Insurance premiums to remain flat

Insurance Australia Group expects premiums to stay more or less flat in 2015 due to tough competition and soft inflation.

IAG shares have fallen more than six per cent amid disappointing first half profit results. (AAP)

Insurance premiums are likely to hold steady in 2015 thanks to tough competition and soft inflation, one of the country's largest insurers says.

Insurance Australia Group, which owns the NRMA Insurance and CGU brands, kept personal insurance premiums relatively flat in the second half of calendar 2014 and chief executive Mike Wilkins expects that to continue.

There is intense competition among insurers, which limits the ability to lift premiums, and costs have also been steady, he said.

"In most cases what we are seeing is very little inflation in our underlying claims and little inflationary trend anywhere, which means that pricing has tended to be pretty flat," Mr Wilkins said.

"In terms of both the competitive environment but also just in terms of what we are seeing coming through for underlying claims, I can't see that there is any significant upward pricing pressure."

IAG's net profit dropped 10 per cent to $579 million in the first half of the 2014/15 financial year, while its insurance profit dipped 8.5 per cent to $693 million.

Premium income increased 17 per cent, mostly due to IAG's acquisition of Wesfarmers' insurance business, while the group's net insurance margin - the profit it makes on premiums - fell from 17.5 per cent to 13.4 per cent.

Mr Wilkins said trading conditions had been tough, especially in commercial insurance where competition is strong enough to push premiums lower.

IAG also received higher than expected natural peril claims.

Investors were disappointed with the result, with the company's share price closing 54 cents, or 8.45 per cent, lower at $5.85.

Citi analysts Nigel Pittaway and Mark Tomlins said premium growth and insurance margins were weaker than the market had expected.

"This result seems to justify our view going into reporting season that IAG was our least preferred stock among the major insurers," they said in a note to investors.

IAG reaffirmed its full year guidance of a net interest margin of between 13.5 and 15.5 per cent, while gross written premium growth is expected to be at the lower end of its 17 to 20 per cent guidance range.

COMPETITION AND HIGHER CLAIMS HURT IAG

* Net profit down 10 pct to $579m

* Gross written premium up 17 pct to $5.6b

* Interim dividend of 13 cents, unchanged