Insurance Australia Group (IAG) shares were marked down yesterday after a somewhat unconvincing year to June.
While the insurer maintained final dividend after it cut its interim dividend earlier in the year, investors on Thursday glanced through the result and sold the shares down as they did with AGL (see separate report).
IAG shares fell nearly 5% to $7.68 on the ASX yesterday on a day when the wider market was cautiously higher.
Gross written premium (GWP) was up 3.1% in 2018-19. That’s the measure investors look to see to judge a general insurer’s performance as an insurer.
The rise in GWP was mostly due to higher rates (not rise in new business). It’s underlying margin climbed 250 basis points to 16.6% – in line with previous guidance. But the reported insurance margin fell to 16.9% from 20.1% in 2017-18 – a better guide for investors than the underlying figure.
Net earned premiums fell 5.6% which helped push the insurance profit down by 13% to $1.244 billion.
That was due to the impact of natural disasters, such as the December 2018 hail storm in Sydney generated higher claims while returns on fixed-interest investments fell because of the slide in bond yields (which has continued into 2019-20 and will cause IAG problems again.
Net profit after tax was higher, up 16% to $1.07 billion in 2019. But that profit was also boosted by a $200 million gain on the sale of its majority-owned Thai and Indonesian operations to Japan’s Tokio Marine Holdings for $525 million.
Also helping was higher investment income on shareholders’ funds which jumped 37.6% for the June year.
Cash earnings were $931 million, down 10% from 2017-18’s cash earnings. Cash earnings strip out gains such as the one on the asset sale.
The final dividend was 20 cents a share – analysts had been looking for between 22 and 23 cents a share. Total for the year is 32 cents a share, down from 34 cents the year before, a fall due to the lower interim.
Looking ahead, the company said it expected gross written premium growth for 2019-20 to be low single-digit and its reported insurance margin to be between 16% and 18%.
In other words, more of the same as in 2018-19.
