IAG is as confident now about the contribution RACQ’s insurance business will make as when the deal was announced nine months ago, CEO Nick Hawkins says. 

The $855 million acquisition, announced on November 28, is expected to be completed on September 1, adding an annual $1.3 billion in gross written premium. IAG has previously said it will be earnings per share accretive and consistent with return on equity targets. 

Mr Hawkins says following more contact with RACQ since announcing the transaction, nothing has emerged to dampen expectations.

“We’re confident about the business we’re buying,” he said. “The sort of earnings per share comments and return on equity comments that we made in November, we’re only sort of more confident today than we were in November on all of those.”

Mr Hawkins says IAG hopes to merge part of RACQ’s reinsurance into its own program from the January renewals.

IAG last week reported a 51.3% jump in net profit to $1.36 billion, with gross written premium up 4.3% to $17.11 billion in the year to June 30.

GWP growth this year is forecast to be in the low to mid single digits, excluding RACQ, but if a contribution from that business is included the increase is expected to be about 10%.

IAG is also moving to acquire the RAC insurance business in WA, with competition regulator findings due on October 2.

Mr Hawkins says RACQ and RAC combined should add about $3 billion in annual premium and increase insurance profits by at least $300 million, while IAG is also pursuing organic growth.

JP Morgan says IAG achieved strong insurance margins in the second half but faces a slowing premium environment that will probably require a shift towards volume to maintain meaningful top-line growth beyond this year.

“We remind that this has historically been a challenge for IAG, which until recently has shown a consistent loss of units,” it said.

Morningstar says the result was propelled by rate increases, moderating claims inflation, investment income and a release from business interruption provisions in place since covid.

The result beat its forecasts given provision releases and a lower claims loss ratio due to favourable natural hazard costs.

“We don’t expect those tailwinds to repeat though,” Morningstar said. “While recent years have been kinder, the longer term has been more frequent and costly events.”