Shares of Insurance Australia Group Ltd (ASX: IAG) fell sharply on Thursday, dropping 8% to $8.16 despite the company posting a significant rise in profits for the first half of the financial year.
Investment advisory firm Motley Fool noted that despite IAG exceeding expectations on profit and margins, investor sentiment remained cautious due to the lower-than-expected dividend declaration. Goldman Sachs had forecasted an interim dividend of 14.2 cents per share, but IAG declared 12 cents, which may have contributed to the share price decline.
Motley Fool analysts also highlighted the company’s guidance for GWP growth at the lower end of its expected range, citing improved claims trends and lower reinsurance costs. While these factors suggest financial stability, they also indicate slower premium growth, which may not align with investor expectations.
IAG reported a 91.2% increase in net profit after tax to $778 million for the six months ending 31 December. The company’s gross written premium (GWP) grew by 6% to $8.43 billion, while net earned premium increased by 9.7% to $4.93 billion.
Insurance profit surged 55.9% to $957 million. The reported insurance margin rose to 19.4%, helped by natural peril costs being $215 million below allowance.
Following its strong half-year performance, the company announced an interim dividend of 12 cents per share, a 20% increase from last year.
Despite IAG’s strong financial results, the share price reaction suggests that investors had priced in even higher expectations. According to Motley Fool, the market’s response reflects a combination of dividend disappointment and cautious growth projections.
Additionally, the company guided GWP growth at the lower end of its mid-to-high single-digit range, citing improved claims trends and lower reinsurance costs. Analysts suggest this may have tempered investor enthusiasm.
IAG’s managing director and CEO, Nick Hawkins, expressed confidence in the company’s trajectory.
“Today’s result reflects the quality of our business as we continue to see consistent, reliable performance across our portfolios and steady progress against our strategic priorities,” he said.
Hawkins noted that favourable weather conditions, strong investment markets, and a $200 million release from the COVID Business Interruption provision had contributed to profitability.
Looking ahead, IAG expects reported insurance profit to range between $1.4 billion and $1.6 billion in FY25, with a reported insurance margin toward the upper end of 13.5% to 15.5%.
Despite these positive indicators, the company’s more cautious guidance on premium growth appears to have unsettled investors, leading to Thursday’s share price decline.
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