IAG's cash profit falls 12.2pc, announces $300m buyback
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IAG's cash profit for fiscal 2016 falls 12.2 per cent on the back of flat gross premiums, reflecting challenging conditions in the Australian and New Zealand commercial markets.
Insurance Australia Group (ASX: IAG) on Friday announced a 12.2 per cent fall in fiscal 2016 cash profit before one-off items to $987 million, ahead of consensus but in line with Morningstar's forecast.
Net profit after tax for the year stood at $625 million, down 14.1 per cent year over year, while insurance profit rose 6.8 per cent to $1.18 billion.
The insurer attributed the fall in net profit to lower investment income due to flat equity markets, a higher effective tax rate due to a significantly lower favourable effect from earthquake-related reinsurance recoveries, and a $139-million software write-down.
IAG announced an underlying insurance margin of 14.0 per cent, up from 13.1 per cent in fiscal 2015.
Gross written premium stood at $11.37 billion, a 0.6 per cent fall from fiscal 2015, IAG said.
The company declared a final fully franked dividend of 13 cents a share, which brought the full-year payout to 26 cents a share.
The final dividend is payable on 5 October 2016 to shareholders registered as at 5pm on 7 September 2016.
The full-year payment was down from 29 cents a share in the previous year and below Morningstar's forecast, which was also 29 cents.
The full-year dividend represents a payout ratio 72.9 per cent of cash earnings, IAG said in a statement to the ASX.
Also on Friday, IAG announced it will return $300 million to shareholders through an off-market share buyback.
The buyback will be funded from existing cash and investments and will be conducted by way of an off-market tender process, which will open on 9 September 2016 and close at 7pm (Sydney time) on 7 October 2016.
IAG chief executive officer Peter Harmer said he was pleased with the "solid performance" of the group and felt confident about the business as it enters fiscal 2017.
However, the insurer expects gross written premium to be relatively flat for the coming year.
IAG provided guidance for a reported insurance margin for fiscal 2017 of 12.5 per cent to 14.5 per cent, compared to a reported insurance margin of 14.3 per cent in fiscal 2016.
Morningstar head of Australian banking research, David Ellis, said despite reducing his forecast insurance margin, he would only be making modest changes to his bottom-line earnings forecasts for IAG.
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Nicholas Grove is a Morningstar journalist.
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