Iag Shake-up Will Wipe 500 Jobs
Sydney Morning Herald
Monday July 7, 2008
HUNDREDS of jobs will be lost in an operational shake-up of Insurance Australia Group which will be announced this week by the new chief executive, Mike Wilkins, as part of his efforts to restore investor confidence in the embattled company.
The job losses, thought to number about 500, will be primarily targeted at IAG's Australian operations rather than its underperforming British division. It is also understood that the focus of the cuts will be in the areas of senior management and backroom staff. However, IAG is likely to avoid any impact on its front-line retail business such as its NRMA Insurance outlets and the call centres which deal with its several million customers. The moves are part of a wide-ranging review of IAG's business ordered by Mr Wilkins after his elevation to the job in May when his predecessor, Michael Hawker, resigned in the wake of continuing investor disquiet at the company's performance. An IAG spokeswoman would not comment on the 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 yesterday. "Until the announcement occurs, it is inappropriate for us to comment on speculation." IAG employs about 16,000 people, the bulk of them in the Australian division, which contributed nearly $5.5 billion of the group's overall $7.4 billion of gross written premium or revenue last year. 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 abnormally high claims from the storms that have battered NSW and Queensland in the past two years or the slump in the sharemarket which has hit its investment portfolio. It has also faced criticism from investors from an ill-timed $2 billion expansion into the British insurance just as that market faltered. 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 these events and the uneasy shareholder response to the IAG board's recent dismissal of an opportunistic $4.60-a-share takeover offer from the rival insurer QBE prompted Mr Hawker's resignation after nearly seven years as chief executive. Mr Wilkins, a former boss of IAG's domestic challenger Promina who Mr Hawker appointed as his deputy last November, has used his elevation to prepare a detailed plan aimed at returning IAG to financial health after two successive years of falling earnings. However, the present financial year is expected to make it three bad ones in a row after another poor first half in which profits fell to as low as $110 million. That was a drop of $235 million on the corresponding period last year. Mr Wilkins has made it clear that his review will look at IAG's payout ratio given that it no longer earns enough bottom-line profits to fully cover the dividend. Other areas of focus have been the poor returns from its British insurance brands, Advantage, Hastings and Equity, which led to speculation of write-downs in value of at least $200 million - 10 per cent of what the companies cost IAG since 2006. Analysts are divided over the merits of cutting the company's annual dividend given the likely shareholder backlash after the fall in the share price from $5.65 a year ago to just $3.69 on Friday. Merrill Lynch believes the upcoming final dividend should be cut to 7c from the expected 16c, saying it is only prudent in light of IAG's poor earnings performance. But Credit Suisse takes the opposite view, claiming such a cut would only further erode investor confidence.
© 2008 Sydney Morning Herald
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