Insurance Australia Group Limited

Well good morning everyone and welcome to our first half financial results presentation. I'm joined here today by our Chief Financial Officer William McDonnell and members of the group leadership team of IIG. And we're holding this briefing in IIG Sydney offices on the lands of the Gadigal people. We acknowledge the traditional owners of country throughout Australia and we recognise their continuing connections to lands, waters and the communities. And I pay my respects to their Elders past, present and emerging. My key call-outs this half are the resilience of our business and our confidence for the future. The headline profit is a strong outcome and demonstrates our underwriting discipline and ability to absorb the seasonal weather impacts that we've experienced, of course, by putting our purpose into action. Our on-growth outcomes were good across the majority of our portfolios, particularly in retail, where the underlying growth across Australia and New Zealand is around 4%. We've maintained our focus on pricing discipline, and this is delivering results. Our strong, stable earnings funded the RACQ acquisition from organic capital generation, and we're in a position to announce an on-market share buyback today of up to $200 million. The outlook is strong. We're forecasting top line growth in high single digits and maintaining our FI26 reported insurance profit and margin guidance despite the severe weather that Australia has experienced. When it comes to supporting our customers, the experience measures in our Much Love brand are strong and our retention rates continue to remain really high. Over the half and continuing into this calendar year, we've seen hailstorms, bushfires, flooding across Australia, as well as terrible landslides in New Zealand, and I've spent time visiting impacted customers and communities. And of course, as always, I'm incredibly proud of our frontline teams and the role they play in supporting rebuilding efforts. Of course, this reinforces the critical role that we play as a shock absorber in Australia and New Zealand, while also playing a leadership role in advocating for risk reduction, ensuring a sustainable and insurable future for Australia and New Zealand. This slide is important. It really highlights the strategy of IOG in action. It demonstrates the quality of us and the success in delivering a more stable earnings profile which is much less at the mercy of weather. The last six months have shown the strength of our model in a period that has tested the entire industry. Our proactive strategy to manage perils risk and maintain underwriting discipline is delivering clear results. We also attribute our success to the world-class customer franchises and leading brands which we've now supplemented with RACQ and to the operational improvements we have made right across our businesses. We've transformed our commercial businesses and they're delivering valuable contribution. In Australia, this is well above the original $250 million target that we set. and our sophisticated reinsurance program provides a significant strategic advantage and materially improves the group's earning profile. Combined, these factors create much greater certainty around our future earnings in a world where there is increasing demand for the protection that we provide. Now, turning to growth. Our retail businesses in Australia and New Zealand are delivering with solid underlying growth of around about 4% for the half complemented by the strong margins they've delivered. In addition, we've strengthened our business with the RACQ acquisition which contributed a 6% growth this half and will deliver around about 9% growth in the second half. Our commercial businesses, particularly in New Zealand, have some challenging market dynamics and we've also seen the impact of a weak New Zealand dollar in the results. Our Australian commercial business delivered solid underlying growth of around 3.5% and it benefits from the WFI rural business and greater focus on SME. So our business in Australia here is less exposed to the global capital that is impacting corporate insurance markets around the world. Going forward, we'll maintain our vigilance on pricing and underwriting disciplines, ensuring we can continue to deliver strong and sustainable profits. In relation to our margins, we're in a strong position coming into the result and we continue the positive momentum over the last six months. Pricing capability, underwriting disciplines and claims supply chain initiatives are driving and improving our claims ratios across IAG. Our comprehensive reinsurance arrangements supported the margin by keeping the perils allowance relatively stable and delivering an increase in profit commissions. and disciplined cost management is providing a material benefit through an improved expense ratio. These sustainable and ongoing underlying benefits have offset the temporary reduction in investment returns and some one-off impacts from RACQ in the half. So as we head into the second half of the year, investment yields have rebounded strongly and the RACQ portfolio is now protected by our comprehensive reinsurance arrangements delivering the targeted synergies. So to turn now into the divisions, I'll start with our Australian retail business, which has delivered top line growth of 14.4%, which does include four months of RACQ, building on underlying growth of that business of around four. Within all of that, the underlying growth is around 7% in our home portfolio, where we've been growing both customers and policy numbers ahead of system. So we've taken a little bit of share across Australia. Underlying growth is lower in motor at around about 1.5%. And here we chose to maintain discipline when pricing new business in the highly competitive market, particularly here in New South Wales. But importantly, our retention in our motor book continues to remain really strong. That said, we have responded to some of the competitive challenges. The changes we've made in the last quarter within our New South Wales business are improving new business volumes and we're seeing that occur in January and in fact in the weeks of February already. Our Australian retail business continues to generate strong financial results and high levels of customer trust. Before RACQ, the retail business delivered an insurance margin of 14.7 and an underlying margin that's actually increased half on half from 15.2 to 15.9. When we incorporate RACQ into that, the Queensland weather events are affecting the headline and the underlying result with a reported margin for retail of 7.4 and underlying of 13.4. RACQ's integration is on track and all the costs associated with that are reflected in the above the line result and we're well protected as I mentioned before from our comprehensive program from 1 January. Beyond the financials, Julie and the team are ensuring our Australian retail business remains set up for success. Key customer metrics such as TMPS have improved further from our already strong starting point. And NRMA Insurance has again been rated the most trusted insurance brand by Roy Morgan and continues to climb in ratings by brand strength and brand value. NRMA Insurance continues to support climate resilience through the establishment of the NRMA Insurance Help Fund, and will continue to position NRMA as the leading help company as we attract new customers in 2026. Turning to our New Zealand retail business, where Amanda and the team have delivered a strong result in a challenging economy. We've reset the strategy and brand positioning, and the benefits are demonstrated in the results delivered. The AMI Connected Customer Strategy and Roadside Motor Support Initiative are delivering above market growth in policies. Our headline growth was 3.4% in New Zealand dollars and it's good to see volume growth contribute to the majority of that 3.4%. Reported insurance margin continues to be strong at over 28% with an improved underlying margin of 26%. and we achieve this through improved capability. Our scale and targeted claims initiatives are driving improvements in our cost to repair, and our pricing capability, enabled by the rollout of the Retail Enterprise Platform, is delivering improved underwriting profitability. Our new Chief Executive, Phil Gibson, joins the business on 23 February, and we're looking forward to welcoming him in to the leadership team. Our Australian intermediated business is showing the benefits of disciplined execution of core underwriting, pricing and expense management strategy. There is clearly a soft market in some commercial lines, so it's pleasing to be able to report underlying growth in this business here in Australia of 3.5% and a strong reported margin of 17.5%. That reported margin though was boosted by $86 million of prior period reserve releases, demonstrating the strength and prudence of our reserving approach, which continues to deliver value. Notably, Jared and the team have delivered a strong improvement in the expense ratio, realising the benefits of last year's revised operating model that we put in place. We're driving our technology transformation towards a continued investment in commercial enterprise platform. Based on the successful implementation so far and confidence in the benefits that have already been achieved, we are accelerating this program to complete 12 months earlier than what we previously anticipated. From an operating perspective, our rural and regional businesses, WFI, has improved its NPS to 63 and our investment in the brand is continuing to strong premium and earnings growth. Looking ahead, we're confident this business will continue to deliver improved financial returns powered by its strong foundations and ongoing investment that we're making in capability. And then finally, our New Zealand Intermediate of Business, NZI, which has demonstrated its resilience, maintaining strong discipline in what is clearly a soft market. In local currency terms, premiums was down 10.4%, while the stable underlying insurance profit of $78 million reflects the discipline that we're putting in place. The reported profit was also strong at $86 million, with a margin of 20%. And you'll see on the chart, the prior corresponding period did include the benefit of benign perils environment. In the soft New Zealand market, our core strategy is to leverage our strong customer relationships combined with assurance tools to drive retention. During recent renewals, we retained 33 of 34 of our large accounts. Before I hand over to William, I just want to highlight the progress on our key strategic alliances with RACQ and RAC in WA, which will expand our ability to protect more Australians. We successfully completed the RACQ acquisition on 1 September and its integration, as I mentioned before, is progressing well. It's been great to welcome more than 800 new people to IAG and have the opportunity to serve the club's 1.7 million members. We're committed to the alliance with RAC, which would see it maintain its highly regarded local brand and WA-based services, while strengthening the business through our technology, global reinsurance arrangements and scale. We're confident the partnership would ensure RAC members, and in fact Western Australians, are well protected for a safe, sustainable and connected future. Make sure we're going through the process of reapplying for approval under the ACCC's new mandatory merger regime, acknowledging the decision that we received in December. I'll now hand over to William who's going to run us through the financials in a bit more detail.

