Despite a record performance from its underlying business, Insurance Australia Group has announced a full-year loss of $25 million, attributing it to the equity market’s “worst performance in 14 years”.

Compared to a profit last year of $358 million, the pre-tax return from investments recorded a loss of $98 million. That buried an insurance profit increase of 32% to $278 million. Last year it was $210 million. Encouragingly for CEO Michael Hawker, the underwriting profit also improved from a loss of $22 million last year to a profit of $142 million.

In fact, there’s plenty for him to be happy about. The group’s combined ratio was 95.6%, an improvement from 100.8% in the previous year and well ahead of the break-even target of 100%.

 “Despite unusually severe insurance catastrophes in the first six months and the worst performance from investment markets since the 1987 stockmarket crash, our underlying insurance business delivered an excellent result,” he said.

While the business is subject to both investment market and underwriting cycles, “this result demonstrates our capability to continue to generate quality, sustainable earnings growth over the longer term”.

“We also remain very strongly capitalised, with a probability of sufficiency on our claims reserves of 90%,” Mr Hawker said.

IAG has posted double-digit growth in net earned premium for three successive years. “We expect this trend will continue as we further improve the quality of the business and diversify both our operations and products,” he said.

This is expected to be achieved through a renewed customer focus and by moving into new insurance classes such as public liability and builders’ warranty. “Once appropriate legal reforms are implemented, we plan to provide underwriting support for some of these classes of insurance,” Mr Hawker said.