IAG has updated its results for the year ended 30 June 2020 (FY20) ahead of the release of its detailed FY20 results, due on 7 August 2020.
The company said it expects to report gross written premium (GWP) growth of around one per cent, consistent with the ‘low single digit’ guidance maintained throughout FY20; and an insurance margin of approximately 10 per cent, with the shortfall against prior guidance of 12.5 to 14.5 per cent largely driven by adverse natural perils, prior period reserving, and credit spread factors.
“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,” said Peter Harmer, Managing Director and CEO of IAG.
“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.
“We enter FY21 with a strong balance sheet and enhanced reinsurance protection and are well equipped to negotiate the challenges and opportunities that a post-COVID environment will present,” added Harmer.
IAG said an estimated “broadly neutral COVID-19 effect” on the company’s FY20 reported insurance margin contains two elements:
- a net benefit of around $100 million from a mixture of claim cost and expense effects, predominantly reflecting lower motor claims frequency, which was partially offset by claim costs in other classes
- a provision of approximately $100 million for potential COVID-19 claim cost impacts that are highly uncertain, sit within a wide range and are estimated on a probability-weighted basis
According to IAG, FY20 cash earnings are expected to amount to $279 million. Applying the top end of IAG’s 60-80 per cent targeted payout ratio, this equates to a full year dividend payment similar to the 10 cents per share interim dividend paid in March 2020. Consequently, subject to the finalisation of the results and of audit and board approval, IAG said it expects not to pay any final dividend for FY20.