Wesfarmers is undertaking a series of initiatives to boost one of its broking businesses after reporting that yet again revenue and earnings for OAMPS Australia was softer due to challenging trading conditions.
The insurer reported, in its half year ended 31 December 2013 results, that revenue and earnings growth in OAMPS Australia and the UK were softer due to challenging trading conditions in the SME sector in Australia and subdued economic conditions in the United Kingdom.
The insurer found itself in the same situation during the full year ended 30 June, 2013, in which it admitted that revenue and earnings growth in one of its brokerages, OAMPS Australia, had “been more challenging, reflecting continued difficult trading conditions in the SME sector”.
Addressing the broking business yesterday, finance director Terry Bowen said: “The main issue we are facing is competition and the fall out of small and micro businesses in the broking sector – what we would refer to as small business customers.
“To address that we are expanding our reach through hiring brokers with additional expertise, we are looking at inorganic growth through acquiring brokers where that makes sense; we are trying to ensure that the platform our broking business operates on gives the best service to customers and we are looking at growing other segments that are less impacted by SME […] customers so there is a lot going on in the Australian broking business to try and offset those headwinds at the very small end of business customers.”
Total insurance revenue jumped from $1,035m for the half year ended 31 December 2012, to just over $1,110m in 2013.
The insurance division’s earnings before interest, tax and amortisation (EBITA) decreased by 3.6% to $106m, compared with $110m for the previous corresponding period. This result includes a $45m impact on underwriting earnings from reserve increases in relation to the 22 February 2011 Christchurch earthquake.
Total broking earnings in the insurance division were higher with EBITA increasing to $41m, up 7.9% on the previous corresponding period. This growth was achieved organically with no significant acquisition activity in the 12 months to 31 December 2013.
Commission and fee income was stable at $135m (2012: $124m). Operating revenue of $1.1bn was 7.2% higher than the previous corresponding period.
Gross written premium from underwriting activities increased 7.7% to $857m; net earned premium was up 12.7% to $771m; and EBIT fell 11.1% from $72m to $64m. EBIT excluding the $45m impact on underwriting earnings from reserve releases in relation to the February 2011 Christchurch earthquake increased to $109m.
The underwriting division’s combined operating ratio improved from 94.9% to 90.2%.
Strong growth across the Coles Insurance home and motor portfolio continued with policies in force now exceeding 260,000.
Wesfarmers Group managing director Anthony Giaontti told an analyst briefing yesterday: “Our half year results for the division continue to show a positive improvement in underlying earnings following the strong return to profitability in the 2013 financial year.”