IAG has flagged natural peril claim costs of $540 million for the full year after reporting a net profit of $161 million for the six months to December 31, down 51% due to losses from its UK operations.

CEO Mike Wilkins says the group intends to increase its reinsurance after the second Christchurch earthquake, having earlier estimated disaster losses of $435 million for the year.

He says reinsurance has largely offset the damage of disasters in recent months, and the maximum cost of another event would be $75 million.

With the extent of recent disasters comes pressure in the industry to increase premiums, with Mr Wilkins noting that “clearly there will be some pressure on pricing, and we don’t shy away from that”.

IAG had previously warned that losses from its UK operations would drag down its result and Mr Wilkins says a $121 million loss in the UK has offset a strong performance from Australia and NZ.

Overall, the group made an insurance profit of $470 million, compared with $488 million in the previous corresponding period.

Mr Wilkins says the UK operation is “over the worst” and will make a smaller loss in the second half. The group will launch a joint venture in India in the second half and is looking at opportunities in China and emerging markets in Asia where it can bring technical expertise.

“We see Asia as a long-term growth option,” he said.

The group expects a continuing strong performance from its Australian and NZ operations, and an insurance margin in the range of 8-10% for the full year compared with 7% last year. The insurance margin in the first half was 12.7%, against 13.4% in the first half of 2010.

Gross written premium (GWP) increased 1.9% to $3.9 billion, or by 3.2% after removing the effect of foreign exchange movements. Mr Wilkins says he expects underlying GWP of 3 - 5% for the full year.

Mr Wilkins says IAG does not cover for floods in Queensland or Victoria because inadequate flood mapping means it cannot price the risks. But he says the insurer expects to pay the majority of claims received from the Queensland floods, which are for water inundation and motor vehicle losses.

He says a collective approach to flood cover is needed and stronger building codes, engineering and water management would limit the cost of flood insurance while adequate mapping would ensure coverage was available.

He says IAG had just begun to start writing full exposures for the Christchurch region after the September earthquake, following a period when insurers stopped coverage until the situation stabilised.

IAG’s losses from the latest quake are limited to $40 million under its reinsurance program but Mr Wilkins says it is too early to estimate losses and IAG staff have not yet been able to get back into their Christchurch office.