The Insurance Australia Group Ltd (ASX: IAG) share price will be one to watch on Monday after the insurance giant released a trading update.
What did Insurance Australia Group announce?
This morning Insurance Australia Group (IAG) released a comprehensive update on its expectations for the FY 2020.
This includes its financial performance, its dividend prospects, and its year to date investment market performance.
Investment income.
IAG has certainly not had a great year with its investments.
At the end of April IAG's investment income on shareholders' funds amounted to a financial year-to-date loss of approximately $280 million pre-tax. This reflects the severe corrections witnessed in the second half of the financial year in equity and credit markets.
The company also advised that its weighting towards growth assets (equities and alternative asset classes) in its shareholders' funds portfolio has materially reduced from the 49% allocation at December 31, to under 30% at April 30.
This reflects the combination of the impact of falling equity markets, mark-to-market impacts in alternative asset classes, some active reallocation of funds to fixed interest and cash, and the placement of the proceeds from the sale of the interest in SBI General into conservative fixed interest and cash assets.
Financial performance.
For the nine months ended March 31, IAG's underlying business performance was strong.
However, management warned that its business and financial performance in the concluding months of FY 2020 is subject to ongoing uncertainty from the impact of COVID-19, economic conditions, and investment markets.
Though, it has retained its existing FY 2020 market guidance of low single digit gross written premium growth and a reported insurance margin of 12.5-14.5%. This excludes an unrealised loss from a widening of credit spreads since December 31, which at the end of March approximated $100 million pre-tax. IAG has experienced a moderate narrowing of spreads in April.
Dividend prospects.
Based on its year-to-date investment income outcomes and its forecast FY 2020 insurance profit, IAG warned that there is presently limited scope to pay a final dividend in September.
The IAG Board will determine the quantum of any final dividend in August 2020 in line with its normal timetable. This will take into account the company's FY 2020 financial performance, which will be finalised at that time.
