Insurance Australia Group’s shares have slid to a near-four month low after the insurance giant’s full-year profit and outlook underwhelming for investors.
Australia’s biggest insurer, which owns the NRMA and CGU brands, suffered a 0.6 drop in group net profit for the year ending June 30 of 0.6 per cent to $923 million, despite a near-11 per cent rise in profit for the insurance division.
Higher margins in the insurance business helped lift profits, offset by a fall in investment income and a higher tax bill.
Revenue rose 2.6 per cent to $16.41 billion.
The company’s Australian Consumer division, home and motor insurance, had a strong year, managing director Peter Harmer said, due to IAG lifting rates to compensate for an increase in claims.
“There was a modest improvement from Australia Business and a continued strong performance from New Zealand,” he said in a statement.
Overseas, Indian gross written premiums increased from $555 million to $773 million, while profits in Malaysia increase from $28 million to $40 million.
The insurer has flagged gross written premium will grow between two and four per cent in 2018/19.
Investors marked IAG down 48 cents, or 5.8 per cent, to $7.76 – the stock’s lowest level since April.
“Just from the tone of the questions we had today, our sense was that our guidance for FY19 may have been slightly softer than some of the analysts were anticipating, and that may have led to the reaction by the market,” Mr Harmer told reporters.
IAG will pay a fully-franked final dividend of 20 cents a share, up from 13 cents a year earlier.
The company also announced a $592 million capital management initiative comprising a capital return payment of 19.5 cents per share and a special dividend of 5.5 cents a share.
IAG also said the special dividend, set for November, will affect its franking credit balance, meaning dividends from the second half of calendar 2018 are likely to be franked by between 70 and 100 per cent
The underlying margin for 2017/18 was impacted by $10 million being spent on costs related to the banking royal commission.
Mr Harmer confirmed on Wednesday IAG had been asked for information for the round of commission proceedings on insurance starting on September 10.
He said the insurance company does not know yet if it will be required to appear.
IAG PROFIT DROPS SLIGHTLY
*Net profit down 0.6 per cent to $923 million
*Revenue up 2.6 per cent to $16.41 billion
*Fully-franked final dividend 20 cents, plus capital return and special dividend totaling 25 cents