IAG’s earnings declined 4.3% in the six months to December 31 as the Kaikoura earthquake in New Zealand and storms on both sides of the Tasman raised catastrophe costs.

Net profit declined to $446 million in the period, while the underlying margin, IAG’s preferred performance measure, slipped to 12.6% from 14.2%, including the effect of a $40 million perils allowance increase.

Net natural claims costs grew to $420 million from $278 million in the corresponding period of 2015. The Kaikoura quake in November contributed $117 million, while storms in Adelaide and New Zealand accounted for $86 million.

Gross written premium (GWP) grew 4.7% to $5.8 billion in the half, exceeding company expectations and prompting it to raise full-year GWP guidance to low single-digit growth, up from a relatively flat prediction previously.

The increase reflects rate rises to counter higher claims costs in personal lines in Australia and New Zealand, plus improved commercial pricing.

CEO Peter Harmer says progress is under way on an optimisation program announced last year to simplify the business and cut costs.

“We will start to see real benefits arrive in 2019, and at this early stage we are well on track to deliver the $250 million in run-rate benefits as we exit 2018/19,” he said.

The Australian consumer division, which accounted for 53% of group GWP, produced an underlying margin of 14.1%, compared with 15.5% a year earlier.

Divestment of the Swann Insurance motor dealership business curbed headline GWP in the business division.

New Zealand GWP increased 5%, including a favourable exchange rate impact, while in local currency terms growth was closer to 1%.

Asia’s overall earnings contribution fell to $2 million from $10 million, while GWP fell 7.7% as competition and pricing pressures in Thailand and Malaysia offset India’s move into profit.

CFO Nick Hawkins says profitability levels in Thailand and Malaysia are expected to improve after recent volatility.

IAG has maintained its reported margin guidance of 12.5-14.5%, with an expected outcome around the middle of the range.

IAG says it has formed a number of partnerships with major car manufacturers that will allow its partner smash repairers to use genuine parts.

The partnerships, which also extend to authorised dealers, follow a “parts trial” by IAG over the past four years in Sydney and Melbourne, and most recently in Brisbane and the Gold Coast.

“The program has allowed customers to benefit from reduced key-to-key cycle times, better fitment of genuine parts and better paint finishes,” the company says.