Australia’s biggest general insurer, IAG has warned that it has “limited scope” to pay its final dividend in September after seeing $280 million in investment income evaporate so far in 2019-20, especially since February in the sell-off on global markets driven by the COVID-19 pandemic.
The insurer said its view of the limited scope for a dividend – it paid 20 cents a share a year ago as a final and trimmed interim this year to 10 cents a share from 12 cents) as “after application of the upper end of IAG’s 60-80% of full-year cash earnings payout policy and after allowance for the 10 cent interim dividend paid in March 2020.”
“The IAG Board will determine the quantum of any final dividend in August 2020 in line with its normal timetable. This will take into account the company’s FY20 financial performance, which will be finalised at that time, “ the company told the ASX.
The insurer told the ASX on Monday the investment income losses were a result of the “severe correction” in the second half of the financial year in equity and credit markets.
IAG has since reduced its allocation to equities and alternative assets from 49% to 30% to cushion the impact of falling market values.
In its statement to the ASX, IAG said it’s business and financial performance is subject to ongoing uncertainty around the coronavirus pandemic, surrounding economic conditions, and determine the direction of investment markets.
The insurer’s capital position was also impacted by a spike in natural disaster-related claims (especially from the bushfires), but this was largely offset by the sale of its general insurance business SBI General in India in December.
“For the nine months ended 31 March 2020, IAG’s underlying business performance has remained strong. However, IAG’s business and financial performance in the concluding months of FY20 is subject to ongoing uncertainty from the impact of COVID-19 related challenges; Surrounding economic conditions; and the direction of investment markets.”
“Subject to the impact of the uncertainties outlined above, IAG has retained its existing FY20 market guidance, of ‘low single-digit’ gross written premium growth and a reported insurance margin of 12.5-14.5%.
“As specified in its 30 March business update, IAG’s reported margin guidance excludes an unrealised loss from a widening of credit spreads since 31 December 2019, which at the end of March approximated $100 million pre-tax. IAG has experienced a moderate narrowing of spreads in April,” IAG said.
IAG shares dipped 2.1% to $5.48.
