Insurance Australia Group has missed its profit margin guidance after its bottom line was hit by high natural disaster costs and poor investment returns, as the insurer also set aside more cash to put into its reserves.
But the company, which released its results early on Friday, has told the market that conditions are looking more positive for the year ahead, flagging wider margins and further growth in insurance premiums.
It also released $200 million that had been set aside for claims for COVID-19-affected business – and it said this cash would be factored into its decision on dividends for this year.
IAG’s profits were hit by high natural peril claims, and company lifted its allowance for disasters for the year ahead.Credit:Dan Peled
The insurance giant behind brands including NRMA insurance, CGU and SGIO on Friday announced preliminary financial results for the financial year, reporting net profit after tax of $347 million, up from a loss last year, and highlighting “challenges” it had faced in the last year.
Insurance margins – which are closely watched by the market – were 7.4 per cent, below its guidance range of 10 to 12 per cent.
IAG said it would put an extra $135 million into reserves for claims in its commercial insurance portfolio in the second half. It also reiterated that natural disaster costs would exceed its initial allowance.
It said total natural peril costs would be $1.12 billion, which was $345 million more than its original allowance, but broadly in line with its warning in March that these costs would be about $1.1 billion. All insurers have faced sharply higher disaster claims this year, mainly due to storms and catastrophic flooding in Northern NSW and Queensland.
IAG also said the volatility in financial markets had hit its investment portfolio, and it reported a $105 million loss on shareholders’ funds.
Despite the tough backdrop for insurers, chief executive Nick Hawkins said there was strong momentum in the underlying business for the coming financial year. IAG said it would increase its allowance for natural disasters by 19 per cent, and it provided guidance for wider insurance margins.
