Insurance Australia First-half Profit Slips
February 21 2017 - 4:15PM
Dow Jones News
By Robb M. Stewart
MELBOURNE, Australia--Insurance Australia Group Ltd. (IAG.AU),
the Australian general insurer that counts Warren Buffett as a
shareholder, saw its first-half profit slip as it was squeezed by
natural-disaster claim costs and insurance earnings declined.
The weaker half year came despite improved investment income
thanks to a stronger equity market and a better-than-expected rise
in the insurer's gross written premium, due largely to rate
increases to counter higher claim costs in some parts of its
personal lines in Australia and New Zealand and improved commercial
pricing.
The company said it now expected its full-year gross written
premium growth would be in the low single digits.
Insurance Australia's net profit fell 4.3% to 446 million
Australian dollars (US$342.8 million) in the six months through
December from A$466 million a year earlier. That was as revenue for
the period eased by less than 1%, to A$8.18 billion from A$8.24
billion.
The company's insurance profit declined 6.4% to A$571 million,
although gross written premium grew to A$5.8 billion from A$5.5
billion.
Chief Executive Peter Harmer said the period reflected a sound
result from the company's core businesses in Australia and New
Zealand and further signs that commercial pricing had passed the
bottom of the cycle.
Yet, while the company's operations in India moved into profit
over the half year, that was more than offset by increased
competition and claims pressure in Thailand and Malaysia, Mr.
Harmer said.
In mid-2015, Mr. Buffett's Berkshire Hathaway Inc. agreed to a
strategic partnership with Insurance Australia, buying an initial
3.7% stake for A$500 million as part of a 10-year deal that
fast-tracked Berkshire's expansion in the region and promised to
lower IAG's capital needs. Under the partnership, Berkshire
receives 20% of Insurance Australia's gross written premiums and
pays 20% of the insurer's claims.
The company in January finalized its natural-disaster
reinsurance program for calendar 2017, keeping gross cover steady
at up to A$7 billion. Its natural-disaster claim costs exceeded the
allowance it had set for first-half of the fiscal year by A$80
million.
The company said it had received more than 13,000 claims to date
for damages during a hailstorm that struck northern Sydney this
month, but it expected that would be within its current allowance
and available reinsurance cover.
Insurance Australia plans to keep its interim dividend steady at
13 Australian cents a share, although this time last year it also
offer a special payout of 10 cents.
Write to Robb M. Stewart at robb.stewart@wsj.com
(END) Dow Jones Newswires
February 21, 2017 17:00 ET (22:00 GMT)
Copyright (c) 2017 Dow Jones & Company, Inc.
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