Tough times prompt conservative measures at IAG
The word “sensible” set the tone for a media briefing by IAG CEO Michael Wilkins about the group’s first-half performance forecast and capital-raising.
IAG expects a net profit of $4 million for the six months to December 31, down from $110 million in the previous corresponding period.
Mr Wilkins says performance has been impacted by the adverse movements in investment income due to weak equity investment markets, as well as the loss on the sale of non-core mass market operations in the UK.
After having trade in its shares suspended on Wednesday, IAG raised $450 million through an institutional placement at $3 a share.
A further $100 million will be sought from retail investors under a share purchase plan.
The total raising will boost IAG’s capital to 1.77 times the minimum statutory requirement, well above a long-term target of 1.5.
However, the buy-back of $225 million in subordinated debt will bring the ratio down.
“We think [the 1.77 ratio is] sensible, given the market uncertainty and volatile times we’re currently living in, but we haven’t changed our long-term risk appetite, which is to have a multiple of about 1.5 times,” Mr Wilkins said.
He says IAG’s exposure to Victorian bushfire claims has not provided an imperative to raise capital. This exposure is capped at $126 million under reinsurance arrangements.
Nor is there any requirement to buy back the subordinated debt.
Mr Wilkins says upward pressure on premiums should not be seen as just in terms of the Victorian bushfires.
“In terms of pricing, we’re not looking to single anybody out here,” he said. “What we do is look to risk rate rather than work on a payback or recovery period.”
IAG expects a net profit of $4 million for the six months to December 31, down from $110 million in the previous corresponding period.
Mr Wilkins says performance has been impacted by the adverse movements in investment income due to weak equity investment markets, as well as the loss on the sale of non-core mass market operations in the UK.
After having trade in its shares suspended on Wednesday, IAG raised $450 million through an institutional placement at $3 a share.
A further $100 million will be sought from retail investors under a share purchase plan.
The total raising will boost IAG’s capital to 1.77 times the minimum statutory requirement, well above a long-term target of 1.5.
However, the buy-back of $225 million in subordinated debt will bring the ratio down.
“We think [the 1.77 ratio is] sensible, given the market uncertainty and volatile times we’re currently living in, but we haven’t changed our long-term risk appetite, which is to have a multiple of about 1.5 times,” Mr Wilkins said.
He says IAG’s exposure to Victorian bushfire claims has not provided an imperative to raise capital. This exposure is capped at $126 million under reinsurance arrangements.
Nor is there any requirement to buy back the subordinated debt.
Mr Wilkins says upward pressure on premiums should not be seen as just in terms of the Victorian bushfires.
“In terms of pricing, we’re not looking to single anybody out here,” he said. “What we do is look to risk rate rather than work on a payback or recovery period.”