Weather events dampen IAG profits

Insurance Australia Group (IAG) has suffered a significant slump in net profit after tax for the half-year ended December 31, down 68 per cent to $110 million.

The half-year result prompted the group to warn that it expected to be at the low end of its insurance margin guidance of 9 to 11 per cent.

IAG chief executive Michael Hawker described the result as disappointing but said it needed to be viewed in the context of a very challenging period for the local general insurance industry, with an unusually high number of weather events, volatile investment markets and a soft commercial cycle.

He said that the factors which had contributed to the decline in profit had included significantly higher storm and natural events costs, a $55 million pre-tax mark-to-market loss from the impact of widening credit spreads and a $90 million pre-tax decrease in investment returns due to the poorer relative performance of investment markets during the period and the group’s exposure to equities.

“The past year has been a challenging one for the local general insurance industry,” Hawker said. “Dealing with weather events is part of our role as an insurer, but their extent in this period has been very unusual.”

Looking over the horizon, Hawker said the group was maintaining its existing guidance but expected to be at the low end.

He said IAG would continue to pursue small, strategic acquisitions in its chosen markets of India, Malaysia, Thailand and China and was committed to completing its acquisition of the remaining 50 per cent of NTI.