The New Zealand segment of IAG has produced a lower insurance profit of $135 million in FY16, down 38% from $216 million in FY15.
The influencing factors included the NZ$150 million increase to risk margin for the February 2011 Canterbury earthquake, which was signalled in the first half of the year, increased competition in the commercial market, enhancement from the
Berkshire Hathaway quota share and the realisation of benefits from the
Lumley integration, cost management and continued focus on expense savings.
NZ CEO Craig Olsen said that the New Zealand business’ underlying margin had remained strong as it attempted to balance customer affordability issues with high regulatory costs in a competitive market.
The FY16 underlying margin of 16.9% (FY15: 15.9%) included a favourable quota share effect of approximately 250 bps.
The combined effect of competitive pricing pressure in the commercial market plus higher claims costs arising from the wetter months of May and June and increased motor vehicle usage were reflected in the lower 2H16 underlying margin of 15.5% (1H16: 18.4%).
Measures including increased excesses and greater use of preferred supplier networks had been taken to address this trend.
Olsen said IAG’s New Zealand GWP of NZ$2,373 million was down 2.6% compared to FY15 (NZ$2,436 million) which was due to increased industry capacity leading to downward pressure on commercial premiums.
He said there was also some volume loss as IAG’s business division focused on maintaining pricing and underwriting discipline.
“The business division remains focused on providing certainty for its customers and being able to respond quickly to meet their changing needs in an extremely dynamic market,” he said.
“One example is
NZI’s recent launch of a cyber insurance product.”
An improvement in new business volumes in key commercial lines meant the contraction in local currency GWP reduced to 1.2%.
But solid volume and premium growth was maintained in private motor cover.
A range of initiatives in IAG NZ’s consumer division (State,
AMI and NAC brands) had prompted improved growth, the company said.
Olsen said IAG had completed over NZ$5.7 billion of claim settlements regarding the Canterbury earthquakes as at 30 June 2016 (1H16: NZ$5.3 billion) with approximately 93% of all claims by number being fully settled at that date (1H16: 85%).
“It is expected that the rebuild component will be largely complete by the end of calendar 2016,” he said.
“Certain shared properties, newly received over-cap claims from the
EQC and claims subject to dispute or litigation may take longer to settle,” he added.
The company was quick to stress that all earthquake settlement statistics presented excluded those relating to the Lumley business.
While Lumley’s earthquake claims were being managed by IAG, they were subject to indemnities from the previous owner and therefore would result in no further financial exposure for IAG.
Olsen said confidence in the New Zealand economy remained strong with opportunities available to the business through population growth and the continuation of an active construction sector.
He said: “The New Zealand business’ strategy remains focused on maintaining its market-leading position by delivering affordable, customer-centric offerings while achieving strong underlying profitability by focusing on pricing and underwriting disciplines.”
More broadly, the company was focusing on demonstrating leadership on how New Zealand could and should adapt to changing climate.
And it was working hard to build an understanding of the value of insurance in the community.
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