IAG Profit More Than Triples as Natural Disaster Claims Fall

By | August 22, 2013

Insurance Australia Group Ltd., the nation’s biggest car and home insurer, reported full-year net income more than triple a year earlier as claims fell and premiums rose.

Net income rose to A$776 million ($697 million) in the year ended June 30 from A$207 million [US$186 million] a year earlier, the Sydney- based company said in a statement today. That compares with a median estimate of A$819 million [US$735 million] from a survey of seven analysts by Bloomberg News. The company expects an insurance margin of 12.5 percent to 14.5 percent for the year to June 2014, it said.

IAG is gaining from higher premiums and lower claims as natural disasters such as floods and bushfire in its main market of Australia abate. That led it to raise the estimate for its net insurance margin on July 17. IAG is also benefiting from Chief Executive Officer Michael Wilkins’s decision in December to exit the group’s ailing U.K. business and focus on operations in Australia and Asia.

“IAG is factoring in a better year, gaining from a reduction in claims,” Richard Coles, a Sydney-based analyst at CIMB Group Holdings Bhd. said. “Investors are expecting a 13.7 percent margin for 2014, closer to the top of IAG’s guidance.”

Catalyst ‘Missing’
The insurer reported a margin of 17.2 percent for the year ended June 30, the top end of its guidance provided July 17 and above 11.5 percent a year earlier.

IAG shares, which climbed as high as to A$5.98 earlier [US$5.37], ended 2.2 percent lower at A$5.80 [US$5.21] in Sydney. That trimmed gains for the year to 24 percent compared to a 9.2 percent rise for the benchmark S&P/ASX200 index.

“The catalyst for outperformance is missing after the strong earnings,” said TS Lim, a Sydney-based analyst at Bell Potter securities Ltd. “A stable outlook is not enough to boost shares.”

The insurer expects gross written premiums to rise 5 percent to 7 percent this fiscal year, compared with an increase of 11.8 percent in the year to June 30.

Net natural peril claim expenses fell to A$464 million [US$419.7 million] from A$658 million [US$591 million] a year earlier and below an allowance of A$620 million [US$557 million], it said. The insurance has allowed for A$640 million [US$575 million] such expenses this year.

The Asian division, from which IAG wants to get 10 percent of its gross written premium by 2016, generated 7 percent of its premiums in 2013, it said. IAG has operations in China, India, Malaysia, Thailand and Vietnam. It also plans to enter Indonesia.

“Over the past few years we have created a solid platform for growth and have addressed the underperforming areas of our business,” CEO Wilkins said in today’s statement. “Part of this process was the sale of our U.K. business.”

The insurer will pay a final dividend of 25 Australian cents a share, taking the full-year payout to 36 cents, it said today.

–Editors: Iain McDonald, Tomoko Yamazaki

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