IAG does not expect significant upward pricing pressure in the next six months, MD and CEO Mike Wilkins says.

The company last week reported a 10% fall in profit to $579 million for the six months to December 31.

IAG’s gross written premium (GWP) grew 17% to $5.6 billion following the inclusion of the Wesfarmers insurance businesses last July 1.

Mr Wilkins says the profit reflects “an increasingly competitive environment”, particularly for commercial lines in Australia and New Zealand.

IAG has adopted a new operating model and has been integrating Wesfarmers, and Mr Wilkins expects “substantial benefits from these two initiatives” in the second half.

Investors were unconvinced, knocking nearly 10% off IAG’s shares when the result was announced last Wednesday morning, down to a low of $5.73 for the day.

IAG’s net claims expense grew 39% to $3.48 billion in the half-year, and the combined operating ratio moved to 94.8% from 84.6% in the corresponding period of 2013.

Mr Wilkins says the higher claims figure reflects the inclusion of Wesfarmers, higher natural peril claims costs and lower reserve releases. Last November’s Brisbane hailstorm accounted for almost 40% of the $421 million natural peril claims costs.

The underlying underwriting result increased by $98 million, primarily driven by the Wesfarmers addition.

IAG’s commercial insurance GWP grew 44% to $1.51 billion due to Wesfarmers. Mr Wilkins says like-for-like GWP was slightly negative, reflecting a tougher market and a decline in new business and retention levels at Wesfarmers subsidiary Lumley.

The divisional profit fell 45% to $111 million and the combined operating ratio was 105.1%.

IAG’s group commission ratio moved to 10.1% from 9.3% as its proportion of business sourced through intermediaries grew following the Wesfarmers acquisition and IAG Commercial paid $229 million in commissions, up 46%.

Mr Wilkins says the greatest rate pressure is in the top-end commercial market and risks running into the middle market. IAG has little exposure to either, he says.

Limited economic growth, market saturation, excess capacity and lower reinsurance costs are anticipated to continue placing pressure on rates and limiting growth opportunities.

Australian personal insurance GWP grew 4% to $2.8 billion. The division reported a profit of $391 million, down 16%, and a combined operating ratio of 92.8%.

Mr Wilkins says IAG is enjoying increased volume but not higher prices in its key motor and home portfolios.

Online sales grew 24% in the half and insurance sold through Coles supermarkets is growing strongly off a small base. Modest growth in demand is expected in the second half.

New Zealand operations reported GWP of $1.12 billion, up 26%. This reflects the inclusion of Lumley; GWP would have been flat without that.

Profit grew to $195 million from $93 million, and the combined operating ratio was 83.2%.

Mr Wilkins says IAG has settled nearly 70% of its Canterbury earthquake claims and is aiming for completion in the middle of next year.

It has increased reserves for Canterbury quake claims because of an rise in repair costs, more claims topping the $NZ100,000 ($96,390) Earthquake Commission cap and a series of court judgements going against insurers.

Gross claims reserves for the February 2011 event are near IAG’s reinsurance limit of $NZ4 billion ($3.86 billion), while other quakes are expected to settle well below.

The Asian businesses’ GWP gained 6% to $164 million, and profit jumped to $17 million from $7 million.

There was a stronger performance from Thailand, due to renewed political stability, and from Malaysia.

Mr Wilkins says IAG wants to move into the Indonesian market, where it will probably have to operate in a joint venture and in an existing operation, rather than a start-up.