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Insurance Australia Group's New Zealand unit, the nation's largest general insurer, boosted annual profit 56 percent after hiking household premiums, increasing customer sales through the internet and as a higher local currency boosted the unit's returns to its Australian parent.
The New Zealand division increased earnings to A$183 million in the 12 months ended June 30, from A$117 million the year earlier, the Sydney-based company said in a statement. The local unit raised its gross written premium revenue by 17 percent to A$1.85 billion. The insurance margin increased to 11.5 percent from 8.9 percent in 2013, it said.
IAG, whose local brands include State, NZI and AMI, said it has completed the two-year integration of the AMI businesses it bought for $380 million after its New Zealand rival was forced to seek a financial rescue from the government after the Christchurch earthquakes drained its reserves. The integration saved $35 million in costs, ahead of its forecast for at least $30 million of savings. IAG expects to achieve further savings over the coming two years from its purchase of Wesfarmers' Lumley Insurance unit, it said today.
In New Zealand dollar terms, growth in gross written premium revenue slowed to a 2.7 percent pace in the second half of the financial year, from a 4.7 percent pace in the first half, as the scale of rate increases for homeowners, driven by the need to recover higher reinsurance costs and appropriately price for risk, diminished and as increased competition in the commercial market kept a lid on rate increases, the company said.
Only "modest" rate increases are anticipated for homeowner insurance for the 2015 financial year, skewed to the front of the year, the company said. Increased competition in the corporate market following the Canterbury earthquakes is keeping pricing "under pressure", it said.
The company's reinsurance expense increased 8.4 percent to A$257 million in the latest year as higher 'catastrophe cover' costs following the Canterbury earthquakes and for additional regulatory requirements outweighed savings from bringing AMI under the group's 'catastrophe cover' programme from January this year. Costs for this cover reduced to A$117 million in the second half of the year, from A$140 million in the first half, it said.
IAG's local unit recorded a 15 percent increase in net claims expense to A$892 million. During the financial year, September storms in Canterbury, Tropical Cyclone Ita in April and heavy rain and storms in June increased claims from 'natural perils' to A$106 million from A$56 million the year earlier.
Meanwhile, the cost of strengthening its net reserves reduced to A$13 million, from a cost of A$35 million the year earlier.
The company said its underlying claims performance improved, helped by more disciplined underwriting, improved risk selection and the impact of higher excesses.
IAG said it had settled about 58 percent of its Canterbury earthquake claims as at June 30, amounting to more than $3.3 billion in claim settlements. Projects are taking longer than expected and the company expects the rebuild completion date to extend out to mid-2016, it said, later than the previous target.
The Australian parent company said group profit rose 59 percent to A$1.23 billion, in line with the A$1.2 billion forecast by 15 analysts polled by Thomson Reuters I/B/E/S/. The company announced an 8.3 percent increase in the full-year dividend to 39 Australian cents.