IAG says natural perils costs for the financial year so far are about $250 million lower than expected and profit will jump if the trend continues.

Perils costs to the end of April were about $900 million, including more than 10,000 claims received and an estimated net cost of about $50 million from Ex-Cyclone Alfred.

IAG has maintained its full-year perils expectation of $1.283 billion, which underpins guidance for a reported insurance profit of $1.4-$1.6 billion and a margin towards the top of a 13.5%-15.5% range.

But CFO William McDonnell says if the favourable perils position persists until June 30, the insurer will raise its reported insurance profit guidance to $1.65-$1.85 billion, and margin guidance will lift towards the top end of a 16%-18% range.

Gross written premium growth in the 10 months to April 30 was about 5%, including an 8.5% gain in the Australian direct retail business. New Zealand has been hit by a slowdown in the economy.

“In Aussie dollar terms, our New Zealand business is flat, with some growth in our retail and bank channels offset by a decline in commercial, where we are maintaining our strong underwriting discipline in a soft market,” Mr McDonnell told a briefing.

CEO Nick Hawkins says inflation is easing in retail business, with local property still “a bit sticky”. The SME-focused Australian commercial business has not recorded the significant price reductions flagged for the large end of the market.

“There’s a bit more pressure today than there was six to 12 months ago, but it’s holding up,” he said.

As reported in a Breaking News bulletin this morning, IAG has announced a $1.35 billion deal to buy WA motoring club RAC’s insurance business and form a long-term distribution agreement.

In November, IAG announced a similar $855 million insurance underwriting and distribution deal involving Queensland’s RACQ.

The transactions require clearance from the Australian Competition and Consumer Commission, which is due to release findings on RACQ – plus an Allianz deal to buy RAA’s underwriting – next Thursday.

“Nothing has changed our confidence around this topic,” Mr Hawkins told the briefing, noting he expects the RACQ and RAC deals to be considered separately.

IAG’s position in WA is “very modest”, while RAC probably has at least a 40% market share in personal lines, he says.

The insurer plans to migrate RAC customers to its Enterprise policy and claims platform, which it says has started delivering benefits amid a roll-out across the retail business. It sees reinsurance and supply chain benefits in the deal, under which about 600 RAC employees will join IAG.

“We’ve put in place a long-term partnership with one of WA’s most trusted brands, complementing and extending our proud history with motoring clubs, and we’ll be able to offer our leading products and services to RAC’s 1.3 million members,” Mr Hawkins said.

Retail insurance Australia CEO Julie Batch says IAG has set up a dedicated integration team and is well advanced in its plans for RACQ.

“We are confident we can appropriately manage the sequencing of the RAC integration in conjunction with RACQ,” she said.