Insurance Australia Group’s half year net profit fell 35% to $505 million, weighed down by natural peril claims and integration costs from its RACQI acquisition. Despite this, the insurer maintains its full-year guidance and announces a $200 million share buy-back.
- Net profit after tax down 35.1% to $505 million
- Revenue up 23.3% to $11.14 billion, boosted by RACQI acquisition
- Reported insurance profit declines to $724 million with 13.5% margin
- Underlying insurance profit rises to $804 million, margin steady at 15.1%
- Interim dividend declared at 12.0 cents per share, 25% franked
- On-market share buy-back of up to $200 million announced
Half Year Results Reflect Integration Challenges and Natural Perils
Insurance Australia Group Limited (IAG) reported a net profit after tax of $505 million for the half year ended 31 December 2025, a 35.1% decline compared to $778 million in the prior corresponding period. This downturn was primarily driven by a $174 million loss from the recently acquired RACQ Insurance Limited (RACQI) portfolio, which suffered significant natural peril events before its full integration into IAG’s reinsurance program.
Despite the profit decline, IAG’s revenue rose 23.3% to $11.14 billion, reflecting strong growth in gross written premiums (GWP) and the contribution from RACQI. The reported insurance profit fell to $724 million, translating to a reported insurance margin of 13.5%, down from 19.4% a year earlier. However, the underlying insurance profit increased to $804 million, maintaining an underlying insurance margin steady at 15.1%, signaling resilience in the core business.
Segment Performance and Premium Growth
The Retail Insurance Australia segment saw GWP growth of 14.4% to $4.92 billion, including $502 million from RACQI. Excluding RACQI, underlying growth was around 4%, supported by rate increases and volume gains in home and motor insurance. The Intermediated Insurance Australia segment experienced a slight premium decline of 1.2%, though underlying growth was approximately 3.5% after adjusting for multi-year workers’ compensation premiums. New Zealand premiums fell 4.6%, partly due to currency effects, with local currency premiums down 2.6%.
Natural Perils and Claims Experience
Natural peril claims cost IAG $870 million in the half, $152 million above the allowance, largely due to severe weather events impacting the RACQI portfolio. Excluding RACQI, natural peril costs were in line with expectations. The immunised underlying loss ratio improved slightly to 51.9%, reflecting ongoing claims management initiatives and inflationary pressures, particularly in home insurance.
Capital Position and Shareholder Returns
IAG’s capital position remains robust with a Common Equity Tier 1 (CET1) multiple of 1.18 and a Prescribed Capital Amount (PCA) multiple of 2.18, both comfortably above target benchmarks. The company declared a 12.0 cents per share interim dividend, franked to 25%, consistent with its dividend policy. Additionally, IAG announced an on-market share buy-back program of up to $200 million, signalling confidence in its capital strength and future prospects.
Outlook and Risks
IAG maintains its full-year guidance for high single-digit GWP growth and insurance profit between $1.55 billion and $1.75 billion. The company expects the RACQI acquisition impact to moderate in the second half as the portfolio is fully integrated into its reinsurance arrangements. However, ongoing litigation related to trade credit insurance and regulatory proceedings, including ASIC investigations and class actions, present material uncertainties. Investors should watch closely how these legal matters evolve and their potential financial implications.
Bottom Line?
IAG’s half year results underscore the challenges of integrating acquisitions amid volatile natural peril claims, but the insurer’s strong capital position and maintained guidance offer cautious optimism.
Questions in the middle?
- How will the RACQI acquisition impact IAG’s full-year profit and insurance margins going forward?
- What is the potential financial exposure from ongoing trade credit insurance litigation and regulatory proceedings?
- How will natural peril claims trends evolve in the second half and affect IAG’s underwriting performance?