IAG smashed as potential royal commission grilling looms
Investors have savaged Insurance Australia Group after it revealed higher tax liabilities and softer investment results had outstripped some encouraging results from its consumer division in the past year.
The insurance giant's shares fell as much as 7.65 per cent in early trade after it announced its net profit had fallen from $929 million last year to $923 million. The stock recovered slightly to be 5.76 per cent down at 11am.
IAG managing director Peter Harmer said he suspected the fall was linked to the outlook for the 2019 financial year based on questioning from investors earlier in the day.
IAG chief executive Peter Harmer
"Based on the questions that we had today, our sense is was our guidance for [financial year 2019] has been slightly softer," he said.
IAG has flagged gross written premium growth of between 2 per cent and 4 per cent in the current year and a margin of between 16 per cent to 18 per cent.
The sour response to the result came as the company revealed it had engaged in recent days with the Hayne royal commission ahead of hearings into the insurance industry.
Mr Harmer the royal commission has last week asked for claims data with a deadline of Tuesday night which IAG had met.
Mr Harmer said it was not yet clear if the company would be called to appear at the royal commission.
"From our understanding the request for information we had from the commission was also received by a number of other [industry] participants," he said.
"It is quite general in nature, looking for data … claims data by product and by channel."
IAG is Australia's second-largest insurer by market value and operates brands including NRMA, SGIO, SGIC, CGU and Swann Insurance.
The royal commission is… a really good opportunity for a reset of the financial services sector's relationship with the customer
Mr Harmer said the process could contribute to an "improved level of trust".
"This work that the royal commisison is doing is a really good opportunity for a reset of the financial services sector's relationship with the customer," he said.
As well as paying a final fully franked dividend of 20 cents for per share, IAG will return 25 cents per share to shareholders in the wake of asset sales in Thailand, Indoesia and Vietnam which would net $200 million in net profit by August of this year.
The majority owned Thai and Indonesian operations would be sold to Japan's Tokio Marine Holdings for $525 million to focus on its home businesses. Mr Harmer said IAG's expansion into Asia had not met its growth expectations as it had struggled to build scale.
The additional return would be made up of 19.5 cents capital return through a share consolidation and a 5.5 cent special dividend. IAG wrote $11.65 billion worth of gross premiums during the year, up about 2 per cent on $11.44 billion in fiscal 2017.
The underlying margin on its dominant consumer dividion increased from 13.9 per cent to 15.5 per cent as the gross written premium also lifted slightly (up 1.6 per cent).
“This is a solid result for IAG with an encouraging improved underlying performance, in line with our expectations,” said Mr Harmer.
IAG also lifted its allowance for natural peril events from $850 million to $900 million with an eye to increased risks from climate change including bushfires.
"We obviously are looking at a pretty significant bushfire down on the south coast today," chief financial officer Nick Hawkins said. "There is a concern that the the bushfire season may have started."
The increase followed a similar jump the previous year.
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