Insurance Australia Group
Growth generated via Berkshire Hathaway Strategic Alliance and Asian Pacific markets : Insurance Australia Group Ltd (ASX:IAG) delivered a poor fiscal year of 2015 performance with itsInsurance profit decreasing to $1.1 billion as compared to $1.6 billion in the prior corresponding year. The underlying insurance margin reduced to 13.1% in FY15 from 14.2% in prior corresponding period (pcp). Although, personal insurance rose 5.2% in GWP, the net natural peril claims costs offset the gain, and surged to $1.05 billion in FY15, which is $348 million more than the allotted allowance of $700 million for the year. On the other hand, IAG entered into a strategic relationship with Berkshire Hathaway, with 20% quota share agreement across the group’s insurance business, so that IAG could shield its earnings volatility and capital requirements for the next ten years. IAG intends to maintain its 15% return on equity through this move. Insurance Australia estimates that this quota share arrangement would reduce its capital requirement of over $700 million for the next five years, while $400 million of that benefit estimated to be realized by FY16. This agreement would also support the group’s focus on Asia pacific markets. Insurance Australia Group intends to raise its stake in SBI General, the general insurance joint venture with State Bank of India, to 49% from 24% subsequent to the legislative changes on foreign ownership by the end of 2015 fiscal year. The group also acquired PT Asuransi Parolamas, a small general insurance company, to get insurance license in Indonesia. IAG launched InsureLite, a new solution for families seeking for home insurance affordability stress in Queensland. There is still food for thought about the reserves requirements for the New Zealand quakes alongside the questions arising around the expected investment in China and Asia. To read the complete report Click Here
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