IAG’s FY21 Results Confirm $427 Million Loss

IAG has announced its FY21 results, confirming a predicted net loss of $427 million compared to the $435 million profit it booked in FY20. Managing Director and Chief Executive Officer Nick Hawkins attributed the performance to significant one-off corporate expenses, mainly relating to business interruption, customer refunds and payroll remediation, which impacted the overall result.

“These are historical issues we’ve identified, provisioned for and are fixing – and we are making investments to continue to lift our risk management and operational capabilities,” Hawkins said.

Despite the loss, the CEO said the group is pleased with the underlying financial results, adding that IAG’s FY21 business performance “is sound and reflects the strength of our core insurance business and its market-leading brands”.

According to Hawkins, the reported underlying margin of 14.7 per cent (FY20: 16.0 per cent) is within expectations and the company has reinstated guidance for FY22, reflecting confidence in the business and economic outlook.

“Our Australian and New Zealand direct businesses have generated solid growth, and we’ve enhanced our focus on our intermediated business in Australia to resolve the challenges we’ve seen with some of its portfolios and to drive greater profitability,” he added.

“Our gross written premium (GWP) growth of 3.8 per cent was mainly rate driven, but we also saw promising new business growth and stronger customer retention. Our reported insurance profit of $1007 million increased significantly over the year (FY20: $741 million) due mainly to lower natural perils costs, positive credit spreads and a first half COVID-19 benefit, mainly from lower motor claims in Australia. This translated to an improved reported insurance margin of 13.5 per cent (FY20: 10.1 per cent).”

According to Hawkins, cash earnings excluding one-off items in FY21 increased to $747 million compared to $279 million in FY20.

The company also announced a final dividend of 13 cents per share, meaning the company’s dividends for the full financial year reached 20 cents, a doubling of the company’s 10 cents per share in FY20. Hawkins said it takes IAG’s payout ratio to 66 per cent based on full year cash earnings.

Hawkins said that since becoming CEO in November 2020, he has put in place a more customer-aligned operating model, reset the group’s strategy for growth, and appointed a leadership team with deep insurance and customer expertise, along with clear accountability for success.

This includes growing increased customer numbers in IAG’s Australia and New Zealand direct insurance businesses and expanding the NRMA Insurance brand across Australia.

“Our strategic focus to build better businesses is underpinned by the work we are doing to set up our intermediated business to achieve double-digit insurance margins over the next three to five years, to deliver an insurance profit of at least $250 million per year,” Hawkins said. “We’re focused on upgrading the risk management and underwriting disciplines in that business and strengthening our relationships with broker partners to improve its profitability.

“We’re creating value through digital by scaling up artificial intelligence and automation in motor claims to deliver better outcomes for customers, and we’ve developed a predictive loss technology for cars written off in an accident that is reducing the claims time for customers from weeks to days.

“Actively managing risk is an ongoing priority and our $100 million, multi-year risk management improvement programme is significantly progressed and has strengthened risk controls across IAG.”

Hawkins said he is confident that the strong leadership team he’s established, the new organisational structure IAG has in place, and the strategy the group is executing will deliver business and customer growth.