18 Jul 2013

Lower than expected payouts boost IAG profit

7:55 am on 18 July 2013

Insurance Australia Group (IAG) expects to be significantly more profitable this year than previously flagged, mainly due to lower than expected payouts for natural disasters.

The Sydney-based firm is the largest general insurance company in New Zealand, owns the NZI, State and AMI brands and claims a 39% share of the $5 billion New Zealanders pay in annual insurance premiums.

The insurer says it paid out about $A470 million dollars on natural disasters in the year ended June, $A150 million less than it expected.

That means its insurance profit margin for the year was about 17%, much higher than the 12.5% - 14.5% it previously told the market to expect.

IAG says its net earned premium for the year was about $8.3 billion. Gross written premiums will have grown nearly 12%, which is also above previous guidance.

The company will announce full details of its results on 22 August.

Analyst's view unchanged

An analyst at UBS in Sydney, James Coghill, says IAG's profit upgrade on Wednesday is largely due to one-off factors and does not change his negative view of the stock.

He says IAG has done well to deliver profit margins above its previous guidance but its underlying profit margins are improving only modestly.

Mr Coghill says IAG had taken a conservative view of how much natural disasters would cost it when it released its first-half results in February. He says he still recommends investors sell IAG shares.