IAG FY Net Hit by Storms

Insurance Australia Group Limited (IAG) announced a net profit after-tax of A$552 million (US$452 million) or the full year ended June 2007, compared to the A$759 million (US$622 million) it reported last year. The Group’s insurance margin slipped to 11.4 percent from 13.7 percent as of June 2006.

“The Group was on track to deliver an improved insurance margin until the final month of the period, when it incurred a A$200 million [US$164 million] net loss from the June storms in Australia and the UK, which had a negative 3 percent impact on the insurance margin,” the bulletin explained.

There was nonetheless some good news as well, as IAG said its premium revenue grew by 15 percent to a record A$7.4 billion (US$6.07 billion), “ahead of the targeted 12-14 percent, on the back of growth in all businesses, in particular Australian Personal Lines and the UK business.”

IAG also noted that, compared to last year, the earnings report includes “a $A47 million [US$38.5 million] increase in amortization costs on the newly acquired UK businesses and a A$167 million [US$137 million] after-tax decrease in investment returns following the Group’s decision to de-risk its portfolio by reducing exposure to equities and investing in its core businesses.”

CEO Michael Hawker commented: “We took a transformational step in the diversification of our portfolio with our UK acquisitions, which constituted around 16 percent of the Group’s premium revenue in the second half and delivered an A$86 million [US$70.5 million] (pre-tax) diversification benefit. At the same time, we have reinvigorated our domestic franchise. The momentum in our biggest business, Australian Personal Lines, has continued, with GWP in the second half up 4.5 percent on the first, and 2.6 percent overall after adjusting for the impact of the NSW Lifetime Care & Support Scheme. That is a clear turnaround from the 3 percent decline last year.

“The result shows we are successfully executing our plans to improve our domestic business and build new growth platforms overseas. However, the earnings potential created by this momentum was not fully reflected at the reported profit level this year due to the June storms in Australia and the UK.”

Discussing the future, Hawker said the Group was targeting continued strong growth in the current financial year. “We have reinvigorated the revenue of our Australian Personal Lines business and expect this momentum will continue in the current year, at the same time as we benefit from a full-year’s contribution from the UK business acquired during the past year,” he noted. “As a result, we are targeting GWP or revenue growth for the full year of 10-12 percent.”

He also indicated that IAG is facing “challenging” conditions, and in order to “ensure a more sustainable outcome in terms of a fair price for risk, we’ve started increasing rates in short-tail commercial in Australia and New Zealand and have already put rate rises through in private motor in the UK, which now appear to be holding across the market.”

Hawker concluded: “We have made significant progress this year in building our international operations, as well as improving the momentum and strength of our domestic businesses. The company remains committed to its ambition of doubling the size of the business over the next five years.”

For the full report and further information go to the Group’s web site at: www.iag.com.au

Source: IAG