Insurance Australia Group announces half yearly results

IAG has announced a half yearly insurance profit of $571 million and a reported insurance margin of 13.5 per cent. The numbers for the same period last year were $610 million and a margin of 14.9 per cent.

Gross written premium (GWP) for the half was slightly above expectations at $5.8 billion, a 4.7 percent increase on last year’s $5.5 billion, predominantly due to rate increases to counter higher claim costs in short tail personal lines in Australia and New Zealand, and improved commercial pricing.

The company’s underlying margin, IAG’s preferred measure of business performance, was 12.6 per cent (1H16: 14.2 per cent). The slightly softer than expected operating performance was accompanied by a 0.7 percentage point adverse effect from the $40 million perils allowance increase to $340 million in the half. Net profit after tax was $446 million, 4.3 per cent lower than last year’s $466 million.

IAG Managing Director and Chief Executive Officer Peter Harmer said the result reflected a strong performance in IAG’s consumer businesses, further signs that commercial pricing has
passed the bottom of the cycle, and a focus on creating a more efficient business with customer needs at its core.

“This is a sound result for our core businesses in Australia and New Zealand, reinforced by the strength and integrity of our brands, our sharpened customer focus, and the quality and passion
of our people.

“In our Asian businesses, India moved into profit over the half but this was more than offset by increased competitive and claims pressures in Thailand and Malaysia.

“Underpinning our result is our strategy to make our customers feel safer and more confident through the products and services we deliver,” Mr Harmer said.

Leading initiatives from the company include a $75 million venturing fund to work with emerging and established business on new products and services, a Singapore-based InsurTech innovation hub to co-create solutions for future customer needs, and the increased use of aerial drones so customer claims are assessed quickly and safely after severe weather events.

“Through leading, we put customers at the centre of what we do by the enhanced use of technology, offering innovative new products through our core businesses, and identifying new
ways to meet ever-changing customer needs.

The reported insurance margin of 13.5 per cent (1H16: 14.9 per cent) included:

  • Net natural peril claim costs of $420 million (1H16: $278 million), which exceeded allowance by $80 million, with the New Zealand earthquake event in November 2016
    contributing $117 million;
  • A favourable credit spread impact of $5 million, compared to an adverse effect of $15 million in 1H16; and
  • Higher than expected prior period reserve releases of $155 million, equivalent to 3.7 per cent of Net Earned Premium (NEP), up from $60 million (1.5 per cent of NEP) in 1H16. These were predominantly derived from Australian long tail classes, principally Compulsory Third Party (CTP).