Insurance Australia Group share price sinks 4% lower after cancelling final dividend

The Insurance Australia Group Ltd (ASX:IAG) share price is dropping lower after cancelling its final dividend for FY 2020. Here's what's happening…

| More on:
Dividend payment cancelled

Image source: Getty Images

You’re reading a free article with opinions that may differ from The Motley Fool’s Premium Investing Services. Become a Motley Fool member today to get instant access to our top analyst recommendations, in-depth research, investing resources, and more. Learn More

The Insurance Australia Group Ltd (ASX: IAG) share price is dropping lower on Friday after the release of an announcement.

At the time of writing the insurance giant's shares are down 4% to $5.54.

What did IAG announce?

This morning IAG provided the market with an update on its expectations for FY 2020.

According to the release, the insurer expects to report gross written premium (GWP) growth of ~1.1%. This is consistent with its 'low single digit' guidance.

IAG also expects to report an insurance margin of approximately 10%, which has fallen short of its prior guidance of 12.5% to 14.5%. This is due largely to adverse natural perils, prior period reserving, and credit spread factors.

On an underlying basis, its insurance margin is expected to be 16%, compared to 16.6% in FY 2019. This was driven by a tough second half, which saw its margin fall to 15.1% because of higher reinsurance costs, lower investment returns, and a deterioration in the performance of some Australian commercial long tail portfolios.

This is ultimately expected to lead to a pre-tax loss on shareholders' funds income of $181 million. While this is down sharply from a profit of $227 million in FY 2019, it is better than its previously indicated year-to-date loss of approximately $280 million at the end of April.

Dividend cancelled.

In light of its poor performance, there will be no final dividend in FY 2020.

The company explained: "While IAG recognises many shareholders will be disappointed with no final dividend, it believes it is important to adhere to its long-established dividend payout policy and to maintain a strong capital position in the current uncertain environment."

IAG's Managing Director and CEO Peter Harmer, commented: "We have experienced an immensely challenging second half to the 2020 financial year, characterised by severe natural peril activity, the disruption caused by the COVID-19 pandemic to our people, customers and suppliers, and the marked volatility in investment markets which has adversely impacted our results."

"We have seen some softening in our underlying margin in the second half. This stems from the combination of lower investment returns from diminishing interest rates, an increased reinsurance expense as we bolstered our protection following heavy perils incidence early in the calendar year, and some deterioration in Australian commercial long tail loss ratio," he added.

However, the chief executive appears cautiously optimistic on the year ahead.

He concluded: "We enter FY21 with a strong balance sheet and enhanced reinsurance protection, and are well equipped to negotiate the challenges and opportunities that a post-COVID environment will present."

Should you invest $1,000 in Insurance Australia Group Limited right now?

Before you buy Insurance Australia Group Limited shares, consider this:

Motley Fool investing expert Scott Phillips just revealed what he believes are the 5 best stocks for investors to buy right now... and Insurance Australia Group Limited wasn't one of them.

The online investing service he’s run for over a decade, Motley Fool Share Advisor, has provided thousands of paying members with stock picks that have doubled, tripled or even more.*

And right now, Scott thinks there are 5 stocks that may be better buys...

See The 5 Stocks *Returns as of 6 March 2025

Motley Fool contributor James Mickleboro has no position in any of the stocks mentioned. The Motley Fool Australia has no position in any of the stocks mentioned. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy. This article contains general investment advice only (under AFSL 400691). Authorised by Scott Phillips.

More on Share Fallers

A man sits in despair at his computer with his hands either side of his head, staring into the screen with a pained and anguished look on his face, in a home office setting.
Share Fallers

Why Capricorn, CBA, Endeavour, and Polynovo shares are tumbling today

These shares are ending the week in the red. But why?

Read more »

Lines of codes and graphs in the background with woman looking at laptop trying to understand the data.
Share Fallers

Why Appen, Mesoblast, Rio Tinto, and Woodside shares are falling today

These shares are falling more than most on Thursday. But why?

Read more »

Frustrated stock trader screaming while looking at mobile phone, symbolising a falling share price.
Share Fallers

Why Coles, Ioneer, Treasury Wine, and Woolworths shares are falling today

These shares are having a tough time on hump day. But why?

Read more »

A young woman holds an open book over her head with a round mouthed expression as if to say oops as she looks at her computer screen in a home office setting with a plant on the desk and shelves of books in the background.
Share Fallers

Why Healthco, Life360, Mineral Resources, and Origin Energy shares are sinking today

These shares are having a tough time on Tuesday. But why?

Read more »

A young man clasps his hand to his head with his eyes closed and a pained expression on his face as he clasps a laptop computer in front of him, seemingly learning of bad news or a poor investment.
Share Fallers

Why Aurizon, Brainchip, Clarity, and Domino's shares tumbling today

These shares are under pressure on Monday. What's going on?

Read more »

A business woman looks unhappy while she flies a red flag at her laptop.
Share Fallers

These were the worst-performing ASX 200 shares in February 2025

These shares were sold off last month. Let's see what happened to them.

Read more »

A woman screams and holds her hands up in frustration.
Share Fallers

Why Brainchip, Endeavour, Star, and Telix shares are sinking today

These shares are ending the week deep in the red. But why?

Read more »

Frustrated stock trader screaming while looking at mobile phone, symbolising a falling share price.
Share Fallers

Why Appen, IDP Education, Objective Corp, and Siteminder shares are tumbling today

These shares are having a tough time on Thursday. Let's find out why.

Read more »