IAG UK remedial work broadly 'successful' - Fitch

Recent remedial work by IAG (Insurance Australia Group) to restore the underwriting position of its UK business has been “broadly successful”, according to Fitch Ratings.

Fitch affirmed the Insurer Financial Strength rating of IAG at ‘AA-’ with a ‘stable’ outlook.

In a statement this morning, the ratings agency said: “Fitch notes that operational changes made following a strategic review in 2008 and, more recently, remedial work in the UK business have been broadly successful, and should support profitability and a stronger insurance margin going forward.”

IAG UK’s losses for the year ending June 2011 were A$181m (£115m), just over half the A$355 recorded in the previous twelve month period. The bulk of IAG’s UK business is Lloyd’s motor insurer Equity Red Star, which has suffered massively from bodily injury claims.

Fitch said its decision to keep IAG’s ratings on hold reflected the company’s improving operational performance as evidenced by stronger financial results in 2011.

In spite of large gross losses from natural catastrophes, Fitch said a solid reinsurance program in addition to reserve releases from previous underwriting years helped IAG post an improved insurance trading result of 9.1% in FY11, up from 7% in FY10.

With IAG’s main reinsurance program renewing from 1 January 2012, Fitch believes reinsurance capacity will remain available for the group although costs should increase significantly following large recoveries made on the program in recent years.