Canterbury quakes take toll on IAG profit

The Canterbury earthquake has affected IAG profit. Photo / Bloomberg

Canterbury earthquakes and big reinsurance price rises pushed New Zealand's biggest general insurer's profit down from A$90 million ($115 million) to A$34 million.

IAG suffered doubling reinsurance costs and a 25 per cent claims increase after the Christchurch catastrophes so it raised premiums to cover the expenses.

Releasing its half-year result to December 31, the business told how global reinsurers charging A$29 million increased their prices to A$63 million in the latest period.

So IAG charged an extra A$66 million in premiums in the latest half-year, from A$472 million to A$538 million.

IAG's big household brands here are State and NZI and it is seeking to buy quake-hit and Government-backed AMI Insurance, which is headquartered in Christchurch.

But IAG emphasised how the latest A$34 million profit was better than the A$86 million loss in the half-year to June 30, 2011.

"The New Zealand business has moved back into profit in the first-half 2012 after the earthquake-induced loss of the second-half 2011. The period saw a return to more normal weather patterns and experienced less damaging earthquake activity.

"The most notable event in the period was the series of aftershocks experienced in Canterbury shortly before Christmas which resulted in a net claim cost of A$8 million. Significant price increases have been achieved in commercial lines portfolios, while rate rises of up to 30 per cent are being applied to domestic home portfolios. Despite the scale of rate increases in home [premiums], retention levels have held up well," IAG said.

The aftermath of Canterbury earthquakes continued to affect the country's general insurance market but NZI was doing well.

"The NZI intermediated business represents just over half of IAG New Zealand's gross written premiums. With hardening market conditions evident after the September 2010 earthquake, the business is well-advanced in achieving rate increases that compensate for the large increase in reinsurance expense being incurred," IAG said.

Existing NZI customers were not leaving and new ones were arriving.

"While retention is holding, new business growth is improving," said IAG, which still has restrictions on new business being written in the Canterbury region.

State is about 30 per cent of IAG's business and has put "significant rate increases through its home building portfolio which represents just over 20 per cent of its book while applying moderate increases to its home contents and motor offerings".

IAG views New Zealand as a good market for expansion, particularly with the $380 million AMI purchase.

"While market conditions are expected to remain challenging in the short term, IAG remains confident about the long term outlook for the local industry."