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IAG slumps to loss on UK write-downs

Troubled Australian insurer Insurance Australia Group Ltd (IAG) has slumped to a A$261mn loss after taking a A$350mn charge in relation to the impairment of its UK assets.

The loss compared to a A$552mn profit in the year ended 30 June 2007, and also included a fall in underwriting profit from A$767mn to A$448mn for the period.

The disappointing figures come just over a month after IAG chairman James Strong wrote to shareholders outlining a raft of changes, including the sale of some UK operations and the rolling out of an efficiency drive across the group.

The insurer also took a restructuring provision of A$60mn in its results and said that, as well as scaling back its UK operations, it will cut operational costs in Australia by A$130mn a year from 2009.

“This is a poor result. While we have been affected by the increased frequency of natural perils, widening credit spreads and soft cycles in key markets, we have acknowledged we need to do better,” CEO Michael Wilkins said in a statement.

Claims costs from natural events rose 22 percent to A$502mn as the company was hit by more severe weather events in Australia than usual in its first half, including the flooding events that have led to unprecedented mining losses elsewhere in the (re)insurance sector.

IAG had earlier revealed that it will withdraw its investment from Lloyd’s Syndicate Alba, and sell UK motor insurance operations Hastings, Advantage and Equity Insurance Brokers – as well as scale down its specialist motor underwriter Equity Red Star.

At the time the company said the moves would result in the A$350mn write-off.

Meanwhile, Australian rival QBE Insurance has again ruled out a further bid for IAG in the short term saying it is focussed on foreign acquisitions.

QBE CEO Frank O’Halloran said: “We obviously monitor the share price of lots of companies and we will wait and be patient and just look at opportunities as they come along. We are interested in all the top five companies in Australia, Allianz, Wesfarmers, the insurance business of Suncorp, and obviously IAG, as long as we have long-term aspirations of building our business in Australia.”

O’Halloran added: “We wouldn't buy Suncorp by ourselves but we’re not dwelling on it or IAG at the moment.”

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