Major player reports strong NZ performance

by IBO 18 Feb 2015

Major player reports strong NZ performance

IAG’s New Zealand business increased GWP by 26.2% to AU$1,116 million, boosted by the acquisition of the Lumley business and a favourable foreign exchange translation effect.

Local currency GWP growth was 22.2% and like-for-like GWP growth was modest. Positive input form home and motor portfolios, from a mixture of rate and volume, offset the softer commercial market conditions, the company reported today.

A reported insurance margin of 19.2% was assisted by a benign peril experience.

While IAG’s overall group operating performance remained strong according to managing director and CEO Mike Wilkins, with an insurance profit of AU$693 million for the half year ended 31 December 2014, it was down from AU$758 million in 1H14.

This equates to a reported insurance margin of 13.4% compared to 17.5% in 1H14.
This was impacted by:
  • Net natural peril claim costs of AU$421 million, which exceeded the half year allowance by AU$71 million, and included AU$165 million for the November Brisbane storm event;
  • Prior period reserve releases of AU$92 million, equivalent to 1.8% of net earned premium (NEP), down from 4.3% in 1H14 but in line with the Group’s FY15 expectations of 2%; and
  • A similar-sized favourable impact from the narrowing of credit spreads, of AU$40 million, compared to AU$39 million in 1H14.
IAG’s underlying margin performance remained strong at 13.3%. This was a slight reduction on the 13.7% produced in 1H14, largely due to the first time inclusion of the former Wesfarmers business.

GWP increased by 17.1% to AU$5.6 billion in 1H15, again, mainly attributable to the addition of the former Wesfarmers business.

Wilkins said the company was on track to deliver another solid full year performance.

“Our underlying performance has remained strong and we have made significant progress in moving to our new operating model in Australia, and integrating the former Wesfarmers business.

“This ensures we can efficiently respond to the changing business environment, while also maintaining our strong underwriting discipline.”

Modest early synergies from the Wesfarmers acquisition were realised in 1H15 and the company said it remained confident it would achieve its targeted pre-tax run rates of AU$80 million by the end of FY15 and AU$230 million at the conclusion of FY16.

Regarding the FY11 Canterbury earthquakes, the company referred to the increase in gross claims reserves to NZ$950 million which it made in December 2014.

IAG said these reserves remained within the Group’s applicable reinsurance covers and while it believe it had adopted an appropriate reserving position, there still remained a degree of uncertainty around the ultimate cost due to the continued complexity of the events.

Read the full report here.