Aug. 22 (Bloomberg) -- Insurance Australia Group Ltd., which rejected a takeover offer this year, turned to a loss in the second half as new Chief Executive Officer Mike Wilkins wrote down his predecessor's U.K. investments.

The nation's largest insurer of cars and houses posted a A$371 million ($326 million) loss in the six months ended June 30, compared with profit of A$207 million a year earlier. The figure was derived by subtracting first-half profit from the A$261 million full-year loss the Sydney-based company announced today.

Wilkins, appointed in May after Michael Hawker lost the confidence of investors following three years of declining earnings, is selling businesses to shore up shrinking margins. He wrote down A$350 million in assets today as the company withdraws from the U.K.

``You've got a new man in charge with a large broom, so he was always going to use this result to clean up some of the mess,'' Steven Marsh, who helps manage the equivalent of $630 million at Trust Co. in Sydney, said before the report. ``The key is to look past this result and see where the signs of a recovery in the insurance market may lie.''

Insurance Australia's shares rose 1.6 percent to A$3.75 at the close in Sydney, paring its decline this year to 9 percent.

Australian insurance stocks have slumped in 2008 as a slide in global financial markets cut companies' investment earnings. QBE Insurance Group Ltd. and Axa Asia Pacific Holdings Ltd. posted declining earnings this month as stock markets fell.

`Poor Result'

Insurance Australia's insurance margin -- underwriting profit and investment returns as a percentage of premium sales -- fell to 6.1 percent in fiscal 2008 from 11.4 percent a year earlier. Margins will improve to 10 percent over the next year, Wilkins, 51, said today.

He said declining investments, increased claims and widening credit spreads caused the 42 percent drop in full-year insurance profit to A$448 million.

``This is a poor result,'' Wilkins said in a statement. ``While we have been affected by the increased frequency of natural perils, widening credit spreads and soft cycles in key markets, we have acknowledged we need to do better.''

Wilkins is under pressure from Insurance Australia's 900,000 shareholders to raise the company's market value after Hawker and the board rebuffed three takeover proposals from QBE, which offered as much as A$8.7 billion for the company in May.

Rival Acquisitions

QBE, Australia's biggest property and casualty insurer, said yesterday first-half profit fell 7 percent on declining equity markets and gains in the nation's currency. Chief Executive Officer Frank O'Halloran made eight acquisitions this year to fend off slowing earnings growth, including this month's A$1.03 billion purchase of PMI Group Inc.'s Asian and Australian mortgage insurance businesses.

Axa Asia Pacific, a unit of Europe's second-biggest insurer, on Aug. 5 said first-half net income fell 75 percent as inflows into its managed funds slowed.

Wilkins today reaffirmed his July statement that he'll deliver A$130 million in annual cost savings by cutting 600 jobs, making the Australian business more efficient and exiting businesses in the U.K., where the company will hold on to the Equity Red Star auto underwriter.

Units in the U.K. to be sold include Hastings Insurance Services Ltd. and Advantage Insurance Co., acquired for A$350 million in 2006, and Equity Insurance Brokers, bought in 2007 for 570 million pounds ($1.1 billion).

Insurance Australia's unsuccessful foray into the U.K. follows that of AMP Ltd., the nation's biggest life insurer, which posted a A$5.5 billion loss in 2003 after its expansion in Britain failed.

Wilkins guided the transformation of Royal & Sun Alliance Insurance Group Plc's Australian unit into Promina Group Ltd. and its A$1.88 billion initial public offering in May 2003.

Suncorp-Metway Ltd., the Brisbane-based banking and insurance group, bought Promina in 2006 for A$7.9 billion in cash and stock.

To contact the reporter for this story: Stuart Kelly in Sydney skelly22@bloomberg.net

Last Updated: August 22, 2008 02:48 EDT