Wesfarmers expects improved underwriting earnings in the next year thanks to premium rate increases, a disciplined approach to risk selection and efficiencies in the business.

The group’s annual report shows the Wesfarmers Insurance reinsurance program has been renewed for the current year with “modest increases on the prior year”, which are expected to be offset by higher premiums.

The broking business – which includes OAMPS in Australia and the UK and Crombie Lockwood in New Zealand – hopes to expand through acquisitions and targeted recruitment.

Broking margins are likely to be restricted next year by a major investment in broking systems, but earnings growth should continue, Wesfarmers says.

Growth is also expected from personal motor and home insurance sold through Coles, Kmart Tyre & Auto Service, OAMPS in Australia and Westpac in New Zealand.

The Christchurch earthquakes hit Wesfarmers Insurance hard in 2011/12, with a $108 million charge pushing earnings before interest and tax (EBIT) down 75% on the previous year to $5 million. Bushfires and storms in WA also affected the result.

It was the second year running that natural disasters hit earnings, after the Queensland floods, Cyclone Yasi and the New Zealand earthquakes pushed EBIT from $122 million in 2009/10 to $20 million in 2010/11.

Without the Christchurch charge the 2011/12 EBIT would have been above 2009/10 levels. The combined ratio of 111.2% was 96% with Christchurch removed. Revenue for 2011/12 was up 10.1% at $1.9 billion.

Broking earnings were strong in 2011/12, up 27.4% to $79 million, while gross written premium rose 9.1% and premium rate rises were 8.4 % in Australia and 10.9% in New Zealand.

The company’s wariness about New Zealand insurance is demonstrated by the fact that its risk margin in Australia is 14.3%, while across the Tasman it is 28.7%.