IAG’s NZI, State units post 2H loss on quakes, eye ACC workplace account
By Paul McBeth
Aug. 25 (BusinessDesk) – Insurance Australia Group Ltd.’s New Zealand division made a loss in the second half of the financial year on the mounting costs of Canterbury’s earthquakes, wiping out annual earnings.
The Sydney-based company’s New Zealand insurers, NZI, State and Business Partnerships, made a loss of A$86 million in the six months ended June 30, compared to a profit of A$63 million a year earlier, as claims from the Canterbury quakes and the rising cost of reinsurance eroded profits.
The New Zealand insurers together amount to the nation’s biggest insurance group and with the results said it is watching the government’s proposals to open up Accident Compensation Corp.’s work account to competitors, and has made a submission.
“If the scheme design facilitates true competition, IAG will consider entering this business,” the firm said.
The second-half loss reduced local annual earnings to just A$4 million, compared to A$132 million in 2010.
“The reported result was affected by considerable claim costs and higher reinsurance expense, arising from the Christchurch earthquakes,” group managing director Mike Wilkins said in a statement to the ASX. “Underlying performance improved and gross written premium in local currency terms grew 3.4%.”
The wider IAG group nearly tripled net profit to A$250 million after getting a fillip from investment income, and insurance profit grew by a third to A$660 million.
The board announced a final dividend of 7 Australian cents per share, taking the annual payout to 16 cents, up from 13 cents a year ago.
The stock fell 3.5% to A$3 in trading on the ASX, and has dropped almost 21% this year.
IAG said the February and June quakes will cost it about A$83 million, though it may get some of that back from reinsurance. The September event was fully covered by reinsurance.
The natural disasters mean New Zealanders face higher premiums across the board as insurers pass on their increased reinsurance costs.
“Significant rate increases are already in place for the material damage and business interruption portfolios within commercial, as well as home owners and home contents portfolios,” the company said.
IAG expects its New Zealand business to improve insurance margins in the 2012 financial year.
New Zealand’s biggest insurer said it’s watching the government’s proposals to open up Accident Compensation Corp.’s work account to competitors, and has made a submission.
ACC Minister Nick Smith last month released a discussion document putting forward such a proposal in the government’s next term of power. The cost of injuries to the New Zealand economy was assessed at $4.9 billion in 2004/05.
The National-led government campaigned on investigating ways to open up workplace cover to private parties in 2008, and a research note from Merrill Lynch at the time said privatising the workers’ compensation and motor vehicle accounts could unlock up to $2.1 billion in new premium income for net gains of $200 million the industry’s after-tax earnings.