IAG has issued an update on its results prior to releasing its detailed FY20 results on 7 August. Preliminary figures show cash profit is set to drop 70% from a year earlier to $279 million, while net profit will fall to $435 million from $1.08 billion. Bushfires and other natural perils along with coronavirus trading conditions which have affected investment returns have been cited as the main reasons for the losses.
IAG’s Managing Director and CEO Peter Harmer said: “We have experienced an immensely challenging second half to the 2020 financial year, characterised by severe natural peril activity, the disruption caused by the COVID-19 pandemic to our people, customers and suppliers, and the marked volatility in investment markets which has adversely impacted our results.
“I am proud of the way our people have risen to the challenges we have seen, maintaining a high level of commitment to our customers through a sequence of major natural peril events in the middle of the financial year. And then, with the emergence of COVID-19, through the swift implementation of customer support measures for those suffering hardship as we rapidly shifted to home working arrangements.
“We have seen some softening in our underlying margin in the second half. This stems from the combination of lower investment returns from diminishing interest rates, an increased reinsurance expense as we bolstered our protection following heavy perils incidence early in the calendar year, and some deterioration in Australian commercial long tail loss ratios.
“We enter FY21 with a strong balance sheet and enhanced reinsurance protection, and are well-equipped to negotiate the challenges and opportunities that a post-COVID environment will present," Harmer said.
The company expects the FY20 results will include:
- GWP growth of 1.1%, including adverse effects from business exits completed in FY19 and lower CTP pricing, as well as a modestly negative estimated COVID-19 impact in 2H20;
- An underlying insurance margin of 16.0% (FY19: 16.6%), including a second half outcome of 15.1% impacted by higher reinsurance costs, lower investment returns and deterioration in the performance of some Australian commercial long tail portfolios;
- A reported insurance margin of 10.1% (FY19: 16.9%), after inclusion of:
- Net natural peril claim costs of $904 million, compared to updated guidance provided in February 2020 of $850 million, following higher than anticipated attritional perils experience in the final quarter of the financial year;
- Prior period reserve strengthening of $48 million (FY19: net reserve releases of $126 million) driven by adverse development of some Australian long tail reserves;
- A negative credit spread impact of $46 million (FY19: $6 million negative); and
- A broadly neutral impact from overall estimated COVID-19 effects;
- A pre-tax loss from fee-based business of $23 million (FY19: loss of $9 million);
- A pre-tax loss on shareholders’ funds income of $181 million (FY19: profit of $227 million), compared to a previously indicated year-to-date loss of approximately $280 million at the end of April;
- An increased pre-tax customer refund provision of $246 million for multi-year pricing issues (1H20: $150 million), included in the net corporate expense line;
- A total profit after tax of $326 million on the sale of IAG’s 26% interest in SBI General Insurance Company in India, which completed at the end of March 2020. The bulk of this profit is reflected in the net corporate expense line; and
- No final dividend, with the top end of IAG’s 60-80% of cash earnings payout policy delivered by the interim dividend of 10 cents per share which was paid in March.