C. NEW ZEALAND
New Zealand continued to perform strongly at an underlying level, while the reported margin was slightly lower than the prior year. This
was after an earthquake-related net reserve strengthening which served to reduce the full year outcome by over 600 basis points,
partially offset by a favourable natural perils experience, particularly in the first half of the year. The business has maintained its
market-leading position, with GWP growth of 22.8% derived from the former Wesfarmers business and a favourable foreign exchange
translation effect. Modest like-for-like growth in direct personal lines was countered by tougher conditions in the commercial market,
where underwriting discipline has been maintained.
I. Premiums
New Zealand’s GWP of $2,267 million represented an increase of 22.8% over the prior year (2014-$1,846 million). This strong growth
reflects the first contribution from Lumley Insurance (Lumley) following its acquisition as part of the Wesfarmers transaction and a
favourable exchange rate effect compared to the prior year.
Excluding Lumley, local currency GWP fell slightly, reflecting:
softening premium rates and additional capacity in commercial lines;
ongoing aggressive competition across the intermediated business;
a small reduction, primarily in the second half of the year, from the transfer of the health portfolio and the outsourcing of a large
portion of the travel portfolio to third parties; and
offsetting solid growth in direct personal lines, particularly in the home owner and private motor vehicle areas.
II. Insurance profit
The New Zealand business produced an insurance profit of $216 million (2014-$180 million), which was a strong result in a
competitive environment. The result equated to a reported insurance margin of 10.8% (2014-11.5%).
The slightly lower reported insurance margin reflects the combination of:
continued focus on pricing and underwriting discipline, while balancing affordability for customers with availability of insurance
capacity;
ongoing operational improvements across the business and the realisation of initial benefits associated with the Lumley
integration;
relatively benign natural peril activity, despite the pick-up in events in the second half of the financial year; and
reserve strengthening in respect of the 2011 financial year earthquakes, which has seen the Group exceed its reinsurance cover
for the February 2011 event.
The New Zealand business’ underlying margin was consistently strong across the financial year ended 30 June 2015, while absorbing
high regulatory and reinsurance costs in an increasingly competitive environment.
III. Canterbury Rebuild
Over the course of the financial year, there was a significant increase in the expected final claim cost arising from the series of
earthquakes that affected the Canterbury region in 2010 and 2011. This was primarily driven by:
the continuing notification of new household claims exceeding the Earthquake Commission’s (EQC) NZ$100,000 residential
dwelling limit;
an increase in forecast repair and rebuild costs; and
a series of adverse court judgements which have affected the insurance industry.
The bulk of the increase relates to the 22 February 2011 event. At 30 June 2015, gross claim reserves for the February 2011 event
now exceed the applicable reinsurance limit of NZ$4 billion, bringing the Group on risk for any further development. Loss estimates for
the other major earthquake events are expected to settle well below respective reinsurance limits.
While the Group believes it has adopted an appropriate reserving position, given the complexity of the Canterbury earthquake events
there remains a degree of uncertainty as to the ultimate cost.
All earthquake settlement statistics exclude those related to the Lumley business. Although Lumley’s earthquake claims are being
managed by IAG, they are subject to indemnities from the previous owner which result in no future financial exposure for IAG.
D. ASIA
IAG’s combined operation in Asia continues to make sound progress towards its long term goals, with the fundamental underwriting
performance of the established businesses remaining strong and developing markets progressing broadly to plan. Asia is expected to
be an important source of long term growth for the Group.
Asia achieved an improved operating performance in the financial year ended 30 June 2015 as it continues to accelerate its
operational development and enhancement of risk management and governance.
A key milestone in the current financial year was the acquisition at the end of April 2015 of PT Asuransi Parolamas (Parolamas) in
Indonesia, fulfilling IAG’s presence in its six target markets in the Asian region. IAG is now focused on securing a distribution
agreement with a recognised local partner to capitalise on opportunities presented in a market with a low insurance penetration and a
growing middle-class.
During the year there was a $60 million writedown of the investment in Bohai Property Insurance Company Ltd (Bohai Insurance) in
China. This was influenced by a revision to the expected cash flows of the business, together with the indicated issue price of new
shares in a capital raising in which IAG does not intend to participate.
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