IAG ups profit guidance as Suncorp readies capital return

Insurance major IAG says lower perils costs will mean higher profits, while Suncorp is keeping shareholders guessing on its return of excess capital.

NSW Mid North Floods, Cundleton, in May. Picture: Supplied

Two of Australia’s major insurers are doing very well as costs drop following steep price increases in recent years.

IAG has upped its full-year profit guidance on lower natural perils costs, as it revealed weaker-than-expected premium growth for the year, as Suncorp readies to reward shareholders.

For the 12 months through to June 30, IAG now expects to report insurance profit of between $1.6bn and $1.8bn. This is up from the $1.4bn to $1.6bn the insurer had previously guided to.

The profit boost was driven by natural perils costs coming in $200m lower than expected. IAG had allowed for around $1.28bn in perils costs for the full year, but on Tuesday estimated these costs would instead come in at around $1.08bn.

Perils costs include over 4,000 claims lodged from the NSW Mid North Coast and Hunter Floods event during May, with an estimated net cost of approximately $100m, IAG said.

ASX-listed IAG houses a suite of brands including NRMA, CGU and WFI.

IAG also lifted its reported insurance margin guidance to come in towards the top end of 15.5 per cent to 17.5 per cent. It had previously guided to reported insurance margin at the top end of 13.5 per cent to 15.5 per cent.

But gross written premium growth will sit between 4 per cent and 4.5 per cent for the year, weaker than IAG guided to when it handed down its first-half results in February. At that time, IAG estimated GWP in the mid to high single digits, after it reported 6 per cent growth in the first half.

The lower premium growth for the year includes the impact of the Coles exit, adverse currency effects and multi-year workers’ compensation premiums. IAG had previously underwritten Coles’ insurance products but exited the relationship at the start of last financial year.

“(GWP) growth is around 8 per cent in retail Insurance Australia’s direct business with positive customer and unit momentum,” IAG said.

“IAG is delivering solid GWP growth in direct home and motor segments in Australia, however the New Zealand commercial business is experiencing softer market conditions. IAG New Zealand expects to report broadly flat GWP growth in Australian dollar terms (up around 1 per cent in NZ dollar terms),” the insurer said.

Around 18 months ago, IAG was delivering gross premium growth of above 12 per cent.

As it contends with a more subdued premium environment, the insurer has been on a buying spree to bulk up its operations.

IAG paid $855m in November to buy 90 per cent of the RACQ’s insurance business and intends to buy the Royal Automobile Club of Western Aust­ralia’s insurance business, pending approval from the competition regulator.

Elsewhere on Tuesday, IAG peer Suncorp said the reinsurance market appeared to have stabilised following a period of rapid price rises that had flowed through to customers.

“Over the past couple of years, reinsurers materially reset their appetite for deploying capital to cover smaller or mid-sized events in both Australia and New Zealand. This, and increased reinsurance pricing, has seen the cost of insurance, particularly home insurance, increase rapidly,” Suncorp chief executive Steve Johnston said.

Suncorp CEO Steve Johnston at their Brisbane Square office. Picture: Richard Whitfield

“While the pricing of household policies will continue to reflect underlying risks and broader economic inflation, it’s pleasing that this major input cost appears to have stabilised,” Mr Johnston said.

Mr Johnston said Suncorp undertook a comprehensive strategic review of its reinsurance program following the sale of Suncorp Bank to ANZ.

“The review concluded that our clear objectives of optimising outcomes for our shareholders and customers would be best met by the program announced today,” Mr Johnston said.

“In the current market, capacity has increased significantly for main catastrophe covers and pricing has improved. For other types of cover, including aggregate covers, capacity remains limited and expensive.”

For fiscal 2026, Suncorp’s maximum event retention will be $350m for a first and second large event, in line with last financial year.

The insurer expects the total cost of the fiscal 2026 catastrophe reinsurance program to be lower than last year, reflecting strong reinsurance rate reductions and changes to the program, partially offset by exposure growth in the portfolio.

Suncorp also reconfirmed its plans to return excess capital to shareholders, with an update to be delivered at the company’s full-year results in August.

In midmorning trade on the ASX, IAG’s shares were down 0.8 per cent at $8.96 while Suncorp’s stock was 1.48 per cent higher at $21.93.

Originally published as IAG ups profit guidance as Suncorp readies capital return