IAG expects the Victorian lockdown is likely to trigger a repeat of trends seen earlier this year when coronavirus restrictions caused a reduction in new business while retention rates held up well.

CEO Peter Harmer says new business is affected by factors including fewer vehicle sales and less economic activity, while consumers also seem less inclined to switch providers.

“Clearly, we have a level of turnover generated by people selling assets, and of course if that turnover reduces, our opportunity to write new business reduces as well,” he told a media briefing today after the release of the full-year financial results.

IAG has set aside a $100 million provision for COVID-19 repercussions, which includes potential claim cost pressures in areas such as landlords’ insurance, workers’ compensation and business interruption, and which also reflects risks to the trading environment.

“What we have done is try and factor in the uncertainty over the next six to 12 months, including examples, for example, of what has happened in Victoria,” Deputy CEO Nick Hawkins said.

“If we see more problems going ahead, and lock-downs and economic uncertainty, at a top line it would be new business that would likely be under more pressure.”

Mr Harmer says as part of the process actuaries assumed a higher unemployment rate than is currently in the marketplace.

“We don’t try and predict the future of lockdowns around the country, but one of the key measures that is important for us to understand, as a potential impact on the economy and therefore on our business, is the unemployment rate.”

Lockdowns reduced the level of motor accident claims in April and May, with Mr Harmer saying there is early evidence of that again in Victoria.

IAG reported a full-year net profit of $435 million, down from $1.08 billion, confirming the preliminary figures provided late last month.

The insurance margin declined to 10.1% from 16.9%, while the combined operating ratio deteriorated to 91.8% from 87.5%.

Gross written premium increased 1.1% to $12.14 billion, with Australian commercial lines seeing an average rate increase of around 5.5%, varying considerably by segment.

Mr Harmer says the full-year result shows the business is well-equipped to rise to the challenges presented by the current environment, and to take advantage of opportunities in the post COVID-19 world.

“We think this is a commendable result given the circumstances,” he said.

IAG gave no update today on the search for a new CEO, with Mr Harmer announcing in April that he would be stepping down by the end of the calendar year.

Mr Hawkins, previously CFO, was appointed as Deputy CEO with accountability for the management and performance of IAG’s day-to-day operations during the transition.

The board has previously said it would be running a global search, while the leading internal candidates are Mr Hawkins and CEO Australia Mark Milliner.

Mr Harmer said today the search is “running according to schedule”.