Insurance Australia Group lifts annual profit 16pc but payout disappoints

Insurance Australia Group shares tumbled after net profit rose but its dividend fell short of expectations.

Insurance Australia Group CEO Peter Harmer. Picture: James Croucher

Shares in Insurance Australia Group tumbled 5 per cent after it posted a sluggish result for the 2019 financial year and disappointed with its dividend payout.

For the 12 months through to June, Australia’s largest general insurer posted a net profit of $1.076 billion, up 16 per cent on the prior year and above analysts’ expectations.

But the result was propped up by the $200 million sale of its Thailand operations in August last year.

Cash profit for the year fell 10 per cent to $931m, missing analysts’ forecasts.

The final divided payout of 20c per share also disappointed, coming in below expectations of 22.5c per share. The dividend will only be 70 per cent franked, unlike previous payouts, which were franked 100 per cent.

Shares in the insurer were down 5 per cent at $7.68 at midday (AEST).

IAG flagged in the first half that dividends would be franked at between 70 per cent and 100 per cent going forward, as it had been using surplus franking credits in recent years when returning capital to shareholders.

The full-year payout of 32c per share is 2c less than last year and represents a payout ratio of 79.4 per cent, which sits at the top end of its 60 per cent to 80 per cent range.

IAG chief executive Peter Harmer said he was pleased with the result and that the company was committed to returning excess capital to shareholders.

“It’s been a very satisfactory year… we’re pleased with the progress to date (of the simplification plan). We’ve strengthened the business, finished the year on a good trajectory and we’re entering 2020 with good momentum,” he told analysts on a call.

IAG is in the process of selling its ventures in Malaysia and India as it looks to focus on domestic growth and invest in complementary businesses such as artificial intelligence.

The insurer informed the market in June that it was in talks to sell all or part of its 26 per cent stake in India’s SBI General Insurance. This morning, it confirmed these discussions had progressed.

“IAG is in advanced discussions with a number of bidders, which may result in one or more transactions being completed,” it said.

Mr Harmer said the insurer was selling these businesses so it could devote more attention “to improve customer engagement and long-term growth opportunities”.

Gross written premiums for the year grew by 3.1 per cent, with New Zealand 5 per cent growth boosting the sluggish 2 per cent growth in Australia. Overall, GWP grew at the midpoint of IAG’s guidance range. For the 2020 financial year the insurer expects gross written premium growth to be in the low single digits.

Its insurance margin dipped to 16.9 per cent, down from 18.3 per cent in 2018, due to higher costs from natural disasters and lower prior period reserve releases. It is guiding for a margin of between 16 and 18 per cent in the 2020 financial year, but says the quality of the guidance has improved as the business has simplified.