Insurance Australia Group’s cash earnings collapse in half

Is Insurance Australia Group Ltd (ASX:IAG) a buy for dividend seekers?

| More on:
warren buffett

This morning Insurance Australia Group Ltd (ASX: IAG) reported its half-year results for the period ending December 31 2018. Below is a summary of the results with comparisons to the prior corresponding half.

  • Net profit after tax of $500 million, down 9.3%
  • Cash earnings of $319 million, down 49.4%
  • Interim dividend of 12 cents, down from 14 cents
  • Gross written premiums of $5,881 million, up from $5,649 million
  • Insurance profit $496 million, down 33.4%
  • Underlying insurance margin of 16.2%, up 0.70% on adjusted basis
  • Cash return on equity 9.8%, down 9.3%

This is a mixed set of results from the Warren Buffett-backed general insurance group behind the Nomura, CGU, Swann Insurance, NZI, and AMI insurance brands among others.

On the plus side gross written premiums (GWP) for the period have grown a decent 4.1% and its adjusted insurance margin is also 70 basis points higher to 16.2%, but on the downside this has not translated to profit or dividend growth.

The group also maintained guidance for GWP growth of 2%-4% over FY 2019 on a margin of 16%-18%.

The insurance margin is total GWP less reinsurance costs, less claims, commission and underwriting expenses, plus investment income to produce an ‘insurance profit’ as a percentage of GWP.

In effect this is equivalent to an operating profit and IAG blamed the lower insurance profit on a higher perils outcome in excess of allowance versus the comparable period, a lower prior period reserves release, and a negative swing of $70 million due to widening credit spreads, among other factors.

IAG continues to offer dividend seekers a good yield (4.3% on a trailing basis and higher when including one-off special dividends) and reasonable valuation, but it’s only likely to interest conservatively minded dividend investors.

Wondering where you should invest $1,000 right now?

When investing expert Scott Phillips has a stock tip, it can pay to listen. After all, the flagship Motley Fool Share Advisor newsletter he has run for more than eight years has provided thousands of paying members with stock picks that have doubled, tripled or even more.*

Scott just revealed what he believes could be the five best ASX stocks for investors to buy right now. These stocks are trading at near dirt-cheap prices and Scott thinks they could be great buys right now.

*Returns as of August 16th 2021

Motley Fool contributor Tom Richardson has no position in any of the stocks mentioned. You can find Tom on Twitter @tommyr345 The Motley Fool Australia owns shares of Insurance Australia Group Limited. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy. This article contains general investment advice only (under AFSL 400691). Authorised by Scott Phillips.

More on Share Market News