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Sorry, but only an idi*t would sell IAG to $4.

IAG's woes mitigated by star recruit
Danny John
October 27, 2007

INSURANCE AUSTRALIA GROUP's chief executive, Michael Hawker, laid his job on the line yesterday, cutting the company's revenue forecasts while appointing a potential successor in the shape of his former rival from Promina.

Mr Hawker and IAG's board, led by James Strong, sought to deflect criticism of the latest trading figures by strengthening the management team with Mike Wilkins, the former chief executive of Promina's AAMI-Vero insurance brands.

Mr Wilkins, who headed Promina for eight years before its $7.9 billion takeover by Suncorp-Metway earlier this year, cut his last ties with his old employer just over a month ago.

As shareholders grow increasingly restless about IAG's sagging share price since a 27 per cent fall in the group's annual profits in August, the insurer offered little hope of an immediate recovery by cutting its expectations for a rise in premium income to between 7 and 9 per cent.

That compared to the 10 to 12 per cent growth Mr Hawker was confidently predicting IAG would achieve for the 2008 year just two months ago.

IAG's woes have been compounded by a squeeze on premiums at its recently acquired British insurance businesses, which are part of its $1.75 billion attempt to diversify away from being just a major domestic player.

The company has also lost a chunk of commercial insurance business in Australia, as plunging rates meant it faced writing unprofitable premiums. Mr Hawker told the Herald yesterday that to continue doing so would have been "totally inappropriate and actually irresponsible".

Although he was disappointed by the slump in IAG's share price, which has only been underpinned by speculation about a possible takeover bid by QBE, the IAG boss said he was "taking action to deliver the sort of returns" the market was looking for.

Brokers indicated that the revenue and insurance margin downgrades - the latter to between 11 and 13 per cent - would cut earnings per share growth by up to 10 per cent next year following an earlier reduction in August.

The fall in IAG's share price yesterday was limited to a 4c dip to $4.86 by the recruitment of Mr Wilkins as chief operating officer and deputy managing director.

Market watchers said Mr Wilkins would be a ready-made replacement for his new boss if the company came unstuck.