IAG Insurance Australia Group Limited

By Robb M. Stewart

MELBOURNE, Australia--Insurance Australia Group Ltd. (IAG.AU), the Australian general insurer that counts Warren Buffett as a shareholder, saw its first-half profit slip as it was squeezed by natural-disaster claim costs and insurance earnings declined.

The weaker half year came despite improved investment income thanks to a stronger equity market and a better-than-expected rise in the insurer's gross written premium, due largely to rate increases to counter higher claim costs in some parts of its personal lines in Australia and New Zealand and improved commercial pricing.

The company said it now expected its full-year gross written premium growth would be in the low single digits.

Insurance Australia's net profit fell 4.3% to 446 million Australian dollars (US$342.8 million) in the six months through December from A$466 million a year earlier. That was as revenue for the period eased by less than 1%, to A$8.18 billion from A$8.24 billion.

The company's insurance profit declined 6.4% to A$571 million, although gross written premium grew to A$5.8 billion from A$5.5 billion.

Chief Executive Peter Harmer said the period reflected a sound result from the company's core businesses in Australia and New Zealand and further signs that commercial pricing had passed the bottom of the cycle.

Yet, while the company's operations in India moved into profit over the half year, that was more than offset by increased competition and claims pressure in Thailand and Malaysia, Mr. Harmer said.

In mid-2015, Mr. Buffett's Berkshire Hathaway Inc. agreed to a strategic partnership with Insurance Australia, buying an initial 3.7% stake for A$500 million as part of a 10-year deal that fast-tracked Berkshire's expansion in the region and promised to lower IAG's capital needs. Under the partnership, Berkshire receives 20% of Insurance Australia's gross written premiums and pays 20% of the insurer's claims.

The company in January finalized its natural-disaster reinsurance program for calendar 2017, keeping gross cover steady at up to A$7 billion. Its natural-disaster claim costs exceeded the allowance it had set for first-half of the fiscal year by A$80 million.

The company said it had received more than 13,000 claims to date for damages during a hailstorm that struck northern Sydney this month, but it expected that would be within its current allowance and available reinsurance cover.

Insurance Australia plans to keep its interim dividend steady at 13 Australian cents a share, although this time last year it also offer a special payout of 10 cents.

Write to Robb M. Stewart at robb.stewart@wsj.com

(END) Dow Jones Newswires

February 21, 2017 17:00 ET (22:00 GMT)

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