Insurance Australia Group has seen a massive turnaround in its fortunes after its first half profit soared and the firm confirmed an upgrade to its annual insurance margin.
IAG’s net profit for the six months ended December 31 was $329 million, up from $4 million in the previous corresponding period.
Earnings results from today and throughout the season
Its first-half insurance profit increased to $488 million, from $227 million, representing an improved insurance margin of 13.4 per cent per cent, compared to 6.2 per cent previously.
The insurer's shares gained 6 cents, or 1.5 per cent, to $4.01 in early trade.
IAG confirmed its guidance for the full year insurance margin, as chief executive Mike Wilkins said he expected a further and steady improvement in operating performance over the balance of 2009-10.
‘‘As announced earlier this month, we now expect the group to achieve an insurance margin in the range of 11.5 per cent to 13 per cent for the full year, up from previous guidance of nine to 11 per cent,’’ he said in a statement today.
IAG also expects full year underlying gross written premium growth of three to 5 per cent.
Reported GWP is likely to be affected by the strength of the Australian dollar, it added.
‘‘This revised outlook reflects both the stronger than expected first half performance as well as our expectation that the improvement in the group’s operating performance will continue during the second half, on the back of ongoing operating efficiencies and improved underwriting disciplines,’’ Mr Wilkins said.
The 2009-10 guidance is subject to losses from natural perils being within a budgeted allowance of $184 million for the second half, no material movement in foreign exchange rates and no material movement in investment markets.
In the first half, underlying GWP increased by 5.1 per cent compared with the previous corresponding period, excluding divested businesses and the impact of foreign exchange movements.Reported GWP fell 1.5 per cent to $3.863 billion.
Mr Wilkins said the first half result confirmed a turnaround in the group’s underlying performance.
‘‘Our significantly improved first half insurance profit demonstrates that the actions we’ve taken over the past 18 months have delivered tangible results, with over half of the expansion in insurance margin derived from operational improvements,’’ he said.
‘‘In particular, the performance of our businesses in Australia and New Zealand has improved on the back of better pricing and underwriting discipline, improved claims management practices and cost saving initiatives.’’
The first half result was also buoyed by favourable credit spread movements and fewer natural peril claims than anticipated - particularly in November and December which traditionally experience above average storm activity.
IAG had flagged its insurance profit earlier this month in an update to the market. Rival Suncorp-Metway Ltd reported its results on Wednesday, showing that first half profit improved on a better performance from its general insurance division.
IAG will pay a first half dividend of 8.5 cents a share, more than double the four cents paid a year earlier.
IAG’s profit improvement was driven by a better performance at its Australian direct business, which includes NRMA and SGIO, where the insurance profit grew by about 50 per cent to $281 million.
Both the insurer’s CGU Australian intermediated business and its New Zealand business recovered from losses to contribute strong insurance profits on a successful turnaround strategy.
AAP
