The Christchurch earthquakes have cut into the profits of Wesfarmers Insurance, pushing its earnings before interest and tax down 75% to $5 million in the year to June 30, compared with $20 million a year earlier.

The quakes saw Wesfarmers put $108 million in reserve in its Lumley New Zealand business. This, along with a rise in natural disasters in Australia, meant the underwriting loss rose to $58 million from $29 million in the previous year.

However, total revenues rose 10.1% to $1.91 billon and broking revenues were up 18.7% to $267 million. Broking earnings were at $79 million, up 27.4% from $62 million last year.

“We’re pleased with the underlying performance across the division,” Wesfarmers Insurance MD Rob Scott said. “It sets us up well for the year ahead.”

The stronger performance in broking has come “from a combination of organic growth and bolt-on acquisitions, especially in New Zealand”, Mr Scott says.

He says the scale of the Christchurch losses was slow to emerge for various reasons, including difficulty accessing damage in the city’s CBD, the fact the company had 14,000 claims to assess and changing regulations on rebuilding standards and zoning.

“I feel we’re quite well advanced relative to the rest of the market in [Christchurch] claims assessment and settlement,” Mr Scott said.

If the effects of the quakes are removed, net earnings before tax, interest and amortisation grew strongly to $125 million and the combined ratio fell to 102.1% from last year’s 109.3%. The combined ratio including the Christchurch effect was 111.2%.

The margin on the overall insurance business fell to 0.3% from 1.2% last year. But the broking division looked much healthier, with a margin of 29.6%, up from 27.5% last year.

Underwriting margins were squeezed by a rise in reinsurance costs but premium rate increases helped the situation, growing 8.4% across the Australian portfolio and 10.9% in New Zealand.

Gross premium grew 9.1% on the back of stronger personal and property-related business, and exposures to high-risk areas such as Far North Queensland and commercial property in Christchurch were cut.

Coles Insurance is performing above expectations, selling more than 100,000 new policies during the year in the home and contents and motor insurance categories.

Since June 30, Wesfarmers has renewed its reinsurance program, experiencing modest rises in the cost of catastrophe cover, which now has a total limit of $950 million. It also achieved cost savings due to structural changes in property cover.

Mr Scott says the underwriting position will improve in the current year.

“We are pleased with how our underwriting businesses are positioned as we start this new financial year,” he told insuranceNEWS.com.au

“We are delivering on our internal targets relating to premium rate increases, retention levels and reductions in high-hazard areas… and the outcome of our reinsurance renewal.

“We expect further growth in broking.”