Australian insurer suffers bigger than expected hit as sale loss rises

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IAG has made a bigger than expected loss from its divested UK operation in the year to June 30 2013, after the loss it made on the unit’s sale increased by almost 7%.

The discontinued UK unit, the bulk of which is Lloyd’s insurer Equity Red Star, made a loss of A$287m (£165.3m) after tax for the year – A$25m (£14.3m) larger than forecast.

In its first-half results, IAG incurred a A$182m loss from the UK unit and said it expected a further A$80m loss in the second half – a total of A$262m.

IAG completed the sale of its UK operations on 22 April 2013. It sold Equity Red Star to private equity firm Aquiline Capital partners for £87m. IAG’s UK broking division, which comprised  brokers Barnett & Barnett and NBJ, was sold to management and has since been rebranded ICB Group.

Rising sale loss

The bulk of the increased loss came from the loss made on the sale of the UK operation. At the half-year stage, this loss was A$164m, but had risen A$11m (6.7%) to A$175m at the full-year stage.

The remainder of the full-year UK loss comprised a A$17m insurance loss, a A$12m operating loss from fee-based business and a A$83m loss from recognising a foreign currency loss that was previously included in the UK division’s reserves.

On a positive note, the sale of the UK operation was the main contributor to a A$710m fall in the group’s total liabilities to A$19.9bn (2012: A$20.6bn).

Group performance

Group-wide, IAG had a good year. Profit after tax more than tripled to A$776m from A$207m thanks to fewer natural catastrophe losses, reserve releases and rising investment returns.

The group also enjoyed a 11.8% growth in gross written premium to A$9.5bn (2012: A$8.5bn).