Insurance Australia Group shares dive as disaster claims hit margins

[SYDNEY] Insurance Australia Group Ltd shares dropped to a four-month low on Wednesday after it reported underlying insurance margins fell due to higher costs in its motor businesses and a series of natural disasters, although profit jumped 49 per cent.

Australia's biggest general insurer flagged "low single-digit" growth in gross written premiums this financial year, but its forecast for weaker insurance margins set shares sliding.

The stock was down 7.1 per cent at A$6.28 in mid-morning trade, its lowest since April, and against a 0.2 per cent rise on the broader market.

The firm's guidance for margins in the 2018 financial year to fall to between 12.5 per cent and 14.5 per cent missed market expectations, Commonwealth Securities analyst Tom Piotrowski said.

"They're looking at more margin compression ahead, particularly in car insurance," he said.

IAG's reported insurance margin for the 2017 fiscal year was 14.9 per cent.

IAG said annual net profit leapt 49 per cent to A$929 million (S$978.62 million) for the year, roughly in line with analysts' forecasts of A$930 million. Its underlying insurance margin, which strips out factors such as credit spread movements, fell by 2.1 percentage points to 11.9 per cent.

Margins were squeezed by costs linked to natural hazards including the Kaikoura earthquake in New Zealand, a Sydney hailstorm and Cyclone Debbie that hit Australia in March.

Claims in its motor business also rose, it said.

It expects "low single-digit" growth in gross written premiums, according to guidance released on Wednesday for the 2018 financial year.

The motor and property insurer, which shares a portion of premiums and claims with Warren Buffett's Berkshire Hathaway Inc, had consolidated Australian operations into one division in July.

It said the move would cut gross operating costs by an annual run rate of at least 10 per cent by the end of fiscal 2019 and confirmed it is on track to achieve it.

The company declared a final dividend of A$0.20 per share, up from A$0.13 per share a year earlier.

REUTERS