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?