IAG financial results for the half year to 31 December 2016

IAG’s financial results for the half year to 31 December 2016 have been reported to the ASX.

Please find attached the Group results statement.

Within the statement it is noted that

“New Zealand continued to deliver a strong underlying margin exceeding 15%, while bearing the impact of increased claim cost pressures and a soft commercial market. The reported margin of 4.3% included a net claim cost of approximately $117 million from the Kaikoura earthquake in November 2016. GWP growth of over 5% included a favourable foreign exchange translation effect, with local currency GWP growth closer to 1%. This comprised sound growth in personal lines offset by softer commercial lines, as underwriting disciplines were maintained.”

Also available is IAG’s investor report which included more detailed information (see link below).

https://www.iag.com.au/sites/default/files/Documents/Results%20%26%20reports/1H17_Investor%20Report%20-%20FINAL.pdf

Performance of the New Zealand division is outlined from pg 34. Here is the executive summary:

EXECUTIVE SUMMARY ($AUD)
• IAG is the largest general insurer in New Zealand, trading under the State, NZI, AMI, and Lumley Insurance brands
• GWP grew by 5.4% (1.1% in local –NZ- currency), as strong personal lines growth was largely offset by a soft commercial market
• Strong underlying operating performance maintained, despite adverse impact of higher claim costs
• Reported margin of 4.3% includes peril impact of $117m from Kaikoura earthquake in November 2016
• Canterbury rebuild nearing completion with over 96% of claims settled by number
• Sound performance expected over balance of FY17
• Positive signs of rate movement emerging in commercial, particularly in the Wellington region

In relation to the Kaikoura earthquakes, the following is noted:

Natural perils experience in 1H17 was dominated by the Kaikoura earthquake in November 2016, which contributed a net claim cost after reinsurance of $117m. Any subsequent adverse development from this event is covered by the Group’s calendar 2016 catastrophe reinsurance.
The Kaikoura earthquake registered a magnitude of 7.8 and was triggered by the rupturing of the Kekerengu Fault, located in North Canterbury, on 14 November 2016. While the epicentre was in a relatively sparsely populated region, there was damage in the upper South Island, with effects extending to the lower part of the North Island, including Wellington.

The insurance industry and the Earthquake Commission (EQC) have agreed a streamlined process for the handling of Kaikoura-related claims for homes and contents. All private insurers will assess and settle personal home and contents claims, regardless of whether they are under or over the EQC’s cap of NZ$20,000 for contents and NZ$100,000 for home damage (plus GST). The private insurers will be reimbursed by the EQC for its liability following claims settlement. The agreement is expected to remove unnecessary duplication and claims handovers, while providing a much better customer experience.
Excluding the earthquake, New Zealand experienced a relatively low incidence of weather-related events, with a collective cost (ex-earthquake) below the allowance for the period.

In relation to the Canterbury earthquakes, acknowledging today is the anniversary of the 2011 Feb quake, the following is noted:

CANTERBURY REBUILD ($NZ)
At 31 December 2016 over NZ$6.1bn of claim settlements for the Canterbury earthquakes had been completed (FY16: NZ$5.7bn). 96.5% (FY16: 93%) of all claims by number had been fully settled at that date.
Finalisation of commercial claims has advanced in line with expectations, with 97.4% fully settled by 31 December 2016 (FY16: 96%), while residential claim finalisation progressed strongly. Over 96% of residential claims had been settled by the end of 1H17 (FY16: 92%), with the balance either in construction or negotiation for cash settlement.

Obviously there has been some further progress since this date.

In relation to profitability, the following is noted:

INSURANCE PROFIT ($A)
The New Zealand business produced an insurance profit of $36m in 1H17, compared to $11m in 1H16, translating to a reported insurance margin of 4.3% (1H16: 1.4%). The movement between the respective halves reflects the net effect of:
• Continued challenging market conditions in the Business Division, where the focus remains on pricing and underwriting disciplines;
• Higher than expected working claim costs, predominantly in the personal lines and commercial motor books as a result of higher average claim costs and frequency;
• Substantially higher net natural peril claim costs, stemming from the Kaikoura earthquake; and
• A significantly favourable movement in prior period reserve releases, owing to the absence of the NZ$150m increase to risk margin for the February 2011 earthquake event, recognised in 1H16.
• New Zealand continues to generate a strong underlying performance. The lower 1H17 underlying margin of 15.3% (1H16: 18.4%) reflected a deterioration in working claim costs, as well as the cumulative effect of competitive pricing pressure in commercial lines, and was similar to 2H16.

http://img.scoop.co.nz/media/pdfs/1702/Feb_22__IAG_posts_sound_1H17_financial_results.pdf

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