Insurance Australia Profit Slips, Plans Share Buyback

   By Robb M. Stewart

MELBOURNE, Australia--Insurance Australia Group Ltd. (IAG.AU), the Australian general insurer that counts Warren Buffett as a shareholder, softened the blow of a fall in its annual profit with plans to return about 300 million Australian dollars (US$231 million) to shareholders through a share buyback.

The shares will be bought off-market using existing cash and investments, as part of a strategy of returning surplus capital, the insurer said.

News of the move came as IAG reported a 14% fall in net profit, dampened by lower investment income owing to weak equity-market returns.

IAG's profit fell to A$625 million for the year through June, from A$728 million the year before. That was despite revenue for the period climbing 12% to A$16.77 billion from A$15.01 billion.

Earnings were held back by a A$139 million charge for accelerating amortization and impairment of its software assets, plus a A$100 million increase in the company's tax expense.

The company plans to pay a final dividend of A$0.13 a share, for a full-year payout of A$0.26, down by A$0.03 on last year.

In mid-2015, Mr. Buffett's Berkshire Hathaway Inc. agreed to a strategic partnership with IAG, buying an initial 3.7% stake for A$500 million as part of a 10-year deal that fast-tracked Berkshire's expansion in the region and promised to lower IAG's capital needs. Under the partnership, Berkshire receives 20% of IAG's gross written premiums and pay 20% of the insurer's claims.

IAG said its insurance profit for the year was 6.8% higher at A$1.18 billion, and its reported insurance margin widened to 14.3% from 10.7% the year before.

Gross written premium was A$11.37 billion, a dip of 0.6% on-year which the company said reflected sound rate and volume growth in its "short-tail" personal insurance lines in Australia and New Zealand being offset by softer commercial market conditions in both countries.

It forecast gross written premium would be relatively flat over the coming financial year, with continued tough conditions for commercial lines. It said its margin was likely to be between 12.5% and 14.5% for the year.

IAG said it would brief investors on its strategy in December.

Write to Robb M. Stewart at robb.stewart@wsj.com

(END) Dow Jones Newswires

August 18, 2016 19:17 ET (23:17 GMT)

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