The Insurance Australia Group Ltd (ASX: IAG) share price is on watch this morning after revealing an update about both its expected FY21 report numbers and guidance for FY22.
IAG’s FY21 report numbers
The business said that its upcoming result is going to show good underlying financial performance, offset by several unusual items, resulting in a reported net loss.
It’s expecting to show gross written premium (GWP) grew by 3.8%, including a growth rate of 3.9% in the second half of FY21 with negligible COVID-19 impacts in the second half.
IAG’s net earned premium grew by 1.5% to around $7.5 billion. It had an underlying insurance margin of 14.7% (down from 16% in FY20), including a second half figure of 13.5%).
The reported insurance margin was 13.5%, up from 10.1% in FY20.
Affecting that reported insurance margin were a number of items. The biggest item was the net natural peril claim costs of $742 million.
IAG reported a pre-tax gain on shareholders’ funds income of $306 million, up from a loss of $181 million in FY20.
Bottom line
It’s expecting to reveal a FY21 reported net loss of $427 million, a reversal of the $435 net profit in made in FY20. IAG said it made a reported profit of $33 million in the second half of FY21.
IAG made $747 million of cash earnings in FY21, which was a large increase on the $279 million of cash earnings in FY20.
Those cash earnings excludes provision changes and other items identified in the corporate expenses line, $200 million of which were recorded in the second half (predominately being $163 million of a customer refund provision). In the first half, it recorded a business interruption provision of $1.15 billion.
IAG’s dividend policy is to pay out between 60% to 80% of full year cash earnings.
Asset sale
IAG recently announced that it’s looking to sell its Malaysian business which will result in an impairment of approximately $90 million. But it will increase its regulatory capital position by around $150 million. The sale is expected in FY22.
Capital
IAG said it’s in a strong capital position, with an anticipated CET1 ratio of 1.06 at 30 June 2021. This was a decrease from 1.19 from 31 December 2020, which reflects the dividend payment, second half net profit and an increase in capital risk charges.
FY22 guidance
IAG guided for low single digit growth of gross written premium in FY22, with a modest increase in customer numbers in its direct insurance Australia, ongoing rate increases and further portfolio remediation.
It’s also expecting a reported insurance margin of between 13.5% to 15.5%.
Summary thoughts on IAG and the share price
Management seemed quite happy with the result. Cash earnings saw a pleasing increase. IAG seems to be through the worst of COVID-19. But I’m not sure about the insurance profit longer-term outlook with increasingly expensive storms.
For me, there are other ASX dividend shares which could provide more consistent profit and dividends.