Thank you, Nick, and good morning, everyone. I'll start with the high-level financial summary shown on slide 15. We're pleased that in this half we've generated over $500 million in NPAT, demonstrating our strong earnings capacity and capital generation. In addition to funding the RACQ acquisition and the buyback of up to $200 million that we've announced today, we're also paying an interim dividend at 12 cents per share, representing a payout ratio of 56%. This strong profit is down slightly from the prior corresponding period headline, which was boosted by the $140 million business interruption provision release and $215 million in favourable peril experience. In this result, the reported insurance margin of 13.5% has been impacted by the RACQ's severe perils experience. However, excluding this, we recorded a very strong 17.7%. Finally, on this slide, I'll note that the underlying insurance profit of $804 million, or 15.1% margin, also allows for the additional costs from our strong reinsurance protections, including our long-tail adverse development cover and the stop-loss perils protection, which I've previously indicated have a 50 to 100 basis point impact on margin. I'll now focus on some of the key financial line items. Slide 16 shows the benefit of IAG's comprehensive reinsurance protections. There were several material peril events in this half, and we've recognised recoveries against the adverse experience on the XRACQ business. This is a demonstration of our strong downside protections, and it results in net perils being in line with our half-year allowance of £646 million. Separately, until 1 January this year, RACQ operated its previous standalone reinsurance programme. The severe Queensland weather events saw the portfolio experience over $800 million in gross peril claims, or $224 million net of reinsurance, which was $152 million above its $72 million peril allowance. For the full year, we have a revised payroll allowance of £1465 million, which reflects the inclusion of the RACQ portfolio into the group reinsurance programme, as well as an increase in the quota share to 35%. Our non-quota share reinsurance costs increased by 8% this half to £676 million. £60 million of this cost relates to the RACQ business, so excluding this impact, we saw a 1.5% decrease. We also had a favorable 1st of January renewal, providing further margin support into 2026. And we've now integrated our ACQ into our broader reinsurance program, which delivers the target of at least $50 million in synergies on an annualized basis. In terms of the underlying claims, which exclude all perils reserving and discount rate effects, the ratio has improved by 70 basis points from 1H25 to 51.9%. This figure includes an approximately 50 basis points negative impact from RACQ, and excluding this, the underlying claims ratio improved 120 basis points. This ratio was assisted by around $115 million in profit commission on reinsurance arrangements compared to around $40 million in 1825. New Zealand saw a proportionally greater allocation of the profit commission based on its strong earnings. This further contributed to the strong improvement in its underlying claims ratio. In RIA there was a modest improvement and the ratio was steady in IIA. Across IAG, we're focused on operational efficiencies to mitigate ongoing claims inflation, including an array of artificial intelligence initiatives. And some specific call-outs for each division are in RIA, we saw benefits from claims handling and supply chain initiatives, while experiencing a further moderation in motor inflation, assisted by a reduction in total loss claims, which was partly offset by the ongoing impact of third-party credit hire activities. IIA has seen improvement in long-tail experience, improved cycle times and reduced fraud, but slightly adverse large loss experience in commercial property, predominantly in the first quarter. And in New Zealand, we're seeing reduced frequency levels compared to prior year in the home and commercial property portfolios. During the half, we've delivered a material reduction in the expense ratio. Our admin costs on an ex-levies basis has improved 20 basis points compared to 1H25 and a material 80 basis points compared to the temporarily elevated level we saw in 2H25. This includes the impact of the acquired RACQ business and ongoing technology investment, including GenAI capabilities. This positive trajectory is anticipated to continue for the remainder of the financial year and I'm confident in the work the team is doing to achieve a level below 11% in FY27. Investment income has been a solid contributor to this result, although slightly lower than previous halves. The income on technical reserves of $90 million was impacted by mark-to-market movements following the increase in the risk-free rate towards the end of the period. The underlying investment yield declined 90 basis points from 1H25 to 4.6%. We continue to deliver a spread of around 100 basis points above risk-free with positive active manager performance. Given recent market movements, we also expect an uplift in the yield in the second half of the financial year. The exit yield at the half-year was around 5%, and based on the recent increase in the two-year GOVI rate, our investment team is currently forecasting a further yield improvement. Our shareholders' funds income delivered a strong contribution of $186 million, with the majority of this reflecting a strong performance in the equities portfolio. The shareholders' funds portfolio remains defensively positioned, with a growth asset weighting just under 30%. On capital, we've finished the half with a CET1 position above our target range, and I've shown some of the material movements in this waterfall. Our solid earnings are the source of capital generation during the half, and this has been partially offset by the payment of the FY25 final dividend. The other major item is the 21-point impact from the completion of the RACQ acquisition. Other call-outs in the waterfall include the stop-loss reinsurance recovery that I mentioned earlier, which reduces the excess technical provision. This is a timing issue at the half-year and is expected to unwind by the end of the financial year. And lastly, the weaker New Zealand currency relative to the Australian dollar has a negative impact on the foreign currency translation reserve. Given the strength of our capital position, we're confident in being able to fund the RAC acquisition and announce an up to $200 million buyback. We've shown this waterfall chart previously to demonstrate that our current surplus and the projected organic capital generation can fund the RAC acquisition. It's another example of the confidence we have in the downside protection from our reinsurance program. We've indicated an eight point benefit, which includes the reinsurance recovery timing impact that I mentioned on the previous slide, as well as the capital benefit from increasing the whole of account quota shares to 35% from the 1st of January. We're not providing 2026 end pattern dividend guidance, but you can see we've included an indicative 23 points of capital, reflecting earnings in line with our through the cycle 15% margin target, less the final dividend. This is consistent with analyst consensus expectations. We've also included a net five-point impact of other capital movements, and this reflects the potential benefits from our capital light strategies that I've previously discussed. Finally, I'll remind you that we've maintained our CET1 target range at 0.9 to 1.1 times, despite the risk reduction from the downside protections from our comprehensive reinsurance programme. As I said last time, our confidence in the projected earnings quality means that we're increasingly comfortable to operate in the lower part of the capital range. With that, I'll now hand over back to Nick.

