the profit stream,” Mr Kirk said.

“When something like this happens it just confirms we are on the right track.”

He says he understands investors’ disappointment and Wednesday’s share price fall of nearly 28% “was to be expected”.

In its announcement to the Australian Securities Exchange, Calliden says the new target still compares favourably with last year’s $1.1 million profit and represents growth on the $2 million profit announced for the first half of this year.

It says a drive to limit exposure to flood and bushfire has hit home insurance premium income, which will have an impact of $1-$1.5 million next year.

The company still expects “modest profit growth” next calendar year “but it follows that this will be on the lower number”.