The Insurance Australia Group Ltd (ASX: IAG) share price is increasing on Monday as the company announces a return of capital to shareholders.
At the time of writing, shares in Australia's largest general insurer are 1.6% in the green at $4.89 a pop. That may not sound spectacular at first. However, compared to the 1.5% decline in the S&P/ASX 200 Index (ASX: XJO) this morning, it's a welcomed sight for shareholders.
Let's take a look at what IAG investors are cheering about today.
More money, fewer problems
Market participants are gazing upon the IAG share price more fondly at the start of this new week following the insurer's latest announcements. This comes after the company entered a trading halt on Friday amid the High Court's ruling on business interruption insurance.
According to today's release, IAG plans to conduct an on-market share buyback to the value of $350 million. The substantial capital return will come out of the previous provision IAG had kept up its sleeve in the event of the courts ruling mostly unfavourable verdicts for payment on claims invoked by COVID-19.
Out of the $950 million provision allotted, IAG has determined that a $615 million buffer is sufficient. In turn, the $350 million difference will go toward buying back IAG shares.
Additionally, the insurer said the provision is open to further adjustments in the future as more information becomes available.
One negative for IAG from the High Court's latest ruling is how JobKeeper payments will be considered. Reportedly, the court ruled that any such payments will not be deducted from the amount of a claim regarding business interruption.
Furthermore, the company reiterated its satisfactory capital position in light of today's news. Inclusive of the $350 million to be poured into buybacks, IAG still retains a CET1 ratio of 0.99. This is within the desired bound of 0.9 to 1.1.
How does the IAG share price compare in 2022?
Despite the raft of natural disasters (namely flooding) and deteriorating equity markets, the IAG share price has outperformed so far this year.
While the broader market is down a disappointing 12% in 2022, the insurance company is up 10% year-to-date. For those lucky shareholders, this works out to be a sturdy outperformance of around 22%.
On top of that, IAG shares trade on a dividend yield of approximately 1.9%. Making it even more appealing for those scouting out additional income.
