IAG axes dividend, says annual profit will fall sharply

Insurance giant IAG won’t pay a final dividend and expects a sharp fall in profit after a pandemic and disaster-hit second half.

IAG CEO Peter Harmer. Picture: Britta Campion

IAG has told the market it won’t pay a final dividend after what chief executive Peter Harmer called an “immensely challenging second half”, due to the COVID-19 pandemic, market volatility and severe natural disasters.

The insurance major behind brands such as NRMA and RACV says it expects to deliver a profit of $435m for the year to end June, down sharply from last year’s $1.07bn.

In a pre-results announcement, Insurance Australia Group also revealed a $100m provision for potential COVID-19 claim cost impacts.

The insurer says the estimates are highly uncertain, sit within a wide range and are estimated on a probability-weighted basis.

This estimate covers potential payouts linked to business interruption, landlords’ and other insurance class impacts, including the estimated impact an economic downturn will have on the settlement of longer tail insurance claims.

“We have experienced an immensely challenging second half to the 2020 financial year, characterised by severe natural peril activity, the disruption caused by the COVID-19 pandemic to our people, customers and suppliers, and the marked volatility in investment markets which has adversely impacted our results,” Mr Harmer said.

“We have seen some softening in our underlying margin in the second half.

“This stems from the combination of lower investment returns from diminishing interest rates, an increased reinsurance expense as we bolstered our protection following heavy perils incidence early in the calendar year, and some deterioration in Australian commercial long tail loss ratios.”

IAG also said it expected to delivered a one per cent uptick in gross written premiums but a pre-tax loss from fee-based business of $23m, compared to a loss of $9m the prior year.

The insurer said it would book a pre-tax loss on shareholders’ funds income of $181m, compared to a profit of $227m the prior year.

IAG will unveil its full-year results on August 7.