IAG NZ CEO Ian Foy says the group’s struggling NZ business is the outcome of an increasingly unprofitable NZ market due to adverse weather, wage inflation and goods inflation, and foreign exchange.

Speaking at the IAG investor briefing in Sydney on Friday, he said these factors have “driven claims inflation well ahead of price inflation for two or three years”.

Mr Foy says the impact on personal lines has been relatively modest, with many New Zealanders enjoying high disposable incomes driven by low mortgages and some tax concessions, with the flight to quality still “very much alive”.

But he says the recession has taken its toll on its small business customers, with many going out of business and others reducing stock at a time when the insurance cycle is increasing prices.

“We are only predicting a modest recovery in this financial year and the next,” he said.