IAG today reported insurance profit of $282 million for the six months to December, down 57.7% from the corresponding period in 2020 but CEO and MD Nick Hawkins says the business is on the right track under the “reset” program he has implemented.

The insurer says the decline equates to a reported insurance margin of 7.1% compared with 17.9% a year earlier, attributing the weaker figure to a number of factors.

These factors include the impact of significant natural perils costs of $681 million largely from severe weather events in October along with modest reserve strengthening of prior year reserves of $37 million.

Cash earnings dropped 61.9% to $176 million but the business made a statutory net profit of $173 million, a turnaround from the $460 million loss it reported a year earlier.

“We’ve reset the business with a simpler operating model, new leadership, and a clear strategy for growth which we are investing in to create long-term value for our stakeholders,” Mr Hawkins said.

“IAG delivered a solid performance in [the first-half], reflecting the foundations we have put in place to create a stronger and more resilient IAG.”

The first-half earnings results also saw the business raise its gross written premium (GWP) guidance for this financial year from low to mid single-digit growth and reaffirm reported insurance margin guidance of 10-12%.

Mr Hawkins says he is encouraged by the “strong” 6.2% growth in overall GWP in the December half, which is led by rate increases across key commercial and personal classes to counter claims inflation and higher perils allowance.

The Direct Insurance Australia division – one of three Mr Hawkins created as part of his plans to simplify the business – made an underlying insurance profit of $391 million in the December half compared with $398 million a year earlier.

Intermediated Insurance Australia (IIA) reported a $4 million loss from $84 million profit and New Zealand suffered a small drop in profit to $146 million from $148 million.

Mr Hawkins says he is “really pleased” with the performance of all three divisions.

He says IIA under Group Executive Jarrod Hill “continues to improve” and remains on track to achieve its stated goal of $250 million by the 2023/24 financial year.

“We are seeing a notable turnaround in our intermediated Australia business which grew GWP [by 9%], reported strong retention and some new business growth, and an improving underlying margin of 5%,” Mr Hawkins said.

“[Mr Hill] commencing in his role as Group Executive of our intermediated business in Australia during the half…I’m confident this division now has clear accountabilities and appropriate executives focused to really drive the agenda that we think is really important to that business.”

In relation to Direct Insurance Australia, Mr Hawkins says the decision to expand the NRMA Insurance brand nationally as part of the goal to add another one million new customers over the next five years is already achieving results.

IAG announced in December the launch of the NRMA brand in WA, SA and the NT.

“We now have 35,000 customers under the NRMA insurance brand in WA and South Australia,” Mr Hawkins said.

The business says there have been no further material changes to the provisions made for covid-related business interruption claims. Total pre-tax provision is about $1.22 billion as at December 31.

“Extensive scenario testing of the adequacy of the provision was undertaken in the 2021 financial year,” IAG said.

“Notwithstanding the number of extended lockdowns over July to October 2021 across Australia’s major cities, IAG believes the provision remains adequate, mainly due to the strength of the economic recovery that occurred over calendar year 2021 and the low number of claims lodged so far.”

IAG expects about a $100 million reduction in GWP in the current half arising from the decision to exit the IAL personal lines business effective last November. The insurer had announced earlier in September it would withdraw the IAL brand and consolidate its personal lines offerings in the broking space under its CGU label instead.