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Why the IAG share price could slump lower today

The Insurance Australia Group Ltd (ASX: IAG) share price is on watch today after its half-year profit slumped 43.4% lower.

What did IAG report today?

The IAG share price will be one to watch after its net profit after tax for the period ended 31 December 2019 fell 43.4% to $283 million.

The group’s Gross Written Premium (GWP) climbed 1.4% higher to $5,962 million while insurance profit edged 1.0% higher to $501 million.

This figure was in line with IAG’s full-year guidance of “low single-digit” growth but well down on the 4.1% growth seen in 1H FY 2019. On a like for like basis, IAG’s GWP growth came in at ~2.5% for the half-year. There was 0% growth from its Australian operations but 6.3% from its New Zealand segment.

The Aussie insurer’s reported insurance margin slumped 20 basis points (bps) lower to 13.5% but climbed 70 bps on an underlying basis to 16.9%. 

One factor that could put the IAG share price under pressure was a further downgrade of its FY 2020 margin guidance range. The Aussie insurer lowered its guidance range to between 14.5% and 16.5% on 24 January due to recent hailstorms. However, subsequent heavy rain events have seen the insurer lower this range by a further 200 bps to between 12.5% and 14.5% today.

IAG is now estimating total net perils of $850 million due to a combination of bushfires, hailstorms and heavy rain.

Despite the fall in statutory net profit, IAG reported a 19.3% increase in diluted cash earnings per share (EPS) to 16.0 cents.

The Aussie insurer is also forecasting an FY 2020 loss of up to $50 million (pre-tax) from its fee income.

The IAG share price is also under the microscope after slashing its dividend by 16.7% to 10.0 cents per share.

On the regulatory capital side, IAG’s common equity tier 1 (CET1) ratio fell 3 bps to 1.15 times.

Foolish takeaway

It’s been a busy start to the year for Australia’s largest general insurer, with natural disaster events now causing two downgrades to its insurance margin.

The IAG share price could slump lower today following the FY 2020 guidance downgrade and 16.7% dividend cut.

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Motley Fool contributor Kenneth Hall 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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