IAG profit down 40pc after blowout in natural disaster claims to $1b
IAG is targeting growth in Asia following a blowout in claims that dented full-year profit by more than 40 per cent.
Net profit for the year to June 30 was $728 million, down from $1.2 billion the previous year, after Tropical Cyclone Marcia in Queensland and damaging storms in NSW pushed natural claim costs past $1 billion for the first time.
IAG, which owns brands such as NRMA and CGU, said insurance profit was down to $1.1 billion, from $1.6 billion, and is expected to remain at the same level for 2015-16.
IAG’s 10-year partnership with Berkshire Hathaway took effect from July 1 and Warren Buffett’s firm will pay 20 per cent of the company’s claims in exchange for 20 per cent of its gross written premium.
The insurer was able to reduce the amount set aside for natural peril claims in 2015-16 by $100 million to $600 million, freeing up money for its Asian investments.
“China in particular is a key focus for us as we pursue opportunities which have more of a national presence, enabling us to capitalise on a market that remains underpenetrated and with significant growth potential,” CEO Mike Wilkins said.
Earnings from Asia rose 50 per cent year on year and IG markets strategist Evan Lucas said the region was performing reasonably well.
“They believe in the strategy and that’s part of the reason why Warren Buffet went in there,” Mr Lucas said.
IAG will pay a final fully franked dividend of 16 , down 10 . Its shares closed 5.15 per cent or 30 down at $5.52.
Morningstar analyst David Ellis said the share price fall was primarily due to a soft insurance market rather than scepticism over Asia.