Insurance Australia Group Ltd (ASX: IAG) has released its FY19 result to the market, but its share price is down over 4%, here’s why,
Insurance Australia Group is Australia’s largest insurance business, its direct heritage dates back to 1920. Its businesses underwrite over $11.4 billion of premium per annum, selling insurance under many brands, including: NRMA Insurance, CGU, SGIO, SGIC, Swann Insurance and WFI (Australia); and NZI, State, AMI and Lumley Insurance (New Zealand).
Insurance Australia Group’s FY19 Result
IAG said that its gross written premium (GWP) increased by 3.1% to $12 billion, however the insurance profit declined by 13% to $1.22 billion because the reported margin dropped by 1.4% to 16.9% due to higher costs from natural disasters and significantly lower ‘prior period reserve’ releases.
However, IAG reported that its ‘underlying’ margin improved by 2.5% to 16.6%.
However, the end result was a 10% decrease in cash earnings to $931 million. But conversely, the net profit after tax (NPAT) rose by 16.6% to $1.08 billion which included the sale of its Thailand operations for a profit of over $200 million.
Insurance Australia Group Dividend
Due to the fall in cash earnings, the IAG Board decided to cut the dividend by 5.9% to 32 cents per share. However, dividends may not be fully franked in future periods due to New Zealand earnings, a higher dividend payout ratio and other capital management initiatives such as the earlier. special dividend
This means the current FY19 fully franked dividend yield is 4.1%.
FY20 IAG Guidance
IAG is expecting gross written premium growth of low single digits with a reported insurance margin of 16% to 18%.
It also has number of underlying assumptions including net losses from natural perils of $641 million, being in line with the allowance, a reserve release of around 1% (1.7% in FY19) and no material movement in foreign exchange rates or investment markets.
Insurance companies do pay out a pleasing level of dividends, but I think with the increasing amount of damaging storms it’s hard to consistently grow profit. I prefer businesses with reliable profits like the ones in the free report below.
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