Thanks, William. I'm sort of turning now to guidance for FY26. So firstly with growth, and we're forecasting to deliver premium growth of high single digits for the full year. This is slightly lower than our expectations at the beginning of the year with a key driver for the change being the impact of the strong Aussie dollar relative to the Kiwi dollar and the slightly softer New Zealand commercial markets. We do though expect second half growth to be double digits which is stronger than the first half and of course that includes six months of the RACQ portfolios and our retail businesses growing at least all above the 4% that we've just delivered in underlying growth in the first half. We'll also maintain discipline in our commercial businesses where we expect markets to remain soft. We're maintaining our FY26 insurance profit guidance of $1,550 to $1,750 million, which aligns to our target to deliver a 15% reported insurance margin and reported ROE on a through-the-cycle basis. Importantly, we're retaining our range but do expect to be around towards the bottom of those range, really reflecting both the strong underlying performance that we've been delivering together with, against that, the one-off RACQ impact that we've absorbed before the full comprehensive reinsurance cover came into play on 1 January. Our ability to retain this guidance range despite these perils really does reflect the strength and the resilience of our businesses. Five years ago we set out to create a stronger and a more resilient IAG with reduced volatility and a capital life profile. And here is the successful model that we've created with some of the best customer insurance brands in the world and Julie, Jarrod and now Phil are set up to grow these businesses. We've got a modern leading scalable technology that supports our brands and our partner brands with insurance products that meet the needs of their customers. As we look to support 10 million Australian New Zealanders, we'll deliver strong, sustainable shareholder returns, driven by a stable margin and low volatility, and capital efficiency, which improves the ROE. The results we deliver today are the culmination of everything that we've put in place. William and I now, of course, are happy to answer any questions. Why don't we start in the room?

