Insurance Australia Group (IAG) reported a smaller-than-expected fall in first-half cash earnings on Thursday, helped by stronger premium inflows that offset the combined pressure of higher claims costs and weaker investment returns.
For the six months ended December 31, IAG's cash earnings were A$507 million, down 21% from A$640 million a year earlier. That result outperformed the Visible Alpha consensus estimate of A$464.7 million.
Net claims expense for the half rose 15% to A$3.51 billion, a figure marginally below the consensus expectation of A$3.53 billion. Investment income generated from shareholder funds declined 14% to A$186 million.
CEO Nick Hawkins noted the impact of recent weather events, saying, "Various major hailstorms and severe weather events in October and November across south-east Queensland and northern NSW resulted in significant claims for insurers." Those events contributed to the increase in claims costs recorded in the period.
IAG reported gross written premiums of A$8.93 billion for the six months ended December 31, an increase of 6% year-on-year. Net earned premium - which excludes the cost of reinsurance - rose 8.5% to A$5.35 billion.
The insurer also updated its full-year outlook for gross written premiums growth, lowering the prior 10% guidance to a view of growth in the high-single digits. That revised forecast aligns with the consensus estimate of 9.6% growth.
In a move reflecting its capital position, IAG announced a new on-market share buyback program of up to A$200 million. The company also declared an interim dividend of 12 Australian cents per share, unchanged from the prior year.
Reported figures include the currency conversion used in the release: ($1 = 1.4041 Australian dollars).
Context and implications
The half-year results show premiums rising enough to blunt but not erase the impact of elevated claims and weaker investment income. The buyback signals management's willingness to return capital to shareholders while maintaining the dividend at the previous level.
Financial highlights
- Cash earnings: A$507 million, down 21% from A$640 million a year earlier; beat Visible Alpha consensus of A$464.7 million.
- Net claims expense: A$3.51 billion, up 15%; slightly below consensus A$3.53 billion.
- Investment income from shareholder funds: A$186 million, down 14%.
- Gross written premiums: A$8.93 billion, up 6% year-on-year.
- Net earned premium: A$5.35 billion, up 8.5%.
- Interim dividend: 12 Australian cents per share, unchanged.
- New buyback: up to A$200 million.