Insurance Australia Group Limited has released its earnings figures for the fiscal year 2006, which ended June 30. Overall profit for the year was A$862 million (US$655 million) compared to A$928 million (US$705 million) for 2005, a 13 percent drop. Profits attributable to equity (share) holders were A$759 ($576.6 million) compared to A$811 million (US$616 million) in 2005.
Australia’s largest insurer has faced growing competition in its home markets and was hit with an A$165 million (US$125 million) loss from Cyclone Larry. For FY 2007 IAG is targeting growth of between 5 and 10 percent in gross written premiums, much of which is expected to come from its expansion through acquisitions.
CEO Michael Hawker said he was pleased the Group comfortably exceeded its return on equity target, while making significant progress in building for future growth. “We delivered our second-highest full-year return on equity and insurance margin since listing by maintaining our underwriting discipline and containing our operating costs,” he noted.
“In our largest portfolio, NSW comprehensive motor insurance, retention reached its highest levels in almost two years during the second half,” he continued. This trend has continued in the new financial year, aided by programs to further enhance end-to-end customer service, including improved staff training, technology platforms and claims management processes.”
Hawker also indicated: “While the soft cycle in commercial lines continued, we increased our insurance margin for the year, and retained policies in force at 98.8 percent of the previous year by focusing on relationship management, while being willing to sacrifice business where the price didn’t match the risk.
“At the same time, we made significant progress towards our goal to expand internationally. Our Asian insurance operations contributed to our profit for the first time, and we have a number of potential acquisitions in Asia and Europe in the pipeline, which meet our strict criteria. That makes us confident we’ll be able to grow GWP by 5-10 percent in the current financial year, from both our existing business and international acquisitions.”
The report noted that IAG “generated a return on equity (ROE) of 22.1 percent. Normalized to exclude the very high investment returns, the ROE was 15.8 percent. This exceeds the Group’s target of achieving ROE of at least 1.5 times its weighted average cost of capital. In light of the Group’s performance, the Board has declared a final fully franked dividend of 16 cents per share to be paid on 9 October 2006 to shareholders registered on 6 September 2006. This brings annual dividends for the year to a record 29.5 cents per ordinary share, an 11.3 percent increase on the previous year. IAG also paid a special dividend of 12.5 cents per share fully franked in June 2006, in line with the Group’s commitment to return $200 million in surplus capital to shareholders in an efficient manner.”
Hawker said the Group’s response to market dynamics differed across its businesses, but all delivered healthy margins. “In our largest portfolio, Australian Personal Insurance, we achieved an insurance margin of 12.6 percent, and a very sound return on capital. This performance was below last year’s record levels due to reduced business volumes compounded by lower average premiums in CTP and direct motor insurance. However, in the second half, renewal rates reached their highest level in almost two years in our largest portfolio, NSW comprehensive motor.”
He indicated that the Group expected similar results in its New Zealand and Asian operations. “Operations should grow at least in line with the higher growth rates in those markets,” Hawker stated. “The acquisition of a 24.9 percent stake in China’s CPPI should be completed around November 2006, and we’re continuing to investigate potential acquisitions and investments in general insurance markets in Asia and Europe.”
The full report and analysts’ presentation is available on the Group Website at: www.iag.com.au.
Topics USA Profit Loss Australia
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