Insurance Australia Group (IAG) Investor Update summary

Strategic reinsurance transactions and capital management

• Entered five-year perils volatility cover with Berkshire Hathaway and Canada Life Reinsurance, providing up to $680m additional annual protection and $2.8b over five years, capping FY25 perils costs at $1,283m in over 90% of scenarios, with flat pricing and profit commission for favorable experience.

• Adverse Development Cover with Enstar offers $650m protection for $2.5b long-tail reserves, including sub-limits for asbestosis, silicosis, and explicit cover for Molestation and Silicosis, delivering upfront capital relief.

• Both deals reduce earnings volatility, regulatory capital requirements, and provide a combined capital release of around $350m, subject to APRA approval.

• The reinsurance structure is simplified, replacing multiple annual covers with long-term, comprehensive protection.

• Unique 32.5% whole-of-account quota shares renewed; catastrophe protection up to $10.5bn.

Financial and operational performance update

• FY24 reported insurance profit is expected at the upper end of $1.2b–$1.45b guidance, with net perils ~$1,000m, below allowance.

• Reported insurance margin anticipated at the upper end of 13.5%–15.5% range; underlying margin at mid-point.

• Gross written premium growth guidance of 'low double digits' remains, primarily rate-driven to offset claims inflation and higher reinsurance costs.

• The Intermediated Insurance Australia division is set to exceed its $250m profit target.

• Enterprise Platform rollout is delivering operational efficiencies, improved digital integration, and customer benefits, with over five million policies migrating to the new system.

Guidance and outlook

• The 15% through-the-cycle insurance margin target is reaffirmed, with the ROE target increased to 14–15% due to capital requirement reductions and top-line growth.

• FY25 guidance will assume a 17% higher perils allowance, fully factored into pricing assumptions.

• The cost of the new reinsurance covers is flat in dollar terms over five years, with a modest initial impact on margins, becoming ROE neutral by FY26 and positive thereafter.

• No change to dividend policy or CET1 capital range; capital management updates expected with FY25 guidance.

• Formal FY25 guidance to be provided with FY24 results on 21 August 2024.