IAG has forecast its half-year net profit will be less than half the previous period’s result because of losses from its UK operations.

The company says it expects to deliver an after-tax profit of $161 million for the six months to December 31, down from $329 million in the previous first half, reflecting an impairment of UK goodwill and intangibles of $150 million and the non-recognition of tax benefits for its UK losses.

IAG will release its first-half result on February 24, but gave the market guidance today when it said it expects to deliver a full-year insurance margin in the range of 9%-11%, compared with expectations at the start of the year of 10.5%-12.5%.

The full-year guidance also reflects natural peril claim costs of $500 million, exceeding the full-year budgeted allowance of $435 million, and a $40 million charge for a new UK reinsurance arrangement.

CEO Mike Wilkins says the UK loss offsets a strong first-half performance from IAG’s Australian and NZ operations.

The first half is likely to deliver an insurance profit of $470 million, compared with $488 million in the previous first half.

Gross written premium (GWP) of $3.93 billion is expected, equating to underlying GWP growth of 3.2%.

Mr Wilkins says the largest IAG businesses in this region – Australia Direct, CGU and IAG NZ – have recorded a collective insurance margin of 17.8%, up from 14.4%, reflecting improved underwriting disciplines and expense management. Reinsurance has limited claim costs from disasters.

“A key priority of our strategy has been to improve the performance of our businesses in Australia and NZ, and I am pleased to say we’re delivering on that objective,” he says.

However, the UK operation made a greater-than-expected loss of $121 million in the half year.

Mr Wilkins says although IAG has made progress in stemming losses from the UK, “I’m disappointed to report that bodily injury claim inflation has continued to affect the local industry”.

IAG has achieved rate increases of up to 20% across its UK private motor book and is implementing further significant rate increases across the broader portfolio.

It has ended more than 230 unprofitable broker relationships and stopped writing all private motor. It will quit other poorly performing businesses in coming months.

Mr Wilkins says the first-half result will include natural peril claim costs of $134 million.