Insurance Australia Group Ltd (ASX: IAG) released its 2018 financial results showing a 2.6% increase in revenue to $16.4 billion and a profit of $923 million, down 0.6% year-over-year.
In its statement to the ASX on Wednesday IAG revealed it will pay a final dividend of 20 cents per share, fully franked. That will take the full-year dividend payments to 34 cents per share, fully franked, up one cent from last year.
Analysts surveyed by Bloomberg had been expecting IAG to report a profit of $1.1 billion and full-year dividends of 33.8 cents per share. Therefore, it appears IAG did not meet analysts’ profit expectations.
Despite that, IAG said lower natural weather events and a better insurance margin led to the robust profit result. Insurance profit was up 11% to $1.27 billion while the total amount of insurance IAG offered to customers grew nearly 2% to $11.4 billion. Its reported insurance margin was 15.5%.
“This is a solid result for IAG with an encouraging improved underlying performance, in line with our expectations,” IAG CEO Peter Harmer said.
“We’ve met the guidance we provided last year, slightly exceeding the reported margin component thanks to favourable natural perils and higher reserve releases than anticipated.”
Outlook
In 2019 IAG expects to report gross written premium (GWP) growth of between 2% and 4%. Meaning, the amount of insurance it provides to customers is expected to increase by that amount. Its insurance margin is expected to be between 16% and 18%.
Special Dividend
IAG plans to release an additional return of cash to shareholders, amounting to 25 cents per share, including a 5.5 cents per share fully franked ‘special’ dividend. The return is subject to a shareholder vote in late November.
“We are pleased that as a result of the quota share arrangements releasing capital as well as the sale of the Asia businesses, we are now in a position to deliver this surplus to our shareholders,” Harmer noted.
Following the payment, IAG acknowledged that it may not be able to pay fully franked dividends to shareholders in the future, as its franking credit balance has fallen in recent years. However, the insurer expects dividends to be at least 70% franked. (Click here to learn what franking means)
“We have long maintained the best place for surplus capital is with our shareholders in the absence of significant operational demands for capital,” Harmer said.
The IAG share price was trading 5% lower on Wednesday, according to Google Finance.
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