By Richard Braddell
WELLINGTON - New Zealand Insurance is bumping up its rates after heavy price discounting hammered underwriting profit in 1998.
Underwriting profit slumped to $9.9 million in calendar 1998, from $22.8 million the year before, driving bottom-line earnings down to $35.9 million from $40 million. Only partially coming to the
rescue were a $6 million lower tax bill and small rises in investment earnings and foreign exchange gains.
NZI chief executive George Berrie said fierce competition in the market had driven premiums down to unsustainable levels and the company had to protect the bottom line.
"The third year of discounting and discounting and discounting" had been responsible for a $16 million drop in gross premiums to $345.6 million, Mr Berrie said.
In the current year, many companies would get profit entirely from investment earnings and that was taking things "right to the wire" given the low interest rates now prevailing, he said.
NZI is already lifting premiums for corporate customers while domestic users will start noticing the impact in July and August.
Performance was also impaired by restructuring and strategic expenses, in particular, consolidating some back-office branch functions in fewer locations and in getting NZI ready for the workers' compensation market, which kicks off on July 1.
Mr Berrie made a plea to the new entrants not to slash ACC rates to cement in market share. "If the rate cutting-starts from day one, they will lose their shirts very quickly," he said.
NZI is to tackle the market on its own, in contrast to competitors like Royal & SunAlliance, which is in a high profile joint venture with Southern Cross and injury case manager GMV.
Mr Berrie said that since NZI plans to be in the market for the long haul, going it alone was the appropriate strategy.
