IAG releases half-year results with huge net profit slump

IAG releases half-year results with huge net profit slump | Insurance Business

IAG releases half-year results with huge net profit slump

Australia’s largest general insurer, IAG, has released its financial results detailing statistics for the six months leading up to December 31, 2019. The insurer noted that financial indicators pointed to slight increases across the board, from insurance profit to underlying insurance margin. However, net profit dropped drastically.

Peter Harmer, IAG managing director and chief executive officer, unveiled the results at a press conference in Sydney yesterday. He believes the financials speak for themselves – that IAG continues to operate well across the board, in line with expectations, as well as attempting to respond to unexpected natural events.

“The important message that I want to emphasise is that our underlying performance has been strong,” said Harmer. “And this is in line with expectations we put forward at the beginning of last year.”

The results show slight increases in operating financial figures. Gross Written Premium (GWP) saw a 1.4% increase, slightly up from the first half of 2019, while insurance profit and underlying insurance margin both saw similar slight upward changes.

“Our underlying business had a strong performance over the half, with our Australian business generating solid underlying profitability while meeting the challenge of a series of devastating bushfires,” Harmer explained. “Our underlying insurance margin of 16.9% was an improvement on 1H19 (16.2%) … as we continued to realise benefits from our optimisation program.”

One notable drop was that of net profit after tax, which saw little over a 40% decrease compared to the first half of last year. This, however, is not alarm bell ringing, but a return to normalcy after the sale of IAG’s Thailand operations meant an irregular spike in profit for that period, it was explained. An attempt to sell its Vietnam office also failed to materialise.

“The sale of our Vietnam operations failed to proceed, and we are now examining alternative exit options,” Harmer said.

The topic that dominated the results call, however, was the impact of extreme weather events, notably the recent Australian bushfires.

“Since the start of the financial year, we have seen multiple extreme weather events which have impacted our customers, their communities and our business,” Harmer said. “The bushfires severely impacted our customers and had a bearing on our 1H20 results.”

The recent storms, hail and flooding have also taken their toll.

“These catastrophic weather events are having a financial impact on our business performance - on January 24, 2020, we revised our reported margin guidance to 14.5-16.5% after the devastating bushfires and the recent hail,” explained Harmer.

IAG has also revised its natural perils assumption.

“We have increased our assumption for FY20 net natural peril claim costs to $850 million, up from the $715 million advised on January 24,” announced Harmer. This is up by more than $200 million above the original $640 million it set aside for the 2020 financial year, and this latest increase is tied to the torrential rain and violent storms Australia’s east coast experienced in early February. IAG expects the cost of that event will be capped at $135 million.

These increased costs look to be offset by the sale of IAG’s stake in Indian SBI General Insurance Company for $640 million, a transaction expected to boost its 2020 profit by $300 million – making up for the drop in profit this time round. Harmer said the deal was yet to go through, but expected it to be completed before the end of the financial year. He added that the company intends to return the proceeds to shareholders through a share buyback program.