• Challenging operating environment, with increased price competition among private motor underwriters.
• Specialist motor classes continued to trade profitably.
• Revised strategy will lead to scale back of IAG’s UK operations.

IAG’s UK businesses, which contributed around 14% to the Group’s GWP in their first full year of operations, recorded an insurance profit of $28 million, down from $30 million achieved in the previous year. Its insurance margin reduced from 5.1% to 2.8% during the year.

The profit decline was driven primarily by deterioration in the performance of our mass market underwriting businesses which were severely impacted by challenging market dynamics, particularly in the private motor insurance sector. As more customers turn to the internet to source insurance, the number of comparison websites or aggregators has grown, leading to considerable price competition, customer churn, narrower margins and a reduced opportunity to benefit from direct contact with customers.

These factors contributed to our decision to revise our strategy in the UK. Moving forward, we will concentrate on being a specialist motor insurance underwriter through Equity Red Star, and will divest or restructure our mass market distribution businesses.

We are pleased to report Equity Red Star maintained its unbroken track record of profitability during the year. We expanded these operations to take advantage of the stable conditions and acquired specialist broking network, Barnett & Barnett, to support distribution.

The outlook for our specialist underwriting business, Equity Red Star, is favourable. We expect to benefit from rising rates and our concentration on ongoing underwriting and cost discipline.

While lower revenue growth will result from our decision to scale back our UK operations, we expect to improve profitability as we implement our revised strategy.