IAG Faces Regulatory and Climate Risks Despite Strong FY25 Results
Insurance Australia Group Limited (IAG) reported a 51.3% rise in net profit after tax for FY25, supported by premium growth, improved margins, and key strategic alliances. The company also advanced its sustainability agenda with full renewable energy procurement and emissions reductions.
- Net profit after tax up 51.3% to AUD 1.359 billion
- Gross written premium increased 4.3% to AUD 17.106 billion
- Reported insurance margin improved to 17.5%, underlying margin 15.5%
- Final dividend raised 14.8% to 19.0 cents per share, fully franked at 40%
- Strategic alliances with RACQ and RAC Western Australia announced
- Achieved 100% renewable energy procurement and 7.5% emissions reduction
Strong Financial Performance
Insurance Australia Group Limited (IAG) delivered a robust financial performance for the year ended 30 June 2025, with net profit after tax soaring 51.3% to AUD 1.359 billion, up from AUD 898 million in FY24. This growth was underpinned by a 4.3% increase in gross written premium (GWP) to AUD 17.106 billion, driven by solid contributions across its Retail Insurance Australia, Intermediated Insurance Australia, and New Zealand divisions.
The company’s reported insurance margin improved to 17.5%, with an underlying margin of 15.5%, reflecting disciplined underwriting, efficient claims management, and favourable natural peril experience. Investment income on shareholders’ funds also rose to AUD 403 million, further bolstering profitability.
Shareholder Returns and Capital Strength
Reflecting its strong earnings, IAG declared a final dividend of 19.0 cents per share, franked to 40%, bringing the full year dividend to 31.0 cents per share, a 14.8% increase on FY24. The payout ratio stands at approximately 65% of reported net profit after tax, excluding the impact of business interruption provision releases.
The company’s capital position remains robust, with Common Equity Tier 1 (CET1) capital increasing to AUD 3.939 billion and total regulatory capital reaching AUD 6.510 billion. This strong capital base supports IAG’s ongoing operations and growth ambitions, including funding for recent strategic acquisitions.
Strategic Alliances to Expand Market Reach
In a significant development, IAG announced exclusive strategic alliances with the Royal Automobile Club of Queensland (RACQ) and the Royal Automobile Club of Western Australia (RAC). The RACQ alliance, valued at AUD 855 million, is expected to complete in late 2025, while the RAC deal, worth AUD 1.35 billion, is anticipated to close in the first half of 2026, subject to regulatory approvals.
These alliances are projected to add approximately AUD 3 billion in gross written premium and AUD 2 billion in net earned premium, with an expected insurance profit uplift of at least AUD 300 million. The partnerships will extend IAG’s customer base by around 3 million members, enhancing its market leadership in Australia.
Technology and Customer Experience Enhancements
IAG continued its investment in digital transformation, with over five million policies migrated to its Retail Enterprise Platform, enabling personalised customer interactions and streamlined operations. The company is also progressing the Commercial Enterprise Platform to modernise its intermediated insurance business.
Customer experience metrics remain strong, with high renewal rates and positive transactional net promoter scores in both Australia and New Zealand. IAG has enhanced its catastrophe management capabilities, including a 24/7 Major Event Command Centre and the use of satellite technology to support claims during natural disasters.
Sustainability and Climate Risk Management
Demonstrating leadership in sustainability, IAG achieved 100% renewable energy procurement for its Australian and New Zealand operations and reduced its greenhouse gas emissions by 7.5% compared to the FY24 baseline. The company’s Climate Action Plan outlines ambitious targets to reach net zero emissions by 2050, with interim goals for 2030.
IAG’s climate risk management is integrated into its enterprise risk framework, with scenario analyses guiding strategic responses to physical and transition risks. The company actively advocates for government collaboration on flood mitigation and insurance affordability, while supporting Indigenous-led environmental initiatives and community resilience programs.
Governance and Leadership
The Board welcomed JoAnne Stephenson as an Independent Non-Executive Director in May 2025, bringing additional expertise in insurance and financial services. Executive remuneration remains aligned with business performance, with short-term incentives reflecting strong FY25 outcomes and long-term incentives tied to return on equity, total shareholder return, and customer experience metrics.
Looking ahead, IAG’s FY26 guidance anticipates low-to-mid single digit growth in gross written premium and reported insurance profit between AUD 1.45 billion and AUD 1.65 billion, excluding the impact of pending acquisitions. The company remains focused on delivering sustainable growth, enhancing customer service, and managing climate-related risks in a changing environment.
Bottom Line?
IAG’s FY25 results set a strong foundation, but regulatory approvals and integration of new alliances will be key to sustaining momentum.
Questions in the middle?
- How will the integration of RACQ and RAC acquisitions impact IAG’s operational efficiency and customer retention?
- What are the potential financial and reputational risks from ongoing legal proceedings and regulatory investigations?
- How will evolving climate policies and natural peril trends affect IAG’s underwriting strategy and insurance pricing?