Insurance Australia Group Ltd
(ASX:IAG) says it will incur a one-off, pre-tax charge of around $365 million and report a full year insurance margin of between 6 and 7%, down from previous guidance of 9.5 to 11%.
Looking ahead the company says it expects its fiscal 2011 insurance margin to be between 10.5 and 12.5% reflecting confidence in the continued underlying improvement in its overall business.
IAG says the $365 million charge is due to a significant deterioration in UK claim payments, in particular bodily injury claims.
CEO Michael Wilkins says the company had notcied an increase in the cost of bodily injury claims back in 2007, however, actuaries carrying out a review recently confirmed that the scope of the issue is greater than originally anticipated.
Mr Wilkins says IAG’s immediate priorities have been to ensure that its UK business is appropriately reserved, the company’s exposure to this issue is limited through reinsurance, and that it has an appropriate program of remedial actions.
Mr Wilkins expressed his disappointment that injury claims would wipe 5% off the company’s insurance margin for fiscal 2010.
Despite this though, IAG says it is encouraging that all other businesses within the group are performing at least to expectations.
IAG pulled itself out of the red to post a profit in the 2009 financial year after a loss the year before.
