Company Interview / IAG weathers the storm and upgrades its outlook

Key points:

Underlying profit and margins improve despite higher natural peril costsDividend and franking increase, with upgraded FY27 growth and margin guidanceRACQ Insurance integration and planned RAC Insurance acquisition underpin growthAI and technology investments aimed at efficiency, cost reduction and stronger shareholder returns

Insurance Australia Group (ASX:IAG) posts a 25% drop in statutory profit to just over $1 billion, which William McDonnell attributes to elevated natural peril costs and a $330 million pre‑tax provision taken in the prior year. McDonnell states underlying insurance profit edges up to $1.6 billion, with an insurance margin around 15%. IAG declares a final dividend of $0.20 per share, lifting the full‑year payout to $0.32 and raising franking to 80%, which McDonnell expects to remain between 80–100% in coming years.

McDonnell points to solid gross written premium growth and upgraded FY27 guidance, targeting 5–8% GWP growth and insurance margins of 14.5–16.5%. Core retail brands in Australia and New Zealand are said to deliver 7% growth in Q4, while the RACQ Insurance acquisition contributes to momentum with further benefits expected in FY27. McDonnell remains optimistic the proposed acquisition of RAC Insurance in Western Australia will secure regulatory approval this financial year.

Natural peril volatility and climate change are described as key structural pressures, with IAG relying on detailed modelling, resilience measures and reinsurance. McDonnell highlights extensive AI adoption, a partnership with OpenAI and a path to reduce admin costs below 11% by FY27, targeting margins and ROE of at least 15% by 2030.