Insurance Australia Group Limited (IAG) Earnings Call Transcript & Summary

Good morning, everyone, and welcome to our results presentation today. I'm joined here today by our Chief Financial Officer, William McDonnell, and we're holding this briefing in IAG Sydney offices on the lands of the Gadigal people. IAG acknowledges the traditional owners of country throughout Australia and recognize their continuing connection to lands, waters and communities. I pay my respects to their elders past, present and emerging. Today, we're announcing a strong financial result. Our business is performing well, and I'm proud of what we've achieved. We've stayed focused on our strategic priorities, and we've created a stronger and a more resilient IAG, and we're better positioned today for growth. I want to start, though, on how we're helping customers, communities and our countries more broadly. We're helping our customers when they need us most. Across all the communities we serve, we know there's been a focus on the increased cost of goods and services, and we have taken a range of actions to help. We've waived premium accesses with extended temporary accommodation arrangements. And we've introduced flexible payment options, some of them fee-free for our retail customers. We've enhanced training for our frontline teams. And we're using AI tools to better identify and help vulnerable customers. And we've hired more people, and we've reshaped our end-to-end claims experience to resolve claims faster. More directly, we paid nearly $11 billion in claims over the financial year, and that takes it to around $47 billion of claims over the past 5 years. We've also continued to build customer and community resilience. We know that we should expect more frequent and severe extreme weather in Australia and New Zealand. That's why we continue to educate the community about their local risks and how to better prepare for extreme weather. We launched NRMA Insurance Help Nation education programs with the Australian Red Cross, which will deliver more than 2,000 community workshops over the next 3 years. And we've introduced pricing benefits for NRMA Insurance customers who take action with bushfire resilience home self-assessment app. Within our role and brand, we're incentivizing safety on our roads by offering potential discounts on monthly premiums based on customers driving habits. And more broadly, this is all about making Australia and New Zealand safer and stronger. We've worked to raise public awareness of climate change impacts through initiatives like our Wild Weather Tracker. And in both our countries, we partner with communities, industry and government because climate change remains a shared focus. We have an important role to play in this space, and I'm proud of the contribution we make. We know that it's been a challenging time for our customers as premiums have increased in response to the impacts of inflation and perils. In motor, parts inflation peaked at 15% in FY '23. But for our business in Australia, this has moderated to 6% over the past 12 months. Labor rates also peaked at 8% in FY '23, averaging around 5% over the past 3 years. In home, over the past 3 years, material costs such as plaster and paint have increased around 10% per year. And some trades such as painters, plasters, electricians have averaged 8% per year. The demand for new residential developments, largely multi-story dwellings, is absorbing trade and material availability. And this means we are continuing to see high levels of trade inflation, which, for example, is currently around 18% in Victoria. We know the other major driver of premium increases has been the impact of climate change with natural perils, a key driver of cost of insurance globally, including Australia and New Zealand. The graph on the right of this slide shows the proportion of premiums we collect to cover our perils allowance and reinsurance costs. And as you can see, it's increased significantly over the past 10 years. It's now around $0.20 in every dollar of premium that we collect. And for home insurance, it's roughly $0.50 in every dollar of premium we collect. In the face of these challenges, we are doing what we can to manage our costs, which, of course, is also helping our customers. For example, the multiyear peril cover that we announced in June will help address volatility in natural perils and stabilize the impact of increased reinsurance costs in the event of further extreme weather. And as you can also see on the chart, encouragingly, when we look ahead for our customers, we see the potential to limit future premium increases driven by reinsurance and natural perils cost. Our customer focus supports the strong outcomes we're achieving as we position ourselves for growth. Let us start with our valued brands. In Australia, we have the most trusted insurance brand in NRMA Insurance, and this year was the second strongest overall. We're building on this leadership with the launch of A Help Company. And you'll have seen this during the Olympics, and you'll see more in summer with our cricket sponsorship. Our NPS customer measures of plus 50 in New Zealand and 46.8 in Australia are also going to underpin growth. We've invested in new technology and people with a focus on customer improvements, particularly in claims. And all of this will help us deliver a better experience when customers need us most. Our Enterprise Platform provides a single, consistent policy pricing claims engine across our entire retail business. Not only are we looking to have all of our 6 million customers on the platform, we've built that platform for scale. We already have 2 million customers on this with 300,000 more renewing each month. We saw the platform in action with our ANZ partnership arrangements, where we've migrated over 120,000 policies as part of that process. We've had a real focus on underwriting capability. It