UK business losses of A$355m cut IAG’s profits

Insurance Australia Group said its UK arm, Equity Red Star, made a full year loss of A$355m compared with profit of A$155m last year. Every other part IAG’s business made a profit with all but Asia seeing profit grow.

IAG announced an overall insurance profit of A$493m, down from A$515m last year and a net profit after tax of A$91m, halved from the A$181m last year.

Australia and New Zealand

Managing director and CEO, Michael Wilkins, said: “This result demonstrates clear and ongoing improvement in our Australian and New Zealand businesses which represent nearly 90% of GWP. These businesses delivered an insurance margin of 13.2%, up from 6.8% last year.”

“However, at the Group level, our result was diluted by the impact of the unprecedented Melbourne and Perth storms in March 2010, which generated almost 75,000 claims and a net cost of A$210m, as well as the one-off A$367 million charge recognised in our UK business, following an increase in bodily injury motor claims in that market.”

UK challenges

“In the UK, the market remains challenging. Following the substantial full year insurance loss we reported this year, our remedial action program is underway.

“We are implementing rate increases of up to 20% across most classes of business, exiting unprofitable broker relationships and strengthening underwriting and actuarial resources. We expect a modest insurance margin in FY11, returning to more normal levels in subsequent years.”

IAG said: “In accordance with accounting requirements, IAG has not tax-effected the one-off UK charge in its FY10 results.”

Reuters reports that Wilkins insisted IAG has no plans to sell the UK business but will turn it around.

Financial highlights (2009 in brackets)

  • GWP of $7.8bn ($7.8bn),
  • Natural peril claim costs $463m ($451m), compared to an allowance of $350m
  • Reserve releases of $228m excluding the UK strengthening in the second half ($215m)

IAG also named Brian Schwartz as chairman, succeeding James Strong, in line with the transition plan announced in November 2009.

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