IAG: "There is presently limited scope to pay a final dividend"

IAG: "There is presently limited scope to pay a final dividend" | Insurance Business

IAG: "There is presently limited scope to pay a final dividend"

There’s a possibility IAG might not pay a final dividend in September. On Monday, the general insurance giant outlined where it currently stands.

“Based on year-to-date investment income outcomes and its forecast FY20 insurance profit, IAG advises that there is presently limited scope to pay a final dividend in September 2020,” stated the firm in its market update. “This is 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.”

IAG’s financial year 2020 ends on June 30.

According to the insurer, its investment income on shareholders’ funds amounted to a financial year-to-date loss of approximately $280 million pre-tax at the end of April. The result was attributed to the severe corrections witnessed in the second half of the financial year in equity and credit markets.

The company noted: “IAG’s weighting towards growth assets (equities and alternative asset classes) in its shareholders’ funds portfolio has materially reduced from the 49% allocation at December 31, 2019, to under 30% at April 30, 2020.”

Factors cited were the effect of falling equity markets; mark-to-market impacts in alternative asset classes; some active reallocation of funds to fixed interest and cash; and the placement of the proceeds from the sale of the interest in SBI General into conservative fixed interest and cash assets.

Meanwhile ongoing uncertainty from the impact of challenges related to COVID-19, surrounding economic conditions, and the direction of investment markets are likely to affect IAG’s business and financial performance in the concluding months of FY20.

IAG, however, is retaining its existing market guidance of low single-digit gross written premium growth and a reported insurance margin of between 12.5 and 14.5%.

“As specified in its March 30 business update, IAG’s reported margin guidance excludes an unrealised loss from a widening of credit spreads since December 31, 2019, which at the end of March approximated $100 million pre-tax,” it added. “IAG has experienced a moderate narrowing of spreads in April.

“IAG retains a strong capital position with a Common Equity Tier 1 (CET1) ratio at the top end of its targeted range, of 0.9 to 1.1. Since December 31, 2019, settlement of the sale of IAG’s interest in SBI General in India has largely offset the negative influences of perils-impacted earnings, payment of the interim dividend, and significant investment market impacts.”

The Sydney-headquartered business previously said that its SBI General divestment will translate to a net profit on sale of approximately $310 million in the second half of FY20. The completed transaction has increased IAG’s regulatory capital position by nearly $450 million.