IAG downgrades forecasts

The continuing tight credit market combined with the significant impact of storm has caused Insurance Australia Group Limited to lower its outlook for the second half.

The move comes at the same time as QBE maintains a takeover proposal for IAG.

The company informed the Australian Securities Exchanges this morning that it had lowered its insurance margin guidance for the full year ending June 30, 2008, to between 6 and 8 per cent, down from 9 to 11 per cent.

The group also lowered its guidance on GWP growth for the full year from the low end of 7 to 9 per cent to 5.5 to 6.5 per cent, which it said largely reflected reduced premium revenues from Australian Commercial Lines as the business had not been able to maintain forecast volumes while adhering to its underwriting discipline.

Commenting on the announcements, IAG chief executive Michael Hawker said that while the group continued to be adversely impacted by external factors, this masked the improving underlying trend half on half.

He said the group was undertaking a number of initiatives aimed at improving its performance for the second half of the current financial year and into next financial year, including a restructuring of the corporate head office and the refinement of the structure of the Australian operating businesses from three to two, with synergies currently being identified.

Hawker said this was allied to other measures such as the implementation of rate increases in most classes of insurance to reflect higher claims costs and a tactical reallocation of the investment portfolio which had locked in higher returns.