IAG NZ boosts profit on Lumley acquisition

Insurance Australia Group's New Zealand unit, the country's biggest general insurer, lifted annual profit 20 percent and gross written premiums 19 percent as it benefited from the acquisition of Lumley Insurance last year.

Including income from its fee-based business, the New Zealand division increased net profit to A$220 million in the year ended June 30, from A$183 million a year earlier, the Sydney-based company said in a statement. Insurance profit rose 20 percent to A$216 million.

Gross written premium rose to $2.4 billion from $2 billion a year earlier, reflecting the first annual contribution from the Lumley acquisition last year. In Australian currency terms, GWP rose to A$2.3 billion from A$1.8 billion. IAG's New Zealand unit widened its underlying insurance margin to 15.9 percent from 14.8 percent a year earlier.

IAG bought Wesfarmers' Lumley business last year for A$1.8 billion, adding the WFI and Lumley Insurance brands to an existing stable which includes NZI, AMI and State in New Zealand, and NRMA, SGIO, SGIC, CGU and Swann Insurance in Australia.

Excluding proceeds from Lumley, local gross written premiums fell slightly, IAG said, reflecting softening premium rates and additional capacity in commercial lines, and ongoing aggressive competition across the intermediated business. 

IAG’s New Zealand chief executive Jacki Johnson said with increased capacity in the NZI intermediated segment evident, the insurance market is expected to remain very competitive in the medium term, with continued rate pressure anticipated. In the direct segment, which includes the State and AMI brands, market conditions reflect an increasingly competitive landscape with aggressive new entrants and ongoing direct competitor challenges.

“The New Zealand business’s broader strategy continues to be one of maintaining its market-leading position, balanced with sustaining its underlying profitability by focusing on pricing and underwriting discipline to protect underwriting margins," Johnson said. “Expectations for future GWP growth through rate increases remain muted, with only inflationary-related rate adjustments planned in the coming period, pending confirmation of the EQC reforms. The business’s underlying profitability is expected to remain strong.”

At a group level, IAG's net profit fell to A$728 million from A$1.2 billion, as insurance margins shrank to 10.7 percent from 18.3 percent a year earlier, as it look to maintain its position in a "rapidly changing and competitive market". Gross written premiums rose 17 percent to A$11.4 billion. 

In June, Berkshire Hathaway, Warren Buffett's investment vehicle, acquired 3.7 percent of IAG in a A$500 million placement as part of an agreement that will see the US firm take 20 percent of IAG's premiums and pay 20 percent of the insurer's claims.

IAG's board declared a final dividend of 16 Australian cents per share, taking its full year payout to 29 cents, below the 39 cents a year earlier. 

The shares fell 4 percent to A$5.59 on the ASX, and have declined 6.9 percent since the start of the year. 

(BusinessDesk)