How Will IAG’s RAC Acquisitions Shape Its Growth After FY25 Profit Surge?

• FY25 gross written premium rises to $17.1 billion
• Underlying insurance profit up 7.3% to $1.54 billion
• Reported insurance margin improves to 17.5%
• Acquisitions of RACQ Insurance and RAC Insurance pending regulatory approval
• FY26 guidance anticipates $1.45–1.65 billion insurance profit and low-to-mid single digit premium growth

Strong Financial Performance in FY25

Insurance Australia Group (IAG) delivered a solid financial performance for the full year ended 30 June 2025, with gross written premium (GWP) climbing to $17.1 billion, up 4.3% on the previous year. Underlying insurance profit rose 7.3% to $1.54 billion, reflecting disciplined underwriting and improved claims management. The reported insurance margin strengthened to 17.5%, a notable improvement from 15.6% in FY24, driven by a lower claims ratio and effective expense control.

IAG paid out $10.2 billion in claims during the year, underscoring its commitment to customer support amid a challenging insurance environment. The company also invested $8.8 million in community initiatives, reinforcing its social responsibility credentials.

Customer Experience and Operational Highlights

Customer experience scores improved significantly, with net promoter scores rising to +45 in Australia and +54 in New Zealand. This was supported by enhancements to IAG’s Retail Enterprise Platform, which now hosts over 5 million customer policies, enabling faster claims processing and improved digital engagement. Initiatives such as AI-driven customer support and motor supply chain efficiencies contributed to operational gains.

Renewal rates remained strong, particularly in direct channels, with motor insurance renewal rates around 90% and home insurance at approximately 95%. These metrics highlight customer loyalty and the effectiveness of IAG’s direct-to-consumer strategies.

Strategic Acquisitions and Capital Position

IAG is progressing with the acquisitions of RACQ Insurance and RAC Insurance, which are expected to add approximately $3 billion in GWP and enhance capital efficiency. These transactions remain subject to regulatory approvals and completion conditions. The company anticipates annual run-rate synergies exceeding $150 million post-integration, driven by reinsurance, claims, and operational efficiencies.

Capital strength remains a key focus, with IAG reporting a Common Equity Tier 1 (CET1) ratio of 1.47, comfortably above its target range of 0.9 to 1.1 times the Prescribed Capital Amount. The company plans to maintain this robust capital position while funding organic growth and acquisitions.

Outlook and Guidance for FY26

Looking ahead, IAG projects reported insurance profit between $1.45 billion and $1.65 billion for FY26, with a reported insurance margin forecasted between 14.0% and 16.0%. The company expects low-to-mid single digit GWP growth excluding the impact of acquisitions, with direct business growth in Australia anticipated at mid-single digits and a relatively flat premium outlook in New Zealand.

The RACQ Insurance acquisition is expected to complete on 1 September 2025, contributing approximately 10% GWP growth. IAG’s guidance aligns with its strategic targets to deliver a 15% reported insurance margin and a 15% reported return on equity on a through-the-cycle basis.

Administration expenses are projected to reduce by FY27 as investments in growth and transformation initiatives mature, supporting improved efficiency and profitability.

Bottom Line?

IAG’s FY25 results and pending acquisitions position it well for sustained growth, but regulatory approvals and integration execution will be critical to watch.

Questions in the middle?

• How will regulatory approvals for RACQ and RAC Insurance acquisitions impact IAG’s growth trajectory?
• What are the key risks to achieving FY26 guidance amid evolving economic and natural peril conditions?
• How effectively can IAG realize the projected $150 million annual synergies from acquisitions?