Good morning. Kieran Chigi from UBS. Morning. A couple of questions if I can. I might start, Nick, on GWP growth. Just interested in a little bit more colour, predominantly around sort of the home and motor book in Australia. You talk about 4% underlying growth in aggregate, but perhaps you can... Give us a feel for the composition between rate and volume and some of the differences between home which looks like it's done better and sort of I suspect you've seen some volume or unit loss in your motorbook in the period.

Yeah, I mean that's sort of the overall story. We've obviously got an acquisition coming in that's delivered 6% first half, it's going to deliver 9% second half. We've got sort of currency going against us between New Zealand and Aussie, but the retail businesses are going pretty well, I think. Commercial is in a soft market, and so there's some challenges there, but Jared's business grew at 3.5 underlying. We're pretty pleased with that. NZI is quite tough. So then we sort of come into, I think, the Australian retail, where we're at and where we're going. I mean, within that, the Australian retail, the home portfolio grew just over seven, underlying, pretty pleased with that, volume and price. I'd say we held and probably grew a little bit of share around Australia. Really strength, great brands, the proposition we're delivering, the service that we're delivering, really feel pretty strongly about that. Motor, as you say, was quite tough in the last six months. That underlying, you've seen the pack, we call that underlying motor was around about 1.5% in total. We found New South Wales and Vic particularly tough. It's been highly competitive. Sort of behind all that, it's a new business story. our retention rates at IAG and our retail businesses are holding, in fact improving slightly. So it's really a lot of trade at new business that's happening in the market and very competitive. What we've done and Julie and the team have sort of wanted to maintain their diligence. We also know that in Victoria we've had frequency issues around car theft and some challenges there on just increasing claims costs that we've had to reflect in pricing. So there's a trade here. What we've done, we've reflected that in pricing. We're looking again at our new business pricing in New South Wales where we've definitely been under pressure, probably the most in motor. And we've just slightly adjusted our go to market. What we have seen though in the last month or two is a tick up in our new business volumes in motor. So we can see us actually improving. So we've probably dropped back a little bit of share. We're holding and probably even starting to grow a little bit now, really driven by that new business. Retention rates are strong and so we're seeing some signs of just slight adjustments to that strategy working and our general results and we've got a couple of weeks of Feb we can see that looking a bit better as well. So I mean the overall story here is we've got underlying retail business, Trans-Tasman, It's about 4%. There's always ups and downs in that. But the underlying, we expect that to be stronger in the second half. A little bit of volume and price flowing through. So we sort of expect a stronger second half retail growth than first half is sort of the story we want to leave the investors with.

Nick, just specifically on the motorbook, I know you don't provide margins by portfolio, but the actions you're having to take on price to improve new business, how should we think about the implications into margin?

That margin is... and downs in that margin. We've got the strong underlying margin that we sort of started the six month period with in the retail business. We've got RACQ that came in that we've had to unwind certain arrangements that were in place and we have worn all the RACQ costs above the line so there's nothing below the line at IAG. So all the integration, first off unwinding some of the reinsurance arrangements, that's had a bit of a drag in the first six month period. that's going to come off going forward. We've made those adjustments, worn those costs, changed things around. And so within that overall targeted margin that we sort of talked about for retail, yeah, we can make some pricing adjustments within the portfolio that it doesn't go to the Is that a margin story? No. There's some pricing adjustments that can make us more competitive in New South Wales. We're seeing it happen, and that won't go to margin. We're probably also seeing some of those inflation and claims stories just come off a little bit, so there's probably room to come down a little bit too.

Thanks. And second question, just sort of taking that discussion into a group margin sort of outlook. There's a lot of noise in this result, obviously, with RACQ making an underlying loss. The group's still looking pretty good at 15.1, but as we look forward, that loss hopefully in RACQ unwinds. I'm keen on your thoughts on what the underlying run rate there is from a margin point of view. You've got synergies coming in. You're talking about a higher underlying yield. You've got admin expense savings coming in. You've got a quota share that's been dialled up in the second half that should in theory give you a high margin as well. So there's a lot of positivity in terms of that underlying margin trajectory that to me would suggest you should be tracking closer to 16%, but keen on your thoughts on that.

Yeah, so just one line in that big list of things, probably just add in we've unwound and removed some of the specific quota share arrangements that RACQ had for the first four months. They've all gone and there was definitely a drag from all that and we've replaced that with our programs. So there's ups and downs. I'm working on the basis that when we're doing this presentation, we're not talking about RACQ as part of any sort of ups and downs, it's just part of the portfolio. Of course within Julie's business we've got different products, different states, different portfolios and then all exactly the same. But as a package, we'll be delivering at sort of the margin that you mentioned. That's why we've called them one-offs. We genuinely believe there's some one-off things that have occurred that have sort of brought that margin down in the first half and that's not going to be part of our story in the second half.

And the group 15% target, Nick, you've had for a while, will that be revisited at the end of the year, particularly post these quota share changes and sort of everything else that's coming through?

Yeah, we've added 2.5% so it's not... hugely different. We were at 32.5% whole of account quota shares and we've moved to 35 at 1 January. I mean the financial sort of profile, call it that, is we're trying to run the business through the cycle 15% ROE with way lower volatility, capital I, you know that story. That relates to about a 15%. There's definitely some upside on that. sort of talked about these profit commissions as part of these comprehensive programs that are coming in from a few places now. There's a 100, 200 basis point additional opportunity to that and we've talked about that before. We don't want to bank that in every year because we've got inherent volatility in running of our business, but importantly the cost of all of that is in the 15%. So that's the message that we want to keep reminding investors that within our earnings profile is the cost of the protection that's giving us the earnings protection. So the downside risk of IAG and its earnings profile is a lot different from probably most other market participants. You can see that on one of the pages that I went through, and there's a little bit of RACQ that wasn't included, but that's all now included from 1 January. And so the certainty of future cash flows are a lot stronger. But yeah, I think that 15% ROE, 15% margin, that sort of mass of that is consistent, but with some upside on that, which is what we talked about. Thank you.

