Insurance Australia Group Limited (IAG) today announced it expected to report an insurance margin for the year ended 30 June 2010 of 7.0%, in line with revised guidance, and to determine a fully franked, final dividend of 4.5 cents per share. In addition, the Group has announced changes to its executive team, centred on its UK and New Zealand operations.
Based on preliminary results1, IAG expects to announce an insurance profit of $493 million for FY10 (FY09: $515m). This has been achieved on net earned premium of $7.1 billion (FY09: $7.2bn). The Group expects to report gross written premium (GWP) of $7.8 billion, which equates to underlying GWP growth of 3.8%, in line with guidance of 3-5%. Net profit after tax of $91 million (FY09: $181m) is expected.
The insurance profit includes continued improvement in the performance of the Group’s Australian and New Zealand businesses, including the delivery of a higher insurance margin by Australia Direct, a significantly stronger result in New Zealand, and continued improvement in CGU; As outlined in the announcement on 2 June 2010, a substantial full-year loss in the UK business, including a net charge of $367 million in 2H10 which mainly relates to a significant deterioration in bodily injury claim experience;
Natural peril claim costs of $463 million (FY09: $451m), net of reinsurance recoveries, which was above the budgeted allowance of $350 million; Prior year reserve releases of $228 million (FY09: $215m), excluding the second half reserve strengthening in the UK; and A $33 million profit from the narrowing of credit spreads over the course of the year (FY09: loss of $13m).
IAG Managing Director and CEO, Mr Mike Wilkins, said the FY10 result showed a further uplift in the underlying performance of the Group’s Australian and New Zealand businesses during the year. “While this year’s financial result does not reflect the expectations we held at the outset of the year, I’m encouraged by the clear and ongoing improvement in the operational performance of our businesses in our home markets of Australia and New Zealand.
The results of these three businesses, which represent almost 90% of our GWP, have improved year on year, providing evidence we’re continuing to benefit from our refined corporate strategy,” Mr Wilkins said. “The second half of the 2010 result has borne in excess of $200 million of net pre-tax claim costs in respect of the unprecedented Melbourne and Perth storms in March 2010, as well as the $367 million charge required in our UK business following the deterioration in bodily injury claim experience.
“I’m confident our performance will improve significantly in FY11. This is evidenced by our guidance which remains unchanged, and comprises an insurance margin of 10.5-12.5%.”
Guidance for FY11 assumes losses from natural perils are in line with budgeted allowances of $435 million, no material movement in foreign exchange rates or investment markets, and lower net reserve releases (excluding the UK) than FY10.
The information and guidance provided in this update is subject to finalisation of the Group’s financial statements, actuarial approvals, completion of the review by external auditors, and Board approval. As such, actual results for the year to 30 June 2010 may differ from the guidance contained in this update. It is anticipated that the Board will determine to pay a fully franked, final dividend of 4.5 cents per ordinary share (cps), taking the full year dividend to 13.0cps, fully franked (FY09: 10.0cps). This is a 30% increase over last year’s dividend and represents approximately 70% of cash earnings for the year.
The dividend will be paid on 6 October 2010 to shareholders registered as at 8 September 2010. Cash earnings has been calculated in accordance with the Group’s definition, which adjusts net profit after tax attributable to IAG shareholders for $113 million of amortisation (including the UK write-down of $86 million announced on 2 June 2010) and a net add back of $178 million in respect of unusual items.
In addition to those identified at the half year, these items include tax benefits on the restructure of financing arrangements, including intra-group funding of the UK operations; Reinsurance cover in respect of potential further deterioration of 2009 and prior UK bodily injury claim costs; And the future tax loss benefit in respect of the UK charge incurred in 2H10, which will not be recognised for accounting purposes in the FY10 results.
“We’re providing this information now, because we wanted to clarify the composition of our cash earnings and the impact on our dividend. After allowing for the final dividend, we remain in a strong capital position,” Mr Wilkins said. The Group will announce full details of its results for the year ended 30 June 2010 on Thursday, 26 August 2010.
IAG also announced today that Mr Ian Foy, currently CEO of IAG’s New Zealand business, will return to the United Kingdom to become CEO of IAG’s UK business, succeeding Mr Neil Utley. Ms Jacki Johnson, currently CEO of IAG’s online business, The Buzz, will succeed Mr Foy as CEO of New Zealand, and Group Executive Ms Leona Murphy will take responsibility for The Buzz. Mr Wilkins said Ian Foy’s successful track record in improving the performance of the Group’s New Zealand business, combined with his experience in the UK intermediated motor market, made him the clear choice to lead IAG’s UK operation.
“Ian has extensive insurance industry experience, which will be crucial as he drives the comprehensive remedial action plan we announced last month. Ian has been with IAG for seven years, including two years as CEO of IAG’s New Zealand business and five years running NZI. Prior to this, he spent more than a decade working in various roles in the UK insurance industry with Aviva and General Accident.” Mr Wilkins said that with the programme of remedial action in place, he and Neil Utley had mutually agreed that now was the appropriate time to introduce new leadership to take the UK business forward. “I would like to thank Neil for his leadership of the business in a challenging market environment during the past three years.”
Mr Foy will assume his new role on 1 September 2010 and, to ensure an orderly transition, Mr Utley has agreed to remain with IAG’s UK business until 30 September 2010. IAG’s New Zealand business will be led by seasoned insurance executive, Ms Jacki Johnson, who has been with IAG for the past nine years in various Group Executive positions. Before joining IAG she had roles with Allianz, HIH and IRS Total Injury Management. “Jacki’s experience in creating a direct business with The Buzz and running an intermediated business, as CEO of CGU’s Business Partnerships, will ensure we continue to build on the strong improvement Ian and the New Zealand team have achieved in this important market, over the past two years.
“Additionally, Jacki’s experience in workers’ compensation will be invaluable to the future of the New Zealand business if the Accident Compensation Corporation (ACC) opens up to competition from private insurers,” Mr Wilkins said. Ms Johnson will take on the CEO role on 1 November 2010. In the interim, Executive General Manager of NZI, Mr Karl Armstrong, will act in the role. Mr Armstrong has more than 35 years’ experience in underwriting and risk management, having joined NZI in 1971. IAG Group Executive Ms Leona Murphy will succeed Ms Johnson as CEO, The Buzz, from 1 November 2010.
“Under Leona’s leadership, our innovative and passionate team at The Buzz will continue to build on the great strides this business has taken since launching in May 2009,” Mr Wilkins said. Ms Murphy will retain her other responsibilities, including corporate development and strategy. “I am particularly pleased about the strength of these appointments and that all of them have been sourced from within our business, demonstrating the depth and versatility of our executive team,” Mr Wilkins said.