remains a core strength and has been a huge focus over the past couple of years. You see the outcomes of this in our intermediate insurance business results in Australia. We've also implemented a new more sophisticated pricing engine in our retail business called [indiscernible], which integrates the expertise of our in-house climate scientists. Our financial strength and strong capital position help ensure that we can fulfill our role as a shock absorber in Australia and New Zealand. With this overview of some of the outcomes we have delivered, let's turn to the financial results. We've delivered strong financial outcomes, and our headline numbers demonstrates the progress we have made in building out a stronger and more resilient IAG. Our net profit was $898 million, and our insurance result was up 79%. Top line growth was $16.4 billion, and that grew by 11.3%. And our reported margin finished a little ahead of the guidance range that we set at the beginning of the year. We declared today a $0.17 per share final dividend franked to 50%, bringing our total FY '24 dividends to $0.27 per share, and that's an 80% increase on last year. And as a result of our strong capital position, today, we're announcing a further on-market share buyback of up to $350 million. So turning now to our divisions. And I'll start with Direct Australia business, which delivered a reported insurance result of $654 million with top line growth of 12.8%. Volume growth has been challenging over the last 12 months, but with the investments we've made, the outlook is more positive, and we're now better set up for growth going forward. As you know, the business supports over 5 million customers. We've had a small increase in customers during the year primarily with our NRMA Insurance. As NRMA Insurance heads into its 100th year, we've repositioned the business as A Help Company, a declaration of how we will deliver for our customers through the insurance we provide and the way we help create safer communities. Help is at the heart of NRMA insurance and, of course, of IAG's businesses. During the year, Julie and the team invested in a further 150 claims people to help drive a material reduction in open claims. This has delivered positive financial outcomes as well as contributing to improving claims NPS. Importantly, this also ensures we'll be ready for the next large event. We've also refined our motor repair model and streamlined our approach, which should deliver further improvements in customer and financial outcomes. The building blocks for growth are in place. I talked earlier about the delivery of our Enterprise Platform, our common policy, pricing, administration and claims engine, which is really enabling our retail business. We'll now continue to innovate and leverage the platform to both drive efficiency in this business, together with improving customer experiences. Turning to our intermediated business in Australia. I'm pleased to report the successful delivery of the insurance profit target. The outcome of $328 million result is comfortably ahead of the $250 million target and reflects the ongoing focus and underwriting discipline that Jared has implemented across the division, with a clear prioritization within broker community that's resulted in a 23-point improvement in broker NPS scores, and we know that we can continue on this trajectory. As we set the business up for the next phase of its growth, we're exploring having it manage its operations through a separate license and entity. This will ensure it has the right focus in markets that are distinct from our retail businesses in terms of products, technology, capital and growth challenges as well as opportunities. We also commenced our Commercial Enablement program that's driving a material uplift in efficiency across this business. Turning to New Zealand. It's also had a strong year. And you'll see we've split our segment results to show the performance of our retail business and our intermediated businesses separate. Our retail business has a premium pool of around [ NZD 2 billion ]. Reported premium growth was 18.6% with underlying growth of around 17% when you remove the impacts of currency, remediation and timing. Our New Zealand business will benefit greatly from Enterprise Platform, which materially uplifted our perils pricing capability there. We're also seeing early signs of how valuable this investment is with a noticeable improvement in quote conversion, particularly for some of our lower-risk customers. We have improved the efficiency of our claims experience, reducing open claims by over 44,000 in the past 12 months in New Zealand. We're also very focused on our motor repair business and have expanded repair hub in New Zealand to nine sites. These completed nearly 25% of our drivable repairs, and we're seeing a material improvement of customer satisfaction and a 10% to 20% savings on a like-for-like repair cost. Our New Zealand business has trusted brands and the scale to continue to developing its service offerings to support all the 5 million New Zealanders. Our intermediated business in New Zealand delivered 12% growth and a $210 million insurance result. The NZI brand is 165 years old and remains one of the country's most trusted and respected. It's a great reputation in the New Zealand broker community with a broker NPS score 20 points ahead of its nearest competitor. Around 1/4 of NZI's premium pool is personal products. And it's the leading insurer to New Zealand's small business sector, the backbone of the economy with over 365,000 customers. Amanda's team has a strong relationship with our New Zealand clients and provides a range of additional services like electrical inspections. These customer foundations are delivering great retention rates, fewer larger losses and strong returns. I'll now hand over to William, who's going to step us through a bit more detail on the financials.

