Insurance Australia Group Limited (ASX:IAG) suspended its Dividend Reinvestment Plan (DRP) for the latest dividend. At its FY26 results, the insurer said the DRP was suspended for the 20 cent final dividend because potential settlement discussions linked to the Greensill litigation could coincide with the DRP pricing period. That means all shareholders receive this dividend in cash.

Latest developments

IAG reported its FY26 results in August. Gross Written Premium (GWP) rose 7.6% to $18.4 billion, helped by the RACQ Insurance business, which contributed $1,272 million of GWP for the part of the year since the Acquisition was completed. Underlying insurance profit increased 2.3% to $1,578 million, but reported insurance profit fell to $1,552 million and net profit after tax dropped 24.8% to $1,022 million. Net natural peril costs of $1,579 million weighed on the result.

The board declared a final dividend of 20 cents per share, 80% franked, taking the full-year payout to 32 cents. IAG also completed a $200 million on-market share buy-back, retiring approximately 27.3 million shares.

On the legal front, IAG initially said that a settlement with Credit Suisse entities over Greensill-related trade credit insurance policies had not been finalised, and a scheduled Federal Court hearing did not proceed. IAG subsequently announced that it had settled the Credit Suisse claims, which had an aggregate Face Value of about $2.8 billion, on confidential terms, leaving a smaller claim by White Oak entities before the court. IAG said it did not expect the settlement to have a material impact on its financial position or FY27 results, given anticipated recoveries including from insurance, Reinsurance and other indemnities.

Key numbers

IAG's two FY26 dividends, the 12 cent interim and the 20 cent final, total 32 cents per share, compared with 31 cents for FY25.

The final dividend is 80% franked, up from 40% franking on the 19 cent FY25 final. Because franking has differed between IAG's recent dividends, the value of franking credits across payments varies, and it depends on each investor's tax position. IAG has said it expects dividends to be 80% to 100% franked in FY27.

About the company

IAG is a general insurer operating in Australia and New Zealand. Its brands include NRMA Insurance, CGU, SGIO and SGIC. Nick Hawkins is managing director and chief executive.

For FY27, IAG is guiding to GWP growth of 5% to 8% and a reported insurance Margin of 14.5% to 16.5%. This guidance is subject to assumptions, including natural peril costs.

How the DRP works

In general, a DRP lets shareholders take new or acquired shares instead of cash dividends, usually priced from the volume-weighted average share price over a set period, sometimes with a discount. Participants generally pay no brokerage on the shares they receive.

For the FY26 final dividend, however, IAG's plan was not operating. The company said it suspended the DRP because potential settlement discussions in the Greensill proceedings could coincide with the pricing period. When a company may hold information that is not yet public, pricing shares for a DRP can become difficult, and suspending the plan is one way to deal with that. IAG has not said when the DRP will resume. The latest DRP rules and dividend notices set out current terms.

Why it matters for income investors

The suspension means the 20 cent final dividend is paid in cash, so holders who usually reinvest receive cash rather than additional shares for this payment.

The final dividend was 5% higher than a year earlier and carried double the franking. IAG's buy-back also reduced the share count.

If the plan is reinstated, participating holders would again be able to receive shares instead of cash, acquired at the price set under the DRP methodology for each pricing period.

What comes next

Attention is likely to be on the remaining Greensill-related claim and whether IAG reinstates the DRP for a future dividend. Progress on integrating RACQ Insurance, and performance against FY27 GWP and margin guidance, are also in focus.

Any future dividend amount, franking level or DRP arrangement will be set by the board and disclosed in a dividend notice.

Risks and context

IAG's reported profit fell in FY26 as natural peril costs rose, and a heavier run of storms, floods or bushfires could again affect Earnings and dividends. Franking has varied from dividend to dividend.

Litigation remains a company-specific risk until the remaining Greensill-related claim is resolved. Like other insurers, IAG is also exposed to reinsurance costs, claims inflation, regulatory scrutiny and competition for customers, all of which can affect margins, and integrating acquired businesses such as RACQ Insurance carries execution risk. When DRPs operate, reinvested dividends are still assessable income, and each DRP parcel sets a new cost base for Capital Gains Tax purposes, so record-keeping matters.

Conclusion

Insurance Australia Group (ASX:IAG) declared a larger, more heavily franked final dividend for FY26, but its DRP was suspended for that payment because of potential Greensill settlement discussions. IAG has since settled the Credit Suisse claims, while the timing of any DRP reinstatement, FY27 guidance and peril costs remain relevant considerations.

Key Insights

Insurance Australia Group (ASX:IAG) paid its 20 cent, 80% franked FY26 final dividend entirely in cash after suspending its DRP, a step the company linked to potential Greensill settlement discussions coinciding with the pricing period. The full-year dividend rose to 32 cents, and the final carried double the franking of the prior-year final.

The FY26 result showed GWP growth of 7.6% and higher underlying insurance profit, while reported net profit fell 24.8% as natural peril costs increased. FY27 guidance for GWP growth and reported insurance margin, and any decision on reinstating the DRP, remain subject to future conditions and board decisions.