Insurance Australia Group reported a 15.1% revenue increase to $21.3 billion in FY26 but saw net profit after tax fall 24.8% to $1.022 billion, impacted by natural peril claims and RACQ acquisition costs. The company declared a 20c final dividend, suspending its DRP.
- 15.1% revenue growth to $21.3 billion
- 24.8% net profit decline to $1.022 billion
- Completed RACQ Insurance acquisition in Sept 2025
- Declared 20c final dividend, 80% franked
- FY27 guidance: 5-8% premium growth, 14.5%-16.5% insurance margin
Profit Takes a Hit Despite Revenue Surge
Insurance Australia Group (ASX:IAG) posted a mixed FY26 result, with revenue climbing 15.1% to $21.3 billion but net profit after tax tumbling 24.8% to $1.022 billion. The profit decline was mainly driven by a $309 million adverse swing in natural peril claims and integration costs linked to the RACQ Insurance acquisition completed in September 2025. This marks a notable shift from FY25, which benefited from a $330 million pre-tax business interruption provision release and favourable peril experience.
RACQ Acquisition Bolsters Premiums but Pressures Margins
The strategic acquisition of RACQ Insurance added $1.27 billion in gross written premium (GWP) for ten months of FY26, fueling a 7.6% overall GWP increase to $18.4 billion. Underlying GWP growth excluding RACQ was a more modest 1.9%. However, the RACQ portfolio’s severe weather claims in 1H26, prior to its integration into IAG’s reinsurance program, weighed on the insurance profit and margin. Excluding RACQ, the underlying insurance margin improved 50 basis points to 16.0%, highlighting the core business’s resilience.
Dividend Up Slightly, DRP Suspended for Final Payout
Reflecting confidence in its financial position, IAG declared a final dividend of 20.0 cents per share, an increase of 5% on FY25’s final dividend and bringing the full-year payout to 32.0 cents. The final dividend will be 80% franked, up from 25% at interim, but the company suspended its Dividend Reinvestment Plan for this payment. The payout ratio stands at approximately 74% of reported net profit, consistent with IAG’s policy range of 60-80%.
Technology and Sustainability Drive Ambition 2030 Progress
FY26 was a year of strategic execution for IAG, including the launch of its Ambition 2030 plan targeting over 11 million customers, $25 billion in premiums, and a 15%+ return on equity. The insurer invested heavily in technology, accelerating AI adoption with more than 60% of staff regularly using AI tools to enhance claims, fraud detection, and customer service. It also published its first mandatory Sustainability Report aligned with the Australian Sustainability Reporting Standard AASB S2, detailing climate-related risks, targets, and governance.
Weathering Natural Perils and Managing Risk
IAG managed 65 severe weather events across Australia and 44 in New Zealand during FY26, paying out $12.4 billion in claims. The company’s extensive reinsurance program, including a long-term natural perils volatility cover, helped limit earnings volatility despite elevated claims costs. FY27 guidance anticipates gross written premium growth of 5% to 8% and a reported insurance margin between 14.5% and 16.5%, assuming no material reserve releases or adverse macroeconomic shifts.
Board and Governance Stability Amid Leadership Enhancements
The Board approved a $200 million on-market share buy-back completed in FY26 and maintained director fees at current levels except for a modest increase for the IAG New Zealand Board Chair. Leadership was strengthened with Phillip Gibson appointed CEO of IAG New Zealand during the year, while former CEO Amanda Whiting transitioned to Chief Strategy and Transformation Officer. Non-Executive Director Helen Nugent announced retirement effective March 2027, with a search underway for her successor.
What to Watch Next
Investors will be eyeing how IAG sustains premium growth and margin expansion while integrating RACQ Insurance fully into its reinsurance program. The ACCC’s Phase 2 review of the proposed RAC Insurance acquisition in Western Australia adds regulatory uncertainty to IAG’s expansion plans. Meanwhile, the insurer’s climate risk disclosures and sustainability initiatives will increasingly influence stakeholder perceptions and potential regulatory scrutiny as the industry adapts to evolving environmental challenges.
Bottom Line?
IAG’s FY26 results underscore the balancing act between growth and margin pressure amid strategic acquisitions and rising natural peril costs, with FY27 guidance signaling cautious optimism.
Questions in the middle?
- How will the ACCC’s Phase 2 review affect IAG’s planned RAC Insurance acquisition in Western Australia?
- Can IAG maintain its underlying insurance margin improvements excluding RACQ integration impacts?
- What operational efficiencies will AI adoption unlock to offset inflationary pressures and claims volatility?