Hi there. Hi there, Nick and Will. Simon Fitzgerald from Jefferies. Just wanted to maybe start off just with the Queensland situation with the hail, etc. Just interested to know what your sort of thoughts are going forward in terms of pricing. And I'm also curious to know what your sort of thoughts are in terms of the consumer and affordability, because I would have thought that you're now starting to sort of hit up on some of those levels.

I'll answer that, the second bit first maybe. Just on affordability, compared to where we were a couple of years ago, actually the premium rate environment is obviously better, but it's still tough and we're still seeing costs increase, inflationary pressure within the business. We're seeing mid-single digits in motor, more than that in property, just as a theme. Against that there are some frequency ups and downs as well, so it's not as and there's other things, reinsurance markets are more favourable, so there's not, there's always parts to our stories, never as simple as just one thing. Maybe I'll say this, right, that we are seeing our retention rates, I mean there's a retail question I think, our retention rates are strong and improving. So that goes to the quality of the franchise, the brand proposition, but also I think the that sort of sticker shock that we've seen maybe in the past has caused greater frequency to churn. I'd say that in the market has changed a little bit favourably. We do know though that new businesses, as I mentioned around motor, is very competitive. But I would say that it's more stable would be the way I'll describe it. So specific Queensland had a lot of perils, you know, across the industry, like a lot. And it was a lot of events. It wasn't sort of one big event. It was multiple events. And that's been followed by bushfires and storms in early in this calendar year. Yeah, that'll be impacting the overall pricing environment in certain geographies a little bit.

And then just a little bit about the above average reserve releases. Just wondering if we could get a little bit more explanation in terms of the drivers of that.

Yeah, thank you. Let's make a comment. One thing, we're very pleased. We're nothing worse than a reserve topper. We've spent a lot of time, and Jared and the team, it's potentially in the long-term classes obviously within our commercial businesses, we've spent a lot of time going back through that, really ensuring that we're not in that position. So that the lens to which Jarrod and the team have around reserving, long-tail liabilities, is a bias to conservatism. So that's just the... And we know that we disappointed a number of years ago with some top-ups that I was not happy with. I would say just the bias of our business and the way we're conducting and creating our balance sheets and reserving and loss ratios I'm definitely taking a conservative bonus. I know there's some detail, sorry William, but I think that's the setting of the reserves in the first place.

Yeah, exactly. So we believe our reserves are strong, but a feature of those strong reserves is that we also will have releases. Just to give you a little bit of colour in there, so in the releases we have some releases across long-tail lines. We have some releases from the remaining part of that business interruption line. provision. On short tail lines, we also have some releases from perils positions in prior years. We have some increase against that in motor and home where average claim sizes increased a bit for both fire and water losses. But obviously the net of all of that is the release that you can see.

Hi, guys. Andrew Buncombe from Macquarie Securities. Just two from me. Hopefully the first one's an easy one. Apologies if I missed it in the scrum of announcements this morning. I hope I can answer it then. What is the new attachment point on the volatility cover now that Queensland is included? It is $1.465 million. That is the attachment point. That hasn't changed since Q went in.

No, it has changed, but of course it would come down a bit for the change in the quota share, but then goes up for RACQ coming in. So it's still flush with the allowance.

Yeah, so maybe that's it. So there's ups and downs in that a little bit because of some of the mechanics of the 32.5 to 35, but... It's the attachment of the allowance. Yeah, so there's no gap between allowance and attachment.

Yeah, that's perfect. Thank you. And then the second one, just in terms of the capital waterfall slide, there was still the five basis points of additional capital optionality from additional reinsurance. I'm just wondering whether that's contingent on getting the Lloyds licence by 1-7.

Maybe I'll make a comment and then you come in, William. The concept of us being capital-like is one that, you know, it's part of the thing about IAG. And so there's a cost to that and there's various structures that we've got in place. And we have quite a lot of optionality around how to make that all happen. And we're trying to create some variability in the forms and structures to which we're delivering a capital-like strategy. Lloyd's is kind of just... one of the many, many ideas that we've got. So I don't want to overweight that as a thing. And so we are constantly thinking and looking for, I mean we've got traditional structures we could just expand which in a way we've just done with 32 and a half to 35 and we've got many other counterparties that would like to be part of that. So that would be, but we're always looking at What are some other ways we can do that just to make sure we've got appropriate diversification and counterparty structure, tenure, so that's the package. So we're not sort of relying on one thing ever, but you can comment specifically on Lloyd's, but that's just one of many ideas.

Yeah, I don't have much to add to that, but we continue to believe, as we set out at the Strategy Day a year ago, that a logical next step for us would be to bring a bit of additional reinsurance behind the intermediated businesses. So that's something we continue to explore. Thank you.

It's definitely just on that, Lloyd, there's definitely lots more examples of that happening in the market. And that's probably a good thing because that means sort of non-traditional capital providers will be getting more familiar with structures like that and that'll probably ease off transaction, it'll make it better. I thought Mark was about to ask because Mark's guided, for those on the video, Mark's guided me to go to the video so I apologise to go to the video.

Your next question comes from Julian Berganza with Goldman Sachs.

Good morning, guys. Thanks so much for taking our questions. Just the first one, could you maybe talk a little bit more just about the premium rate increases that you're seeing at the moment across the portfolios and also just the claims inflation? If you could put some numbers just around it, that would be great. Thanks.

