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DJ UPDATE: IAG To Cut Dividends, Exit Some UK Ops
09/07/2008 09:56AM AEST

(Adds CEO comments, further detail.)

By Lyndal McFarland
Of DOW JONES NEWSWIRES


SYDNEY (Dow Jones)--Insurance Australia Group Ltd. (IAG.AU) said Wednesday it will cut dividends, take provisions and write down and exit parts of its U.K. business as part of group-wide restructure led by new Chief Executive Michael Wilkins.

The group, which rebuffed a A$8.7 billion takeover bid from rival insurer QBE Insurance Group Ltd. (QBE.AU) in May, will cut its dividend payout ratio to 50%-70% of earnings, starting this financial year and warned it will book a net loss for the 2008 fiscal year.

"The changes announced today will involve a short-term financial impact, however we believe these actions are necessary to give us the platform to improve the performance of the business over the medium to longer term," Wilkins said in a statement.

"The fundamentals of the business remain strong and we are confident that our actions today will improve shareholder value," he said.

IAG will pay a final dividend of 9 cents per share for the year ended June 30, down from 16 cents a year ago, taking total dividends for the period to 22.5 cents, down from 29.5 cents.

Some analysts had predicted a cut in dividends, but many in the market had not expected the group to introduce such a measure.

IAG also said it will move to a simpler operating model in Australia and New Zealand. A restructure of its Australian operations and corporate office is expected to result in around A$130 million in annual pretax savings.

It said it will adopt a "lean" corporate office, indicating some job cuts are likely. IAG will take a pretax restructuring provision of around A$60 million in the current financial year as a result of the Australian restructuring.

It will also exit the private motor and mass market distribution operations of Hastings/Advantage and Equity Insurance Brokers in the U.K. and exit its Lloyd's managing agency Alba and Diagonal Underwriting investments.

The move will result in a writedown of its UK businesses, with an expected impairment charge of A$350 million in the 2008 financial year.

IAG expects to report a net loss per share of 13 cents to 15 cents for the 2008 financial year, with cash earnings - a smoothed measure which excludes one-off items - expected to come in at 6 cents to 8 cents per share.

But its net earned premium is expected to rise to A$7.3 billion from A$6.7 billion a year earlier. Gross written premium growth for the year ending June 30 will be around 6%, and its insurance margin will be at the low end of its 6%-8% guidance range.

Wilkins, a former chief executive of Promina, said IAG expects to generate underlying gross written premium growth of 3%-5% for the year ending June 30, 2009, while reported Group GWP is expected to be flat to 2% higher due to the change in U.K. strategy.

IAG's insurance margin for the 2009 financial year is expected to improve to more than 10%.

Chief Financial Officer George Venardos will follow in the footsteps of former Chief Executive Michael Hawkins, who left the group in May after announcing three profit downgrades in less than six months. Nicholas Hawkins will replace Venardos as CFO.

IAG also said it will "selectively pursue growth opportunities primarily in Asia."