Thank you, Nick, and good morning, everyone. I'll start with the high-level financial summary shown on Slide 14. In FY '24, IAG has delivered a strong set of numbers. We've reported double-digit top line growth, improved margins and a strong capital position. The NPAT was up 7.9%, but the prior year period included a $360 million prerelease from the business interruption provision. Our cash earnings, which exclude this impact, roughly doubled. As a result, dividends for the full year increased 80% to $0.27 per share. I'll now focus on the drivers of the underlying result. We've recorded strong GWP growth of 11.3%, in line with our guidance of a low double digit, which was largely driven by rate increases. We've shown previously the relative patterns of GWP growth and GEP growth to highlight how GWP gives a forward indication of earnings that flow in our financials from premium rate rises. This has played out in the second half with our gross or net earned premium both growing at 12.7%, reflecting the strong written increases in the previous two halves. Heading into FY '25, our GEP and NEP will continue to benefit from the double-digit GWP growth achieved this year. In terms of our underlying margin, the full year result of 14.5% was at the midpoint of our reported margin guidance range and compares favorably to 12.6% last financial year. The 21% increase in the natural perils allowance to $1,098 million resulted in a 100 basis point drag, which was more than offset by the 200 basis point improvement in the underlying claims ratio. There was a 30 basis point increase in the expense ratio largely driven by commission mix and higher levies. It also included continued investments in technology programs such as Enterprise Platform and Commercial Enablement. And this has been more than offset by higher investment income from improved bond yields. This is a high-quality result and in a strong year, we have maintained a conservative approach to the balance sheet. I'll now talk to some of these individual movements in more detail. In terms of the underlying claims, which exclude all perils, reserving and discount rate effects, the ratio has declined to 54.7%. This is an improvement of 200 basis points from the level last financial year, which was elevated by the dramatic impact of claims inflation, particularly in the first half. Pleasingly, the underlying claims performance has improved across all three of our operating divisions. They all benefited from the strong NEP growth. And in addition to this, DIA had lower motor inflation as a result of the work the team has done to improve the supply chain network and increase repair capacity. In home claims, lower frequency has been offset by greater severity of water and large fire claims. IIA has seen improvement across long tail classes through a combination of active portfolio management, underwriting discipline and reduced claim frequency. Also, the team have implemented claims initiatives that resulted in benefits, including improved closure rates and recoveries and reduced leakage and fraud. And in New Zealand, claims inflation is being mitigated by benefits from supply chain initiatives, including expansion of the repair hub network. Additionally, we've had a drive on claims closures, which has resulted in a reduction in over 60,000 open claims over the year. In terms of natural perils experience, it's great to report that we finished the year favorable to our allowance. Our total net perils costs of $983 million were $115 million favorable, largely attributable to the experience in New Zealand, while DIA and IIA outcomes were broadly in line with their allowances. Moving to FY '25, our perils allowance is $1,283 million, and this represents a 17% increase on FY '24. This is the attachment point of the long-term perils volatility protection that we purchased from Berkshire Hathaway and Canada Life, meaning we have material downside protection. As a result, the expected FY '25 net natural perils costs are capped at $1,283 million in over 90% of modeled scenarios. And to exceed this cap, gross natural perils costs will need to exceed $2.9 billion on a pre quota share basis. It's also important to note that conversely, we retain upside in cases where perils are less than $1,283 million. I thought it would be good just remind everyone of our reinsurance program that we presented in June. From 1st of July 2024, this comprises the long-term quota share arrangements in orange, the annually renewed catastrophe cover for two events over $500 million in purple and now the new 5-year ground-up volatility protection of $680 million in yellow. The white portion of the diagram represents our retention, which after application of the quota shares is that $1,283 million for FY '25 as I mentioned earlier. Importantly, this long-term protection covers all natural perils from the first dollar of the smallest event rather than having a retention per event that will be standard in aggregate protections. On expenses, admin costs have increased around 11% year-on-year due to the higher technology costs we're incurring rolling out the Enterprise Platform. And we're also commencing the Commercial Enablement initiative across Australia and New Zealand, which will allow us to position the business for the future. Furthermore, we've seen additional spend related to cyber and data security. In February, I outlined that some of the overall spend would be weighted to the first half and that we expected a decrease in the admin ratio in the second half as NEP continues to grow. Pleasingly, this has been seen with a 60 basis point improvement in the second half of financial year '24 compared with the first half. For the full year, the admin ratio on an ex levies basis has held flat at 11.9%. Longer term, I will be focused on the efficiency of IAG and reducing the expense ratio further. And I'll have a lot more to say about this at our Investor Day we are planning for December. A key contributor to our results this year has been the strong investment performance across our technical provisions and shareholders' funds portfolios. The income on technical reserves of $456 million was driven by a strong average investment yield of around 5.7%, and the portfolio continues to be weighted towards strong investment-grade assets with 93% of the book rated A or higher. Our shareholders' funds portfolio delivered a solid $286 million contribution this year with positive performance across growth and defensive assets. The shareholders' funds return includes the negative $22 million fair value adjustment that we called out in the first half along with impacts from exiting Carbar and write-down of our MotorServe investment as we streamline our motor repair network. The overall shareholders' funds portfolio continues to remain more defensively positioned with a growth asset weighting of around 25%. Finally, on capital. We finished the year in a very strong position. And I've shown some of the material movements in this waterfall. Our strong earnings are the largest component of capital generation during the year. You'll see that this has been effectively returned to shareholders through the dividends we've paid this year and the completion of the 550 million in on-market share buybacks that have reduced our share count by around 95 million. A major capital benefit has also been the utilization of tax losses. The deferred tax asset is not counted for capital purposes. So this will be an ongoing benefit as we use the remaining $226 million DTA equating to around 8 points of capital. A few other call-outs on the capital waterfall. You'll see the 8-point benefit from the adverse development cover that we announced in June. At this stage, we've not yet recognized the capital benefit from the long-term perils cover pending APRA confirmation of the PCA treatment, but we anticipate approximately $150 million, as indicated in June. Our investment in technology has continued. However, the capitalized impact has been partially offset by increased associated amortization, leading to a net 6-point impact. And finally, our business growth, which impacts various asset and liability categories in our balance sheet resulted in a 6-point impact. The CET1 position at 30th of June is well above our target range. So in addition to our final dividend of $0.17, we're also announcing a further on-market buyback of up to $350 million. Assuming completion of this, the pro forma capital position is around the middle of our CET1 target ratio. With that, I'll now hand back over to Nick.

