IAG (ASX: IAG) has released a preview of its FY20 result and it has also cancelled its final dividend.
IAG is one of the biggest insurers in the country with various businesses like NRMA, CGU, SGIO, SGIC, Swann Insurance and WFI.
IAG’s FY20 result preview
IAG said that whilst its full result will be released on 7 August 2020, it can release some expected numbers.
Gross written premium (GWP) growth was 1.1% which included negative effects of exiting businesses in FY19 and lower pricing as well as COVID-19 impacts in the second half of FY20.
IAG achieved an underlying insurance margin of 16%, down from 16.6% in FY19. In the second half of FY20 the margin was 15.1% because of higher reinsurance costs, lower investment returns and lower performance from some Australian commercial portfolios.
The company’s reported insurance margin was 10.1% in FY20, down from 16.9% last year. That includes a net natural peril claim cost of $904 million compared to guidance of $850 million. IAG said there was reverse strengthening of $48 million, compared to a $126 million release last year, due to negative development of some Australian long tail reserves. There was a $46 million negative credit spread impact.
Overall, there was a broadly neutral impact by COVID-19 according to IAG.
IAG reported that there was a pre-tax loss of $23 million from fee-based business. There was also a pre-tax loss of $181 million from shareholders funds income.
The company reported an increased pre-tax provision of $246 million for customer refunds relating to multi-year pricing issues.
Thankfully, the company expects to report a $326 million profit after tax for the sale of its 26% interest in SBI General Insurance in India.
Overall, IAG expects to report a profit of $435 million attributable to shareholders for FY20, down 60% from FY19’s $1.076 billion.
IAG Managing Director and CEO Peter Harmer said: “We enter FY21 with a strong balance sheet and enhanced reinsurance protection and are well-equipped to negotiate the challenges and opportunities that a post-COVID environment will present.”
Dividend cancelled
IAG is not going to pay a final dividend, with the top end of IAG’s 60% to 80% cash earnings payout policy already fulfilled by the interim dividend of 10 cents per share which was paid in March.
Summary
It has been a tough year for IAG. I think insurers are just too prone to tough years in both recessions and bad storm years. IAG isn’t going to end up in my portfolio, I’d rather buy one of these dividend shares for dividend income.
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