By Paul McBeth
Feb. 14 (BusinessDesk) - Insurance Australia Group's first-half earnings in New Zealand more than tripled as an absence of earthquakes and natural disasters kept a lid on claims for the country's biggest general insurer.
Insurance profit rose to A$119 million in the six months ended Dec. 31 from A$36 million a year earlier, the Sydney-based company said in a statement. While gains in premiums helped, the insurer earnings were largely bolstered by a 15 percent drop in claims expense to A$507 million with just A$17 million claimed from natural peril events against an allowance of A$43 million. The year-earlier period, which included the Kaikoura quake, reported natural peril claim costs of A$123 million, exceeding the allowance of A$32 million.
"Reported margin of 14.2 percent benefited from the absence of earthquake events, with some offset from prior period reserve strengthening," the insurer said.
IAG's New Zealand division increased gross written premiums (GWP) 9.5 percent to $1.3 billion as motor policies drove gains in its consumer division while commercial lines improved, continuing a trend since the 2016 Kaikoura quake.
The insurer's New Zealand business includes the AMI, State, NZI and Lumley Insurance brands, and contributed 21 percent to group GWP of A$5.83 billion. The group posted a 24 percent gain in net profit to A$551 million and the board declared an interim dividend of 14 Australian cents per share.
"At a reported level, our comprehensive reinsurance protection in the half saw net peril claim costs below allowance while a higher favourable credit spread impact and larger than anticipated reserve releases also helped our reported margin," managing director Peter Harmer said.
IAG is reviewing its Asian operation after deciding growth opportunities in the region were limited and expects to complete the review by the end of the year.
The insurer remains upbeat about New Zealand saying it anticipates "solid GWP growth" in the second half through "continued personal lines growth, driven by rate and volume, accompanied by further rate-driven growth in commercial lines as strong underwriting disciplines are maintained and profitable sustainable growth is prioritised," it said. "Underlying profitability is expected to remain strong."
IAG said it had settled more than $6.5 billion of claims from the 2011 Canterbury earthquakes, accounting for 98 percent of commercial claims and 97 percent of residential claims with the balance either in construction or negotiation for cash settlement.
The insurer increased its gross reserved position on the three major Canterbury quakes, which is covered by reinsurance using about 10 percent of $600 million of adverse development cover in excess of $4.4 billion on the February 2011 event. It still has more than $1 billion for the September 2010 quake, $540 million for the February event, and just under $4 billion for the June 2011 quake.
IAG continued to receive claims from the Earthquake Commission through the half and the new reserving allows for further claims exceeding the Crown entity's cap. The insurer expects it will take several years to finalise the outstanding claims which are subject to dispute and litigation.
The company's ASX-listed shares last traded at A$7.27 and have increased 0.4 percent so far this year.