Yeah, I mean, I do sort of around the ground. So the problem is we end up being quite high level. what we're experiencing. Obviously commercial markets are quite tough. In Australia we've got WFI and we're sort of at the SME smaller end of town, so we're definitely seeing rate flow through those portfolios and Manjaro delivered 3.5% underlying. I'd say in New Zealand that's a lot tougher. And probably average premium is relatively flat or even slightly negative but our 10% is really also driven by often we're taking a smaller share of risks so that we're just sort of coming back as well and it's not such a volume game. We might be taking a smaller share so that's sort of driving the 10% more than – it's not a 10% price reduction, it's a 10% reduction in sort of exposure almost. The price is flat or probably slightly negative. That's driven by lots of factors around the world. So then into the retail businesses. If I start with New Zealand, I would say the margins in the retail businesses are strong, obviously. We sort of talked about 3% to 4% growth there and sort of expect that to be stronger in the second half underlying. At the moment that would be mostly volume and not much price as an average across that retail. I would expect that to be stronger in the second half, price as well as continued volume. So that's why that number will be higher in the second half compared to first half. We are putting through rate in New Zealand on our retail business now. And then it sort of comes into Australia where I'd expect home to be similar, second half, to what we've just experienced first half. We are seeing sort of mid to high single digit claims inflation. We're seeing reinsurance costs come We're seeing some movements in frequency. We had a discussion around Queensland hail, so there'll be some perils affected areas that'll be different than others. But I would expect rate increases to be flowing through in home in sort of that 5% to 10% type range. And then motor, We've had high single, double digit almost rate increases in motor, particularly in southern Victoria. There's probably a bit of pressure coming off that and similar in New South Wales. We are seeing a little bit of relief around inflation. That's why the comment around new business for motor we made. And so it's probably slightly lower. And then if I look at what's driving that, reinsurance is obviously slightly more favourable. We are seeing a little bit of costs increase year on year. We call everything inflation now. I'll just keep using that word. We're seeing year on year cost increases in repairing a car that's smashed. Against that though, it's like total losses. and sort of, you know, value of second hand cars coming back a little bit in some markets. So that is sort of working its favourably against some of these. But I saw that sort of mid-single digit type rate increases. You know, the thing about motor, I'll just say again, and Julian and Tim are all over this, we definitely have found it a bit tough and we're not happy with 1.5% underlying growth for the first six months and we'll expand that in the second half.

And then maybe just in terms of margin expectations by division, you've mentioned, you flagged there as well, that New Zealand margin is quite strong. So just as that starts to normalise, where will the expansion come from and how meaningful are you expecting the expansion to be in, whether it's intermediated through expense ratio benefits or even just in the retail business from here? Thanks.

I mean, there's a few parts to it, aren't there? We know that commercial businesses really set themselves up differently here in Australia and there's an opportunity and we sort of set Jarrod and the team a target of $250 million and they're delivering against that and they've got a lot of strategies in place to improve expense ratio, capability, we're deploying technology now and we're accelerating into that program of work so we really see, we've said many times that Our starting position in the CGU business here in Australia, we're starting behind some of our global competitors and that can't be the structure of us going forward and we're closing that gap and I would expect to continue to see that over the next number of years. So that's probably some margin improvement there. We know that within Julie's Business Retail here in Australia, we sort of called it out, That's not really saying anything about the business we bought, that's just saying we bought it in, we had some very large perils, we had to unwind some arrangements in place all in the first four months. We took all that cost into the margin. We haven't tucked anything below the line. So obviously that drag will be gone in the second half so we should see some expansion there. And then probably New Zealand, which the margins are pretty strong there, there's probably some risk that that could drift down a little bit as a blend. Against that we've got profit commissions, we've got quite a few things going our way from how we see the next sort of 6, 12, 18 months.

And if I could just add, so then RACQ obviously will be a lot closer to its run rate because, as we said, the reinsurance synergies, which originally we talked about getting those synergies in excess of 50 million in the first full year, which would be FY27. We've already got that from the 1st of January. Against that, the underlying for the RACQ part will just have a little bit of a drag in the second half because we've got a little bit more reinstatement premium just to expense that we incurred during Q2 under its old program.

Okay, now that's clear. And then maybe just a question around... just the stop loss and the profit commission, so $115 million this period. So I wanna understand, again, any comments and how conservatively that estimate is being estimated at and is there further upside on a best estimate basis? And secondly, how much did you rely on your stop loss protection over the last six months? Are you able to provide some commentary just to help us understand the other side of the equation in terms of just the benefits that you're getting on that stop loss aggregate?

Yeah, so just to take that second part, so for the stop-loss, for ex-RACQI, we were $137 million perils were over allowance before allowing for that. And then so the stop-loss recovery accrued at the half-year is $137 million. And then I think your other question, were you asking about the $115 million of profit commission? Did I get that right?

How conservatively is that being booked or is that now a more best estimate view of profit commission?

Yeah, so we assess that with some risk adjustment on it. So that is a conservative calculation. And that number includes both profit commission on the multi-year peril stop loss and on the whole-of-account quota share. And, indeed, the increase relative to last year is mainly whole-of-account quota share profit commission.

Got it.

Is that clear? But I say all on a risk-adjusted basis.

Got it, and just a final question for me. Is there a reason why the BI provision of lease was taken in the reported margin as opposed to the corporate expense line this period?

So we said, I mean, we said last year when we did that substantial release of 140 million, 200 million pre-tax, we said at that time that the remaining part of the provision, which I think was about 50 million, we would then just, you know, just treat as BAU. And you'll remember previously we also had our dividend policy was about paying out net of BAU. and then we just change that. So we just treat it as part of BAU.

