MELBOURNE, Australia--Insurance Australia Group Ltd. (IAG.AU) has flagged a bigger-than-expected reserve release for the financial year, which should boost its reported margin.
IAG, one of Australia's largest general insurers, said Wednesday a preliminary review for the year through June indicated the release of reserves would total at least 5% of net earned premium, ahead of earlier guidance of at least 2%.
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The releases largely relate to a favorable experience against its expectations on claim size and inflation for its Australian "long-tail" classes, insurance business involving coverage of risks where a claim may not be received for many years, the company said.
It remains management's longer-term expectation that reserve releases would represent about 1% of net earned premium in any given year.
With the expected increase in reserve releases, IAG raised its forecast for its margin for the financial year to 13.5%-15.5% from 10.5%-12.5% previously.
The company, which is due to release its full-year results on Aug. 23, said other assumptions remain unchanged, including net losses for the year from natural disasters of 850 million Australian dollars (US$644.5 million).
IAG, which counts billionaire investor Warren Buffett as a shareholder, recorded a 14% fall in net profit to A$625 million for the last financial year but an insurance margin of 14.3%, up 3.6 percentage points.
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Corrections & Amplifications
This item was corrected on June 27, 2017 at 0102 GMT to reflect that Insurance Australia's financial year runs through June, not March.
Insurance Australia's financial year runs to the end of June. "Insurance Australia Anticipates Higher Reserve Release," at 0040 GMT, misstated the period in the 2nd paragraph.
(END) Dow Jones Newswires
June 27, 2017 21:01 ET (01:01 GMT)