The Insurance Australia Group Ltd (ASX: IAG) share price is sinking on Thursday morning.
At the time of writing, the insurance giant's shares are down 8% to $8.16.
This follows the release of the company's half year results.
IAG share price sinks on results day
- Gross written premium (GWP) up 6% to $8,426 million
- Net earned premium up 9.7% to $4,930 million
- Insurance profit up 55.9% to $957 million
- Net profit after tax up 91.2% to $778 million
- Interim dividend per share up 20% to 10 cents
What happened during the half?
For the six months ended 31 December, IAG reported a 6% increase in GWP to $8,426 million and a 9.7% lift in net earned premium to $4,930 million.
This reflects GWP growth of 6.1% in the Retail Insurance Australia division, 10.3% in the Intermediated Insurance Australia division, and 1.2% in the New Zealand division.
On the bottom line, the insurer reported a 91% increase in net profit after tax to $778 million. Management notes that this sizeable increase was driven by a $140 million post-tax release of the COVID Business Interruption provision, an increase in net earned premiums, and an improvement in its insurance profit.
It also highlights that its pre-tax insurance profit of $957 million was up 56% on the prior corresponding period and equated to a reported margin of 19.4%. The company's natural perils costs were $215 million below allowance for the half and had a significantly positive impact on its insurance profit.
In light of its strong half, the IAG board elected to declare an interim dividend of 12 cents per share. This is up 20% on last year's interim dividend.
How does this compare to expectations?1)
According to a note out of Goldman Sachs, it was forecasting an insurance profit of $825 million, a reported insurance margin of 16.5%, and an interim dividend of 14.2 cents per share.
This means that IAG has beaten on its profits and margin, but missed with its dividend.
Management commentary
IAG's managing director and CEO, Nick Hawkins, was pleased with the half. He said:
Today's result reflects the quality of our business as we continue to see consistent, reliable performance across our portfolios and steady progress against our strategic priorities. It follows a challenging four-year period for IAG, marked by extreme weather events, volatile investment markets, and COVID related issues that impacted our performance.
Relatively favourable weather conditions during the half, along with strong investment markets and the release of $200m from our COVID Business Interruption provision, have positively impacted the company's profitability. These more favourable periods allow us to build up reserves to pay future claims when we need to.
Outlook
Hawkins spoke positively about the company's prospects in the second half. He said:
We enter the second half of financial year 2025 in a position of strength. With our streamlined structure, investment in technology, and commitment to quality customer service, we have a scalable business ready to grow beyond our current 7.2 million direct and partner customers.
This is expected to lead to IAG delivering a reported insurance profit of $1,400 million to $1,600 million in FY 2025 with a reported insurance margin towards the top end of the 13.5% to 15.5% range.
However, it is guiding to GWP growth at the lower end of its mid to high single digit range. This reflects "improving claims trends and lower reinsurance costs driving a moderation in premium increases." This could be weighing on the IAG share price today.