At a practical level, then we obviously are calling it out and we're not including an underlying margin. Actually, I just didn't want anything below the line. We're trying to make our results super simple. That's just part of our normal process. It's relatively modest amounts of money now. And so in the spirit of simplicity, in the way we report, go to market, run our company, we just wanted to run it like that. And the same on the negatives, remember? So that's why in Julie's business we've had to wear some of the one-off costs associated with the acquisition where everyone's had to wear everything in their business unit results. And that's sort of how we want to run it. I don't want to open up a can of worms, but I'll also just say a comment on that recovery from the stop loss. That's also a drag in our capital. So let's not get out of the hole on this one but there is a $130 odd million drag on our capital calculation from that. Now we settled that at 30 June so that will go away. So that's sort of the way APRA rules work. So there's probably, the capital is slightly stronger than the way we represented it by $135 million because that recovery is not recognised from an APRA point of view. But of course it's real and that position stays. We'll cash settle that with the counterparties at 30th of June.

But it should drop at the full year.

Yes, so there'll be a capital reversal at 30th of June. So the capital number's gone. We highlight that in the detail in the pack but I didn't want to miss the opportunity just to highlight it.

Yeah, it's purely a half year effect because at the half year we haven't technically got to the attachment point. It's a positive to the capital count.

Thanks so much Nick and much appreciated.

Your next question comes from Siddharth Parameswaran with J.C. Morgan.

Good morning, gentlemen. Just a couple of questions if I can. Firstly, just RATQ. I just want to understand some of the moving parts in that result in the first half of 26. You know, I calculated the underlying margin at And I think Nick, you said that you're expecting that book to come in similar to the group, maybe that was including the reinsurance synergies. But even if I include what you expect to get, it still has a very, very low underlying margin, near zero. So I just wanted to understand how we should think about, well, firstly, is this book coming on a lot worse than you thought? And what steps are you taking to remediate it?

I mean there was a few past that. Obviously there was some headline perils that impacted that number but I know you're talking underlying so we sort of could park that. Within that there was some what we see as pretty unfavourable reinsurance arrangements, particularly around the way the quota share, which is quite a drag and we call that underlying. So that's not really remediation, that's just been sort of one January that's changed. And so that drag that was in that P&L and the way that arrangement worked was it was compounded by the perils. So the arrangements got a lot worse because of the perils. Unfortunately that all plays out in underlying so we didn't call it perils. It also impacted the actual underlying margin. We've completely, well all those arrangements are cancelled so those don't exist anymore. So I would say that business is sort of coming into us pre-synergies. As we expected, probably we're sort of running high single digits, close to maybe 10% type margin and then we sort of add the synergies and benefits and opportunities and some of the things we can do differently with that business. We sort of quickly get that business to sort of that 15% plus type margin that the blend of the retail business is operating at and I don't see that as that much of a stretch. I don't think of this as a remediation at all. I think of this as we've materially changed some of the drivers of that just by changing the arrangements, which is what we've done. We've got an environment where pricing is flowing through in Queensland and so there are changes we are making and then against that we're developing, we'll be delivering synergies. So that's why I said I don't expect RACQ to be a major theme or a theme really in the second half. There's a tiny drag that William highlighted before around some of the reinstatement on some of the reinsurance that we paid during the spring, but that's relatively modest. So I don't see this as a remediation story at all. I see it as a great business that's coming into IOG that's going to deliver some solid returns into Julie's business.

Okay, I just wanted to say, were there recent premiums in the first half? Yeah. Yeah, so were they material? They might have been maybe those numbers.

A little bit.

I think my numbers are right.

Yes, unfortunately we don't call... the unfavourable quota share reinsurance arrangements perils. We sort of call that reinsurance. So we sort of highlight the actual perils cost, the knock on impact into the underlying margin driven by the perils was quite material. That's why I sort of have the confidence, I don't see this as the way you described it, I see it as one January this business is sort of operating maybe a little bit below where the rest of the retail business is operating, but if we put in the synergies, benefits, it definitely sort of gets us there.

And we wrap both of those parts up in the $174 million that we talk about in terms of the one-off RACQ impacts associated with perils. So some of that is the underlying part as well.

Okay. rate versus inflation. So just the comments that you've made through your report suggest that I think you're saying home, you're getting high single digits on claims inflation, most are mid-single digits. These numbers seem higher than what you're getting on rate and quite a bit higher. I'm just I'm just wondering, on a go-forward basis, are you hoping to cover the inflation?

I mean, we know that's the problem with some of these parts of the story. We know that in property, reinsurance imperils is a big chunk of the cost. We know our reinsurance costs are... more favourable in 26 versus 25. We know that our perils allowance are capped in the way we've put in place those reinsurance arrangements and discussion we had before around having the volatility cover sit right on the lid of the perils allowance. So yes, some elements are growing like that. We know there's some ups and downs in frequency as well. So I think, Sid, if your question is How does all that work and what does that do to margin? We're comfortable that the pricing that we are going to market with is covering the inflationary costs we're experiencing, factoring in frequency, factoring in what's happening with perils allowance, factoring in what's happening with the cost of reinsurance, and that's the package. As you know, there's more to pricing than just the cost of building products. There's more to that story. So that's the blend that we're experiencing in relation to inflation. This won't be a margin. We're pricing to maintain the margin of the company and grow the business.

