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Insurance Australia Group reports jump in NZ profit

Thursday 23rd August 2012

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Insurance Australia Group's New Zealand subsidiary, the nation's largest general insurer, reported a A$103 million annual profit, reflecting a 27 percent increase in gross written premiums, and reiterated a willingness to enter the workplace insurance market if it is deregulated.

The subsidiary of Australia's largest insurance company, which has the State Insurance, AMI, and NZI brands, has been the target of protests from disgruntled policy holders in Christchurch but its results released in Australia shows a healthy revival in earnings.

Profit in the 12 months ended June 30 surged from A$3 million a year earlier and is a turnaround from a A$87 million loss in the second half of the previous year.

New Zealand gross written premiums were A$1.2 billion, a 24 percent in local currency terms.

The insurer is predicting growth in gross written premiums in 2013 from a combination of increased premiums and a full-year contribution of the AMI business it purchased.

AMI will be earnings accretive in its first full year of operation, the company said.

Overall the New Zealand business produced an insurance margin of 10.4 percent for the full year and 13 percent in the second half.

Rate increases and the contribution of AMI produced a net earned premium of 40 percent in the second half of the 2012 financial year.

The AMI integration was well advanced and would produce cost synergies of $30 million in two years, the company said. The government kept the Christchurch earthquake liabilities to facilitate the sale if AMI to IAG after the Christchurch earthquakes.

IAG has 55 percent of the home contents market in New Zealand and 60 percent of the motor insurance business.

"Significant rate increases have been implemented to recover substantially higher reinsurance costs," the company said.

IAG New Zealand contributes 13 percent of the earnings of the Australian parent, which today reported a 17 percent decline in full-year profit to A$207 million, on writedowns of its UK operations.

IAG said it was working with the Earthquake Commission to resolve issues to get solutions for Christchurch residents.

The company acknowledged that customers are finding it more difficult to afford insurance with a trebling of EQC levies and it said it is working on underwriting initiatives to address this.

It reiterated that it is interested in entering the workplace insurance market if the government opens ACC to competition.

If revised schemes to introduce choice to the work account and extending the accredited employers programme facilitated true competition IAG would consider entering the business.

The shares last trade at A$3.84 on the ASX and have jumped 29 percent in the past six months.

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