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Home . International Insurance News . AUS / NZ . IAG lifts FY10 insurance margin guidance

IAG lifts FY10 insurance margin guidance

Wednesday, February 03, 2010

February 3, 2010 – Insurance Australia Group Limited (IAG) today announced that it expected to achieve a full year insurance margin in the range of 11.5–13.0%, up from previous guidance of 9–11%.

Based on the results for the six months to 31 December 2009, which remain subject to audit review, IAG expects to report a half year insurance profit of $488 million (1H09: $227m), representing an improved insurance margin of 13.4% (1H09: 6.2%). This reflects:

• Continued improvement in the Group’s underlying operating performance, in line with that anticipated at the outset of the financial year;

• Lower natural peril claim costs of $121 million (1H09: $176m) compared to allowances of $166 million;

• Reserve releases of $80 million, compared to $85 million in 1H09;

• A favourable movement in credit spreads, with a net gain of $28 million, compared to a loss of $86 million in 1H09; and

• No net writedown of deferred acquisition costs during the period, compared with $42 million in 1H09.

This improvement has been achieved despite a significantly lower running yield applicable to technical reserves, which reduced the 1H10 insurance margin by around 3% compared to 1H09.

The Group expects to report underlying gross written premium (GWP) growth of 5% for 1H10, excluding divested businesses and the impact of foreign exchange movements. Reported GWP is likely to reduce by approximately 1.5%. For the full year, the Group continues to expect underlying GWP growth of 3–5%, while reported GWP is now expected to be flat due to the strength of the Australian dollar.

IAG Managing Director and CEO, Mr Michael Wilkins, said IAG’s revised outlook reflected continued improvement during the first half of the year, as the refined corporate strategy progresses to plan.

“Our overall performance in the first half is a significant improvement on the previous corresponding

period, with more than half of the expansion in our insurance margin derived from operational improvements,” Mr Wilkins said.

“Our largest business, Australia Direct, recorded solid GWP growth and a strong insurance margin while our intermediated business, CGU, also recorded a further, steady improvement in underlying profitability.

“In New Zealand, our business has experienced a sharp turnaround in performance on the back of remedial action and benign weather, building on the improvement evident in 2H09.

“In the UK, Equity Red Star has grown GWP in local currency on the back of rate and volume increases in specialist classes, but its insurance margin has been affected by a deterioration in bodily injury motor claims for the 2007 and prior underwriting years. This is in line with recent UK industry experience.

“Our performance has also been aided by narrowing credit spreads and natural peril claim costs below our allowances, particularly in November and December which traditionally experience more weather events.”

Mr Wilkins said the revised FY10 guidance continues to assume further improvement in the underlying business in 2H10. It is subject to losses from natural perils being within the allowance of $184 million for the second half; no material movement in foreign exchange rates; and no material movement in investment markets, including a nil impact from credit spreads in 2H10.

The Group will announce details of its results for the half year ended 31 December 2009 on Thursday

25 February 2010.

About Insurance Australia Group Limited

Insurance Australia Group Limited (IAG) is an international general insurance group, with operations in Australia, New Zealand, the United Kingdom and Asia. Its current businesses underwrite approximately $7.8 billion of premium per annum. It sells insurance under many leading brands including NRMA Insurance, CGU, SGIO, SGIC, Swann and The Buzz (Australia); NZI and State (NZ); Equity Red Star (UK); and NZI and Safety (Thailand). For further information please visit www.iag.com.au

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