Key Highlights

• Gross Written Premium (GWP) was $18,412 million versus $17,106 million.

• The final Dividend was 20 cents per share, 80% franked, against 19 cents at 40% franked a year earlier.

• IAG guided to GWP growth of 5% to 8% in FY27 and a reported insurance Margin of 14.5% to 16.5%.

• FY26's pre-tax insurance profit of $1,552 million was below the underlying figure of $1,578 million, so perils and other items cost net profit relative to the normalised view.

What does Insurance Australia Group's (ASX:IAG) first year with RACQ Insurance (RACQI) in the portfolio tell investors about its FY27 margin target? The answer is that growth was bought at a short-term cost to margin: gross written premium rose by about $1.3 billion in FY26, but the underlying insurance margin fell to 15%, which IAG said would have been 16% without the one-off RACQI effect. For FY27 the company is targeting a reported insurance margin of 14.5% to 16.5%.

The FY26 result

Gross written premium (GWP) was $18,412 million versus $17,106 million. Australian retail GWP rose 17.8% to $10,308 million, and RACQI contributed $1,272 million of GWP. Net profit after tax was $1,022 million, down 24.8%, in part because FY25 included a $330 million pre-tax Business interruption provision release and a $195 million favourable perils benefit.

Underlying insurance profit was $1,578 million against $1,542 million, while pre-tax insurance profit fell to $1,552 million from $1,743 million, mainly because of higher natural perils. Claims paid were $12.4 billion versus $10.2 billion. IAG managed 65 severe weather events in Australia and 44 in New Zealand during the year.

Dividends

The final dividend was 20 cents per share, 80% franked, against 19 cents at 40% franked a year earlier. The full-year dividend was 32 cents against 31 cents. The higher franking level is a feature of the tax position and can matter to investors who use imputation credits, though it is not an indicator of Earnings quality in itself.

What the margin figures mean

An insurance margin is insurance profit as a share of net earned premium. IAG's underlying margin excludes the effect of natural perils relative to allowance and other items, while the reported margin includes them.

First-year transitional impacts from integrating RACQI reduced the underlying margin. The question for investors is how quickly the 50 basis point drag fades.

FY27 guidance and strategy

IAG guided to GWP growth of 5% to 8% in FY27 and a reported insurance margin of 14.5% to 16.5%. The range straddles the FY26 underlying level, which suggests that management expects natural perils to be near allowance and the RACQI drag to ease, but it also leaves room for a lower outcome in a heavy weather year. They are aspirations, not forecasts.

Competitive position

IAG competes with Suncorp, Allianz, QBE's Australian operations and direct insurers. Suncorp's FY26 result, released the day before, showed cash earnings of $1,042 million and an expectation for an insurance trading ratio in the upper half of its 10% to 12% range in FY27, a reminder that both insurers are working through a heavy weather year. The metrics differ (insurance margin versus insurance trading ratio), so direct comparison would be misleading.

Risks and what to monitor

Key risks include natural perils above allowance, which affected FY26 and can recur. Claims inflation, particularly repair and building costs, may outpace premium rises. Integration risk on RACQI could extend beyond the first year. Competition and affordability pressure can limit pricing. Reinsurance costs and Investment market moves also affect results. A further risk is regulatory change affecting pricing, climate resilience funding or capital.

Items to watch include IAG's trading commentary at its annual general meeting, the pace at which the RACQI margin drag falls away, the first-half FY27 result in early 2027, summer and cyclone season perils experience, and whether the margin outcome lands within 14.5% to 16.5%.

Why natural perils dominate the debate

Insurers set an allowance for natural perils each year and are judged on how experience compares with it. FY26's pre-tax insurance profit of $1,552 million was below the underlying figure of $1,578 million, so perils and other items cost net profit relative to the normalised view. Because FY25 benefited from a $195 million favourable perils outcome, the year-on-year comparison flatters the prior year and exaggerates the decline in net profit of 24.8%.

Reading the RACQI effect

The RACQI contribution of $1,272 million of GWP is large relative to the $1.3 billion increase in group GWP, which indicates that much of the year's top-line growth was acquired rather than organic. That does not make it unattractive, since scale in a distribution Partnership can be valuable, but it means organic growth is harder to read from the headline. The FY27 GWP guidance of 5% to 8% will be a cleaner test of underlying Demand and pricing, because it should include a full year of RACQI in both periods.

Limitations

The reported FY26 margin was not available to us. Figures are as reported for the periods stated, and guidance is the company's.