IAG's cautious outlook

It is a brave chief executive who is prepared to wear the wrath of yield hunters in this kind of environment.

But just as QBE did earlier this week, IAG’s chief Mike Wilkins played a conservative bat on the payout stakes this morning, defiantly resisting the Oliver Twist urgings of domestic investors.

A 25c final dividend took the full-year distribution to 36c, way above last year’s 17c. But it was a little less than the analysts had pencilled in (see Cliona O'Dowd's Collected Wisdom).

Wilkins has good reason to do so. This year’s greatly improved result – a 275% lift to $776 million – was built on better credit spreads, released reserves and lower insurance claims.

But it follows years of natural disasters that involved massive payouts, events that are firmly imprinted into the minds of IAG’s board and management.

And while net insurance margins shot to a respectable 17.2% in the past year, Wilkins is not expecting a repeat in the year ahead where margins are expected to be a more modest 12.5% to 14.5%.

That alone will cause analysts to blanch and explains IAG’s reticence to shell out a bigger portion of profit even with strong expected growth in premiums of between 5% and 7%.

At 64.7%, the payout ratio is at the top end of its 50% to 70% range. But with the mood firmly focussed on maximum yield, even a moderately conservative approach to capital management is frowned upon by traders.

With the dead weight of the UK business now tossed aside, IAG continues its tentative push into Asia with operations in Malaysia, Thailand, Vietnam and China that now provide around 7% of written premium.

The full-year premium growth of 11.8% with an insurance profit of $1.43 billion was largely expected after a comprehensive guidance update just weeks ago.