Insurer, IAG has revealed modest expectations for 2016-17 with anticipated small gains for its home and car insurance offerings expected to be held back by rising costs in the NSW compulsory third party sector and a difficult commercial insurance market (both of which proved a headache for rival QBE).
In fact IAG’s performance was much better than QBE’s, whose shares fell 10.6% last week in the wake of the poor quality interim report. IAG’s shares were down just over 4%.
The insurance giant’s net profit in the year to June 30 fell 14% to $625 million on the back of a $100 million fall in investment income, a higher tax rate and one-off charge for software assets.
But chief executive Peter Harmer said IAG’s core insurance business, which includes the NRMA Insurance and CGU brands, remained strong, with insurance profit up seven per cent to $1.18 billion in 2015-16.
IAG’s insurance profit margin rose to 14.3% despite payouts on east coast storms in June totalling $59 million over its natural disaster allowance. That was up sharply from the 10.7% in 2014-15.
The company has forecast a similar or slightly weaker insurance profit margin in 2016-17, and said premium income would be relatively flat.
Mr Harmer said there would be reduced earnings volatility for a second year in a row due to the company’s quota for share deal with Warren Buffett’s Berkshire Hathaway insurance arm.
The deal (a Quota share contract), in which IAG cedes 20% of all premiums to Berkshire and they pay 20% of IAG’s claims, started on July 1, 2015. Berkshire also owns just under 5% of IAG’s capital and has said it wants to build on that holding.
The insurer also announced it would buy back $300 million in shares. IAG shares dropped three cents to $5.82.
Reflecting the weakish tone to the result and the outlook, final dividend down three cents to 13 cents, fully franked.
That cut took the full year payout down from 29 cents to 26 cents a share. That was a payout of nearly 73%, up from 70.2% the previous year.