Thanks, William. Our FY '25 guidance and outlook reflects our confidence in the business and the momentum that we're driving. It includes premium growth of mid- to high single digit, which is a combination of premium increases and direct customer volume growth. Guidance also includes an FY '25 reported insurance profit of $1.4 billion to $1.6 billion, roughly equating to a reported margin in the order of 13.5% to 15.5%. Going forward, I see our business in sort of three parts: a retail business, an intermediated business and the way we fund them through a capital platform. And I made some structural changes with IAG to align this business model from 1 July. Our retail businesses in Australia and New Zealand include some of the most recognized and trusted brands in their markets. And our quality products, scale, technology and pricing capability mean we can better support our partners with their insurance offerings. Of course, it's all enabled by our new Enterprise Platform. And we've invested heavily here, removing more than 20 years of complexity from acquisitions. We've integrated Guidewire common claims, policy and administration technology, which is supported by our in-house modeling expertise and leading earnings pricing capability because what that means is we're now set up more for growth. Our intermediated businesses also benefit from quality and trusted brands. But they really do have distinct products, distribution and technology requirements. And of course, this requires a different team, different capabilities and a very specific focus. Three years ago, we set an ambitious target of $250 million insurance result from our Australia intermediated businesses. With this now achieved, we're leveraging our underwriting expertise to maintain -- and focus to maintain this discipline going forward. Our New Zealand intermediated business is performing well, and we expect this to continue. Both intermediated businesses will benefit from Commercial Enablement program, improving our technology to be more efficient and better able to connect to brokers. And critically, we'll continue to deliver an efficient capital platform to support our businesses, optimize our capital structure and, of course, importantly, reduce volatility. This strategy has allowed us to return $550 million in capital over the past couple of years. And today, we're announcing a further on-market share buyback of up to $350 million. We have strong relationships with global capital providers, and we'll continue to be innovative in exploring low volatility, capital-light options for the benefit of our customers and our shareholders. So in closing, our strategy is clear. It served us well over the past 4 years, ensuring we remain focused on our customers. We've dealt with some issues from the past. At the same time, we've invested and replatformed our technology for the future. And going forward, we've got sort of four key priorities. Firstly, retail business momentum to maximize the scale benefits of our trusted brands, of our deep customer relationships and our enabling Enterprise Platform. And the outcome you will see here will be above system growth for this business across Australia and New Zealand. Secondly, we will be realizing the productivity and efficiency benefits of the investments that we've been making. It's going to be a great focus of ours. The outcomes here we expect over the next couple of years is a material reduction in our expense ratios. Thirdly, we'll be delivering sustainable profits and growth in our intermediated business. With the changes we've made within the Australian business, I expect we can deliver sustainable double-digit insurance margins going forward. And then finally, we'll be -- continue to be innovative with our capital requirements, maintaining a strong balance sheet in order to serve and help Australia and New Zealanders when they need us most. IAG is well positioned for the future, and I'm confident in our ability to deliver strong shareholder returns based around our through-the-cycle ROE targets of between 14% and 15%. William and I are now happy to take any of your questions.

