A combination of rate increases, exposure management and cost-cutting is behind an improved underwriting margin at Wesfarmers Insurance, says MD Rob Scott.

Mr Scott told investors at a group strategic update last week that the company has achieved year-to-date premium increases on renewal business of 8.4% on average across all business lines in Australia and 10.9% in New Zealand.

To improve its underwriting margin further, Wesfarmers has sought to reduce its exposure to “high-risk geographies”, in particular northern Queensland and Christchurch.

Since July 2011 the company has reduced its sums insured in northern Queensland by 15% to $8.81 billion, while its commercial earthquake aggregates in New Zealand now represent less than 9% of its NZ commercial portfolio, down from more than 12% in February last year.

Also aiding the improvement in its underwriting margin is the company’s personal lines claims optimisation project, in which Wesfarmers Insurance has consolidated its claims functions for home and motor into one team servicing all brands.

Mr Scott says the program, which has resulted in 70 job losses, will produce benefits of $10-15 million a year.

He told insuranceNEWS.com.au that while the key priority is to drive sales growth in the broking business, he is “very pleased” with the underlying performance of the underwriting businesses, and with Lumley in particular.

Mr Scott says Wesfarmers will achieve strong growth in broking revenue and earnings, with predicted revenue from broking approaching $270 million for 2011/12.

He told insuranceNEWS.com.au this will come through further acquisitions, organic growth, recruitment and productivity improvements designed to enable brokers to spend more time with clients.

Wesfarmers Insurance’s 2010/11 results were heavily affected by catastrophes, and while its catastrophe budget for the first half of 2011/12 blew out by $28 million, primarily due to the Margaret River bushfires and Melbourne’s Christmas Day hailstorm, Mr Scott says this has been offset by fewer catastrophes in the second half.

Further price increases on its catastrophe reinsurance are expected when Wesfarmers Insurance renews on July 1, but Mr Scott would not give details.

He says while upward pressure on pricing continues, reinsurers are considering the risks posed by Australian insurers individually, looking at each insurer’s risk portfolio and management.