IAG share price drops 4.9% after underwhelming FY19 results

When the multinational insurance company Insurance Australia Group Ltd reported its full-year results yesterday, investors bid its share price down sharply.

By the close of trade Thursday, IAG’s shares had declined some 4.9%, hitting A$7.68 per share. When the ASX opened Friday, the stock continued to fall.

It looks as if strong net profits weren’t enough to save IAG from bearish investors, as the insurance giant disappointingly reported that its insurance profits, in particular, had fallen a sizeable 13%.

IAG full-year financials in focus

Though Insurance Australia Group Ltd’s share price was sold off heavily Thursday and somewhat Friday; overall, the company still posted solid FY19 results.

For the full-year, the insurance giant’s total gross written premium (GWP) figures came in 3% higher than the year prior, at A$12 billion.

Looking forward, the company now expects low single-digit GWP growth in FY20, with expected commercial rate increases and lower commercial volumes putting downward pressure on GWP growth.

Additionally, although IAG’s gross written premiums were higher in FY19, the firm saw a significant hit to its insurance profits – falling 13% on a year-over-year basis, to A$1.2 billion.

This, in addition to IAG’s subdued FY20 outlook, was likely one of the key drivers behind Thursday and Friday’s sell-off.

Indeed, investors seemed unimpressed even as the company reported that full-year net profits after tax (NPAT) came in at A$1.07 billion – some 16% higher than the year prior.

This result, bolstered by the A$200 million sale of IAG’s Thailand operations, likely didn’t excite investors due to its non-recurring nature.

IAG share price: 2020 outlook

The company has articulated its 2020 priorities with a core focus on the ‘customer’, ‘simplification’ and business ‘agility’.

Specifically, a focus on removing redundant claims systems and accelerated investments in data, artificial intelligence and innovation were all highlighted in the 2019 release.

Dividend remains flat

Though Insurance Australia Group Ltd reported bumper profits after tax for the 2019 fiscal year, this did not translate into an increased dividend for investors.

In fact, IAG’s FY19 release saw a full-year dividend of 32.0 cents declared, slightly below the company’s full-year dividend the year prior.

Adding to this and likely of note for income-focus investors, were comments from IAG’s Chief Executive Officer that the company:

‘Can no longer guarantee fully franked dividend payments and anticipates franking to be in the range of 70% to 100% in future periods.’

Such comments likely contributed to the sell-off we've witnessed in the last couple of days.

Ultimately, even with all this considered, year-to-date IAG’s share price has risen a respectable 11%, somewhat behind the ASX 200 benchmark.