IAG shareholders are benefiting from the insurance giant's tie-up with Warren Buffett's holding company, and could do so for years to come.
IAG's first half profit dropped almost 20 per cent to $466 million but its 10-year deal with Berkshire Hathaway, which kicked in on July 1, means it had extra capital to hand back to investors in the form of a special dividend.
Australia's biggest insurer said on Wednesday it will pay a fully franked special dividend of 10 cents per security on top of an unchanged interim dividend of 13 cents.
It has also upped the percentage of full year cash earnings it will hand over to 60 to 80 per cent, from 50 to 70 per cent, starting this full financial year.
"We now require less capital to run our company, so you can see some capital creation as we're only on risk now for 80 per cent of the business we're writing," chief financial officer Nick Hawkins said.
News that makes sense
Your trusted source for staying up-to-date with the world around you. Get free daily news updates and analysis, straight to your inbox.
"In terms of our actual net profit, it has a minimal impact."
Berkshire Hathaway receives 20 per cent of IAG's gross written premium in exchange for paying 20 per cent of its claims.
Mr Buffett's company also pays IAG a so-called exchange commission, which added 250 basis points to the underlying insurance margin.
The margin improved from 13.3 per cent to 14.2 per cent.
IAG said it expects its full year underlying insurance margin to be at the lower end of its previously issued guidance of 14.0 to 16.0 per cent.
A reinsurance arrangement with Berkshire Hathaway has mitigated exposure to the 2011 Canterbury earthquakes and asbestos-related liabilities.
"We'll continue to take risk off the table around any future uncertainty," Mr Hawkins said.
Gross written premium declined to $5.5 billion from $5.6 billion, with net profit for the six months to December 31 down from $579 million for the prior corresponding period.
"The real driver for why our net profit after tax is down is our shareholder funds," Mr Hawkins said.
"It's really driven by equity markets. It's nothing to do with Berkshire."
IAG shares closed seven cents lower at $5.18.
IAG-BUFFETT TIE-UP DELIVERS DIVIDEND
* Net profit down 19.5pct to $466mn
* Gross written premium down 1.1pct to $5.543bn
* Underlying insurance margin up 90 basis points to 14.2pct
* Interim dividend unchanged at 13 cents fully franked
* Special dividend of 10 cents fully franked
