Promina profits soar but the search for a new head spinner continues.

Promina has become the latest general insurer/financial services group to report a sharply higher profit. The insurer today reported interim earnings of $204 million, up 82% on the same period of last year. It came on a sharp improvement in the general insurance business where earnings rose from $83 million to more than $154 million on an after tax basis.

A major factor was the purchase of the Promina New Zealand insurance in May of last year.

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But Promina’s latest result, which reflected the full contribution from New Zealand, did echo the sharp improvement reported last week by industry leader, Insurance Australia Group.

Promina, like IAG, saw a big improvement in its insurance operations with the ‘combined operating ratio’ falling to 93.3% from 96.8%. That’s a sign the insurer’s basic business of underwriting, paying out claims and the cost of dividends is taken into account.

The group made an underwriting profit in general insurance of almost $34 million. The financial services operations profit doubled to $50 million from $25.2 million a year ago.

Meanwhile insurance industry sources say Promina is still on the search for a new head of Corporate Affairs and has been for some time.

They called in consultants to do a review following hiring and reshuffling going back 18 months since floating .They may be on the verge of an appointment but there’s no sign of an announcement as yet.

Promina is a holding company with some strong brands including AAMI and Australian Pensioners Insurance.There is pressure from these business groups to remain separate and do their own thing.

That is a problem when the company is public and listed on the ASX, and not a part of a foreign group. Promina was renamed when it floated but it is the Australian operations of a British insurer.

Listed companies have to be careful about the sorts of announcements made to make sure the market is kept fully informed with timely disclosure.

So far, Promina has been lucky – a rising share price has made it a happy investment for many investors.

It is the centralised Corporate Communication function debate vs the decentralised one which has been going on within companies for years. There are pluses and minuses to both but, when it comes down to the fact that more companies are sensitive to their image and when a regulator is looking over their shoulder, a strong central function is essential. ANZ tried to decentralise about five years ago but it stuffed up over a credit card issue. It quickly reverted to the centralised model.

If and when a national corporate affairs manager is appointed at Promina there could be an internal reporting problem. The new person won’t report to CEO Michael Wilkins but to an executive a layer or two lower.

For a leading Australian company, operating in two highly sensitive industries of general insurance and financial products and services, this is not practical, especially when issues management becomes more vital than image polishing. Access to the CEO become important.

Wilkins is also head of Insurance Council of Australia so should be aware of the rising debate over super profits earned by insurers and financial services groups like fund managers. He is going to have to speak with two voices on this -defending the industry and defending his company. That will mean really sound advice.

“Super profits” looms as the biggest and touchiest issue confronting these industries. It comes after years of crying poor in the wake of HIH and over public liability.

They only have to look at the way the banks (and the Australian Bankers Association) consistently misread community feeling and stuffed up their handling of fee rises and branch closures, to know of the pitfalls ahead.

The banks continue to get hit regularly over ‘super profits’ when it comes to fees and charges and they have had to deal with the RBA becoming involved in their credit card structure.

It will be a battle all about message and appearance as much as substance and importance of issues. Otherwise the insurance industry could find themselves in the same position – a regulator sitting at the table on many issues.

The AMP’s $40 million fee cut last week on its pension products and subsequent hard sell, should be seen as the most obvious example of style(the selling) dominating the issues( the $40 million in cuts).

Promina, IAG, Perpetual, and the banks have big problems ahead for various reasons. It could be bloody.

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Peter Fray
Peter Fray
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