Insurance margins improve for Insurance Australia Group

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Sydney Business Insurance

Insurance Australia Group (IAG) anticipates a better than expected full-year insurance margin. This has been put down to better operating performance and lower than predicted natural peril claims costs.

IAG revealed that it estimates it’s full-year insurance margin to be between 11,5 and 13 per cent, compared with the previous expectations of between 9 and 11 per cent. IAG also said its first-half insurance profit was likely to be $488 million, more than double the $227 million reported a year earlier. That reflected an insurance margin of 13.4 per cent, compared with 6.2 per cent the year before.

IAG’s Chief executive Michael Wilkins reported, “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.”

IAG‘s natural peril claims cost for the six months to December came in at $121 million, compared with an allowance of $166 million and a year-before figure of $176 million.

Favourable movements in credit spreads meant the company enjoyed a net gain of $28 million, compared with the $86 million loss a year earlier. IAG also didn’t need to write down any acquisition costs during the first-half, compared with the $42 million write-down of the year before.

For insurers, gross written premium is the benchmark to measure their insurance revenue. IAG has stated that it expected underlying gross written premium to have increased five per cent for the half over the prior corresponding period. Full year gross written premium growth is forecast at three to five per cent. But the sale of businesses and foreign exchange movements will mean reported first half gross written premium will decline 1.5 per cent.

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