UPDATE 2-Australia’s IAG shares plunge after modest annual profit, outlook


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* IAG shares fall more than 8 pct on disappointing outlook

* IAG flags modest premium growth and margins

* IAG says not aware of anything that “should surprise us” (Recasts with executive comments, capital return, shares)

By Paulina Duran

Aug 15 (Reuters) – Insurance Australia Group Ltd (IAG) shares fell the most in over a decade on Wednesday after the insurer flagged a subdued earnings outlook and reported a modest rise in full-year profit, driven by lower investment income.

Shares in IAG fell 8.5 percent to A$7.77, their steepest fall since 2007, even as the insurer announced a plan to return A$592 million ($426.95 million) in capital to shareholders via a special dividend.

Annual net profit from continuing operations rose 1 percent to A$947 million, as insurance profit was partly offset by lower gains from investment, the IAG said.

Australia’s second-largest insurer by market value said it expected gross written premiums to rise by 2 to 4 percent in fiscal 2019 and forecast insurance margins of 16 to 18 percent.

Analysts said the guidance meant there was now a risk of the Sydney-based insurer not delivering earnings growth in coming years. But IAG said it was confident it would deliver on its modest guidance.

“The question: Are we being too conservative in the way we’ve presented guidance or is there something else that’s worrying us?” Chief Financial Officer Nicholas Hawkins said on a conference call with analysts.

“I think the answer to that is I don’t think it’s overly conservative. So I’m not aware of anything us that we are talking about that would come back and should surprise us.”

Late last year, IAG announced it would share 12.5 percent of its premiums and costs with Munich Re, Swiss Re and Hannover Re, in a series of deals designed to release capital and reduce risk.

“Increasingly, we’re trying to ensure that we have less unexpected outcomes than potentially in the past. And we’re pretty confident that we will deliver in that range,” Hawkins said

IAG wrote A$11.65 billion worth of gross premiums during the business year, up about 2 percent from fiscal 2017.

“When taking the 2.5 percent in 2H18 underlying margin benefit from the recent 12.5 percent quota share deal coming into effect, the result does look soft,” Goldman Sachs analysts said in a client note on Wednesday.

Analysts at JPMorgan said guidance was “much softer than we had thought”.

The insurer announced a final dividend of 20 Australian cents per share.

“This is a solid result for IAG with an encouraging improved underlying performance, in line with our expectations,” Chief Executive Peter Harmer said in a statement to the stock exchange.

The results included A$10 million in costs related to the insurer’s cooperation with the Royal Commission, a quasi-judicial inquiry into conduct in the financial services sector.

Revelations of misconduct during the year-long inquiry have roiled the banking, funds management and pension industries. The Royal Commission will examine the insurance sector in September.

“We don’t know yet whether we will be required to appear, but we have a wonderful and very dedicated team that continues to prepare just in case we are called,” Harmer told analysts. ($1 = 1.3866 Australian dollars)

Reporting by Paulina Duran in SYDNEY; Additional reporting by
Aaron Saldanha in BENGALURU; Editing by Tom Brown and
Christopher Cushing


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