IAG NZ half a year result

IAG’s New Zealand insurance business delivers solid underlying result for first half year

IAG’s New Zealand general insurance business produced a solid underlying result for the financial half year to 31 December, however reported a $NZ150m strengthening of its risk margin in respect of the February 2011 Canterbury earthquake which contributed to a significantly lower insurance profit of $A11m (1H15: $A193m).

Strengthening the earthquake risk margin helps remove ongoing uncertainty around the ultimate cost of claims for the 22 February 2011 event and in conjunction with new adverse development cover taken out by IAG at a Group level establishes effective coverage of up to NZ$5bn for this event.

IAG’s New Zealand business delivered an underlying margin of 18.4% (15.9% 1H15).

The result was outlined within IAG’s half year financial results announcement to the Australian Securities Exchange (ASX) today.

The company’s New Zealand CEO, Craig Olsen, said that the New Zealand result reflected a number of factors including the increase to IAG’s risk margin for the 22 February 2011 earthquake but also increased pressure on the profitability of intermediated commercial lines. This was offset by lower than anticipated natural peril costs during the period and growth in IAG’s direct insurance business.

“The New Zealand business continues to deliver a solid underlying margin, as it balances customer affordability issues with high regulatory and reinsurance costs in a very competitive market.” Mr Olsen said.

IAG maintained its leading position in the New Zealand market but reported a contraction of 4% to the total premium it writes to NZ$1,174m (1H15: NZ$1,223m). The contraction was a consequence of increased competition and changing risk appetite by other participants in the market which was placing pressure on commercial product lines, especially commercial property, Mr Olsen said.

“We’ve had to make some difficult decisions in order to maintain our underwriting disciplines. Despite this we believe we’ve made the right decisions to support the sustainability of our business in the longer-term.”

The intermediated business (including NZI, Lumley and financial institution partners) represented 61% of IAG’s gross written premium (GWP) in 1H16 (1H15: 63%).

Customer retention rates remained steady across intermediated personal lines products, where modest rate increases were applied to appropriately price for risk.

IAG’s direct insurance business, which consists primarily of the State and AMI brands, represented 39% of GWP in 1H16 (1H15: 37%) and achieved growth of nearly 2% compared to the same period last year.

“The business remains focused on meeting customers’ needs and expectations by providing greater choice on insurance offerings, ensuring affordability issues are addressed and providing positive customer experiences,” Mr Olsen said.

AMI achieved premium growth in its private motor book against a backdrop of increased competition from both existing and new competitors. AMI has strengthened its brand over the last six months, with improved new business growth evident following digital initiatives such as ‘quote and buy’, the ‘AMI Online Account’ and a social media presence through Facebook.

“Targeted initiatives, including AMI’s young drivers campaign, have demonstrated how the direct business is meeting the needs of the customer. State’s online channel also continues to grow.”

Completing the settlement of claims related to the Canterbury earthquakes remains a top priority with the rebuild programme expected to be largely complete by the middle of this calendar year. Certain shared properties, over cap claims from the EQC and claims subject to dispute or litigation may take longer to settle.

ENDS

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