One final question. It's been asked a couple of times. I just want clarity around that profit commission. So I think there was, I think you said $115 million taken in the half last year. I think it was around $85 million for the full year. I just want to carry on. I think you suggested an annual run rate of up to $200 million before was possible. So it seems we're tracking ahead of that and that's taken in both the underlying annual reported margins. So it doesn't suggest that there's more upside. to be suggesting that there is more upside. So just to be clear, what is the final message you want to give us on profit commission's contribution to this result versus what is likely going forward?

So the 100 to 200 basis points upside we talked about before was in relation to the whole of account quota share profit commission. The 115 for the first half includes also the perils protection profit commission. which was pretty much, that was the 40 you saw last year in the same period. So that increase from year on year is largely what's happened to the whole of our credit share profit commission, which I think we'd indicated we believed would be starting to emerge this year and increasingly become a feature of our results. And of course, we get that because the underlying business is performing well and generating profit and then the profit commission, you know, above a certain level, then we just have that sort of site multiplier on the profits that we are generating across the business.

And, Sid, I'd use 100 to 200 on that. I mean, we've got some – we now have, I think, a better structure where we have a few different drivers, which is what William just went through, so we're not sort of reliant on one thing. Obviously in itself that gives, we're more diversified in the earning stream of the profit commission, say that, and I'd be sort of using $100 to $200. There's a potential upside in a period where the company's delivering results like we're delivering. Sorry, upside on the first half of $26? No, just in total. In total, in total.

In total versus which period?

Just, I mean, there will be a little bit of volatility here. I just think in relation to sort of if you're factoring in what could profit commission add to the IRG results, I'd be using 100 to 200 basis points on average. There may be some volatility in that, right?

Okay, okay, in total. So we're already getting the top end of that included in this?

Yes, but these are multi-year deals, right? So that doesn't mean one year can't make more than that, but they're all multi-year. I mean, we're trying to We are trying to run a capital light confidence in earnings profile for There's a cost to that. So the downside risk on the cash flows of IOG are mitigated because of the actions we've taken and there's definitely some upside that we can receive. We've just been cautious about that, right? We don't want to get to a position where we disappoint on these. So I think using 100 to 200, yes it might be slightly more in some years, but as a way of valuing the company I'd be thinking that way. Okay, thank you.

Your last question today comes from Nigel Pitaway with City.

Good morning guys. Most of my questions have been answered but I think I just want to delve a little bit more into the margin volume trade off in the Australian retail walk. It seems as if this time you're obviously disappointed in motor units, you're slightly happy with home units but my understanding is home maybe got a little bit more competitive towards the end of the half and it seems like you're putting in price increases there. I mean are you really sort of in a position you think where those units, you can improve on that unit growth given the action you're needing to take on pricing to cover the claims inflation you've identified?

Yeah thanks Nigel. I mean we're seeing, I'm not sure, I mean our business is very strong at home is what we're experiencing. Strength of the brand, go to market, you know we know we perform well. You know some of these large perils have occurred in spring of 25 and then what's happened in January and February this year. And actually we're not really seeing what you said in our home portfolio. We're seeing the business be very strong. On motor, we just found it really tough on new business. Our retention on motor is still great, improved slightly. It's a new business story motor. We took a price position in Victoria, we obviously had a lot of disruption in that market, it's real. And so Victoria and New South Wales, but particularly New South Wales as well, that new business we really found quite tough and Julian and Tim have been all over this and we've seen some probably slightly more positive inflation around our pricing point so we've sort of changed that slightly. The evidence that we've actually got is in the last few months in that our new business volumes are increasing. So we know that we are growing that business slightly more today than we were three months ago and we know we're winning more new business and that our retention rates are holding and probably slightly improving. If we can keep running that story, that'll be a good story for the next six months and we're sort of spending a lot of time on this and that story's playing out. So we feel pretty good about the second six months for where we're at, the pricing. Obviously it's helpful that businesses have got a strong margin and some of the one-offs from that conversation we had with Sid around RACQ, some of that drag's going to go away. So we sort of have a neater story in the second half around our retail business here in Australia. It's definitely been tough though and it's been very competitive in Australia.

Okay and then maybe just on the topic as you were on the profit commissions as well, is there any sense to which that release and the whole of the cap this time has been influenced by the relatively high perils because that doesn't get the benefit of the stock loss in terms of the profit commission accumulation?

I mean actually the biggest perils of course were in the RACQ business which is why we didn't get the protection. We've got a methodology we're employing. We're trying to take the volatility out of that. We're trying to take a conservative lens on that. We have got multiple arrangements now that sort of make that more of a blend which is better rather than just having one. A bit like the whole capital structure in a way, we're trying to diversify by counterparty, by product, by design so that we really have a package. Within that, we've got this big picture earnings volatility covers. Now we're into the detail element of it and the way that's been delivered. We're trying to even create diversification in the way that works so that we can we can ensure that's more of an annuity. That's the concept we're putting in place.

Yeah, it's not all on identical terms and indeed the durations also, there's a range of durations on it.

Okay, thank you.

Thank you. As we have come to the end of the call, I'll now hand back to Mr. Alden for closing remarks.

Mr. Hawkins, I feel like I'm talking to my dad. Hey, thanks everyone. Thanks for turning up. We're pretty pleased with the result. You can see the strength of the franchise, what we've delivered in the first six months. It leaves us in good shape for the second. We've got expectations of sort of underlying growth or growth in our retail businesses. We expect stronger second half than first. We've got RACQ for the full six months, which will deliver around about 9%. Margins are strong. We know commercial's challenging, but we're being very disciplined in our underwriting approach. And we expect to have a strong six months and look forward to talking to you again in August. Thanks, everybody.