Announcing its half year results for the 2021 financial year (FY2021), Insurance Australia Group (IAG) will pay its first shareholder dividend since the COVID-19 pandemic took hold early last year. While shareholders will likely welcome the payment resumption announced in IAG’s half-yearly results report, the dividend is just seven cents per share, unfranked. While modest, the payment indicates the company is on the improve, albeit slowly.
The company reported that for the first half of FY2021, gross written premiums grew by 3.8 per cent, which IAG Managing Director and Chief Executive Officer Nick Hawkins described as a “a strong result in these uncertain conditions”.
IAG says growth was predominantly driven by rate increases in its commercial and home insurance businesses in Australia and across all key classes in New Zealand. It was also underpinned by some customer growth in New Zealand’s direct brands and high retention rates in IAG’s commercial portfolios in Australia.
“We have strong margins across the business. Our underlying margin of 15.9 per cent was an improvement on [the second half of 2020] (15.1 per cent) and benefitted from lower motor claims as a result of COVID-19,” said Hawkins.
“Our insurance profit of $667 million equated to a higher reported margin of 17.9 per cent. In addition to the COVID-19 effect, this result benefitted from a relatively benign natural perils period, which meant we came in $39 million lower than our natural perils allowance, and credit spreads were favourable.”
Hawkins described IAG’s business as “relatively stable”, but said profitability was affected by the pre-tax $1.15 billion expense the company announced in November for potential business interruption claims relating to COVID-19.
“Our business interruption policies were never intended to cover pandemics. However, following the Supreme Court of NSW Court of Appeal decision on the COVID-19 business interruption test case, we conducted a detailed review to determine our potential exposure, and took action to strengthen our balance sheet,” said Hawkins.
The CEO added that over the past few months, IAG put in place measures he believes will strengthen the business.
“We’ve restructured the business, splitting our Australia division into Direct Insurance Australia and Intermediated Insurance Australia to better align our brands to our customers and to bring a stronger focus to our commercial and personal intermediated businesses,” said Hawkins.
“We are acting decisively to address the issues facing our business. We are working with the broader insurance industry to get clarity on how our business interruption policies should be interpreted in the context of COVID-19, and we continue to make progress on our customer remediation programme.”