Insurance Australia Group (IAG) has reported a 27% drop in annual profit to $552 million for 2007, a result that should not have come as that much of a surprise to the market and analysts because of the widespread publicity given to the two main factors.
These were bad storms in June in NSW (especially in the Hunter Valley, Newcastle and around Gosford) and the heavy rain and bad floods in Britain.
The market took fright at the lower result it sold off IAG 42c to $5.30 on more than 18 million shares.
The market seems also to have not remembered that there was a second flood event in Britain in early to mid July that was the equal of June's.
The Association of British Insurers puts the costs of June's floods at 1.5 billion pounds and those in July at almost 1.5 billion pounds.
The NSW storms and floods cost around $750 million.
"Two extreme weather events, which occurred in June 2007 in parts of NSW in Australia and in the UK, caused significant property damage and cost the Group $200m (net of reinsurance) before tax, or a 3% detriment to the insurance margin," IAG said on Friday.
CEO, Michael Hawker, said IAG's storm experience in the last few years was statistically unusual.
"We've experienced two catastrophes of over $150 million in two consecutive years, which statistically for us is unusual," Mr Hawker said in an analysts briefing on Friday.
The company says it is unlikely to experience the same high frequency of storms that dragged down its fiscal 2007 annual profit.
IAG has forecast its gross written premiums (GWP) to grow by between 10% and 12% in 2008 as it increases prices on some of its Australian commercial line products and its UK motor insurance products.
The company said that GWP grew 15% to $7.4 billion, ahead of IAG's guidance of 12% to 14% growth. They are forecast to rise 12% this year.
IAG reported net profit of $552 million compared with $759 million a year ago.
"The group was on track to deliver an improved insurance margin until the final month of the period, when it incurred a $200 million net loss from the June storms in Australia and the UK, which had a negative 3 percent impact on the insurance margin," the company said in a statement in Friday.
Gross written premiums, which are forecast to rise by up to 12% this year, climbed 15% last year to $7.38 billion.
IAG's overseas ambitions received a setback earlier this year when it had to call off its planned up to $375 million stake buy in China Pacific Property Insurance Co.
Last year, IAG bought Britain's fifth-largest car insurance broker Hastings Insurance Services Ltd and car insurer Advantage Insurance Co as it expanded offshore to offset tough competition in local markets.
Last Monday QBE Insurance Group, surprised with a $100 million rise in net profit above forecasts: its interim profit rose 56%. Suncorp-Metway is scheduled to release its earnings later today. It controls the GIO brand and took over Pomona during the June 30 year.
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Oil refiner and marketer Caltex Australia Ltd has reported a 46% rise in interim net profit to $255 million for its first half year, from the $176 million earned in the same period of 2006
That profit figure was on the company's favoured "basis of replacement cost of sales operating profit (RCOP) basis for the first half of 2007. (The RCOP figures exclude the impact of international oil price movements on cost of sales.)"
On the more convention historical cost basis, the result was $368 million versus $277 million, a still impressive rise of 32.8%.
The $255 million (on the company's basis) was at the top end of guidance in June when the estimate was in the range of $237 million to $255 million.
Caltex said Friday that refinery margins are expected to remain robust and its refineries are on track to deliver 11 billion litres of petrol, diesel and jet fuel for the full year, compared to 10.2 billion litres in 2006.
"The Marketing business will continue to pursue profitable growth, particularly in diesel sales," Caltex said.
"Refiner margins are expected to remain robust, with the usual seasonal decline in the third quarter and with the likelihood that a continued strong $A will moderate $US refiner margin earnings."
Caltex said there had been strong growth in diesel sales, strong refining throughput rates, and production and was on track this year to more than double the volume of biofuel sold.
"The first half 2007 result continued the strong second half result for 2006 of $255 million.
"Despite the negative impacts of the stronger Australian dollar and increased refinery downtime due to planned maintenance, focus on those drivers under Caltex's control enabled the company to sustain a strong operational performance post the Clean Fuels Project.
"The Caltex refiner margin (CRM) averaged US$10.74 a barrel in the first six months of 2007 up from US$9.76 a barrel in the same period in 2006, although the stronger Australian dollar in the first six months of 2007 (average US81 cents) compared with the same period in 2006 (average US74 cents) moderated earnings gains from the US dollar denominated refiner margin.
"Had the exchange rate averaged the same amount in the first half of 2007 as it did in the first half of 2006, the CRM contribution to profit would have been approximately $30 million higher.
The higher margin reflected strong regional demand and tight supply affected by regional refinery maintenance shutdowns. This first half 2007 profit equates to 2.6 cents per litre on average for all petroleum products sold," Caltex said.
The company's interim dividend is 47 cents per share, up from 32 cents for the first half of 2006.
The shares jumped 79c to