[Operator Instructions] Your first question comes from Siddharth Parameswaran with JPMorgan.

Can you hear me?

Yes. We can hear you.

Great. Okay. I had a couple of questions. Firstly, just on the -- could you just comment on the rates and claims inflation you've been seeing in some of the key lines in the second half? I think there's some commentary in your pack and in your results. If you could just flesh it out in a bit of detail just what's happening on rates and inflation in the second half? And maybe just your outlook for some of those key lines into FY '25?

Yes. I mean I'll sort of break that down between -- and I'll sort of go Australia. So I got motor, homes and then some commercial comments. So in -- if I start with motor, we're definitely seeing some of the inflationary pressure come back. And where we're seeing double-digit sort of inflationary pressure for cost of motor parts, inflation and labor, where that's been double digit. So we -- sort of outlook now is more -- we've seen a bit of that in the second half and definitely in the outlook more sort of 5% to 10% type inflationary pressure for motor repair costs. And part of that, we are definitely getting the benefit from having our own repair businesses across Australia and New Zealand. And I mentioned that in New Zealand discussion before that, and we're seeing sort of average cost benefits because of that. So that's sort of where that's been double digit. I say that more 5% to 10%. And that will be then reflected in pricing as well going forward, and we're seeing a little bit of that already. If I then looked at property, there are some real challenges, I think, still there. We've seen -- we continue to see labor rates sort of high single digits or early double digits. We're seeing building supply costs still high. I mean we have an example where labor rates in Victoria is something in the order of 18% for subcontractors and certain trades. And so that -- and of course, we've got the expectations of perils experience going forward as well. So the sum of that means we're still seeing quite a lot of -- we're seeing more inflationary pressure and going forward more within the property classes than motor. So I'm sort of -- we're sort of anticipating sort of double-digit type of inflationary experience there, and that will be reflected in pricing. And then lastly, commercial, and there's big generalization across Australia and New Zealand businesses that we are seeing renewals still strong. And -- but we are probably seeing a slight slowdown, particularly at the top end of rate increases, I mean, less so in our businesses, but we're definitely a more moderate sort of outlook views around pricing environment in our commercial business going forward. But the top end is where most of that activity has occurred to date that we've experienced.

