Natural disasters continue to batter Wesfarmers Insurance

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20 February 2012

Wesfarmers Insurance has slumped to a $17 million profit for the six months to December 31, with natural disasters, low interest rates and reinsurance costs all affecting its bottom line.

The Perth-based Wesfarmers conglomerate posted increased revenues from its insurance business of $945 million, up 8% on the comparable period of 2010, with gross written premium up 11% to $732 million.

But the insurance division posted the worst profit figure of all of the Wesfarmers divisions, down 74% from $65 million in 2010.

Its profits were hit by $26 million of additional reserving required to covers its losses from the February 2011 Christchurch earthquake, as well as estimated net claims expenses in excess of its allowances of $28 million relating to the bushfires in WA, the December 23 Christchurch earthquake, Melbourne’s Christmas day hailstorm and other severe weather events.

Wesfarmers says higher crop claims and higher reinsurance costs from July 1 also affected the result, and its combined operating ratio crept up almost 10 points to 108% for the half year.

The underwriting division posted a $10 million loss, but Wesfarmers told the market the underlying performance of the underwriting business “showed some improvement as higher gross written premiums were achieved through premium rate increases and growth in personal lines”.

It adds that it achieved premium rate increases of around 7% in the half, and when fully earned, “premium rate increases are expected to offset higher reinsurance costs”.

Broking produced a $35 million profit for the division, up 26%, “benefiting from recent bolt-on acquisitions, new business growth and a general hardening in premium rates”.

Wesfarmers Insurance MD Rob Scott points to the upside of the results, saying he is “pleased” with the growth the business achieved in targeted markets through premium rate increases and growth in broking and personal lines.

Looking forward to the second half, Wesfarmers Group MD Richard Goyder says that while the performance should be better, natural catastrophes and low interest rates still pose potential risks.

“Earnings for the insurance division are expected to improve, in the absence of a continuing high number of catastrophe events, due to both new business and premium revenue growth,” Mr Goyder said.