Credibility low as UK dents IAG profit

City A.M. Reporter
INSURANCE Australia Group (IAG), the nation’s top home and car insurer, warned its first-half net profit will more than halve and cut its full-year insurance margin outlook as its UK operations struggled and weather claims mounted.

The warning caused IAG shares to fall as much as 5.3 per cent to A$3.58 in early trading, the stock’s lowest level in over four months. They closed 3.97 per cent down at A$3.60.

“Last time around it appeared the UK losses were contained, now it appears not and leads to a credibility issue,” Paul Xiradis, chief executive at fund manager Ausbil Dexia said.

“Notwithstanding that, (the UK unit) is a poor business, a drag on earnings and a real problem for IAG,” Xiradis said.

IAG said it expected a net profit of A$161m ($162.8m) for the six months to December, down from A$329m a year ago and also well below analyst expectations for around A$290m.

It also cut its full-year net insurance margin guidance to a range of nine-11 per cent from 10.5-12.5 per cent as the UK business struggled and costs from some of Australia’s worst natural disasters on record mounted.

In the first half, IAG was weighed down by a greater-than-expected A$121m insurance loss from its UK operations while second half figures will be impacted by storms and floods in Australia, which could push full-year natural peril claim cost to A$500m versus a budgeted allowance of A$435m.