Storm claims rattle IAG
Storm losses may have dealt a $200 million blow to IAG’s profit, but deeper problems with international and domestic personal lines continue to plague the group.
IAG posted a 27% decline in full-year profit to $552 million due to storm claims in the UK, NSW and Victoria, reduced investment returns and losses in its troubled personal lines portfolio.
It was the fifth consecutive decline in earnings lodged by Australia’s largest domestic insurer, and well below analyst estimates.
As CEO Mike Hawker last week trumpeted the company’s strategy of international diversification, IAG revealed its insurance margin had been squeezed to 11.4% – down 2.3 percentage points on fiscal 2006.
Mr Hawker describes IAG as a company in transition from a domestically based insurer to a broader international group, alluding to new acquisitions in the coming year.
He says IAG has several possible plays in the pipeline, including opportunities in Thailand, Malaysia, India and China.
“We took a transformational step in the diversification of our portfolio with our UK acquisitions, which constituted around 16% of the group’s premium revenue in the second half and delivered an $86 million diversification benefit.”
But the acquisitions of the UK broker Hastings, underwriter Advantage and direct insurer Equity Insurance Group, which effectively created a UK base of operations for IAG, are also under a profitability cloud.
IAG’s combined UK assets returned a profit of $30 million. Analysts at the company’s AGM in Sydney expressed concern over the razor-thin insurance margin of 5.1%.
Mr Hawker blames storm claims in June and July and a softening of the UK motor vehicle insurance market for the group’s disappointing returns, and says a rebound in premium rates will lift profit in coming years.
He says premiums in UK motor vehicle classes were increased in the past six months to arrest an “unsustainable” slide.
IAG’s domestic personal lines portfolio, which accounts for more than half the insurer’s book, also endured a tough year from storm claims and falling premiums.
Despite a 1.3% rise in GWP, personal lines showed a reduced profit of $452 million and a 16.2% insurance margin, down 80 basis points on fiscal 2006.
The company has released $196 million in reserves from long-tail lines to inflate its personal lines book, which sustained heavy losses from its fraught indirect personal lines segment.
Intermediary personal lines, which includes business booked by CGU and Swann Insurance, lost $47 million for the year, despite increasing GWP to $326 million. Mr Hawker says recent data shows personal lines premiums to be stabilising.
Premium falls also affected IAG’s commercial lines, which lodged a 3.2% rise in profit to $255 million for the full year, but was down more than 30% for the second half.
Mr Hawker says commercial premiums fell an average 3% across the board. Despite predicting the cycle has a little further to run, he says IAG will increase rates in the coming year.
Insurance margins remain strong in commercial lines, rising more than one percentage point to 18.1%, and GWP grew 2.7% to $1.58 billion.
The company’s international assets performed poorly, with IAG New Zealand’s GWP and insurance margins both down. Asia booked more business but made less from it, with a 1.2% decrease in insurance profit.
IAG posted a 27% decline in full-year profit to $552 million due to storm claims in the UK, NSW and Victoria, reduced investment returns and losses in its troubled personal lines portfolio.
It was the fifth consecutive decline in earnings lodged by Australia’s largest domestic insurer, and well below analyst estimates.
As CEO Mike Hawker last week trumpeted the company’s strategy of international diversification, IAG revealed its insurance margin had been squeezed to 11.4% – down 2.3 percentage points on fiscal 2006.
Mr Hawker describes IAG as a company in transition from a domestically based insurer to a broader international group, alluding to new acquisitions in the coming year.
He says IAG has several possible plays in the pipeline, including opportunities in Thailand, Malaysia, India and China.
“We took a transformational step in the diversification of our portfolio with our UK acquisitions, which constituted around 16% of the group’s premium revenue in the second half and delivered an $86 million diversification benefit.”
But the acquisitions of the UK broker Hastings, underwriter Advantage and direct insurer Equity Insurance Group, which effectively created a UK base of operations for IAG, are also under a profitability cloud.
IAG’s combined UK assets returned a profit of $30 million. Analysts at the company’s AGM in Sydney expressed concern over the razor-thin insurance margin of 5.1%.
Mr Hawker blames storm claims in June and July and a softening of the UK motor vehicle insurance market for the group’s disappointing returns, and says a rebound in premium rates will lift profit in coming years.
He says premiums in UK motor vehicle classes were increased in the past six months to arrest an “unsustainable” slide.
IAG’s domestic personal lines portfolio, which accounts for more than half the insurer’s book, also endured a tough year from storm claims and falling premiums.
Despite a 1.3% rise in GWP, personal lines showed a reduced profit of $452 million and a 16.2% insurance margin, down 80 basis points on fiscal 2006.
The company has released $196 million in reserves from long-tail lines to inflate its personal lines book, which sustained heavy losses from its fraught indirect personal lines segment.
Intermediary personal lines, which includes business booked by CGU and Swann Insurance, lost $47 million for the year, despite increasing GWP to $326 million. Mr Hawker says recent data shows personal lines premiums to be stabilising.
Premium falls also affected IAG’s commercial lines, which lodged a 3.2% rise in profit to $255 million for the full year, but was down more than 30% for the second half.
Mr Hawker says commercial premiums fell an average 3% across the board. Despite predicting the cycle has a little further to run, he says IAG will increase rates in the coming year.
Insurance margins remain strong in commercial lines, rising more than one percentage point to 18.1%, and GWP grew 2.7% to $1.58 billion.
The company’s international assets performed poorly, with IAG New Zealand’s GWP and insurance margins both down. Asia booked more business but made less from it, with a 1.2% decrease in insurance profit.