The story.

IAG’s consumer businesses in Australia and New Zealand, representing more than 60% of the Group’s gross written premium (GWP), are performing well, achieving strong profitability and modest GWP growth in a low claims inflation environment. Our ability to broadly maintain market share with limited movement on price demonstrates the strength and resilience of our market-leading brands.

The contribution to gross written premium growth by the consumer businesses was offset by continued challenging market conditions for our commercial businesses. Here, we are prudently maintaining our underwriting discipline in the most competitive conditions in almost four decades.

Managing capital, risks and earnings volatility

One of the factors that differentiates IAG is our ability to complete transactions that create value for shareholders and help us manage our capital and risk profile, and reduce earnings volatility.

Good examples are the AMI and Wesfarmers acquisitions, and our agreement with Berkshire Hathaway. This is the first reporting period to include the earnings impact of the 20% quota share arrangement with Berkshire Hathaway and we are pleased to report it has met our expectations, lowering earnings volatility and reducing regulatory capital requirements.

In a further move to improve our capital efficiency, we have entered into an innovative transaction with Berkshire Hathaway reinsurance that mitigates the Group's exposure to its two most material legacy risks – the Canterbury earthquakes and asbestos related liabilities.

Dividend payout and policy

The Board has determined to pay an interim fully franked dividend of 13.0 cents per ordinary share (cps), consistent with the last interim dividend of 13.0 cps and equal to a payout ratio of 62.7% of cash earnings. In recognition of our strong capital position, IAG will also pay a special fully franked dividend of 10.0 cps. Both dividends will be paid on 30 March 2016.

The special dividend allows us to quickly and effectively return capital to shareholders, while retaining a strong capital position at the upper end of our target range.

Recognising our strong capital position, we have also increased our dividend payout policy to 60-80% of cash earnings on a full year basis, up from 50-70%, for the 2016 financial year and beyond.

Outlook

For the 2016 financial year we continue to expect gross written premium growth will be relatively flat, and our reported margin guidance¹ remains at 14-16%, although we expect this to be at the lower end of this range following the tougher than expected commercial market conditions experienced this half year.

We are driving future growth and profitability by sharpening our focus on customers’ needs. Our goal is to create a company that is customer-led and data-driven, simpler and more scalable, agile and quick to respond to the changes we are seeing in the community and in business.

As we work to achieve our strategy, we will continue to invest prudently for the future, and manage the business in the best interests of shareholders.

Chairman appointment

In a change flagged at the 2015 annual general meeting in October, the IAG Board has appointed a new Chairman. Ms Elizabeth Bryan AM will assume this role effective 31 March 2016. Ms Bryan was appointed as a director of IAG in December 2014 and as Deputy Chairman in June 2015. Her depth of experience in leading some of Australia’s most successful companies will be extremely valuable to IAG and its management team and ensures the company remains in capable hands.