(Adds CEO's comment, dividend details, background) July 24...

(Adds CEO's comment, dividend details, background)

July 24 (Reuters) - Insurance Australia Group Ltd (IAG) on Friday slashed its earnings expectations for 2020 and scrapped its final dividend, citing disruptions caused by the coronavirus crisis, bad weather and extreme market volatility.

The pandemic has added to challenges faced by Australian insurers, which are yet to recover from a turbulent summer after raging wildfires, drought and hailstorms led to a surge in claims and crimped their margins.

IAG, Australia's second-largest insurer by market capitalisation, said it expects full-year cash earnings of A$279 million ($198.17 million), 70% lower than the A$931 million it earned in 2019.

Apart from the pandemic's impact and the volatility in financial markets, IAG Chief Executive Officer Peter Harmer also blamed lower investment returns due to diminishing interest rates and higher reinsurance expenses for weaker results.

The company further cut its expected insurance margin - a key profitability metric - to around 10% for the year, against an already lowered outlook range of between 12.5% and 14.5% it had announced in February.

The insurer also said it would not pay a final dividend, against a final payout of 20 cents per share last year, saying the move was in line with its dividend payout policy ratio.

IAG acknowledged that many shareholders would be disappointed about the scrapped dividend, but reiterated that it was prudent to hold a strong capital position "in the current uncertain environment."

Insurance companies, along with banks, are favoured by pensioners and long-term investors in Australia due to their stable and consistent dividend payouts.

($1 = 1.4079 Australian dollars)