Insurance Australia Group plans more price rises for RACV, NRMA customers after posting $1.35bn profit
IAG customers face fresh cost increases as the insurance giant forecasts premium growth, despite natural disaster claims falling $195m below expectations.
NRMA and RACV customers face more premium increases after parent Insurance Australia Group booked a 51.3 per cent surge in annual profit to $1.35bn and signalled modest growth in the year ahead.
The ASX-listed insurer achieved a surprisingly benign year for natural catastrophe losses, which undershot its target by $195m despite $100m in claims from the NSW storms.
IAG told investors it aims to achieve a low single-digit boost to gross written premium in 2025-26, warning the soft economy in New Zealand was likely to be a dampener on its trans-Tasman goals.
Chief executive Nick Hawkins said he wasn’t concerned about accusations the insurance industry risked over-earning.
Mr Hawkins, who has run the company since November 2020, said insurers were a “shock absorber” and had to grapple with “the inherent volatility” of the market.
“I think our country needs a strong insurance sector and strong IAG to deliver what we need,” he said. “Therefore there’s an appropriate return for shareholders.”
Insurance profits are expected to hold around $1.45bn to $1.65bn, from $1.74bn in 2024-25.
IAG is trying to boost customer numbers as well as ensure more consistent returns from its core insurance operation, after several turbulent years as fires, floods, storms, and wild winds crashed returns.
Already, IAG managed to grow its premiums, or total insurance book, by 4.3 per cent to$17.1bn.
Almost 90 per cent of customers renewed over the period.
IAG is now preparing to integrate RACQ, after buying 90 per cent of the Queensland-based insurer for $855m. The competition regulator signed off the deal in May.
IAG is also seeking permission to snap up Western Australian insurer RAC for $1.35bn.
These two acquisitions are expected to bolster premiums by $3bn and lift insurance profits by $300m.
However, they are not factored in to its 2025-26 guidance.
IAG upped its budget for further natural catastrophe losses, lifting it to $1.31bn.
The insurer is also unwinding the last of its pandemic provisions, handing back a further $330m to shareholders in the 2024-25 result.
IAG was forced to raise $790m in November 2020 after a shock judgment about potential liability for Covid-19 related claims.
Mr Hawkins said the insurer was now aimed at reaping the benefits of significant changes to its systems over recent years, after migrating 5 million customers to a new enterprise platform.
It was now putting in place policies around the use of AI to automate existing processes.
IAG was doing this “one step behind” customers, noting it was aimed at supporting staff.
“I can only see it accelerating,” the CEO said.
Mr Hawkins declined to comment on potential job losses flowing from AI.
Already, Commonwealth Bank has cited AI use in cutting 45 jobs in its call centres.
Mr Hawkins said it was “a maybe at this stage” whether IAG could reduce hiring.
IAG paid a 19c final dividend, 40 per cent franked, lifting its full-year dividends 14.8 per cent to 31c.
This represents 65 per cent of earnings, toward the lower end of IAG’s 60-80 per cent payout range.
Barrenjoey analyst Andrew Adams said IAG’s result was “not enough to get the insurance stocks up strongly”.
IAG shares closed down 1c at $8.49.
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