The future of IAG’s UK operations remains in doubt after further losses and writedowns have hit the insurer’s full-year result.

Losses of $13 million and writedowns of $297 million in the UK contributed to a 17.2% fall in net profit to $207 million for the 2012 financial year.

Natural catastrophe claims were $48 million higher than last year, at $658 million, while reduced reserve releases and adverse credit spreads also hit the balance sheet.

However, insurance results across intermediary insurer CGU and IAG’s New Zealand operations were well up on the previous year, at $258 million and $103 million respectively.

Investors responded positively to the announcement, taking IAG shares to $3.91 at the close of business on Thursday, up 1.82%. This morning, IAG was trading at $4.12.

CEO Mike Wilkins says the business is “delivering on all fronts” and has seen “significant uplift across key financial measures”.

“We expect the momentum we have created will carry over into 2013,” he told the company’s results announcement last week.

CGU’s new business model is beginning to make a tangible difference, Mr Wilkins says, highlighting an 84.4% jump in the insurance result and a 12% lift in GWP to $2.76 billion.

IAG NZ lodged a 26.6% increase in gross written premium (GWP) to $1.21 billion, benefitting from rising premiums and the three-month financial addition of AMI.

IAG has nearly $5 billion of reinsurance cover for the earthquake-prone region, with reinsurance expenses rising more than $100 million to $734 million for the year.

CFO Nick Hawkins says while reinsurance pricing in New Zealand is rising, capacity remains plentiful.

“I’m very pleased with what we have achieved,” he said. “Together, our Australian and New Zealand businesses produced an insurance margin of 12.6%.”

The insurance result of IAG’s direct business – which includes NRMA, SGIO, SGIC and Swann Insurance – fell 22.5% from the previous corresponding period to $544 million, affected by $200 million in unplanned peril claims and $42 million in adverse credit spreads.

Mr Wilkins forecasts GWP growth of 9-11% and an insurance margin of 11-13% in the 2013 financial year.

Flooding in southeast Asia wiped $59 million from IAG’s balance sheet but the underlying fundamentals remain sound, he says.

“We’ve taken significant strides to deliver and expand our footprint in the [Asia] region,” he said. “We expect a modest profit for 2013. The first-time inclusion of Kurnia in Malaysia will help.”

IAG has a 49% stake in AmG, which acquired Kurnia, Malaysia’s largest motor insurer, for RM1.55 billion ($483 million) earlier this year.

“We’ve indicated we have an interest in markets in Asia and one that we are particularly interested in is Indonesia,” Mr Wilkins said. “We’ll certainly take a look if an opportunity presents itself.”

IAG plans to ramp up investment in Asia to $720 million, although some analysts are wary of the group’s appetite given its history expanding in other regions, namely the UK.

The outcome of a strategic review into IAG’s UK business will be announced by the end of the year, Mr Wilkins says, with one of three outcomes – the business being sold in full or part, maintained in its current form or refined to a “more focused specialist motor offering”.

“All options continue to be assessed.”

IAG contracted investment banking advisory firm Evercore to undertake the review of its UK division in May.

The following month a document detailing the recovery of Equity Red Star – IAG’s UK business – was released to a group of potential buyers, prompting speculation a sale was imminent.

In the past three financial years, IAG UK has lost a combined $549 million, not including writedowns, prompting investors and analysts to urge IAG to offload the business.

Earlier this year Merrill Lynch analyst Andrew Kearnan estimated the UK business – for which IAG paid about $1.8 billion – would be worth “less than $400 million” if it went to market.

However, Mr Wilkins says IAG UK is now tracking more positively.

Insurance margins have improved from -65.5% in 2010 to -2.6% this year, although GWP fell 9% to $497 million.

Mr Wilkins expects the UK and Asian divisions to record a small profit for the 2013 financial year.