Shares in general insurer, IAG Group jumped more than 5% at one stage yesterday after it revealed a loss and a lower interim dividend.
The shares closed at $5.29, up 4.55% as investors ignored the loss of $460 million which was the result of the $750 million fund raising late last year to give the company enough capital to meet claims by businesses under IAG’s business interruption insurance policies.
IAG forced to boost its provisions for possible COVID-19 losses to $865 million after the insurance industry lost a landmark court case in NSW in November that sought to exclude pandemic lockdowns from business interruption policies.
The case was lost because the general insurance industry an out-of-date definition of a pandemic instead of the more modern 2016 contained in Federal legislation.
The Insurance Council of Australia (the industry umbrella group) has appealed the decision to the High Court.
IAG’s loss compares to a $283 million profit for the December half of 2019.
Nonetheless, the insurer has committed to paying shareholders a dividend of 7 cents a share, down 30% from the 10 cents a share paid for the December 2019 half year
Newly appointed IAG CEO Nick Hawkins told investors on Wednesday IAG’s business interruption policies were “never intended to cover pandemics”.
“However, following the Supreme Court of NSW Court of Appeal decision on the COVID-19 business interruption test case, we conducted a detailed review to determine our potential exposure, and took action to strengthen our balance sheet,” he said.
IAG saw an improvement in its core insurance business in the half with the absence of significant natural disasters (unlike a year ago with the early claims from the terrible bushfires).
Gross Written Premiums rose 3.8% in the December half, mostly in commercial and home insurance businesses in Australia and New Zealand.
Its underlying insurance margin – the difference between claims paid out and premiums received – was 15.9%, 1% better than in the corresponding period last year.
Mr Hawkins said the group had benefited from lower-than-expected natural perils and motor vehicle claims, citing the company’s premium and margin growth as signs of its strong fundamentals.
“We have seen a strong underlying performance across our businesses over the last six months and we will build on this performance as we sharpen our focus to deliver a stronger, more resilient IAG,” he said.
“Over the past few months, we have put in place measures which I believe will further strengthen the business.
“We’ve restructured the business, splitting our Australia Division into Direct Insurance Australia and Intermediated Insurance Australia to better align our brands to our customers and to bring a stronger focus to our commercial and personal intermediated businesses.
“We are acting decisively to address the issues facing our business.
“We are working with the broader insurance industry to get clarity on how our business interruption policies should be interpreted in the context of COVID-19, and we continue to make progress on our customer remediation program,” Mr Hawkins said.
