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Competition hits IAG NZ's profit margins

NZ NewswireNZ Newswire 19/08/2016 By Paul McBeth

State Insurance is part of IAG's New Zealand stable. © Getty images State Insurance is part of IAG's New Zealand stable. Insurance Australia Group's New Zealand division posted a 38 per cent slide in annual profit as rampant competition for commercial customers drove down prices and as the country's biggest general insurer faced a higher risk margin on the Canterbury earthquakes.

Sydney-based IAG's New Zealand unit includes Lumley Insurance, NZI, AMI and State brands on this side of the Tasman.

The local division posted an insurance profit of A$135 million ($NZ142m) in the 12 months ended June 30, down from A$216m ($NZ228m) a year earlier. Gross written premiums (GWP) fell 3.7 per cent to A$2.18b ($NZ2.30b), with business GWP dropping 8 per cent in kiwi dollar terms as heightened competition saw insurers discount commercial product lines.

Weaker margins in the second half "reflected the cumulative effect of competitive pricing pressure in the commercial market, as well as higher claim costs associated with the seasonally wetter months of May and June," IAG reported in its results.

"Harsher competitive conditions continued to place pressure on commercial product lines, especially property where IAG experienced item loss and rate reductions."

Across the wider IAG group, profit fell 14 per cent to A$625m ($NZ659m) on a 0.6 per cent decline in GWP to A$11.37b ($NZ11.98b), with both Australia and New Zealand experiencing challenging conditions.

The board declared a fully-franked final dividend of 13 Australian cents per share, taking the annual payment to 26 cents, down from 29 cents a year earlier. It also announced a A$300m ($NZ316m) off-market share buyback which is expected to be completed in mid-October.

The insurer's New Zealand profit was hit by NZ$150m ($NZ158m) increase in the risk margin for the 2011 Canterbury earthquake, which it recognised in the first half of the year. IAG settled NZ$5.7b ($NZ6.0b) of quake-related claims as at June 30, accounting for 93 per cent of all claims.

The ASX-listed shares last traded at A$5.85 and have gained 7.2 per cent so far this year.

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