We are pleased to advise that IAG recorded a net profit after tax of $329 million for the first half of the 2010 financial year, up significantly from $4 million in the previous corresponding period.

The Group’s insurance profit increased to $488 million from $227 million in the first half last year, representing an improved insurance margin of 13.4%, up from 6.2%.

This substantial improvement confirms the actions taken since we outlined a new corporate strategy are delivering results.

In particular, our businesses in Australia and New Zealand have improved as we have introduced better pricing and underwriting disciplines, enhanced the way we manage claims and reduced our costs.

The Group’s result was buoyed by fewer than anticipated natural perils which reduced the claim costs associated with major storms and fires, and the favourable effects of easing volatility in credit markets.

Our reported premium revenue—measured as gross written premium—declined 1.5% compared with the previous first half due to the sale of some underperforming businesses in the previous period, and the effect of foreign exchange on revenue as the Australian dollar strengthened. When you exclude these factors, our underlying premium revenue increased by 5.1%.

Key operational highlights in the first half were:

• a strong performance from our Australia Direct business, which recorded premium revenue growth of 7.8% and an increased insurance margin of 16.9%;
• further improvement in the underlying performance of our Australia Intermediated business (CGU), leading to a higher insurance margin of 10.2%;
• a strong turnaround in the New Zealand business which recorded an insurance margin of 15%, reflecting the benefits of remedial actions and benign weather;
• strong local currency revenue growth in specialist classes in the UK business; and
• continued progress with our goal of growing in select Asian markets, including completion of our investment in our general insurance joint venture in India.

Our insurance margin also benefited from:

• higher than expected reserve releases of $80 million;
• natural peril claim costs which were $45 million lower than our allowances;
• a favourable credit spread movement; and
• the absence of the writedown of deferred acquisition costs experienced in the previous corresponding period.

Capital and dividend

IAG’s cash return on equity was 17.0%, up from 3.5% in the first half last year.

We continued to maintain a very strong balance sheet and our regulatory capital position further strengthened during the period.

The Board has determined to pay a higher interim dividend of 8.5 cents per share (cps), fully franked, up from 4 cps in the first half last year. It will be paid on 12 April 2010 to shareholders registered on 10 March 2010.

Outlook

The progress made in turning around our performance gives us confidence this momentum will continue in the second half of the 2010 financial year.

We expect to report a full year insurance margin in the range of 9.5–11.0%. We refined this guidance twice in March, from the guidance we gave on 25 February 2010, following the severe weather events which hit Melbourne and Perth during that month. Further details about the impact of these events can be found at www.iag.com.au. The refined guidance remains subject to losses from natural perils being within the revised natural perils forecast for the second half of the 2010 financial year and no material movement in foreign exchange rates or investment markets.

Our underlying premium revenue is expected to grow in the range of 3–5%, while the reported premium revenue should be similar to last year.

We remain ever mindful of the challenges we face, including intensifying competition and other external factors. However, we are confident we have the right strategy, and the right team, to meet these challenges and ensure we continue to improve results for our shareholders.

James Strong
Chairman

Michael Wilkins
Managing Director &
Chief Executive Officer