NEW ZEALAND BUSINESS NEWS
Empowering Kiwi Businesses
AA Insurance, the general insurer owned jointly by the New Zealand Automobile Association and Vero Insurance, has reported premium revenue above $1 billion for the year to 30 June. The company sells home, contents, car, and commercial small business cover to more than 560,000 customers holding over 1.1 million policies.
Premium revenue reached $1.01 billion, an increase of 1.8 per cent, or $18 million, on the prior year, according to the insurer’s financial statements for the 12 months to 30 June, which were published by the Companies Office on Tuesday.
The milestone came alongside a weaker bottom line. Net profit after tax fell about 15 per cent, or $21.6 million, to $144.1 million from $170.2 million the year before.
AA Insurance paid out $698 million in claims and other insurance service expenses during the year, up 7.9 per cent, or $50.7 million, from $647.3 million the year before. That growth in claims costs ran well ahead of the 1.8 per cent rise in premium revenue.
The report did not break down which categories drove the increase. For a business that writes motor and home cover at scale, the gap between what it collects and what it pays out is the number that matters most, and this year the payout side moved faster.
Reinsurance premiums fell to $76 million from $107.4 million the prior year. The insurer said it had entered into a multi-year aggregate excess of loss reinsurance contract that commenced on 30 June for a five-year coverage period, providing aggregate protection against natural peril losses over that period.
Net investment income fell further than profit, down 48 per cent, or $18.2 million, to $19.2 million. Insurers hold premiums in reserve before claims arrive and invest that money, so a sharp fall in investment returns feeds directly into the profit line.
Even so, AA Insurance increased its annual dividend payout by $30 million to $160 million. The dividend is the return that flows to the two shareholders: Vero, which holds 68 per cent, and the NZAA, which holds 32 per cent. Vero is owned by Suncorp, the second-largest general insurer across Australia and New Zealand.
The combination is unusual for a New Zealand insurer. A motoring association holds a substantial minority stake in a business that sells cover to its members and to the wider market, and the dividend is the mechanism through which that ownership pays back.
For small businesses buying commercial cover, the figures show where the pressure sits. Claims and service expenses rose 7.9 per cent while premium revenue rose 1.8 per cent, a gap an insurer can only absorb for so long before pricing and cover terms shift.
The new five-year reinsurance arrangement is the main lever the insurer has pulled. By buying aggregate protection against natural peril losses across the coverage period, it caps how much a run of bad weather or disaster events can cost it, which in turn supports its ability to keep writing cover.
Business owners reviewing their own policies should note that the insurer’s payout costs are rising faster than its income. That does not by itself dictate what any individual policy will cost, but it is the backdrop against which renewals will be set.
Passing $1 billion in premiums marks AA Insurance as one of the larger general insurers in the market. The result also shows the difference between scale and profitability: revenue grew modestly, claims costs grew faster, and investment income halved.
The insurer did not provide detail in the report on the specific drivers behind the claims increase.
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