Higher claims stemming from the Canterbury hailstorm and increased operating costs linked to closing its AMI offices has dragged down the profits of IAG New Zealand - the parent company for State and AMI.
The New Zealand arm of the ASX-listed IAG Group business reported an insurance profit of A$330 million ($357m) for the year to June 30 - a A$60 million drop on the previous year.
Gross written premiums at the country's largest general insurer rose 3.5 per cent to A$2.754 billion ($2.836b) up from A$2.66b driven by strong growth from its business insurance arm prompted by more policies sold and higher rates in commercial property and liability insurance.
Gross written premiums in its consumer division were flat but there was growth in its commercial motor and AMI private motor portfolios through increased rates and more policies sold.
But the business' insurance margin was squeezed from 24.7 per cent to 20.2 per cent over the year.
This reduction was put down to higher natural peril claim costs centred on November's Canterbury hailstorm, higher large claims and lower investment income.
The business had a "modest net benefit" from Covid-19 with lower motor claims countered by increased operating costs, including those related to the AMI branch network closures, which the company put at more than A$20m.
Last month IAG New Zealand announced it would close all 53 of its AMI stores and its remaining State store, culling 65 branch manager jobs.
The closures will be phased and follow a review of its retail network.
Stores in Albany, Botany, Te Rapa in Hamilton, Mt Maunganui, Wellington, Hornby and Dunedin will remain open until the end of June next year.
The Timaru branch would remain open until November 27. All others would close on September 18.
IAG said it continued to make progress on Canterbury earthquake claims; more than NZ$7.2 billion had been paid in settlements as of June 30.
It still had 900 claims open out of the more than 90,000 it received.
"Outstanding Canterbury earthquake claims include those subject to dispute and litigation, as well as recently received over-cap claims from the Earthquake Commission.
"It remains IAG's expectation that finalisations of all residual claims will take several years given associated complexity."
The New Zealand business accounted for 23 per cent of the IAG Group's gross written premiums.
IAG Group reported a nearly 60 per cent drop in its net profit after tax, which fell from A$1.076b to A$435m after the business was hit hard by high natural disaster claims and fallout from Covid-19.
Its insurance profit fell 39.5 per cent to A$741m.
The only positive in the results was a rise in gross written premiums which were up 1.1 per cent to A$12.005b.
IAG Group managing director Peter Harmer told the exchange that its top line gross written premium growth was in line with its guidance despite incurring a slight negative effect from Covid-19 in the second half from lower new business volumes.
"Our FY20 reported margin of 10.1 per cent fell outside our guidance of 12.5-14.5 per cent due to the higher than expected level of natural peril events, a strengthening of our reserves mainly in the liability, professional risks and workers' compensation areas, and credit spread effects. Covid-19 impacts on our underwriting profit largely offset each other."
It will pay a dividend of A10c per share, down from A32c per share.
The insurers annual report also revealed IAG New Zealand chief executive Craig Olsen received total remuneration of A$2.029 million for the year to June 30 up from A$1.836m.
His boss IAG Group chief executive Peter Harmer was paid A$5.743m, up from A$5.407m.