IAG’s New Zealand business results for FY16

IAG’s New Zealand business results for FY16

A highly competitive commercial insurance market and growth in personal motor cover are features of the performance of IAG’s insurance brands in New Zealand over the past financial year, says IAG’s New Zealand Chief Executive Craig Olsen.

ASX-listed Insurance Australia Group (IAG), whose businesses underwrite over $A11billion of premium per annum across Australia, Asia and New Zealand, today announced its Group results for the financial year ended 30 June 2016 (http://www.iag.com.au/results-and-reports).

IAG’s New Zealand business contributed 19% to the Group’s total gross written premium (GWP = the total premium written before deductions) and an insurance profit of A$135m (FY15: A$216m). Influencing factors included: the NZ$150m increase to risk margin for the February 2011 Canterbury earthquake event, as recognised in the first half of the financial year; increased competition in the commercial insurance market; as well as the realised benefits from the Lumley integration, disciplined cost management and continued focus on expense savings.

Mr Olsen said that the New Zealand business’ underlying margin has remained strong as it balances customer affordability issues with high regulatory costs in a competitive market.

The FY16 underlying margin of 16.9% (FY15: 15.9%) included a favourable quota share effect of approximately 250bps from IAG’s quota share agreement with Berkshire Hathaway (http://www.iag.com.au/iag-forms-strategic-relationship-berkshire-hathaway). A lower second half underlying margin of 15.5% (1H16: 18.4%) reflected the cumulative effect of competitive pricing pressure in the commercial market, as well as higher claim costs associated with the seasonally wetter months of May and June.

In local currency terms, IAG’s New Zealand GWP of NZ$2,373m, was down 2.6% compared to FY15 (NZ$2,436m). This was a consequence of increased industry capacity leading to downward pressure on commercial premiums and some volume loss as IAG’s business division kept its attention on maintaining pricing and underwriting discipline, Mr Olsen said.

“The business division remains focused on providing certainty for its customers and being able to respond quickly to meet their changing needs in an extremely dynamic market. One example is NZI’s recent launch of a cyber insurance product, which helps customers navigate the risks of an increasingly digital environment,” said Mr Olsen.

The contraction in local currency GWP reduced to 1.2% in the second half of the financial year owing to an improvement in new business volumes in key commercial lines, while solid volume and premium growth was maintained in private motor cover.
IAG’s New Zealand consumer division (comprising State, AMI and NAC brands) strengthened its brand and customer offerings, with improved growth for the year following a number of targeted customer initiatives. These included:

• AMI’s Young Drivers campaign, which has had particular success in helping to drive private motor premium growth;

• AMI’s New New Zealander campaign, which is meeting the needs of an increasing migrant population and has contributed to an improvement in new business volumes;

• A range of digital initiatives, such as ‘quote and buy’, State and AMI ‘Online Accounts’ and the establishment of a social media presence through Facebook.

At 30 June 2016 the New Zealand business had completed over NZ$5.7bn of claim settlements in respect of the Canterbury earthquakes (1H16: NZ$5.3bn). Approximately 93% (1H16: 85%) of all claims by number had been fully settled at that date.

“It is expected that the rebuild component will be largely complete by the end of calendar 2016. Certain shared properties, newly received over-cap claims from the EQC and claims subject to dispute or litigation may take longer to settle,” Mr Olsen said.

Mr Olsen said that confidence in the New Zealand economy remained strong with opportunities available to the business though population growth, and the continuation of an active construction sector.

“The New Zealand business’ strategy remains focused on maintaining its market-leading position by delivering affordable, customer-centric offerings while achieving strong underlying profitability by focusing on pricing and underwriting disciplines.”

Broader areas of focus included demonstrating leadership on how New Zealand could and should adapt to changing climate, and working hard to build an understanding of the value of insurance so that individuals, businesses and their communities are better able to respond to setbacks from the risks they face, Mr Olsen concluded.

For more information on IAG please visit www.iag.com.au

ENDS

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