Insurance Australia Group (ASX:IAG) reported first-half financial results that management said showed the “resilience” of the business amid seasonal weather impacts in Australia and New Zealand, while also supporting organic capital generation and shareholder returns.
Profit, capital management, and shareholder returns
Chief Financial Officer William McDonnell said IAG generated “over AUD 500 million in NPAT” for the half. The company announced an interim dividend of AUD 0.12 per share, representing a 56% payout ratio. Management also announced an on-market share buyback of up to AUD 200 million.
IAG reported a 13.5% reported insurance margin, which management said was impacted by severe perils experience in the RACQ portfolio. Excluding that impact, McDonnell said the group recorded 17.7%. Underlying insurance profit was AUD 804 million, representing a 15.1% underlying margin, with McDonnell noting this included the additional cost of the group’s reinsurance protections (which he said have a 50–100 basis point impact on margin).
On capital, McDonnell said IAG finished the half with a CET1 position above its target range, with solid earnings partially offset by the FY2025 final dividend payment and a “21-point impact” from completing the RACQ acquisition. He also cited a negative impact from the weaker New Zealand currency on the foreign currency translation reserve. Management reiterated its CET1 target range of 0.9–1.1 times and said it was increasingly comfortable operating in the lower part of that range.
Weather impacts and reinsurance program
Chief Executive Officer Nick Hawkins said IAG had experienced hailstorms, bushfires, and flooding in Australia and a “terrible landslide” in New Zealand, and he emphasized the role of the insurer in supporting impacted customers and communities.
McDonnell highlighted the benefit of IAG’s reinsurance program in keeping ex-RACQ net perils “in line” with the half-year allowance of AUD 646 million, despite several material events. He contrasted this with RACQ’s experience under its previous standalone reinsurance program: severe Queensland weather events generated over AUD 800 million in gross perils claims, or AUD 224 million net of reinsurance, which was AUD 152 million above RACQ’s AUD 72 million perils allowance.
For the full year, management cited a revised perils allowance of AUD 1,465 million, reflecting the inclusion of the RACQ portfolio into the group reinsurance program and an increase in the quota share to 35%.
McDonnell said non-quota share reinsurance costs increased 8% to AUD 676 million, including AUD 60 million related to RACQ; excluding RACQ, he said costs decreased 1.5%. He also said IAG had a “favorable” January 1 renewal and that integrating RACQ into IAG’s reinsurance program delivered a targeted synergy of at least AUD 50 million on an annualized basis.
Premium growth and portfolio performance
Hawkins said underlying growth across Australia and New Zealand retail portfolios was around 4%, with the RACQ acquisition contributing 6% growth in the half and expected to contribute around 9% growth in the second half.
In Australian retail, management reported top-line growth of 14.4%, which included four months of RACQ. Hawkins said underlying growth in the home portfolio was “just over 7%,” supported by customer and policy growth, while motor underlying growth was about 1.5%, reflecting pricing discipline in a “highly competitive” market—particularly in New South Wales—despite strong retention. He said recent go-to-market changes in New South Wales were improving new business volumes in January and early February.
Before RACQ, Hawkins said Australian retail delivered a 14.7% insurance margin and an underlying margin that increased half-on-half from 15.2% to 15.9%. Incorporating RACQ, severe Queensland weather affected results, with a reported retail margin of 7.4% and an underlying margin of 13.4%. Hawkins said RACQ integration was on track and that integration costs were “reflected above the line,” adding that RACQ was protected under the group’s reinsurance program from January 1.
In New Zealand retail, management reported headline growth of 3.4% in NZD, with volume growth contributing the majority. Hawkins said the reported insurance margin was “over 28%,” and the underlying margin improved to 26%, citing targeted claims initiatives and pricing capability enabled by the rollout of the Retail Enterprise Platform. He also noted a new Chief Executive, Phil Gibson, would join the New Zealand business on February 23.
In Australian intermediated (commercial), Hawkins said the business delivered 3.5% underlying growth and a 17.5% reported margin, which he said was boosted by AUD 86 million of prior-period reserve releases. He said the company was accelerating its Commercial Enterprise Platform program, with completion expected 12 months earlier than previously anticipated. Hawkins also cited improvements at WFI, including an NPS of 63.
In New Zealand intermediated (NZI), management said premiums were down 10.4% in local currency, though underlying insurance profit was stable at NZD 78 million. Reported profit was NZD 86 million with a 20% margin. Hawkins said the business retained 33 of 34 large accounts during recent renewals.
Claims, expenses, investment income, and profit commissions
McDonnell said the underlying claims ratio improved 70 basis points to 51.9%. He said this included an approximately 50 basis points negative impact from RACQ; excluding RACQ, the underlying claims ratio improved 120 basis points.
He said results were assisted by around AUD 115 million of profit commission on reinsurance arrangements, compared to around AUD 40 million in the prior half. Management described the profit commission calculation as conservative and risk-adjusted, and said New Zealand received a proportionally greater allocation due to strong earnings. In Q&A, management said profit commissions included both the multi-year peril stop-loss arrangement and whole-of-account quota share arrangements.
On expense management, McDonnell said IAG delivered a “material reduction” in the expense ratio, with ex-levies admin costs improving 20 basis points versus 1H25 and 80 basis points versus 2H25. He said the improvement included the RACQ business and ongoing technology investment, including GenAI capabilities, and he said management was confident in achieving an expense ratio below 11% in FY2027.
Investment income on technical reserves was AUD 90 million, which McDonnell said was impacted by mark-to-market movements following an increase in the risk-free rate late in the period. The underlying investment yield declined 90 basis points to 4.6%, though he said IAG continued to deliver a spread of around 100 basis points above risk-free and expected an uplift in yields in the second half, noting an exit yield around 5% at the half-year.
FY2026 outlook and strategic updates
Hawkins said IAG is forecasting high single-digit premium growth for the full year, slightly lower than earlier expectations due to the stronger Australian dollar versus the New Zealand dollar and softer New Zealand commercial markets. He said management expects double-digit growth in the second half, supported by six months of RACQ and retail growth of at least or above the 4% underlying level delivered in the first half.
Management maintained FY2026 reported insurance profit guidance of AUD 1.55 billion to AUD 1.75 billion, aligning with a through-the-cycle target of a 15% reported insurance margin and ROE. Hawkins said the company expected to be “towards the bottom” of the range, reflecting strong underlying performance offset by one-off RACQ impacts experienced before full reinsurance cover began on January 1.
On strategic alliances, Hawkins said IAG completed the RACQ acquisition on September 1, welcomed more than 800 new employees, and gained the opportunity to serve 1.7 million members. He also reiterated commitment to a proposed alliance with RAC in Western Australia and said IAG was reapplying for approval under the ACCC’s new mandatory merger regime following a decision received in December.
About Insurance Australia Group (ASX:IAG)
Insurance Australia Group Limited underwrites general insurance products and provides investment management services in Australia and New Zealand. It offers personal and commercial insurance products, including bicycle, comprehensive motor, commercial and motor fleet, commercial property and liability, construction and engineering, consumer credit, compulsory third party, directors and officers, extended warranty, farm, crop, livestock, home and contents, income protection, marine, veteran, vintage and classic car, boat, caravan, travel, life, professional indemnity, public and product liability, security, workers' compensation, motor vehicle, personal liability, business, and rural and horticultural, as well as reinsurance.
