Gross written premium was A$11.37 billion, a dip of 0.6% on-year which the company said reflected sound rate and volume growth in its “short-tail” personal insurance lines in Australia and New Zealand being offset by softer commercial market conditions in both countries.
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But chief executive Peter Harmer said the company’s core insurance business remained strong, with insurance profit up 6.8 per cent to $1.18 billion in the 12 months to June 30.
IAG chief executive Peter Harmer told Sky News IAG had experienced hard pricing conditions in Australia and New Zealand.
In mid-2015, Mr. Buffett’s Berkshire Hathaway Inc. agreed to a strategic partnership with IAG, buying an initial 3.7% stake for A$500 million as part of a 10-year deal that fast-tracked Berkshire’s expansion in the region and promised to lower IAG’s capital needs.
IAG expects only a modest rise in earnings on the back of flat premium income in the current year.
His comments came as the company delivered a weaker-than-expected full-year profit result for the 12 months ended June 30, 2016.
The board declared a fully-franked final dividend of 13Ac per share, taking the annual payment to 26c, down from 29c a year earlier.
Net natural peril claim costs of $659 million (FY15: $1.05 billion).
“Insurance profits growing at almost 7 per cent is a reflection of the true underlying health of the business”, Mr Harmer said.
IAG attributes the drop in net profit to a significantly lower contribution from investment income on shareholders’ funds, reflecting relatively flat equity markets in the period, a higher effective tax rate due to a lower favourable effect from earthquake-related reinsurance recoveries, and a A$139 million post-tax charge relating to capitalised software assets.
‘We do have some confidence we have seen the bottom of the market and we’re starting to return to some more rational pricing behaviours, ‘ Mr Harmer said.
Bell Potter analyst TS Lim said raising prices and cutting costs were unlikely to be enough to help IAG deliver significant growth in the year ahead given challenging market conditions.
“Asia represents an important source of long term growth for IAG”.
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In the future, IAG might offer a better deal on drivers’ insurance to customers who install a dashboard-mounted sensor that sounds an alarm when they get too close to the auto in front of them or start veering into another lane without indicating first.
