A freak hailstorm and increased regulatory costs have put a $50 million dent in Insurance Australia Group’s (IAG’s) earnings, with the company cutting its interim dividend after announcing a 9.3 per cent half-year profit drop to $500 million.
But an improved underlying result in the six months to December 31 helped lift the company’s share price 4.25 per cent on Wednesday. Its stock closed at $7.61, up 31 cents and its highest level since September.
In its release to the ASX, IAG said $262 million in one-off hits had masked a 16.2 per cent improvement in underlying performance.
“Reported margins are down… but for us the real story is that underlying performance is up,” chief financial officer Nick Hawkins told investors.
“I feel like it’s going pretty well here.”
IAG’s revenue for the six months to December 31 grew 6.7 per cent to $8.58 billion, while gross written premiums were up 4.1 per cent at $5.88 billion.
Offsetting this was a natural peril claim balance $110 million above the company’s allowance – compared to $77 million under at the same point last year – mainly due to the hailstorm that smashed windscreens, dented panels, and damaged roofs across Sydney and the NSW central coast just before Christmas.
Total insurance profit was down 33 per cent to $496 million, while cash earnings fell 49 per cent to $319 million, for the six months to December 31.
Managing director and chief executive Peter Harmer also said a $15 million increase in regulatory and compliance costs in the wake of the financial services royal commission would likely be a permanent fixture on the balance sheet.
“Our view at the moment, with the information we have from the royal commission… is that we see it as a permanent part of the cost base going through, an ongoing additional cost of running our company,” he said.
The sale of IAG’s Thailand business in August added $207 million to the half-year balance sheet, while it expects to complete the sale of its Vietnam and Indonesia businesses before July 2019.
IAG’s GWP growth guidance for the current financial year has been maintained at 2 to 4 per cent
“Ongoing growth is expected in the second half of the current financial year, but at a slightly more subdued pace than that seen in the current half year,” the company said.
The company cut its interim dividend to 12 cents per share, fully franked, down two cents from a year ago.
IAG COPS HY HAIL DENT
* Half-year net profit down 9.3pct to $500m
* Insurance profit down 33pct to $496m
* Revenue up 6.7pct to $8.58bn
* GWP up 4.1pct to $5.88bn
* Underlying margin up 16.2pct
* Interim dividend down two cents to 12 cents, fully franked