Sorry, in New Zealand?

I mean I've sort of generalized motor and home across both portfolios. That's sort of the theme. I mean I mentioned that within our New Zealand motor repair business, we sort of experienced 10% to 20% reduction in average claims cost as we're rolling that out across both the North Island and South Island.

Okay. Okay. No problem. Maybe if I could just clarify your guidance then. It seems a little softer in FY '25 than your exit margin in second half '24. I was hoping perhaps, Will, if you could just unpack some of the key drivers like the -- what you're assuming on the reinsurance deal, just the impact of that, whether there's any assumption there of profit commission get back? Could you just comment on the expected impact of pricing versus inflation and also yields?

Yes. Thanks. Well, I think the first thing to note is that in the FY -- for FY '25, we do have this 17% increase in the natural perils allowance, and that's on top of around a 20% increase for FY '24. And that's, of course, included in that guidance. In terms of the reinsurance, and then we get strong downside protection but any upside from perils comes to us. When we announced the deal, we did indicate that there will be a little bit of margin impact, particularly year 1. But we're still on for that 13.5% to 15.5% guidance range. And in dollar terms, we expect that the midpoint of our guidance for insurance profit for FY '25 is ahead of '24, even though '24 benefited from those favorable perils.

Your next question comes from Andrew Buncombe with Macquarie.

The first one is in relation to the comments about looking to gather an additional APRA license for the IIA division. Just interested in the context there, like what problem are you trying to solve?

Andrew, it's Nick. I mean I'm just trying to -- I mean I really increasingly see our businesses as being sort of separate. We've got a retail business that's got -- it serves a group of customers, and we have a commercial business that's really quite different. Products are different. The market cycles are different. And as I sort of increasingly seeing them is there's things we share, reinsurance, the way we run our money, the way we govern IAG, they're common. But I'm really -- you can see, by the way, we're reporting and talking about our businesses. I really see them as being quite different. And it sort of makes sense to me to also sort of have that within a separate entity. And so it just rounds out the way we're focusing on that and the way we see that different from the way we run our retail businesses. I mean technology is another example. We've got an Enterprise Platform that's serving our retail business. The solution that we're putting in place for our intermediated business across Australia and New Zealand is going to be different. And so that's sort of -- it's just sort of a complete picture around these portfolio of businesses that are -- that have some things that are in common but actually have things that are really quite different as well. There's no change. Doing that doesn't change the overall group. The way we talk about our capital of IAG, it's as if we're one license already. So it doesn't change any sort of capital requirements of the company. It's really making sure we have -- we're really getting folks on these discrete parts of the company, discrete customer segments and sort of enabling each of the leaders around that to run their businesses.

And then a second question, please, just in the context of the IIA division doing extremely well in the year just passed. How should we be thinking about the targets for that division going forward? Like what are the new medium-term targets?

I mean I said in my sort of expectations for that, we sort of set $250 million 3 or 4 years ago. And I sort of -- at the time, I was thinking roughly 10% margin, so to get that business from not making much to that 10%. I definitely expect this business to be sort of delivering double-digit margins. There's probably -- there's a structural difference in the markets between retail and intermediated. I think there's -- in any particular -- on average, I should say, on average, over a 5-year, 10-year period, there's probably a difference in return profile between a retail business and an intermediated commercial business like ours. So it will be lower than retail but definitely double-digit type margins is what I expect from Jared and the team here in Australia. And if you look at -- when we've separated out the New Zealand business the same way. You can see the return profile of NZI, and New Zealand is already delivering that.

Great. And then just a final one from me, please, in relation to the group guidance for FY '25. Can you talk to us about how you expect the shape of that half-to-half to look?

I mean we have this kind of slightly funny, strange accounting treatment, don't we, where we -- on day 1, we sort of increased our perils allowance. And so that's impacted in the month of July because as William just said, we -- and we -- because we straight line that the same every month effectively over the 12 months. So that we immediately have a bit of drag in the first half and the second half just because of the math of that because we just go 50-50 each half. Of course, at the same time, we're earning. So everything else being equal, just because at that point, you would expect second half to be slightly stronger as we continue to earn through the pricing that we're putting in place for the increased perils allowance. So I think that's probably with -- in this world where we've made quite big changes year-on-year on perils allowance, that world exists until that we're not doing that. But I sort of see that for the next couple of years.

