UK woes hit IAG's profit

23 Aug 2012, 1:56 pm   -   Source: AAP
IAG chief Michael Wilkins says the company posted net profit of $207m, down from $250m last year. (AAP)

IAG chief Michael Wilkins says the company posted net profit of $207m, down from $250m last year. (AAP)

A massive writedown on the value of its business in the UK has contributed to a 17 per cent fall in full year net profit for Insurance Australia Group.

Insurance Australia Group is close to deciding the future of its ailing UK business after it contributed to a 17 per cent fall in the company's net profit.

Chief executive Mike Wilkins said a review of the loss-making UK business should be wrapped up before the end of 2012.

"All options continue to be assessed, including a focus on improving the business performance within the current operating model, refining the business strategy to a more focused specialist motor offering, and exploring a potential sale of all or part of the business," he said on Thursday.

IAG in June began a review of its Equity Red Star insurance business, the fifth largest motor insurer in the UK, and commercial insurance broker Barnett & Barnett.

The company also wrote $297 million off the value of its UK operations.

That weighed on IAG's net profit of $207 million in the year to June 30, which was down from $250 million in the previous year.

The UK operations posted a significantly improved performance in the year to June 30, but still made a $13 million loss.

IAG said the company's underlying performance improved in the year, with stronger results in its Australian and New Zealand operations, which include the NRMA Insurance and CGU brands.

Premium increases brought in after the large number of natural disasters in the 2010/11 financial year delivered an 11.7 per cent increase in gross written premium to $8.99 billion.

Higher premiums helped to cover IAG's reinsurance costs, which increased by $114 million in the year to June due to the large number and scale of recent natural disasters.

IAG's insurance margin, a measure of the profit it makes on premiums, was 10.6 per cent in the year to June, up from 9.1 per cent in the previous year.

Mr Wilkins said the insurance margin would increase to between 11 per cent and 13 per cent in the 2012/13 financial year.

Gross written premium is expected to grow by between nine and 11 per cent.

"We expect the momentum that we've created during this 2012 financial year will carry over into 2013," he said.

The guidance resulted in a rise in IAG shares, which were up 12.5 cents, or 3.3 per cent, at $3.965 at 1318 AEST.

IAG also increased its final dividend to a fully-franked 12 cents per share, up from seven cents at the same time in the previous year.

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