Hundreds Of Jobs To Go As Insurance Giant Moves To Restore Confidence

The Age

Monday July 7, 2008

Danny John

HUNDREDS of jobs will go in a shake-up of Insurance Australia Group that new chief executive Mike Wilkins will unveil this week as part of his efforts to restore confidence.

The job reductions, thought to be about 500, will be aimed mainly at IAG's Australian operations rather than its underperforming British division.

It is believed the focus will be on senior management and lower backroom staff. However, the company is likely to steer away from any impact on its front-line retail business such as its NRMA Insurance outlets and the call centres that deal directly with millions of customers.

The moves are part of a wide-ranging review of IAG's business ordered by Mr Wilkins at the end of May after Michael Hawker resigned in the wake of disquiet over IAG's performance.

An IAG spokeswoman would not comment on the possibility of job cuts or other aspects of the review, the details of which will be announced on Wednesday.

"We have been reviewing all of our businesses, to ensure we are operating as efficiently as possible," she said. "Until the announcement occurs, it is inappropriate for us to comment on speculation."

IAG employs about 16,000 people across the group. Most work in the Australian division, which last year contributed nearly $5.5 billion of the overall $7.4 billion of gross written premium or revenue. The company is the largest insurer of property and vehicles in the country through its NRMA, CGU, SGIO, SGIC and Swann Insurance brands.

However, that has not been enough to protect the group from the vagaries of abnormally high claims from storms that have battered NSW and Queensland in the past two years or a subsequent slump in the sharemarket.

IAG has also faced criticism from investors over an ill-timed $2 billion expansion into Britain as the insurance market there turned down. The new division continues to drag on IAG's earnings, which are no longer high enough to sustain its generous dividend policy.

The combination of those events and the uneasy shareholder response to the IAG board's recent dismissal of an opportunistic $4.60-a-share takeover offer from rival insurer QBE prompted Mr Hawker's resignation after nearly seven years as CEO.

Mr Wilkins, a former boss of IAG's domestic challenger Promina who Mr Hawker appointed his deputy last November, has used his elevation to prepare a detailed plan aimed at returning IAG to financial health after two years of falling earnings.

However, this financial year is expected to make it three bad ones in a row after another poor first half in which profit fell to as low as $110 million - a $235 million drop on the corresponding period in 2007.

In turn, this has raised sharemarket doubts as to whether IAG can continue to pay a full-year dividend of as much as 29.5 a share - 16 of which has been paid at the end of the second half.

Mr Wilkins has made it clear that his review would look at IAG's payout ratio given that it no longer earned enough to cover the dividend fully.

Other areas of focus have been the poor returns to date from its British insurance brands, Advantage, Hastings and Equity, which has led to speculation of at least $200 million write-downs.

Analysts are divided over the merits of cutting the annual dividend given the likely shareholder backlash after the fall in the share price from $5.65 a year ago to $3.69 on Friday. The share price touched $3.42 last week.

Merrill Lynch believes the forthcoming final dividend should be cut to 7. But Credit Suisse claims such a cut would only further erode investor confidence.

© 2008 The Age

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