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Higher margins, relatively benign weather conditions and improved investment returns have led to a 51 per cent surge in net profit for Insurance Australia Group (ASX: IAG) to $1.36 billion in FY25.
The supercharged earnings were driven by an 8 per cent increase in net earned premiums to $9.98 billion, leading to a 21 per cent boost in insurance profit to $1.74 billion – a result that was fattened by insurance margins of 17.5 per cent, up from 15.6 per cent a year earlier.
The result was also buoyed by $403 million in investment income, up from $286 million a year earlier, and pre-tax releases of $330 million from the Business Interruption provision.
Notably, IAG weathered Cyclone Alfred in Queensland earlier this year as well as flooding in western Queensland, the Hunter region and the NSW Mid North Coast to post natural perils costs of $1.09 billion – a figure that was $195 million below allowance.
“This year, Australia experienced weather conditions broadly in line with expectations, while New Zealand was relatively benign,” says IAG’s CEO Nick Hawkins.
“However, we still faced six severe weather events where claim volumes exceeded 2,500 from impacted communities.”
Hawkins says operational improvements across the group delivered “better outcomes” for IAG customers during these recent weather disasters.
“We had strong momentum through FY25 and supported our customers when they needed us most,” he says.
“By delivering on our strategy and investing for growth, we can execute at scale and are set to protect significantly more Australians and New Zealanders.”
Hawkins says the FY25 earnings performance benefitted from a strategy established five years ago to create “a stronger, more resilient IAG”.
“IAG’s financial outcomes this year are a result of the positive financial and operational performance of all our divisions supported by favourable natural perils and investment markets,” he says.
“We have migrated over five million policies onto our Enterprise Platform that supports our retail businesses. The platform delivers best-in-class technology for underwriting expertise, policies, pricing and claims, significantly improving our customers’ experience.
“We commenced a significant technology transformation in our Intermediated businesses which will fundamentally change how these businesses underwrite and distribute insurance.”
IAG has forecast further growth ahead through alliances struck with the Royal Automobile Club of Queensland (RACQ) and The Royal Automobile Club of Western Australia (RAC) during the year, expanding the reach of its brands, which include NRMA Insurance, CGU, Swann Insurance and WFI.
"When completed, the combination of these strategic alliances is expected to add around $3 billion in GWP (gross written premiums), increase insurance profit by at least $300 million, and deliver double-digit earnings per share accretion on a full synergy run-rate basis,” says Hawkins.
“This results in an improved return on equity target of 15 per cent on a ‘through the cycle’ basis.
“In both cases, the associations and their members will benefit from our financial stability, advanced technology platforms, global reinsurance arrangements, and customer-centric claims processes.”
IAG is targeting GWP percentage growth in the low-to-mid single digits for FY26.
Reported insurance profit of between $1.45 billion and $1.65 billion, on a margin of between 14 and 16 per cent, assumes a natural peril allowance of $1.3 billion for the year ahead and “no movement in macro-economic conditions including foreign exchange rates or investment markets”.
The FY26 guidance does not include any gains from the RACQ and RAC partnerships.
IAG is paying a final dividend of 19c per share, taking the full-year payout to 31c per share.
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