IAG UK ‘almost at breakeven’ after repricing

IAG’s troubled UK business has shown “significantly improved performance” in the six months to 31 December 2011, according to IAG group chief executive Mike Wilkins.

The UK business made a divisional loss of A$7m (£4.7m) in the six months to 30 December 2011 - the first half of IAG’s current financial year. This is a big improvement on the A$119m loss it made in the first half of the previous financial year and the A$60m loss in the second half of that year.

IAG UK’s first-half 2012 combined ratio was still just in loss-making territory at 102.8%, but much improved from the 142.3% it reported in the first half of 2011 and the 127.7% it reported in the second half. The underwriting loss was the same as the divisional loss at $7m (H1 2011: loss of A$124m), while the insurance result (underwriting result plus investment result) was a loss of A$5m (H1 2011:loss of A$121m).

“In the UK, we’re almost at breakeven as the actions we have taken to reshape our book and improve underwriting and claims disciplines deliver growing benefits,” Wilkins said in a statement accompanying IAG’s results for the six-month period – the first half of IAG’s financial year.

IAG’s UK business, the bulk of which is Lloyd’s motor insurer Equity Red Star, has been a drag on its Australian parent’s results over the past two years. Heavy reserve charges for bodily injury claims forced the UK insurer into a £216m loss for the year to 30 June 2010. IAG made another full-year loss of £115m in the year to 30 June 2011.

Wilkins has come under fire from Australian analysts for the performance of IAG’s UK business, and has faced pressure to sell it. Wilkins has, however, remained committed to fixing the business.

Group-wide, IAG posted a A$144m (£97.4m) net profit in its first half, down 11% on the A$161m it made in the same period last year. The results were hit by A$396 million of catastrophe claims, a 56% increase in reinsurance expense to A$356m and a A$30m loss on its investment portfolio.

IAG’s group’s results benefited from A$112m of reserve releases in the first half.

For full annual results coverage, visit our Results Special page.