Insurance Australia : IAG announces FY18 results

Insurance margin
Year-on-year improvement

Higher underlying margin¹ of 14.1%
(FY17:12.4%)

• Reduced pressure on motor profitability as rates at least match claims inflation
• Some earn-through of higher commercial rates
• Improved NSW CTP profitability derived from initial reform measures
• Degree of respite from large losses in Australian commercial property, but still at elevated levels
• Initial 12.5% quota share impact of approximately 125bps

FY18 Reported margin of 18.3%
(FY17: 15.5%)

Slightly above updated guidance of 16-18% driven by:

• Higher than expected reserve releases at 4% of net earned premium (NEP) compared to 3% guidance
• Favourable net natural peril claim cost outcome of $541m - $84m below allowance

GWP growth

Like-for-like > 4%, largely rate driven

Sound underlying growth

• Rate increases addressing claims inflation in motor and home
• Higher commercial rates, notably in New Zealand
• Relatively flat overall volumes:
• Advances in motor (New Zealand) and CTP
• Commercial lower reflecting new business, retention and remediation of property and fleet portfolios

Reported growth of 1.8% in line with low single digit guidance

• After absorption of several one-off influences:
• NSW CTP reform-related pricing and refunds ($190m)
• Swann discontinued motor dealer and motorcycle business (>$40m)
• Adverse foreign exchange movement re New Zealand (>$60m)

Return to shareholders

Dividend and capital position

The Board has determined to pay a final fully franked dividend of 20.0 cents per share (cps) (2H17:20.0 cps) on 27 September 2018. This brings the full year dividend to 34.0 cents, representing an increase of 3% over FY17 and a cash payout ratio of 77.9%.

IAG's capital position remains strong with a Common Equity Tier 1 (CET1) ratio of 1.26 against a target benchmark of 0.9-1.1.

Capital management initiative

IAG has announced a $592m capital management initiative to distribute surplus capital to shareholders. The initiative, which is subject to shareholder approval at the AGM is expected to occur on or around 26 November 2018 and amounts to 25 cents per ordinary share, and is expected to comprise:

• A capital return of 19.5 cents
• A fully franked special dividend of 5.5 cents

The 19.5 cents per share capital return will be accompanied by a related share consolidation which is expected to reduce the number of shares on issue by approximately 2.4%.

After the consolidation, each shareholder's proportionate interest in IAG will be unchanged. On a pro forma 30 June 2018 basis, IAG expects its key capital multiple to be close to the mid-point of its benchmark range. This is after allowance for payment of the final dividend and the capital management initiative, as well as receipt of the proceeds from the sale of the Thailand business which is expected to occur by 31 August 2018.