IAG has forecast a 50% fall in net profit after wild Australian storms combined with spiralling UK bodily injury claims to drain full-year earnings.

As advised in our Instant News bulletin last week, IAG has announced it expects to record net profit of $91 million for the year to June 30 compared to $181 million last year.

IAG has forecast insurance profit of $493 million against $515 million previously, while net earned premium is expected to fall 1% to $7.1 billion. A forecast insurance margin of 7% is at the top end of a previous revised guidance of 6-7%.

CEO Mike Wilkins says while the forecast result “does not reflect the expectations we held at the outset of the year, I’m encouraged by the clear and ongoing improvement in the operational performance of our businesses in our home markets of Australia and NZ”.

IAG’s earnings have been hampered by a substantial full-year loss in the UK business, including a net charge of $367 million due to losses in the injury claims area.

Natural peril claims have also cost $463 million net of reinsurance recoveries, well above the budgeted allowance of $350 million.

The subdued profit forecast followed a similar notice from QBE, which last week forecast a 40% fall in expected half-year net profit from $1.02 billion to $612 million.

IAG has, however, forecast a return to greater profitability next year with an expected insurance margin of 10.5%-12.5%.

Ibisworld analyst Suzanne Walker told insuranceNEWS.com.au insurers should “bounce back” over the next 12 months as they trim costs and cash in on rising premium rates.

“I would think insurance profit margins will come back to more historical double-digit levels and I expect investment markets will improve as well,” she said.

Credit Suisse analyst Arjan van Veen can also envisage a brighter future for insurers, attributing IAG’s weak 2010 to the “Australian storms and a one-off hit in the UK”.

IAG will report full details for the year ended June 30 on August 26.