IAG’s Strong Results Mask Risks from Natural Perils and Economic Headwinds
Insurance Australia Group (IAG) reported a robust half-year performance with a $778 million net profit, underpinned by premium growth and improved insurance margins. The company also raised its interim dividend by 20%, signaling confidence in its strategic execution.
- Net profit after tax rises to $778 million, up 91% year-on-year
- Gross written premium grows 6%, driven by Motor and Home insurance
- Underlying insurance margin improves to 15.1%, up 140 basis points
- Interim dividend increased by 20% to 12 cents per share
- Strong capital position with CET1 ratio at 1.42, well above target range
Robust Financial Performance in 1H25
Insurance Australia Group Limited (IAG) has delivered a strong financial result for the half-year ended 31 December 2024, reporting a net profit after tax of $778 million, a significant increase from $407 million in the prior corresponding period. This performance was supported by a 6% growth in gross written premium (GWP) to $8.4 billion, reflecting solid demand across key insurance segments.
The company’s underlying insurance margin rose to 15.1%, up 140 basis points from 13.7% in 1H24, driven by improved claims experience and disciplined underwriting. IAG’s insurance profit reached $957 million, bolstered by a $140 million post-tax release of business interruption provisions.
Segment Highlights and Operational Strength
Growth was notably strong in the Retail Insurance Australia division, with GWP increases of 6.3% in Motor and 6.1% in Home insurance, supported by high renewal rates close to 90%. The division’s underlying insurance margin improved to 15.2%, reflecting effective claims management and supply chain enhancements.
Intermediated Insurance Australia saw a 10.3% rise in GWP, driven by workers’ compensation policies, although reported insurance margins softened slightly. New Zealand operations maintained resilience with a 3.2% GWP increase in retail and a modest 1.2% decline in intermediated premiums, while improving underlying insurance margins across both segments.
Capital Position and Risk Management
IAG’s capital strength remains robust, with a Common Equity Tier 1 (CET1) ratio of 1.42, comfortably above the target range of 0.9 to 1.1. The company successfully placed its 2025 catastrophe reinsurance program, securing long-term natural peril volatility protection through to FY29. Despite a net perils cost of $426 million in 1H25, this was $215 million below allowance, reflecting prudent risk management amid a challenging natural peril environment.
Dividend and Outlook
Reflecting confidence in its ongoing performance, IAG declared an interim dividend of 12 cents per share, a 20% increase from the prior period. The company reaffirmed its FY25 guidance, targeting a reported insurance profit between $1.4 billion and $1.6 billion, with a reported insurance margin expected towards the top of the 13.5% to 15.5% range. Gross written premium growth is forecast at mid-to-high single digits, tempered by moderating claims inflation and premium increases.
CEO Nick Hawkins highlighted the company’s strategic focus on scalable growth, underwriting discipline, and technology enablement, positioning IAG well to meet evolving customer needs across Australia and New Zealand.
Bottom Line?
IAG’s strong half-year results and upgraded dividend underscore its resilience, but natural peril volatility and economic uncertainties remain key watchpoints.
Questions in the middle?
- How will IAG manage potential natural peril cost increases in the second half of FY25?
- What impact will the RACQ strategic alliance have on IAG’s market share and profitability?
- How effectively can IAG leverage AI and technology investments to sustain margin improvements?
