Australian insurer reports $350m non-cash after-tax writedown in UK assets.
IAG reported a net loss after-tax of A$261m (FY07: net profit of $552m) for the year ended 30 June 2008, including nearly $400 million (after-tax) of restructuring and impairment charges.
The Australian insurer, which is currently in the process of selling parts of its UK portfolio - including Equity Insurance brokers, private motor group Hastings, and underwriting agency, Advantage - saw a 5.6% increase in gross written premium to around A$7.8bn and an insurance profit of A$448 million (FY07: A$767 million).
It said increased claims costs from natural perils, up 22% to A$502 million (FY07: A$411m), and Lower reserve releases, down 16% to A$406 million (FY07: A$485 million), all had an "adverse impact".
IAG also recorded a non-cash after-tax writedown of approximately $350m in respect of the UK assets, following the decision to narrow IAG’s focus in that market.
In a statement, IAG said: "In the UK, Equity Red Star remained profitable while Advantage improved its performance in relation to the market and is now operating at close to break-even. The private motor market remained difficult.
"In response the Group implemented further rate increases and reduced exposure to private motor in favour of specialist lines. In line with the refined corporate strategy, the group is now scaling back its UK operations to the specialist underwriter, Equity Red Star and associated specialist distribution."
Michael Wilkins, managing director and CEO of IAG, said: "This is a poor result. While we have been affected by the increased frequency of natural perils, widening credit spreads and soft cycles in key markets, we have acknowledged we need to do better.
"We've recently made some tough decisions to ensure we get the fundamentals right and set a clear course for the future. We are confident these measures will underpin improved future profitability.
"We're increasing our discipline and focus. In both Australia and New Zealand, rate increases are being implemented in line with rising claims costs and frequency, while in commercial insurance we have ceded volume to maintain price discipline. In the UK, we are shifting the mix of our portfolio towards the more profitable specialty motor classes.”