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IAG maintains forecast despite quake costs

Reported by AAP
Thursday, June 30, 2011
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Insurance Australia,Central Petroleum Limited
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Insurance Australia Group (IAG) has maintained its financial forecasts despite taking a fresh $65 million hit from the latest earthquakes in Christchurch.

The insurer expects to receive claims totalling $115 million as a result of the June earthquakes in the New Zealand city, but $50 million of that will be covered by IAG's reinsurance.

As a result, IAG's natural peril claim costs for the year to June 30 have risen to an estimated $600 million, well above the $435 million it had budgeted at the beginning of 2010/11.

Most of those costs relate to the previous Christchurch earthquakes, cyclone Yasi and Queensland's floods.

The latest costs have not changed IAG's forecast of a full year insurance margin of between eight and 10 per cent, and for gross written premium growth of three to five per cent, however.

The insurance margin is a measure of the contribution to profit from underwriting, expressed as a percentage of net earned premium.

In 2009/10 IAG's insurance margin was seven per cent, while gross written premium of $7.8 billion was steady on the previous year.

Chief executive Mike Wilkins said the unchanged forecasts for the 2010/11 year reflected a larger release of insurance reserves from prior periods.

Those releases are expected now to be higher than the $228 million that IAG reported in 2009/10.

The reserve releases will be higher than expected because of favourable outcomes for IAG in its long tail insurance classes, Mr Wilkins said.

Long tail classes are insurance lines that typically involve a long delay between the collection of premiums and a settlement or a claim being made, such as workers' compensation and compulsory third party (CTP) insurance.

IAG shares gained two cents to $3.40 on Thursday.

IAG originally had forecast an insurance margin of between nine and 11 per cent in 2010/11, but that was cut twice in February to the current forecast due to mounting natural peril costs from earthquakes in Christchurch, Cyclone Yasi and floods in Queensland and Victoria.

At June 30, IAG had about $165 million in retained cash to cover losses from another natural peril event.

The company releases its 2010/11 results on August 25.

26/11/2014 20:53Sydney, Australia. 26 November,2014
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