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.
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.
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.
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(END) Dow Jones Newswires
August 22, 2017 19:07 ET (23:07 GMT)