Insurance Australia's UK Arm May Report A$39 Million Loss in 2H12 -Credit Suisse

   By Caroline Henshaw 
 

SYDNEY--Insurance Australia Group Ltd.'s (IAG.AU) ailing U.K. operations could be in even worse shape than previously thought, Credit Suisse said in its latest analysis. This may endanger the prospects of the sale of the businesses.

Evercore Partners, which is reviewing IAG's U.K. arm, has issued a teaser prospectus that indicates the company only expects to break even in 2013, rather than this year as previously forecast, and points to a 110% combined ratio or COR for the businesses, according to a report from The Insurance Insider.

Credit Suisse analyst Andrew Adams said the higher-than-expected COR--a measurement of profitability for insurers where anything above 100% implies a loss--indicates the U.K. business could report a loss of 39 million Australian dollars in the second half of 2012, compared with a forecast A$5 million profit.

That would equate to an 8.7% downgrade to IAG's forecast for fiscal 2012 profit to $462 million, Mr. Adams said.

It could also threaten any planned sale of IAG's U.K. business, which is being considered as part of a strategic review announced by the insurer last month.

IAG announced the review of the U.K. businesses, which include the nation's fifth-largest motor insurer Equity Red Star and commercial insurance broker Barnett & Barnett, after it reported an insurance loss of A$5 million in the six months ended Dec. 31, up from a loss of A$121 million in the previous year.

A spokesman for IAG said the Insider figures weren't an accurate portrayal of the health of the U.K. business as they cover the calendar underwriting year rather than the financial year, and adhere to different accounting standards.

"We continue to work towards break-even in our U.K. business and will be announcing the results as part of the group's results in August," he said.

Write to Caroline Henshaw at [e-mail]