Bigger claims drag down insurer IAG's New Zealand profit

Wednesday, 11 August 2021

Heavy rain flooded streets and caused severe landslips and evacuations in Napier in November 2020.

Australian insurer IAG has reported a drop in profit in New Zealand as claims return to pre-Covid levels.

The Australian ASX-listed insurer reported an overall A$427 million (NZ$448m) loss in the 12 months to the end of June as a result of paying Covid-related business interruption insurance claims, and having to set aside money in Australia to make refunds to wronged customers, and fix historic payroll failures.

The loss compared to a A$435m profit in the previous 12 months.

IAG's New Zealand business, which includes the State, NZI and AMI brands, remained profitable, with chief executive Nick Hawkins reporting ongoing premium increases for households, and strong customer retention.

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IAG is not a name familiar to many households, despite being the largest insurer in New Zealand. The brands it owns are State, AMI, NZI, Lantern Insurance, Swann Insurance, NAC Insurance and Lumley.

In the 12 months to the end of June, IAG’s New Zealand operations delivered an insurance profit of A$305m, compared to A$330m in the previous 12 months.

The insurer’s dip in profit in New Zealand followed a drop announced by Suncorp, IAG's largest rival in New Zealand, which owns Vero, and has a majority stake in AA Insurance.

But while Suncorp said its result was hit by higher-than-expected extreme weather claims, IAG said its New Zealand experience was “relatively benign”.

Several large natural peril events were experienced in the first half of the financial year, however peril activity in the second half was relatively benign, IAG told investors.

The largest extreme weather event in New Zealand was the Napier flood in November, which cost the insurer A$16m.

It's been 10 years since the Canterbury earthquakes, but IAG has not yet finished paying claims.

But that claim was dwarfed by extreme weather claims in Australia.

The Queensland and New South Wales heavy rain and flooding in March 2021 cost it A$135m, and tropical cyclone Seroja in April cost it A$68m.

IAG said “good progress” continued to be made with the settlement of claims associated with the 2011 Canterbury earthquakes.

“At June 20, 2021 over NZ$7.1 billion of claim settlements had been completed, with less than 600 claims remaining open out of more than 90,000 received,” it reported.

Hawkins said IAG's intent was to complete the claims as soon as possible, but would not say how he felt about the decade-long wait for policyholders.

IAG said its 2021 result in New Zealand partly reflected a return to pre-Covid-19 claims trends.

Hawkins said his aim was to build a stronger and more resilient business.

He said IAG’s business was sound, despite the announced loss, calling the New Zealand profit “solid”.

But, he said IAG had underperformed in recent years.

IAG continued to evolve its work to develop a similar understanding of physical climate impacts for New Zealand.

Hawkins said there was a trend around the world for greater risk-based pricing on policies for homes so those at higher risk of natural disasters like flooding and earthquake paid higher premiums.

In New Zealand Tower began the move to make owners of more at-risk homes pay higher premiums compared to owners of homes in safer locations.