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Why the IAG share price is now up 14% in 2019

The Insurance Australia Group Ltd (ASX: IAG) share price is up 14% in calendar year 2019 already to sell for $7.90 and the insurer’s shares have also gone without the rights to a 12 cents per share dividend over the period.

For the six-month period ending December 31 2018, IAG posted a net profit of $500 million on gross written premiums of $5,881 million, with the two metrics down 9.3% and up 4.1% respectively.

Unfortunately though cash earnings were down 49% to $319 million in a result that contributed to the 14% fall in the dividend to 12 cents.

Taking a chunk out of profit margins in the first half was the December 2019 Sydney hailstorm and reportedly adverse credit spread movements.

Back in June 2015, Warren Buffett’s Berkshire Hathaway investment vehicle famously agreed to take a 3.7% stake in IAG and wear some of the claims costs in return for receiving an equal proportion of the premiums.

IAG has also followed the strategy of rival QBE Insurance Group Ltd (ASX: QBE) in selling or trying to sell much of its South East Asian operations in an attempt to “shrink to greatness”.

Over the half IAG sold its Thailand business and is trying to sell its Vietnamese and Indonesian operations, with Asian insurance markets proving tougher than the local insurers expected.

The stock offers a 4% trailing yield or 5.2% when including the impact of a 19.5 cents per share special dividend.

Warren Buffett has made the world’s largest fortune by buying to hold blue-chip businesses such as insurers that pay regular dividends. Although for those after a little more growth The Motley Fool knows 3 other businesses to consider….

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Motley Fool contributor Tom Richardson has no position in any of the stocks mentioned. 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.

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