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Higher IAG car claims push premiums higher

Stuart Condie  |  23 Aug 2017Text size  Decrease  Increase  |  

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SYDNEY - [AAP] Insurance Australia Group (ASX: IAG) will use higher motor insurance premiums to address the increased cost of claims that pushed down its full-year underlying insurance margin.

The insurance giant lifted profit for the 12 months to June 30 by 48.6 per cent to $929 million after changes to compulsory third party insurance in NSW allowed higher than expected prior period reserve releases of $457 million.

That more than offset a rise in natural peril claims due to events including the Kaikoura earthquake in New Zealand and tropical Cyclone Debbie in Queensland.

But underlying insurance margin--IAG's preferred measure of performance--fell from 14 per cent to 11.9 per cent partly due to higher motor claim costs in Australia and New Zealand, the insurer said on Wednesday.

IAG has already raised premiums to address the issue--helping lift gross written premium 3.9 per cent to $11.8 billion--and said the 2018 financial year should show further results of "ongoing rate initiatives to help address short tail claim pressures, notably in motor".

Chief executive Peter Harmer said the plan was well advanced.

"We have a number of initiatives underway that look at how we can reduce the cost of managing claims in a way that creates affordable insurance options for customers both now and into the future," Mr Harmer said.

"We expect these initiatives, which are being created in consultation with our customers, to be finalised in the first half of the 2018 financial year."

Net natural peril claim costs rose to $822 million, which was up 24.7 per cent on 2016 and more than $140 million over allowance.

Investors were unimpressed, sending IAG shares down 51.5 cents, or 7.6 per cent, to $6.245 by 1244 AEST.

CAR CLAIMS CRASH IAG'S FULL-YEAR FINANCIALS

* Net profit up 48.6pct to $929m

* Gross written premium up 3.9pct to $11.8bn

* Underlying insurance margin 11.9pct v 14.0pct

* Final dividend up 7 cents to 20 cents, fully franked

 

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