Insurance Australia Group Ltd (ASX: IAG) share price has risen more than 15% since September 29, to currently trade around $5.67.
Despite the recent rise, the share price remains 10% below where it was a year ago.
IAG is one of Australia's largest general insurers, with operations in New Zealand, Thailand, Vietnam, India, China, Malaysia and Indonesia. Last financial year, the group, with brands like NRMA Insurance, CGU, SGIC, SGIO, Swann Insurance, and NZI, AMI and Lumley insurance in New Zealand.
IAG recently backed away from its goal of acquiring a national licence to operate in China, instead focusing on other growth opportunities in Asia and its core Australian and New Zealand businesses.
It seems investors were very happy with that news, as well as reaffirming its guidance for the 2016 financial year (FY16). CEO Mike Wilkins told shareholders at its AGM last month that the company expects flat growth in Gross Written Premium (GWP), but an insurance margin of between 14% and 16%. IAG saw an underlying insurance margin of just over 13% in the 2015 financial year (FY15).
In FY15, IAG saw 17% growth in GWP – driven mostly by the $1.85 billion acquisition of Wesfarmers Ltd's (ASX: WES) insurance underwriting business in 2013. FY16's forecast underlying profitability is expected to be similar to last year's.
The company also entered into a strategic partnership with Warren Buffett's Berkshire Hathaway in 2015, which the company believes will bring substantial benefits and opportunities to both parties. The investment by the world's greatest investor Warren Buffett is also a tick of approval for IAG's strategy, and Berkshire Hathaway has an option to purchase another 5% of IAG's share within the next 2 years. Berkshire currently holds 3.7% of IAG.
IAG has always been a nice dividend yield stock, despite the dividend falling 26% last year to 29 cents per share. That was mostly driven by falls in insurance profit, which was in turn affected by higher claims from natural disasters last financial year.
Foolish takeaway
IAG is likely to pay out a similar amount in dividends this financial year thanks to its policy of paying out between 50% and 70% of earnings in dividends. Backed by Berkshire Hathaway and Warren Buffett, IAG should continue to deliver decent fully franked dividends to shareholders over the long term.
