What Happened? The share price of Insurance Australia Group Ltd (ASX: IAG) has already fallen 14% this year, while rival insurance groups AMP Limited (ASX: AMP) and QBE Insurance Group Ltd (ASX: QBE) have increased by between 10% and 25%.
Why? IAG's share price has been beaten up by the storms that lashed the east coast of Australia in April and May. The Insurance Council of Australia (ICA) this week reported that member companies of the ICA, which includes IAG, had received nearly 120,000 claims for the NSW storms in April, while 27,825 claims had been received for the Queensland storms in early May. If we add to this the 14,239 claims from the Anzac day hail storm in Sydney, the ICA states that claims total over $1.5 billion! Claims since November last year add up to nearly $3.5 billion!
This is expected to hit IAG (and companies like Suncorp Group Ltd (ASX: SUN)) pretty hard in the coming reporting season. IAG advised shareholders in late April that the group's 30,000 NSW claims would cost $250 million and it downgraded its full-year insurance margin guidance forecast from 13.5-15.5% to just 10.5-12.5%.
Suncorp recently advised that the 25,000 claims received would cost the company around $200 million, but did not revise its full-year guidance.
What now?
The question now is what impact will the storms have on dividends and does the recent share price fall represent a buying opportunity?
IAG is predicted to payout 31 cents per share this year, 32 cents next year and 32.5 cents the year after- down from 39 cents last year. IAG's dividend yield of 5.7% fully franked is down significantly from last year's 7%.
This is still well above QBE and AMP, but IAG is now viewed as a company devoid of major growth options, and without the dividend stability of companies like Australia and New Zealand Banking Group (ASX: ANZ) or BHP Billiton Limited (ASX: BHP).
