Profits Soar at Australia’s IAG, but Outlook Hits Shares

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Insurance Australia Group, Australia’s top home and car insurer, reported a more than two-fold jump in annual net profit on Thursday but its outlook knocked the shares lower.

IAG forecast profit margins of 10-12 percent for the year to June 2012, but most analysts had been looking for a margin of at least 11 percent, as Australian insurers emerge from two years of rising claims due to natural disasters in Australia and New Zealand.

IAG shares fell 3.9 percent as investors were concerned about the lower-than-expected insurance margin range given rough weather had forced IAG to cut forecasts in preceding years.

IAG, which earlier cut its net insurance margin target for 2010/11 to 8-10 percent, said its 2012 margin guidance assumed net losses from natural perils of A$580 million (US$606.34 million).

It reported an insurance margin of 9.1 percent for 2010/11 and, for the year ahead, it predicted margins in the second half to be stronger than the first.

The insurer, which counts NRMA insurance and CGU amongst its brands, said full year net profit was A$250 million [US$261.35 million], compared to A$91 million [US$95.12 million] reported a year ago and was exactly in line with the A$250 million expected by analysts.

IAG’s results follow a 42 percent rise in net profit for rival Suncorp and a 53 percent rise for QBE. But QBE cuts its insurance margin forecast, citing record catastrophe losses for insurers globally.

IAG’s profits were boosted by higher reserves releases of A$328 million [US$343 million] in the year, which more than offset insurance losses of A$181 million [US$189.3 million] in the UK. IAG’s UK business has been a thorn in its side, with multiple write downs over the last few years.

“Our focus is on accelerating profitable growth in Australia and New Zealand and building our presence in Asia,” said Chief Executive Mike Wilkins, who targets to double gross written premium contribution from Asia to 10 percent by 2016. “In the UK, our priority is to return the business to profitability.”

IAG, which has built up a presence in Thailand and Malaysia, hopes its joint venture in India with State Bank of India and a 20 percent stake in China’s Bohai Property Insurance will drive the growth.

IAG expects gross written premium growth of 6 to 9 percent in 2012 and sees total reinsurance costs to be over A$620 million [US$648.8 million] in 2010/11.

IAG shares last traded at A$2.99 [US$3.129]. They are down more than a fifth so far this year compared with an 11 percent fall for the broader index

(Reporting by Narayanan Somasundaram; Editing by Mark Bendeich)