Insurance Australia Group (IAG), one of Australia’s largest insurers, has posted a sharply lower statutory profit for the first half of FY26, as a burst of severe seasonal weather collided with the early months of its newly acquired RACQ Insurance (RACQI) portfolio — before it was fully protected under IAG’s broader reinsurance arrangements.
IAG said net profit after tax fell to $505 million for the half, compared with $778 million in the prior corresponding period. The headline drop, however, masks a more nuanced operating story: underlying insurance profitability improved, premium momentum held up, and the group still felt comfortable enough about its balance sheet to keep dividends steady and launch a fresh share buyback.
The key swing factor was a $174 million one-off impact from severe weather affecting RACQI immediately after acquisition, and before the business was integrated into IAG’s comprehensive reinsurance program in January 2026. By contrast, the prior half was unusually benign on perils and included $250 million of favourable perils experience plus a $200 million business interruption provision release — a tough base for any insurer to lap.
That contrast is important for investors trying to parse the quality of IAG’s earnings. The company’s underlying insurance profit rose to $804 million (from $747 million), while the underlying insurance margin held at 15.1%, supported by improvement in both the underlying claims ratio and expense ratio. A lower investment yield on technical reserves partly offset those gains — a reminder that insurers remain exposed to shifts in market returns, even when pricing and claims trends are moving their way.
CEO Nick Hawkins (pictured) framed the result as evidence the group’s strategy is working, even under pressure. “Today’s result shows the strength of our business, reflecting the work we’ve done to deliver a more stable earnings profile and maintain a strong underlying margin,” Hawkins said.
He went on to argue that IAG’s performance through the half highlighted its capacity to absorb severe seasonal weather, and pointed to the way the group’s purpose and customer response capability were put into practice during major events.
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In reported terms, IAG’s insurance profit was $724 million, down from $957 million, and the reported insurance margin fell to 13.5% from 19.4%. That result included the RACQI perils costs and a $66 million release of prior-year reserves. Excluding the RACQI one-off, IAG said the underlying insurance margin would have been 16.3% and the reported insurance margin 17.7%, underscoring how much of the half’s “miss” was concentrated in that early RACQI weather window.
Premium growth was solid, with gross written premium up 6%, including four months’ contribution from RACQI. Excluding that, the group’s retail businesses in Australia and New Zealand delivered around 4% underlying growth with what IAG described as strong margins. The Australian intermediated business grew underlying premiums 3.5%, helped by the WFI Insurance rural portfolio, while commercial conditions in New Zealand were described as challenging, with currency headwinds — but IAG stressed it maintained underwriting discipline.
The RACQI story will be central to the market’s next set of questions: integration execution, the longer-run economics of the alliance, and whether reinsurance synergies flow as promised. IAG noted that between 1 September and 31 December, Queensland faced 17 separate weather events, with a gross cost to RACQI of more than $800 million, compared with a net perils allowance of $72 million for the period. From 1 January, RACQI was fully integrated into IAG’s global reinsurance arrangements, which the insurer says strengthens resilience against future extreme weather and supports targeted reinsurance cost synergies.
Beyond Queensland, IAG also pointed to major hailstorms and severe weather in October and November across south-east Queensland and northern NSW, generating more than 35,000 claims for the group. Hawkins highlighted operational changes — including a proprietary situation-awareness map using AI, data and satellite technology, and expanded major event response capabilities — aimed at speeding triage and support during catastrophe periods.
IAG declared an interim dividend of 12.0 cents per share, franked to 25%, unchanged in headline size but less franked than the prior period. The payout ratio lifted to 56% of first-half NPAT, and IAG also announced an on-market share buyback of up to $200 million, signalling confidence in its capital position even after a weather-heavy half.
On guidance, IAG trimmed its FY26 outlook for premium growth to “high single-digit” (from “approximately 10%”), while maintaining insurance profit guidance of $1.55 billion to $1.75 billion. The firm now expects to land around the bottom end of that range after absorbing the RACQI one-off — acknowledgement that while the strategy is intact, the weather and integration timing have already left their mark on FY26’s reported outcome.
