IAG’s Growth Hinges on RACQ and RAC Deals Amid Market Uncertainties

Strong Financial Performance

Insurance Australia Group (IAG) delivered a standout FY25 result, with net profit after tax surging 51.3% to $1.36 billion. This impressive growth was underpinned by an 8% increase in net earned premiums and a 21.2% rise in insurance profit to $1.74 billion. The company benefited from disciplined pricing, underwriting efficiencies, and a favourable natural peril environment, with catastrophe costs coming in $195 million below allowance.

Investment income on shareholder funds also contributed significantly, rising to $403 million from $286 million the previous year. These factors combined to lift the reported insurance margin to 17.5%, up from 15.6% in FY24.

Customer Focus and Operational Advances

IAG emphasized its commitment to customers throughout the year, paying out $10.2 billion in claims and supporting over 15,000 customers facing financial hardship. The company’s investment in technology, including migrating over five million policies to its Retail Enterprise Platform, has enhanced underwriting, pricing, and claims management capabilities, improving customer experience and operational efficiency.

Notably, IAG’s response to severe weather events demonstrated improved claims handling and customer support, with proactive outreach to affected communities and investments in resilience programs such as the Australian Red Cross EmergencyRedi workshops.

Strategic Alliances Set to Expand Market Reach

A major highlight of the year was IAG’s announcement of strategic alliances with the Royal Automobile Club of Queensland (RACQ) and the Royal Automobile Club of Western Australia (RAC). These partnerships are expected to add approximately $3 billion in gross written premium and increase insurance profit by at least $300 million on a full synergy run-rate basis.

The alliances will extend IAG’s retail insurance offerings to 1.7 million RACQ members and 1.3 million RAC members, leveraging IAG’s financial strength, advanced technology platforms, and customer-centric claims processes. Completion of these deals is anticipated to boost IAG’s return on equity target to 15% on a through-the-cycle basis.

Outlook and Guidance for FY26

Looking ahead, IAG projects low-to-mid single digit growth in gross written premiums for FY26, excluding the impact of the RACQ and RAC acquisitions. The company expects insurance profit between $1.45 billion and $1.65 billion, with an insurance margin forecasted between 14% and 16%. These projections assume stable natural peril costs, no significant reserve movements, and steady macroeconomic conditions.

With the RACQ acquisition expected to complete in September 2025, IAG anticipates premium growth accelerating to approximately 10% once the alliances are integrated. The company remains focused on delivering its through-the-cycle targets of a 15% insurance margin and return on equity, supported by its strong capital position and disciplined approach.