has announced a 20.4% increase in reported consolidated net profit after tax (NPAT) for FY16 despite profit contributions from its Australian broking businesses suffering a 2.1% dip.
Australian broking contributed $48.0 million to the Group, with the organic profit contribution to the Group down 2.1%, with the ‘twin headwinds’ of premium reductions and reducing interest rates cited as the reasons.
Average premium rates per policy reduced over FY16 (down 5% vs 9% pcp), and the loss of earnings from the recent divestment of Strathearn put total Australian broking profits down 4.4%.
However the company said this was more than offset by the $6.0 million after tax profit on the sale of Strathearn, which was included in the reported NPAT.
The company said it was pleased with how brokers had maintained income by growing other sources of income.
These included premium funding, expanding in life insurance and maintaining expense growth below CPI.
The Group reported NPAT of $42.0 million, up from $34.9 million for FY15, which included realised after tax profits on the sale of investments of $6.2 million.
Adjusted NPAT, which reflects underlying business performance, was $37.7 million in 2016 (FY15: $36.3 million), increasing 3.3%.
A strategy of diversification and a disciplined adherence to it were the key elements behind the 20.4% increase, Group CEO and managing director Mark Searles
Searles said that despite challenging market conditions, the result demonstrated the benefits of disciplined adherence to the Group’s strategy.
This in turn had enabled continued diversification of profit generation; the resilience of both the core ‘owner-driver’ business model and Group operating model.
“A particularly pleasing aspect of our Group result has been how our business model responded in the challenging market conditions with our partner businesses demonstrating good cost control and continued focus on the development of organic growth initiatives,” Searles said.
Other divisions of the Group saw mixed results.
Both Australian and New Zealand broking benefited from additional fees in FY16 on the renewal of the premium funding contract with Hunter Premium Funding
and would benefit from enhanced terms over the next five years.
Insurance broking in New Zealand contributed $2.9 million to Group profit and Risk Services at $7.2 million, was up from $2.0 million last year, a jump which Searles described as ‘particularly pleasing’.
However, the $10.3 million contribution from underwriting agencies was described as ‘disappointing’ as it was down from FY15’s $13.2 million.
The company cited the impact of a reducing premium rate environment, with average premiums down 9% across the portfolio.
These were exacerbated by strong competition in the strata and plant and equipment portfolios and continued investment in developing future business streams.
said the actions of insurers now were critical to the company’s outlook.
“The commercial lines insurance market outlook remains challenging, with some signs that premium rates are stabilising.
“The continuation of a stable rate environment in Australia and New Zealand in FY17, and even targeted rate increases in underperforming segments, is dependent on actions by insurers.
“In the absence of catastrophic events significant rate increases are considered unlikely in FY17.”
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