A major insurer has been urged to quickly divest of its consistently “disappointing” Asian businesses, and focus instead on its more lucrative markets.
Despite Insurance Australia Group's (
IAG) $807 million investment since 1998, its Asian business continues to underperform, posting a $10 million profit in the 2017 financial year, compared to $26 million the previous year.
"In our view, IAG should sell the Asian businesses and use the proceeds to concentrate on more profitable markets in Australia and New Zealand. The sooner the firm bites the bullet and moves on from Asia, the better," said Morningstar analyst David Ellis in an Australian Financial Review report.
Ellis argued that while businesses in Australia and New Zealand were optimistic, the Asian businesses continue to languish, with no end in sight.
"We do not expect the Asian operations to achieve satisfactory returns any time soon," he said.
IAG chief executive
Peter Harmer said Asia's consolidated gross written premium (GWP) for 2017 saw a 5.2% drop. On a country basis, Thailand, Malaysia, Vietnam, and Indonesia all suffered a decline in GWP, with India being the only country to improve, up from $447 million in 2016, to $553 million. The Asia arm accounts for 3% of the group's $11.8 billion total GWP, AFR reported.
IAG said Thailand saw higher claims, in Malaysia there was greater competition, and Indonesia incurred more losses as it developed a “digital model.”
Based on return of equity of 15% and investment, the Asian arm's contribution should be at $120 million a year, instead of the “disappointing” $10 million reported on Wednesday, Ellis said.
Despite this result, IAG remains committed to improving the arm's underlying profitability in the full year 2018, the report said.
"Over the past 18 months we have refined and sharpened our focus on Malaysia and Thailand and wanted to see what we could do to improve the profitability of India," Harmer said. "This business in India is expected to record another favourable result led by a continued focus on portfolio management and expense control."
In its full-year 2017 investor report released on Wednesday, IAG said $637 million of its $807 million investment went to Thailand and Malaysia – both regions that saw a lacklustre performance and slackening premiums, AFR said.
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