Soft market conditions, fierce competition and a bigger than expected $150 million claims bill from Cyclone Larry have taken its toll on top insurer Insurance Australia Group, which last week reported a drop in 2005/06 net profit after tax of 6.4% to $759 million.

Big claims saw the insurer’s insurance margin come in at 14.1% – the bottom end of the group’s 14-16% range. The insurer also experienced weaker premium growth across its domestic and commercial classes.

Net earned premium was down $121 million to $5.97 billion for the year, and insurance profit dropped $103 million to $843 million for the period.

But despite the lacklustre results, CEO Mike Hawker says the insurer retained policies in force at 98.8% of the previous year and sacrificed business where the price didn’t match the risk.

“While our Australian commercial insurance business was affected by the soft cycle, with rates falling on average (in real terms) by 4.5% during the year, our insurance margin increased from 16.1% to 18% on the back of a strong performance in the long-tail classes of liability and workers’ compensation,” he said.

The group’s new Asian operations contributed to profit for the first time. He hopes these operations will help the insurer achieve gross written premium growth of 5-10% for this year.

He says maintaining pricing discipline, continuing the focus on cost management and actively managing capital will help the group achieve its growth objectives for this year.