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.