Insurance Australia Group Limited (ASX: IAG) now targeting up to A$1.75bn profit in FY26—too bullish or just right?

Insurance Australia Group Limited (ASX: IAG) has upgraded its financial guidance for fiscal year 2026 following the successful acquisition of the Royal Automobile Club of Queensland’s insurance business. The update, announced at the group’s Annual General Meeting on 23 October 2025, reflects an optimistic growth trajectory underpinned by stronger customer momentum, platform scalability, and long-term strategic alliances.

With the integration of RACQ Insurance now underway, Insurance Australia Group Limited expects gross written premium to grow approximately 10 percent in FY26, up from earlier projections in the low-to-mid single-digit range. The company has also raised its reported insurance profit forecast to a range between AUD 1.55 billion and AUD 1.75 billion, from the previously stated AUD 1.45 billion to AUD 1.65 billion. This equates to an expected reported insurance margin between 14 percent and 16 percent.

Nick Hawkins, Managing Director and Chief Executive Officer of Insurance Australia Group Limited, noted that RACQ Insurance was already performing slightly ahead of internal expectations and reaffirmed that the internally funded acquisition is aligned with the company’s long-term strategy to expand its footprint in Australia. He emphasized that the integration was progressing smoothly and reiterated the group’s through-the-cycle targets of achieving a 15 percent insurance margin and a 15 percent return on equity.

The deal with Royal Automobile Club of Queensland was completed on 1 September 2025 and is expected to contribute to the group’s financials for 10 out of the 12 months of FY26. As part of the revised outlook, the company also increased its natural peril allowance to AUD 1.47 billion to include RACQ Insurance, while maintaining a stable outlook on macroeconomic conditions and reserve positions.

How has the RACQI acquisition reshaped IAG’s premium growth and margin outlook?

The completed acquisition of Royal Automobile Club of Queensland’s insurance arm provides a significant earnings uplift and regional diversification for Insurance Australia Group Limited. The Queensland-based portfolio adds over 1.7 million members and contributes directly to top-line premium expansion. The acquisition also complements the company’s existing brand ecosystem, which includes NRMA Insurance, CGU, WFI, AMI, and State Insurance.

In addition to operational synergies, the RACQ Insurance deal brings strategic weight in the form of member engagement and brand trust in Queensland—a region increasingly sensitive to flood and cyclone risks. By integrating RACQI into its scalable retail platform, Insurance Australia Group Limited is positioned to enhance underwriting efficiency, optimize pricing, and improve risk pool dynamics.

CEO Nick Hawkins explained that the positive early performance of the RACQI business, coupled with steady retention rates and benign natural peril conditions in the first quarter, contributed to the company’s confidence in upgrading its FY26 outlook. He stressed that the group continues to pursue disciplined cost control and premium growth through technology platforms that enable customer segmentation and margin protection.

What were the highlights of IAG’s FY25 performance and stakeholder outcomes?

Insurance Australia Group Limited reported gross written premium of AUD 17.1 billion in FY25, representing a year-on-year increase of 4.3 percent. The company posted insurance profit of AUD 1.7 billion and a reported insurance margin of 17.5 percent, while return on equity improved to 19.4 percent from 13.5 percent in FY24. Net profit after tax was nearly AUD 1.4 billion, underpinned by strong customer growth, lower catastrophe costs, and modest reserve releases.

Customer engagement metrics remained strong, with a 98 percent claims settlement rate for Australian retail customers and rising transactional net promoter scores across both Australia and New Zealand. Over AUD 10.2 billion was paid out in claims during the fiscal year, and customer retention rates remained stable across all major regions.

The company also paid a final dividend of 19 cents per share, with the full-year dividend totaling 31 cents per share—an increase of 14.8 percent over FY24. This equates to a payout ratio of around 65 percent, excluding the impact of business interruption provision releases.

Beyond financials, the group made headway in its sustainability commitments and community programs. Insurance Australia Group Limited invested AUD 8.8 million in community initiatives, with a focus on climate resilience, rural safety programs, and disaster preparedness education. Its flagship NRMA Help Package supported recovery in cyclone-hit communities, while workshops run in partnership with the Australian Red Cross reached over 5,000 participants.

The company also achieved its renewable energy sourcing target and transitioned 100 percent of its New Zealand fleet to low-emission vehicles, with 48 percent of the Australian fleet also converted. Its environmental strategy included launching EV adoption research projects, advancing sustainable auto repair initiatives, and partnering with the Aboriginal Carbon Foundation to support carbon farming practices.

How are IAG’s digital platforms and commercial alliances shaping future expansion?

A major pillar of Insurance Australia Group Limited’s transformation is the deployment of its Retail Enterprise Platform, which now underpins more than 5 million customer policies and supports over 6 million personal assets across four direct brands and 23 partner brands. The platform has significantly improved operational scalability, digital experience delivery, and time-to-market for new offerings.

