Wesfarmers Insurance’s earnings for this financial year will be at the lower end of its recent $60-80 million forecast, due to the cost of reinsurance reinstatements.

Speaking at an investor briefing last week, Wesfarmers Insurance MD Rob Scott told analysts the final figure will be closer to $60 million, representing a 54% fall from the $131 million profit the business recorded last year.

With the insurance business previously posting first-half earnings of $65 million, the revelation means the second half is likely to result in a small loss for the division.

Mr Scott says Wesfarmers Insurance has exceeded the net retention on its catastrophe program five times this year, due to the two Christchurch earthquakes, the Brisbane floods, Cyclone Yasi and Cyclone Bianca in WA.

Event claims and reinsurance reinstatements came in at $80 million over allowances and have been “the major impact on our results”, with Wesfarmers forced to go to the market for reinstatement covers during the Japanese disaster in order to retain two layers of catastrophe reinsurance cover.

Mr Scott says while premiums in some classes of business are rising, the market is taking a “wait and see approach” on rates until the outcomes of the July 1 catastrophe reinsurance renewals become clear.

Wesfarmers renews its reinsurance program on July 1, but Mr Scott says it is still “too early to estimate the likely reinsurance rate increases”.

But he warned investors that an uplift in reinsurance costs could lead to margin pressure over the next year as the full extent of reinsurance rate increases won’t be able to be passed on to customers “because of the way earnings flow through the profit and loss”.

He says that while premium increases have been evident in Australia for farm products, strata and property risks which are deemed higher-risk due to location or class of business, “I don’t think we’ve seen the full extent of rate increases we are likely to see in the market”.

Mr Scott is more bullish on New Zealand rate rises, saying they are likely to be “far more significant” due to rising premiums for earthquake risks, coupled with a reduced risk appetite by insurers and the failure of two insurers.

Despite the catastrophes, Mr Scott says the business is gaining “quite positive traction” in some new growth areas, such as Coles Insurance and Lumley’s my.place online broker platform and corporate solutions division.

He says that the Lumley corporate solutions division, launched last year, has written $20 million of business this year, and given the company “a way to re-engage” with larger brokers, while premiums placed through my.place have grown from $15 million to $67 million in the past 18 months.

Conditions for Wesfarmers’ broking business have been “challenging”, but despite a negative impact from currency translations, the division is achieving both revenue and profit growth.

“It’s been great to have the stability of the insurance broking business over the past year,” Mr Scott said.

He says the company continues to look for bolt-on acquisitions in broking, and its current acquisition pipeline is “probably the strongest we’ve had”.