Insurance Australia Group Posts US$ 840 Million Half Year Insurance Profit

February 22, 2013

Insurance Australia Group Limited (IAG) announced an insurance profit of A$815 million [US$840 million] for the half-year ended 31 December 2012, compared to A$276 million [US$284.6 million], for the first half of 2012. The bulletin said the figure “equates to an insurance margin of 19.9 percent (1H12: 7.7 percent). The result was achieved on the back of a 13.5 percent increase in gross written premium (GWP) to A$4.593 billion [US$4.737 billion].”

Net profit after tax increased to A$461 million [US$475.4 million], up from A$144 million [US$148.5 million] in the previous corresponding period.

Managing Director and CEO Mike Wilkins said the result reflected a strong business performance supplemented by the benefits of a benign weather period and favorable investment market impacts. “Our strategy of accelerating profitable growth in Australia and New Zealand, and building on our Asian footprint is continuing to deliver results. All our businesses reported higher revenue and earnings for the period.”

Wilkins added: “Group revenue increased 13.5 percent to nearly A$4.6 billion [US$4.75 billion] reflecting strong growth in our home markets of Australia and New Zealand, as well as Asia.

“Our underlying margin is 12.1 percent which satisfies our long-term return on equity target. Our reported insurance margin of 19.9 percent reflects a period of low natural peril activity, as well as a favorable movement in credit spreads. Our net natural peril claim costs were less than half the allowance for the period, something we haven’t experienced in many periods.”

The earnings report said that “in addition to strong business performance, the results include: “Net natural peril claim costs of A$133 million [US$137.2 million] (c.A$180 million [US$185.7 million] below allowance); a A$90 million [US$92.9 million] benefit from credit spreads (1H12: A$80 million [US$82.5 million]loss); Reserve releases of A$90 million [US$92.88 million]; and significantly higher investment income on shareholders’ funds of A$201 million [US$207.42 million] (1H12: a loss of A$30 million [US$30.96 million).”

IAG said it would pay a fully franked interim dividend of 11 cents per share, up from 5 cents per share in the first half of 2012.

The report also described IAG’s capital position as “strong with a minimum capital requirement (MCR) multiple of 1.80 at 31 December 2012. This equates to a prescribed capital amount (PCA) of 1.69, under the new regulatory capital regime which commenced on 1 January 2013, and compares to the Group’s benchmark of 1.4 to 1.6 times.”

Wilkins said the Group’s largest business, Australia Direct,” reported an 8.8 percent increase in revenue with growth achieved across most product classes. The underlying margin remained strong at 13.1 percent despite pressure from increased claim frequency and lower investment yields on the NSW CTP portfolio.

“Our intermediated business, CGU, is on track to achieve its targeted underlying double digit margin in FY13, as past initiatives and benefits from its new OneCGU operating model drive further improvement in performance,” he continued.

“In New Zealand the underlying performance of the business has remained strong with an improved reported insurance margin of 8.3 percent. The acquisition of AMI has cemented our market-leading position in the country and its integration is tracking to plan.

“In Asia, our established businesses in Thailand and Malaysia performed strongly, and our newer joint ventures in developing markets are meeting expectations. Following the completion of the Kurnia acquisition in Malaysia, Asia contributes nearly 6 percent of the Group’s revenue and is expected to deliver a small profit in FY13.

“Following the conclusion of a strategic review in December 2012, we announced the sale of our UK business. The sale is expected to complete in the second half of the financial year.”

Wilkins also said “the Group continues to expect strong GWP growth and a higher insurance margin in FY13, compared to FY12. This is a strong half year result and, based on the momentum in the business, we’re confident about our outlook.

“Our forecast for GWP growth is 9.5-11.5 percent, reflecting continued growth in Australia and New Zealand. This is consistent with our previous guidance of 9-11 percent, adjusted for the UK.

“We now expect to report a full year insurance margin in the range of 12.5-14.5 percent. This is consistent with our previous guidance of 11-13 percent, which included our UK business, and now allows for the significant credit spread benefit identified at 31 December 2012.

“Despite the benign first half natural peril experience, we believe it is prudent to retain a net natural peril claim cost assumption for the full year in line with our allowance, of A$620 million [US$540.6 million] ex-UK. This follows the significant natural peril activity in the opening weeks of calendar 2013.”

The report also confirmed IAG’s earlier estimates that the cost to the Group from January’s severe weather event, that impacted Queensland and New South Wales as a result of ex-Tropical Cyclone Oswald, “is between A$120-A$140 million [US$123.85 – US$144.5 million]. In addition, the Group provided an estimated cost of A$35 million [US$36.1 million] in respect of the bushfires in New South Wales, Tasmania and Victoria in that same month.”

Source: Insurance Australia Group

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