• Net Profit After Tax (NPAT): Increased by 91.2%, driven by higher insurance profit and a $140 million post-tax release from the business interruption provision.
• Cash Earnings: Up 54.2%, excluding the business interruption provision.
• Interim Dividend: Increased by 20% to $0.12 per share.
• Gross Written Premium (GWP) Growth: 6%, primarily driven by rate increases.
• Underlying Margin: 15.1%, towards the top end of the reported margin guidance range.
• Natural Perils Cost: $426 million, $215 million below allowance.
• Underlying Claims Ratio: Improved to 52.6%, a 300 basis point improvement from the previous year.
• Expense Ratio: Decreased by 10 basis points.
• Investment Yield: 5.5% return on technical reserves portfolio, contributing $227 million.
• Capital Position: Strong, with CET1 position well above target.

• Warning! GuruFocus has detected 4 Warning Signs with ASX:AQZ.

Release Date: February 12, 2025

For the complete transcript of the earnings call, please refer to the full earnings call transcript.

Positive Points

• Insurance Australia Group Ltd (IAUGF) reported a strong financial performance for the first half of 2025, with NPAT up 91.2% and cash earnings up 54.2%.
• The company declared an interim dividend of $0.12 per share, reflecting a 20% increase, and maintained a strong capital position.
• IAUGF's underlying margin was in line with its through-the-cycle target of 15%, demonstrating consistent and reliable performance across its portfolios.
• The company has successfully implemented a retail enterprise platform, improving customer experience and pricing capability, with over 3 million policies migrated.
• IAUGF's investments in technology and claims management have resulted in the lowest levels of unresolved claims since the 2022 floods, enhancing operational efficiency.

Negative Points

• The company's average ROE over the past five years was just under 10%, below its targeted return of 14% to 15%, indicating challenges in achieving desired profitability.
• IAUGF has experienced volatility due to natural perils, which have negatively impacted its performance and the broader industry.
• The company faces ongoing challenges in the New Zealand market, with a tough economic environment leading to flat or slightly negative volume growth.
• Reinsurance costs increased by $125 million, primarily due to additional perils and reserves protections, impacting overall expenses.
• IAUGF's New South Wales CTP segment has seen an uptick in frequency, leading to a $10 million increase in the onerous contract provision, indicating potential challenges in this area.

Q & A Highlights

Q: Can you explain the revised GWP growth guidance and where you expect pricing to moderate? A: Nicholas Hawkins, CEO, explained that inflation is coming down, particularly in Motor and Home portfolios. Motor costs are increasing at low to mid-single digits, while Property is slightly higher. This moderation is reflected in pricing, leading to guidance towards the lower end of the mid- to high-single-digit growth range.

Q: How are you approaching volume growth in the Australian commercial lines portfolio? A: Nicholas Hawkins, CEO, stated that while they are cautious with growth ambitions in commercial lines, they are open to growth where it makes sense. The market is tougher than it was 6-12 months ago, but there are still growth opportunities.

Q: Can you provide insights into the impact of currency fluctuations on claims inflation and pricing? A: Nicholas Hawkins, CEO, mentioned that currency impacts are modest and not significantly affecting claims inflation. They monitor these factors closely to ensure pricing reflects any changes.

Q: What are the trends in home claims inflation, and are there any areas of concern? A: Nicholas Hawkins, CEO, noted that labor and supply costs are generally coming down, reducing inflationary pressures. While there are pockets of concern, overall, the environment is improving, particularly in New Zealand.

Q: How is the new enterprise system impacting volumes, and what benefits are expected moving forward? A: Nicholas Hawkins, CEO, confirmed that the enterprise system is delivering expected benefits, with stronger growth in the NRMA proposition in recent months. The system's capabilities are expected to drive retail growth in both Australia and New Zealand.

Q: Can you elaborate on the reinsurance cost increases and their components? A: William McDonnell, CFO, explained that the $125 million increase is primarily due to the new peril stop loss, the first year's cost of the ADC, and the ARPC for the cyclone pool. These components are significant contributors to the increase.

Q: How are you managing expenses, and what are the trends in expense ratios? A: Nicholas Hawkins, CEO, stated that they are working on reducing the cost structure while investing in growth. William McDonnell, CFO, added that the admin expense ratio decreased by 30 basis points, with investments in growth initiatives contributing to the current expense levels.

Q: What is the outlook for ROE, and when might you become more aggressive in growth? A: Nicholas Hawkins, CEO, indicated that the current run rate ROE is around 14% to 15%, with a focus on maintaining this while driving growth, particularly in the retail business. The aim is to balance margin and growth for a sustainable financial setting.

For the complete transcript of the earnings call, please refer to the full earnings call transcript.