Insurance Australia Group has reported a loss of $460 million for the December half as the insurance giant was forced to ramp up its provisions for COVID-19 after losing a landmark court case seeking to exclude pandemic lockdowns from business interruption policies.
IAG’s red result, weighed down by the $865 million set aside for an expected flood of claims from business owners who lost income as a result of COVID-19 restrictions, compares to a $283 million profit for the same period in 2019. Nonetheless, the insurer has committed to paying shareholders a dividend of 7 cents per share.
IAG chief executive Nick Hawkins. Credit:Dominic Lorrimer
The shock result comes after the insurance industry’s loss in a test case in the NSW Supreme Court of Appeal in November. The case sought to prove pandemic exclusions in business interruption policies were valid, but five judges unanimously sided with policyholders. The lobby group representing insurers, the Insurance Council of Australia, has appealed the decision to the High Court.
Newly appointed IAG chief executive Nick Hawkins told investors on Wednesday IAG’s business interruption policies were “never intended to cover pandemics”.
“However, following the Supreme Court of NSW Court of Appeal decision on the COVID-19 business interruption test case, we conducted a detailed review to determine our potential exposure, and took action to strengthen our balance sheet,” he said.
Following the court loss, IAG immediately launched a $750 million capital raising and put aside $865 million to prepare for claims from business owners seeking to recover their losses from the lockdowns.
The insurer, which owns brands such as NRMA and Swann Insurance, said premiums had grown by 3.8 per cent in the December half, mostly in commercial and home insurance businesses in Australia and New Zealand. Its underlying insurance margin – the difference between claims paid out and premiums received – was 15.9 per cent, a 1 per cent improvement on the corresponding period last year.
Mr Hawkins said the group had benefited from lower-than-expected natural perils and motor vehicle claims, citing the company’s premium and margin growth as signs of its strong fundamentals.
“We have seen a strong underlying performance across our businesses over the last six months and we will build on this performance as we sharpen our focus to deliver a stronger, more resilient IAG,” he said.
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