Insurance Australia Profit Jumps on Investment Income

By Robb M. Stewart Features Dow Jones Newswires

MELBOURNE, Australia--Insurance Australia Group Ltd. (IAG.AU) reported a big lift in its annual profit, boosted by increased reserve releases and a jump in investment income thanks to stronger equity markets.

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IAG, a big Australian general insurer that counts Warren Buffett as a shareholder, said its net profit rose 49% to 929 million Australian dollars (US$735.0 million) in the 12 months through June from A$625 million the year before. That came even as annual revenue slipped 1.6% to A$16.50 billion from A$16.77 billion.

In late June, the insurer said it anticipated a bigger-than-expected reserve release for the year, largely related to favorable trends against its expectations on claim size and inflation for "long-tail" policies, those involving coverage of risks where a claim may not be received for many years.

For the year ahead, Insurance Australia said it expected an improved underlying operating performance and low single-digit gross written premium growth.

IAG said it would pay a final dividend of A$0.20 a share for a full-year payout of A$0.33, up on last year's A$0.26.

In mid-2015, Mr. Buffett's Berkshire Hathaway Inc. agreed to a strategic partnership with IAG, buying an initial 3.7% stake for A$500 million as part of a 10-year deal that fast-tracked Berkshire's expansion in the region and promised to lower IAG's capital needs. Under the partnership, Berkshire receives 20% of IAG's gross written premiums and pays 20% of the insurer's claims.

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IAG's insurance profit for the year was just over 8% higher at A$1.3 billion, and its reported insurance margin widened to 14.9% from 14.3%. It forecast the margin for the 2018 financial year would likely be between 12.5% and 14.5%.

Gross written premium was A$11.8 billion, a rise of A$400 million on the year before, which the company said was mainly driven by higher rates on its "short-tail" automotive policies in response to claims inflation.

IAG said it was well advanced with plans to tackle the rising cost of claims with initiatives aimed at reducing costs.

Write to Robb M. Stewart at robb.stewart@wsj.com

(END) Dow Jones Newswires

August 22, 2017 19:07 ET (23:07 GMT)