Insurance Australia Group Ltd. (IAG), the country’s biggest auto and home insurer, posted a six-month profit for the period ended Dec. 31, 2005 of A$461 million (US$340.7 million). However, overall policy sales declined by 3.7 percent during the period to A$3.21 billion (US$2.375 billion).
The decrease, due mainly to increased competition in the Australian insurance market, prompted the company to announced that it will return A$200 million (US$147.8 million) in capital to its shareholders by June 30, 2006.
Commenting on the initiative, Standard & Poor’s Ratings Services said its ratings on IAG, currently “AA” with a stable outlook, “were unchanged following the announcement.” S&P said: “The insurance group’s financial position is expected to remain very strong under Standard & Poor’s risk-based capital modeling and regulatory measures after the capital return. Strong profitability in 2005 and into 2006 has boosted the group’s capitalization and facilitated the proposed capital return.”
IAG’s CEO Michael Hawker said the result reflected a disciplined approach to underwriting, a strong focus on customer service initiatives, and record investment income, in a challenging environment. “What’s pleasing about this result,” he continued, “is we’ve maintained our insurance margin, despite an increasingly competitive market. It shows our strategy of having a diversified, scale business is working, as it has allowed us to strike the right balance between risk-based pricing, maintaining our leading market position and keeping premiums affordable for customers.”
Hawker also noted IAG’s high “customer retention” in personal lines, improvements in claims handling and an increased focus on “deepening relationships with commercial customers.” He also indicated that the “absence of major weather events contributed to our highest ever insurance result in New Zealand.”
IAG’s Board has declared a record interim dividend of A13.5 cents (app. US10 cents) per share, “fully franked, up 12.5 percent on the corresponding period and above the Group’s commitment to deliver 10 percent dividend growth for the year.”
IAG will continue international expansion efforts. “Last year we said we would either make further international acquisitions or return capital to shareholders. We’re pleased to be in the financial position to do both,” Hawker stated. “We’re also building an Asian platform for future growth, having recognized four years ago the opportunity to diversify our portfolio geographically, by leveraging our underwriting and claims management expertise in the fastest growing insurance markets in the world,” he continued.
He noted: “Earlier this month we signed a memorandum of understanding to invest in China’s second largest general insurer, China Pacific Property Insurance Company, and we’re in the process of increasing our investment in Thailand’s Safety Insurance. “We also acquired Royal & SunAlliance Thailand (now branded NZI), which is already contributing incremental earnings, and we’re purchasing a 30 percent stake in Malaysia’s AmAssurance.”
S&P credit analyst, Kate Thomson indicated: “IAG’s capital position is expected to remain very strong after the capital return and the acquisitions in Malaysia and Thailand, and leaves the group well placed to fund a potential acquisition in China.”
S&P also noted: “IAG’s operating profitability for the half to December 2005 was strong, reporting an annualized return on equity of 26.4 percent. Continued good underwriting performance was a key feature of the strong profit. Gross written premium income, however, was down slightly half year on half year, as premium income levels were affected by the competitive market conditions across both commercial and personal lines. In addition to strong competition for personal lines customers, premium rate pressures in the commercial lines market limited IAG’s premium income. Given the continuation of the softening cycle for commercial lines, IAG’s reduced premium income demonstrates the company’s focus on maintaining profitable premium rates.”
Topics USA Profit Loss China
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