IAG Faces Weather-Driven Earnings Hit Amid RACQI Integration Challenges

A Challenging Half-Year for IAG

Insurance Australia Group (IAG) has reported its first-half results for the 2026 financial year, revealing a net profit after tax (NPAT) of $505 million, a significant 35.1% decline compared to the previous corresponding period. This drop was largely driven by a one-off $174 million cost related to severe seasonal weather events impacting RACQ Insurance (RACQI), which IAG acquired in September 2025.

Despite this headline decline, the company’s underlying insurance profit rose by 7.6% to $804 million, maintaining a robust underlying insurance margin of 15.1%. This resilience underscores IAG’s ability to absorb weather-related shocks while continuing to grow its core business.

Growth and Strategic Integration

Gross written premium (GWP) increased by 6% to nearly $8.93 billion, boosted by the inclusion of RACQI’s portfolio. The acquisition has expanded IAG’s retail insurance reach to approximately 1.7 million members, marking a significant strategic milestone. The integration of RACQI into IAG’s comprehensive global reinsurance program, completed in January 2026, is expected to reduce future earnings volatility and deliver cost synergies.

Operationally, IAG has accelerated its technology transformation, migrating over six million policies onto its Retail Enterprise Platform and advancing its Commercial Enterprise Platform. These investments aim to improve underwriting efficiency and customer experience, particularly in the intermediated business segment.

Customer Support and Climate Initiatives

Severe weather events in Queensland and New South Wales tested IAG’s claims and customer support capabilities. The insurer paid out approximately $6 billion in claims during the half and supported more than 12,000 vulnerable customers, including those facing financial hardship. IAG’s use of AI, data analytics, and satellite technology through its proprietary Situation Awareness Map enabled faster, more targeted responses to natural disasters.

In a broader commitment to climate resilience, IAG established the NRMA Insurance Help Fund, a multimillion-dollar initiative supporting community preparedness and recovery. The company also partnered with specialist firms to accelerate hail damage repairs and launched research into driver interactions with advanced safety technologies.

Capital Management and Shareholder Returns

Reflecting its strong capital position, IAG declared an interim dividend of 12.0 cents per share, consistent with the prior year, albeit with a lower franking level of 25%. Additionally, the company announced an on-market share buyback program of up to $200 million, signalling confidence in its balance sheet and future prospects.

At 31 December 2025, IAG’s Common Equity Tier 1 capital ratio remained above target benchmarks, supporting its ability to withstand future shocks. The company is also preparing for regulatory assessment under the new Australian Competition and Consumer Commission (ACCC) mandatory merger regime, relevant to its ongoing RAC acquisition plans.

Outlook and Guidance

Looking ahead, IAG expects high single-digit growth in gross written premiums for the full year, with double-digit growth anticipated in the second half driven by retail expansion and RACQI’s contribution. The insurer maintains its full-year insurance profit guidance between $1.55 billion and $1.75 billion, targeting a 15% reported insurance margin and return on equity on a through-the-cycle basis.

While the first half absorbed significant weather-related costs, IAG’s management remains confident in the company’s strategic momentum, operational improvements, and capital strength to deliver sustainable shareholder value.