Insurance Australia Group
(ASX: IAG) has updated the market about its FY20 outlook at its annual general meeting (AGM).
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).
IAG AGM
IAG leadership reminded investors of its performance in its FY19 result where the gross written premium increased by 3.1% to $12 billion, the insurance profit fell by 13% to $1.2 billion, cash earnings dropped by 10% to $931 million and the underlying margin improved by 2.5% to 16.6%.
The gross written premium improved largely from price increases and a favourite exchange rate with New Zealand. Like for like premium growth across the business was almost 4%.
However, underlying improvements within the business were outweighed by claim costs from natural disasters, credit spread movements and significantly lower prior period reserve releases.
But net profit was 16% higher because it included a $200 million profit on the sale of its Thailand operations.
FY20 IAG Guidance
IAG said that it’s guiding a reported margin of 16% to 18%, which is the same as FY19. However, management said that it is of a much higher quality.
The guidance includes a substantial improvement of underlying performance, with a lot of that being derived from the simplification program. It also includes some offset from higher regulatory and compliance costs as well as a reduction in reserve release expectations.
Overall, management said that underlying profitability is increasing.
Is it a buy for dividends? Well, the last 12 months amounts to a mostly-franked dividend yield of 4%. If the underlying profitability is improving then the dividend could grow in FY20 as long as there are no painful natural disasters, but those seem to be rising in frequency at the moment.
Until automated cars are released to the mass public, I’d probably prefer IAG for dividends over the big banks. But I think the reliable shares in the free report below could be even better ideas for long term dividend growth.
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