As expected, Insurance Australia Group Limited (IAG) has joined the ever growing ranks of companies large and small boosting dividend payouts to shareholders.
The company revealed this morning that it had lifted its interim by 2 cents a share to 13 cents, payable on April 2. That was an increase of 18.2%.
The company said interim after tax profit was $642 million, compared with $461 million in the first half of the previous year, which was reduced by a loss of $182 million in respect of the discontinued UK business.
But the first half insurance profit was $758 million, down from the $815 million earned in the same period of 2012-13.
That equates to a reported insurance margin of 17.5% and was down from the 19.9% earned in the same period of 2012-13.
The fall in the insurance margin and profit was driven by slower growth in premiums, and higher natural peril costs.
Offsetting these negative factors were higher reserves releases, higher earnings on shareholder funds, improved credit spreads and the favourable impact of the stronger NZ dollar.
"This The insurance profit) was assisted by higher than originally expected prior period reserve releases equivalent to 4.3% of net earned premium (NEP), and was achieved on the back of a 4.2% increase in gross written premium (GWP) to $4.786 billion," the company said.
It’s clear from the detail of the interim report that without the higher than expected reserves release, IAG would have reported quite a weak result. That was not quite clear from the update last month.
IAG’s higher dividend was expected after the company revealed better than expected business figures for the December half year in an update last month.
IAG said underlying insurance margin improved to margin of 13.7% from 12.1% for the same period in 2012-13.
IAG 1Y – Margins improve at IAG
Managing Director and Chief Executive Officer, Mr Mike Wilkins, said: "This is a strong result that comprises improved operating performances from each of the businesses in Australia and New Zealand, as well as an increased profit contribution from the Group’s interests in Asia.
"We are pleased with the continued improvement in the Group’s performance, which reflects the benefits of our pursuit of a strategy that focuses on clear priorities.
"Our underlying margin has more than doubled since the 2009 financial year, as we have improved our underwriting and claims disciplines and realised significant cost efficiencies,” Mr Wilkins said.
"Gross Written Premium growth in the half was lower than that of immediately preceding periods, reflecting a combination of factors including reduced need to recover higher input costs via rate increases in property classes.
"Reported GWP has also been influenced positively by the translation effect from a stronger New Zealand dollar, and negatively by the cessation of the Fire Services Levy (FSL) in Victoria from 1 July 2013. On an ex-Victorian FSL basis, GWP growth was 6.0%."
IAG said the reported insurance margin of 17.5% included the impact of:
"Net natural peril claim costs of $335 million, which slightly exceeded the period’s allowance and were over $200 million higher than those incurred in the particularly benign 1H13 period. Significant events in the half were the New South Wales bushfires in October, as well as rain and hail storm activity in New South Wales and Queensland in November;
"Higher prior period reserve releases of $187 million (1H13: $90 million), which substantially exceeded expectations and were driven by benign inflationary conditions in long tail classes in Australia; and
"A reduced favourable effect of $39 million from the narrowing of credit spreads, which was over $50 million lower than the prior corresponding half.
"Shareholders’ funds income of $233 million (1H13: $201 million) reflected strong equity market returns in the period."
IAG reiterated the updated guidance for FY14 provided on 23 January 2014, of Gross Written Premium growth of between 3-5% and a reported insurance margin in the range of 14.5-16.5%.
