IAG profit dips amid rising climate fears
People buying insurance can expect higher prices if damaging weather patterns continue, after bushfires knocked Insurance Australia Group's first half net profit down 43.4 per cent to $283 million.
The insurer's natural peril claims, such as those from bushfire victims, cost almost $100 million more than its allowance for the six months to December 31.
Heavy rain which flooded parts of south-east Australia last weekend has also prompted IAG to lower full year margin guidance.
Chief executive Peter Harmer explained the consequences for customers.
"The inescapable reality is if the cost of providing a good or service goes up, someone has to pay for that," he said.
The insurer offers home and motor insurance through brands such as NRMA, CGU and SGIO.
Mr Harmer said IAG was conscious of keeping insurance affordable, and believed work had been done to minimise cost impacts.
The insurance industry has for years been lobbying government to better protect communities against severe weather.
IAG's revised full year margin guidance is 12.5 per cent to 14.5 per cent, down from the already moderated figure of 14.5 per cent to 16.5 per cent it gave last month.
The net natural peril claim cost for the full year is forecast at $850 million, up from $715 million in January, factoring in the recent downpours.
The company's first half profit figure is lower as the $200 million sale of its Thailand business last year has cycled out.
Shareholders will receive a reduced interim dividend of 10 cents per share, franked to 70 per cent - a drop from 12 cents per share a year ago.
Mr Harmer said the summer's damaging weather had triggered greater community concern over climate change and its impact.
He called for all levels of government work with communities and businesses to minimise the immediate and long-term impacts of climate change.
"From our own business perspective, estimating the impact of weather is not a perfect science, as there is a lot of variability from year to year," Mr Harmer said.
"We consider a number of factors when determining our natural perils allowance and this includes the number of customers and the types of policies they have, as well as external factors around past weather patterns and future trends."
IAG expects the cost of the recent downpours to be capped at $135 million, in line with its second maximum event retention under its calendar 2020 reinsurance program.
Gross written premiums increased 1.4 per cent over the period to $5.96 billion, while insurance profit lifted 1.0 per cent to $501 million.
A spate of damaging weather, such as the bushfires which have killed dozens of people, have plagued the country since last year.
Rival Suncorp on Tuesday reported a dip in statutory net profit following a similar surge in disaster claims.
Shares in IAG were trading higher by five cents, or 0.73 per cent, at $6.92 at 1456 AEDT.
IAG'S HALF-YEAR FIGURES
* Net profit down 43.4pct to $283m
* Insurance profit up 1pct to $501m
* Interim dividend down to 10 cents per share, franked to 70 per cent
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