Insurance Australia Group missed its profit margin forecast after its bottom line was hit by high natural disaster costs and weak investment returns, as the insurer also set aside more cash to invest in its reserves.
But the company, which released its results early on Friday, told the market conditions were looking more positive for the year ahead, with wider margins and further growth in insurance premiums.
He also released $200 million that had been set aside for claims from businesses affected by COVID-19 — and he said that money would factor into his dividend decision for this year.
The insurance giant behind brands including NRMA Insurance, CGU and SGIO on Friday announced preliminary financial results for the fiscal year, reporting net profit after tax of $347 million, up from a loss last year, and highlighting the “challenges” he had faced over the past year.
Insurance margins – which are closely watched by the market – came in at 7.4%, below its indicative range of 10-12%.
IAG said it would inject an additional $135 million into the claims reserves of its commercial insurance portfolio in the second half. He also reiterated that the costs of natural disasters would exceed his initial allocation.
He said the total cost of natural hazards would be $1.12 billion, $345 million more than his original allocation, but broadly in line with his March warning that those costs would be around $1.1 billion dollars. All insurers faced significantly higher catastrophe losses this year, mainly due to catastrophic storms and flooding in northern New South Wales and Queensland.
IAG also said volatility in the financial markets affected its investment portfolio and it recorded a loss of $105 million in shareholder funds.
Despite the challenging environment for insurers, chief executive Nick Hawkins said there was strong momentum in the underlying business for the year ahead. IAG said it would increase its natural catastrophe allowance by 19% and provided guidance for wider insurance margins.