IAG Says Insurance Margins Improved

Post by Sharat on February 3, 2010 · Under Business News, Company News, insurance · Comment

Australian insurance major, Insurance Australia Group (IAG) revised its guidance, saying it believes full year insurance margins will range between 11.5 per cent to 13 per cent, up from previous guidance which suggested the range would be between 9 per cent to11 per cent.

The Sydney based insurer says it expects half year insurance profits for the period ending December 31st would be $488 million, which would be more than double the $277 million the group reported in the same time period a year earlier.

If the profit forecast is accurate, then insurance margins would have doubled to 13.4 per cent from 6.2 per cent in the same time frame a year earlier.

The insurer says it has benefited from sustained gains in underlying operating performance, that have resulted from lower claims, credit spreads moving in its favour, and a lack of write-downs related to its acquisition costs.

IAG is optimistic about the second half of its financial year, and says it expects continued improvement.

Chief executive Michael Wilkins said in the statement: “Our overall performance in the first half is a significant improvement on the previous corresponding period, with more than half of the expansion in our insurance margin derived from operational improvements. Our performance has also been aided by narrowing credit spreads and natural peril claim costs below our allowances.”

The cost of claims during the half year was $121 million compared with $176 million in the same time period a year earlier.

Credit markets treated the company well, with IAG enjoying a gain of $28 million on movement in credit spreads, compared to an $86 million loss a year earlier.

Acquisition write-downs in the previous year cost the company $42 million, with the insurer finding the need to write-down anything in the current half year unnecessary.

IAG says it expects its gross written premium to have increase by five per cent during the half year, compared with the corresponding period in the previous year.

Gross written premium is the benchmark to measure insurance revenue for insurers.

The company forecasts 3 to 5 per cent growth in its full year gross written premium, however foreign exchange movements and the sale of businesses would have a negative impact, and gross written premiums would decline by 1.5 per cent.

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