Insurance Australia Group's New Zealand unit, the country's biggest general insurer, more than doubled first-half profit and lifted gross written premiums 22 percent as it benefited from the acquisition of Lumley Insurance last year, outperforming the Australian division. The shares fell.
The New Zealand division increased net profit to A$195 million in the six months ended Dec. 31 from A$93 million a year earlier, the Sydney-based company said in a statement. Gross written premium rose to $1.22 billion from $1 billion a year earlier, reflecting the first six months' contribution from the Lumley acquisition last year. In Australian currency terms, GWP rose to A$1.12 billion from A$884 million. IAG's New Zealand unit widened its insurance margin to 19.2 percent from 12.4 percent a year earlier.
"New Zealand has continued to register a strong underlying performance, while the reported margin of 19.2 percent was enhanced by a particularly benign natural perils experience," IAG said. "The business has maintained its market-leading position, with GWP growth of 26.2 percent centred on the acquired Wesfarmers business."
IAG bought Wesfarmers' WFI and 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.
The insurer anticipates underlying profitability of the New Zealand business to remain strong through the second half of the financial year, and expects the integration of the Lumley businesses over the next 12 to 18 months to help protect its market-leading position.
"With increased capacity evident in the intermediated segment, that market is expected to remain very competitive in the medium term, with continued rate pressure anticipated as reinsurance cost pressures ease," IAG said. "Expectations for future GWP growth through rate increases are muted, with only inflationary-related rate adjustments planned in the coming period."
IAG increased its estimate for Canterbury earthquake claims by $950 million in December, most of which came from the Feb. 22 2011 event, with gross claims reserves close to its reinsurance limit of $4 billion for that event. Loss estimates for the other major events are expected to settle well below reinsurance limits.
As at Dec. 31 the New Zealand unit completed more than $3.9 billion in claim settlements, with about 69 percent fully settled at that date.
IAG's group profit fell 9.8 percent to A$579 million in the six months ended Dec. 31, with revenue up 27 percent to A$7.95 billion. The firm's insurance margin shrank to 13.4 percent from 17.5 percent a year earlier, and expects the annual margin to be 13.5-to-15.5 percent.
The ASX-listed shares dropped 8 percent to A$5.88.
"We remain optimistic about the longer term performance of our business, as we realise the full benefit of the major initiatives we have underway, and we progressively realise the potential attached to our Asian business," group chief executive Mike Wilkins said.
The board declared an interim dividend of 13 Australian cents per share, payable on April 1, with a March 4 record date.
