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IAG earnings forecast unshaken by quake

INSURANCE Australia Group has stuck to a key earnings forecast for the year despite taking a fresh $65 million hit from the latest earthquakes in Christchurch.

INSURANCE Australia Group has stuck to a key earnings forecast for the year despite taking a fresh $65 million hit from the latest earthquakes in Christchurch.

The insurer expects to receive claims totalling $115 million as a result of the June earthquakes, but $50 million of that will be covered by IAG's reinsurance.

As a result, IAG's natural-peril claim costs for the year to June 30 have risen to an estimated $600 million, well above the $435 million it had budgeted for at the beginning of financial 2011.

Most of those costs relate to the previous Christchurch earthquakes, cyclone Yasi and Queensland's floods.

The costs have not changed IAG's forecast of a full-year insurance margin of between 8 and 10 per cent and for gross written premium growth of 3 to 5 per cent, the company said yesterday.

The insurance margin is a measure of the contribution to profit from underwriting, expressed as a percentage of net earned premium.

In financial 2010, IAG's insurance margin was 7 per cent, while gross written premium of $7.8 billion was steady on the previous year.

Chief executive Mike Wilkins said the commitment to the forecasts for the financial 2011 year reflected a larger release of insurance reserves from prior periods.

Those releases are now expected to be higher than the $228 million that IAG reported in 2010.

The reserve releases will be higher than expected because of favourable outcomes for IAG in its long-tail insurance classes, Mr Wilkins said. Long-tail classes are insurance lines that typically involve a long delay between the collection of premiums and a claim being made, such as in workers' compensation.

IAG shares gained 2? to $3.40 on Thursday. The company releases its financial 2011 results on August 25.


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