NO PLANS TO SELL UK OPERATIONS: INSURANCE AUSTRALIA GROUP

Insurance Australia Group Ltd (ASX:IAG) said it has no plans to sell its loss-making UK operations and is looking to enter China.

IAG’s chairman Brian Schwartz told shareholders that the insurer is working through a remediation plan to restore profitability to its UK business, which lost $A367 million (US$360.61 million) for the 12 months to June 30, 2010.

“There is no doubt it has not been a good performance,” he told IAG’s annual meeting on Wednesday.

But IAG believes it can restore profitability and has no plans to exit the UK market, he said.

“I don’t think now is a good time to exit the UK,” he said.

The UK loss in 2009/10 drew the ire of several shareholders, one of whom claimed the UK market “is a graveyard for Australian insurers”.

The UK “took the gloss off the result”, Mr Schwartz said, referring to IAG’s 2009/10 net profit after tax of $190 million, a drop of 23.1 per cent on the previous year.

He said that along with skinnier insurance margins, it was also partially responsible for depressing IAG’s cash return on equity which stood at 8.3 per cent in 2009/10, well below the company’s 15 per cent target.

IAG on Wednesday reaffirmed its full year 2011 guidance of an insurance margin of between 10.5 per cent and 12.5 per cent and Mr Schwartz assured shareholders this “is not a pipe-dream”.

IAG has appointed Ian Foy as the UK unit’s chief executive, exited 230 unprofitable broker relationships, increased premiums and strengthened its reserves for the UK business in an attempt to drive profitability, he added.

IAG is expecting a small operating loss for the business in the first half of 2010/11 and an improvement in the second half, he said.

IAG is seeking to expand its presence in Asia and will focus on making a regional play in China rather than a large acquisition, Mr Schwartz said, adding that regional acquisitions in China would be larger than a big acquisition in Europe.

A regional play would risk less capital for the group and give IAG a feel for doing business in China before expanding further, he said.

“We won’t rush into big acquisitions,” he added.

IAG has a presence in Thailand, Malaysia, and a 26 per cent stake in a joint venture with the State Bank of India.

Mr Schwartz said IAG would not resist takeover talks with larger insurers, but no such discussions were currently being held.

IAG received 7,000 insurance claims from the recent Christchurch earthquake and after-shocks and said its costs will be covered by its reinsurance arrangements.

Mr Schwartz indicated new business sales in New Zealand had increased after the earthquake.

Chief executive Michael Wilkins said IAG’s reserve releases will decline over time to a targeted 0.5 per cent to 1.0 per cent of overall insurance margins.

By 1216 AEDT IAG’s shares had eased three cents to $3.81.