Shares in Insurance Australia Group (IAG) fell as much as 8% after the company reported a disappointing 68% fall in its half year net profit due to higher storm costs among other factors.
IAG securities closed 4 cents to $3.77.
For the six months to 31 December 2007, net profit was $110 million, compared to $345 in the previous corresponding period.
Premium revenue was up 15% to $3.9 billion on the back of contributions from the UK businesses acquired last financial year and solid growth in the Australian Personal Lines and New Zealand portfolios.
Chief executive officer, Michael Hawker said the bottom-line result was disappointing but needed to be viewed in the context of a very challenging period for local general insurance industry, with an unusually high number of weather events, volatile investment markets and a soft commercial cycle.
The higher storms and natural events cost the group $326 million (before tax) compared to $125 million incurred in the previous corresponding period.
IAG said the past year has been challenging for the insurance industry, particularly the ‘extent’ of the weather events.
“On the claims side, we’ve had floods, hail and severe storms in Australia, the UK and New Zealand as well as an earthquake in New Zealand,” Hawker said.
Hawker said the group has performed in line with guidance and has initiated productivity improvements and strengthened the management team.
For the full year IAG has reaffirmed the existing guidance of 7-9% gross written premium (GWP) growth and an insurance margin of 9-11%, but is expected to be at the low end of both ranges as a result of further catastrophic events, the ongoing soft market in commercial insurance and currency movements.
“Our key international portfolios of New Zealand and the UK are expected to deliver a stronger and more sustainable performance in the second half,” Hawker said.
The company maintained the interim dividend of 13.5 cents per share.
Hawker said “The outlook for dividends depends on growth in underlying earnings, market conditions and the normal caveats we put on our financial forecast”.
