IAG Laments “Exceptionally Harsh” December Half

By Glenn Dyer | More Articles by Glenn Dyer

Insurance giant IAG has slashed its full 2019-20 profit forecast after storms, bushfire and other natural perils ripped a hole in interim earnings and slashed interim dividend.

It was the second time in a month that the company has cut its key measure of profits, its insurance margin.

Net profit slumped 43.4% to $283 million in the December half as extreme weather events took their toll, IAG said in its half-year release.

Revenue was up 5% from the previous half at $9.01 billion.

IAG will pay an interim dividend to shareholders of 10 cents a share, down from 12 cents for the December 2018 half-year, with the franked amount per security at 7 cents.

Despite all that, and the second cut to the insurance margin, IAG shares ended the day up 0.1% at $6.88.

On January 24 it revised the reported margin guidance down to 14.5% to 16.5% after the devastating bushfires and hail event in Melbourne, Canberra, and Sydney,” Mr. Harmer said.

The forecast was originally set at 16%-18%.

“With the recent heavy rain event in south-east Australia in early February, we have further lowered guidance for the full year to 12.5 to 14.5 percent… in what is providing to be an exceptionally harsh perils season,” the company told the ASX yesterday.”

While costs for the biggest rainstorm since the 1990s would be capped at $135 million under its reinsurance program, Mr. Harmer said the spike in claims meant the company had to increase its assumption for net natural peril claim costs to $850 million, up from $715 million advised in late January.

“This season has triggered broader debate and greater community concern than ever before over climate change and its impact,” IAG CEO Peter Harmer moaned in a statement accompanying the results.

“It is critical that all levels of government work with our communities and businesses to minimise the immediate and long-term impacts of climate change.”

The multiple extreme weather events pushed down earnings in the December half and would further eat into profits in the current half as the insurer stepped up its natural peril claims cost assumptions, Mr. Harmer warned, slashing the company’s profitability forecast for the full year.

That won’t be the last change given there are more claims to come from the various disasters.

Glenn Dyer

About Glenn Dyer

Glenn Dyer has been a finance journalist and TV producer for more than 40 years. He has worked at Maxwell Newton Publications, Queensland Newspapers, AAP, The Australian Financial Review, The Nine Network and Crikey.

View more articles by Glenn Dyer →