The group also launched its Commercial Enterprise Platform for intermediated brands, aimed at improving underwriting, claims management, and customer acquisition for business clients. Tools such as the Underwriting Workbench and CGU’s Padlock product have streamlined risk evaluation and enhanced policyholder services.

In addition to digital platforms, Insurance Australia Group Limited has embraced strategic partnerships with Australian motor clubs. The completed RACQ Insurance alliance is expected to be followed by the proposed AUD 1.3 billion partnership with Royal Automobile Club of Western Australia, which will extend general insurance services to 1.3 million additional members. Subject to regulatory approvals, this deal could close in FY26 and further elevate Insurance Australia Group Limited’s premium base to AUD 21 billion annually.

Together, these alliances would expand the company’s reach to over 10 million customers in Australia and New Zealand, fortifying its brand moat while enhancing distribution and cross-selling opportunities.

How has IAG’s stock responded to the upgraded outlook and AGM results?

Shares of Insurance Australia Group Limited closed 3.18 percent higher at AUD 8.12 following the FY26 guidance update, reflecting investor approval of the RACQI integration and upward earnings revision. Over the trailing twelve months, the stock has delivered a return of 7.69 percent and continues to outperform broader insurance peers in the S&P/ASX 200 Index.

The company currently holds a market capitalization of approximately AUD 19.2 billion and maintains a price-to-earnings ratio of 14.1 with a dividend yield near 3.8 percent. Its consistent delivery on margin stability and capital efficiency has bolstered institutional confidence, as evidenced by shareholder support for key AGM resolutions including director reappointments, executive compensation, and an increase in the Independent Non-Executive Director Fee Pool.

Institutional sentiment remains constructive, supported by the group’s capital adequacy metrics and organic funding strategy. As of 30 June 2025, Insurance Australia Group Limited held AUD 3.94 billion in Common Equity Tier 1 capital and AUD 6.51 billion in total regulatory capital, giving it significant headroom to absorb acquisition-related outlays and invest in future innovation.

What are the forward-looking risks and strategic levers for IAG in FY26 and beyond?

While Insurance Australia Group Limited enters FY26 on a strong footing, management cautioned that external risks such as natural disaster volatility, inflationary pressure on repair costs, and macroeconomic disruptions remain material. Nonetheless, the group’s reinsurance program provides five-year coverage to mitigate extreme weather exposures and reduce earnings volatility.

The company also continues to advocate for long-term flood mitigation policies, land use reforms, and improved building standards through public-private partnerships. This approach aligns with its stated mission to make communities more resilient and ensure insurability in high-risk regions.

Looking forward, analysts and institutional investors are closely watching the company’s ability to drive margin improvements across its intermediated business, execute on the RAC WA integration once approved, and maintain top-quartile total shareholder returns. The investment thesis remains anchored in Insurance Australia Group Limited’s capacity to balance premium growth with disciplined capital allocation, customer-centric innovation, and ESG-aligned initiatives.

What are the key takeaways from Insurance Australia Group Limited’s FY26 guidance and AGM announcements?

• Insurance Australia Group Limited (ASX: IAG) upgraded its FY26 insurance profit guidance to AUD 1.55B–1.75B, up from AUD 1.45B–1.65B.
• FY26 gross written premium (GWP) growth is now expected to reach approximately 10%, up from earlier low-to-mid single-digit forecasts.
• The reported insurance margin is projected to remain stable between 14% and 16%, even with increased natural peril allowance.
• RACQ Insurance acquisition was completed on 1 September 2025 and will contribute to 10 months of FY26 earnings.
• FY25 results included a 4.3% rise in GWP to AUD 17.1B and a net profit after tax of nearly AUD 1.4B.
• Return on equity improved to 19.4% in FY25, up from 13.5% in FY24.
• Full-year dividend increased by 14.8% to 31 cents per share, with a payout ratio of ~65%.
• Insurance Australia Group Limited now serves more than 10 million customers across Australia and New Zealand.
• The Retail Enterprise Platform underpins over 5 million customer policies and 6 million insured assets.
• The new Commercial Enterprise Platform is streamlining intermediated underwriting and claims.
• RAC WA alliance, worth AUD 1.3B and involving 1.3 million members, is pending ACCC regulatory approval.
• CET1 capital stood at AUD 3.94B and total regulatory capital at AUD 6.51B as of 30 June 2025.
• Customer retention remained strong with a 98% settlement rate for Australian retail claims.
• Insurance Australia Group Limited invested AUD 8.8M in community resilience programs in FY25.
• Environmental programs included EV fleet transitions (100% in NZ, 48% in AU) and recycled auto parts pilots.
• Shares of Insurance Australia Group Limited (ASX: IAG) rose 3.18% after the FY26 guidance upgrade was announced.