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Berkshire Hathaway Specialty Insurance
Berkshire Hathaway Specialty Insurance

AUB profit rises 4% after ‘challenging’ year

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AUB Group profit rose 4% to $48.4 million last financial year as its broking and underwriting businesses delivered stronger results. But a slump in the health and rehabilitation earnings and financial misconduct at a Canberra subsidiary eroded the gains.

CEO Mike Emmett, who took over the role in March from Mark Searles, says the group experienced a number of highs counterbalanced by some significant lows in a challenging period.

“Our insurance broking and underwriting businesses in Australia and New Zealand delivered good organic growth bolstered by the positive impact of an increased shareholding in several brokers,” Mr Emmett said. “This performance was partially offset by the Canberra fraud event.”

Australian broking earnings rose 3.7% to $52.8 million boosted by higher premiums and margins and an increased holding in the Adroit brokerage.

Mr Emmett says the business, which has a strong SME focus, is seeing low-to-mid single digit price rises on a “like for like” basis for continuing business.

AUB says the market is in year three or four of a positive six-to-seven year upswing in the global underwriting cycle, and recent Lloyd’s losses are a basis for the potential extension of the cycle.

Costs related to a fraud at Austbrokers in Canberra were $3.189 million for the six months ended June 30, with the company earlier this month advising that it had completed its investigation into the matter.

Its New Zealand arm’s profit contribution jumped 41.5% to $9.2 million, mainly buoyed by this year’s purchase of a further 50% in Brokerweb Risk Services, AUB’s biggest acquisition to date in dollar terms.

The group’s underwriting agencies pushed profit up by 11.6% to $15.5 million as significant revenue growth in a number of agencies was partially offset by delays in shifting strata business “to a new panel of insurers with a strong appetite for this portfolio”.

Risk services profit fell 66.1% to $2.4 million, with health and rehabilitation businesses Altius and Allied experiencing continued reduction in case volumes and excess service capacity.

Mr Emmett said case volumes from NSW state insurer icare are expected to remain flat, after a previous expectation for a “return of volumes”.

Earlier this month AUB said it was planning a $150-200 million acquisition of Coverforce, but a dispute over the proposed sale amongst the target company’s shareholders is now before the Supreme Court of NSW.

Mr Emmett says the status of the dispute will become clearer in November, but AUB is protected by walk-away rights if the deal does not proceed.

“We are really respecting those proceedings between the parties and staying out of the way,” he said.

AUB remains well-placed to pursue other merger and acquisition opportunities, whether or not the Coverforce deal goes ahead, he told today’s earnings briefing.

The company forecasts adjusted net profit growth of 4-6% for the current financial year.