BREAKING NEWS: Solid NZ results strengthen insurer IAG’s overall performance

by Maryvonne Gray 21 Aug 2015

BREAKING NEWS: Solid NZ results strengthen insurer IAG’s overall performance

IAG’s New Zealand division has reported FY2015 GWP growth of 19.4% to $2,436 million from FY14: $2,040 million thanks to the addition of Lumley Insurance and a favourable foreign exchange translation effect.

Excluding Lumley however, local currency GWP fell slightly, which was a reflection of softening premium rates and additional capacity in commercial lines; ongoing aggressive competition across the intermediated business; and a small reduction from the transfer of the health portfolio and the outsourcing of a large portion of the travel portfolio to third parties.

These were offset by solid growth in direct personal lines, particularly in the home owner and private motor vehicle areas.

IAG New Zealand’s FY15 insurance profit was AU$216 million, up from AU$180 million in 2014, a result which excluded the Lumley contribution. This was described as a strong result in a competitive environment.

The result equated to a reported insurance margin of 10.8%, falling slightly from FY14: 11.5%.

The lower insurance margin was put down to a combination of factors including ongoing operational improvements across the business; continued focus on pricing and underwriting discipline; relatively benign natural peril activity particularly in 1H15; reserve strengthening in respect of FY11 earthquakes.

The latter has seen the gross claim reserves for the February 2011 event now exceed the Group’s NZ$4 billion reinsurance limit.

Its underlying insurance margin was higher at 15.9% (FY14: 14.8%), while absorbing high regulatory and reinsurance costs in an increasingly competitive environment.

Meanwhile, the overall figures for the group saw IAG report an insurance profit of $1.1 billion (down from last year’s $1.6 billion) which equated to a reported insurance margin of 10.7% (FY14: 18.3%).

Net profit after tax (NPAT) was down 41% from AU$1,233 billion to AU$728 million.

IAG managing director and CEO Mike Wilkins maintained it was a sound result in light of a significant increase of AU$495 million in net natural peril claim costs, lower net reserve releases and a more competitive environment in commercial markets.

He said the Group remained well positioned: “Our strong franchises in Australia and New Zealand, our increasing digital presence, and the significant opportunities available to us in the fast growing Asian market mean we are well placed for the future.

“China in particular is a key focus for us as we pursue opportunities which have more of a national presence, enabling us to capitalise on a market that remains under-penetrated and with significant growth potential,” he said.

The Group’s underlying insurance margin strong at 13.1% (FY14: 14.2%) as the company integrated the lower-margin former Wesfarmers insurance business.

“While our full year reported performance was affected by a substantial increase in net natural peril claim costs, particularly in the second half, we continue to enjoy a strong position as we respond to competitive pressures while continuing to meet the evolving needs of our customers,” Wilkins said.

“Customer expectations and preferences are changing, and digital technology is enabling new and innovative approaches in anticipating, meeting and exceeding these expectations.

“Our creation of IAG Labs will drive digitalisation and innovation across IAG and its brands to ensure we meet and exceed our customer expectations. It will do so by bringing together technology, customer insights and a venturing unit focused on business opportunities and disruptive technologies.”

For FY16, IAG said it expected another year of solid performance with relatively flat GWP growth due to the market’s challenging conditions and subdued inflationary pressures.

Further benefits from the continued Wesfarmers integration were expected to keep underlying profitability strong.

In addition, implementation of the quota share agreement with Berkshire Hathaway from 1 July 2015 was expected to reduce earnings volatility from 20% of the Group’s business.

IAG’s reported insurance margin guidance for FY16 remains 14-16%.
1 Comments
  • Jonno 21/08/2015 2:02:26 p.m.
    This is a good result and IAG is a strong company, but there is an interesting point in their report (Page 9, part III. Canterbury Rebuild).
    They have run out of reinsurance for the February 11 event and all increases in reserves are now net to the group. They cannot quantify what impact this will have.
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