Insurance Australia Falls Most in Six Years After Profit Decline

(Bloomberg) -- Insurance Australia Group Ltd. shares slumped the most in six years after the company’s first-half profit declined and missed expectations. 

The insurer fell 7.5 percent to A$5.91 as of 1:00 p.m. in Sydney, the biggest drop since February 2009. The benchmark S&P/ASX 200 Index was 0.6 percent higher. Insurance Australia said Wednesday profit in the six months ended Dec. 31 fell 10 percent to A$579 million ($452 million) from A$642 million reported a year earlier. That missed the A$594.8 million mean estimate of four analysts surveyed by Bloomberg. 

Insurance Australia suffered from lower income on shareholder funds and a blowout in natural-disaster claims partly due to storms in Brisbane in Queensland state in November, it said. The Sydney-based company also said competition had increased and it now expects gross written premium growth for the full year to be at the lower end of the 17 percent to 20 percent range previously forecast. 

“In the insurance game you take measured risks and this time their assumptions for perils claims missed by a good measure,” Evan Lucas, a market strategist at Melbourne-based IG Ltd., said by phone. “They missed almost every metric the market was focussed on, be it premium growth or full-year outlook, and that is why the stock is being sold.” 

Net natural-disaster claims costs soared 26 percent to A$421 million from a year earlier and were A$71 million higher than the insurer’s assumptions, the company said. Investment income on shareholders’ funds was 40 percent lower than a year earlier, when it experienced “strong” equity-market returns, Insurance Australia said. 

The insurer expects to report an insurance margin in the range of 13.5 percent to 15.5 percent for the year ending June 30 based on a A$700 million assumption for net natural-disaster claims. 

To contact the reporter on this story: Narayanan Somasundaram in Sydney at nsomasundara@bloomberg.net

To contact the editors responsible for this story: Marcus Wright at mwright115@bloomberg.net Andreea Papuc, Paul Panckhurst