IAG expects more muted gross written premium growth (GWP) in the financial year’s second half as commercial volumes decline amid portfolio remediation, while rates overall continue to increase.

The insurer has affirmed a full-year GWP growth forecast of 2-4% after it increased 4.1% to $5.88 billion in the first half, supported by gains in commercial and consumer lines.

IAG’s net profit fell 9.3% to $500 million in the first half as the Sydney hailstorm in December increased claims costs and hit the insurance result.

The insurance margin slipped to 13.7% from 17.9% in the corresponding period of 2017, while the combined operating ratio blew out to 89.1% from 85.1%.

MD Peter Harmer says the group performed soundly in Australia, while the New Zealand business was supported by solid GWP growth and sustained margins.

“IAG’s underlying performance has continued to improve over the half and was broadly in line with expectations,” he said.

The insurer remains on track to cut operating costs by $100 million this financial year under a program to simplify the business.

But a $250 million target for 2020 will be reduced by $30 million due to increased compliance and regulatory costs flowing from the Hayne royal commission and other reviews and reforms.

Mr Harmer says IAG supports the Hayne recommendations and was anticipating changes such as the end of exemptions for unfair contract terms.

“There is nothing unexpected in the report that we have not begun preparing for already,” he said.

“We continue to see the royal commission and its findings as an opportunity to learn and be even more customer-focused.”

IAG’s result includes a profit of more than $200 million on the sale of its Thai operations. The company continues to assess options for its interests in Malaysia and India, with the assets having a combined carrying value of nearly $600 million at December 31.