Your next question comes from Julian Braganza with Goldman Sachs.

Just an initial question just on the premium rate increases. Just based on the numbers you've given us, it looks like it has accelerated through the second half '24 period. Just be interested in any color there, just where rates are towards the end of the half. I know you seem to suggest a bit of moderation towards the end of the half and also a slight improvement in unit growth towards the end of the half. So just interested first just on the comment on where rates stand towards the end of the half.

I mean we should -- I mean it's just sort of a theme. The motor is coming back a bit, and that sort of then goes to guidance for FY '25. Property a little bit, although some of the drivers of inflation are still existing as I mentioned before. So we're still seeing double-digit type rate increases flow through in second half, and I expect that in '25. And then commercial, as I said, the top end has definitely come down in the last quarter of our financial year and the renewal's at, say, 30th of June. I mean our business is not really at the top end. Our businesses in -- across Australia and New Zealand is sort of mid-market, small business type commercial player. So there hasn't been that much impact. But we are sort of guiding down slightly in '25 just because of what's happened at the top end in relation to that pricing environment. Still -- we still expect pricing to go through in that portfolio within, but the -- sort of probably lower than what we've experienced in the last 12 to 18 months.

Okay. And then in terms of just the [indiscernible] growth guidance into FY '25, how should we be thinking about that in terms of just the split between rates and volumes? Because it was the second half '24 period, you seem to be calling out a bit of pressure there on your volumes, particularly in home and motor. So is that a reversal in some of those trends?

Pretty much. We're expecting a couple of percent in volume growth, particularly across our retail businesses, Australia and New Zealand, and then the rest in price. So yes, we are expecting the last 12 months for volume, there've been a lot going on in our retail businesses as the way I've described. And we really feel like we're well set up in -- for '25 to -- and we had some growth, remember, in 2023 and '22 within our retail businesses. The last financial year was quite challenging for us, but we see we're sort of more optimistic and positive around that growth profile in '25 in our retail businesses, so 1% or 2% from volume growth and then the balance from price.

Okay. Got it. And then just a final question for me on -- just on RACV. That continues to be doing pretty well just in terms of the impact on your noncontrolling interest line. Just how should we be thinking about that going forward relative to the rest of the insurance business? Yes, just relatively speaking, the RACV book versus the group?

I mean that's a great relationship of ours. As you know, that's one that's been around for 25 years, and we continue to -- that's a very strong part of sort of Julie's direct business. I mean there is some volatility in that performance depending on where perils fall in Australia. So that's -- remember that relationship that we have with RACV is only in relation to the geographies of New South Wales and Victoria and only for property and for home and motor ex CTP under the NRMA and RACV brands. And it's a part of the -- when we do have volatility in that sort of return or outside equity interest in our business, it's really often driven by where the perils fell in Australia in a particular period. If they're in Queensland, that doesn't go into IMA, which is a joint venture vehicle that we use. If perils fall in New South Wales and Victoria, then often that joint venture has its share of those perils. So I think that's the volatility, but we can certainly help you with sort of on average what we should expect that to be over time.

Your next question comes from Andrei Stadnik with Morgan Stanley.

Can I ask my first question around the business interruption provision? It looks like it sit in at $380 million with less than $20 million paid out during the year for claims. So is that implying that the $380 million looks very, very conservative at the moment?

I mean, yes, but I'll hand to William.

So that business interruption provision, as we've mentioned before, at the moment, we are facing a class action lawsuit that's been coordinated by Slater and Gordon. And so that's a key driver behind that provision. There is an application that we submitted to have that class action struck out. Of course, for small business claimants, any claims that we continue to remind people to submit those to us, and we provided the -- how to do that frequently. But that's really a key thing and there has be no change in those circumstances during this period.

Look, for my second question, can I ask around your approach, your philosophy on motor repairs in Australia versus New Zealand? It seems like in New Zealand, the repair hub is doing well, you want to add more. On the other hand, like you're scaling back MotorServe in Australia. So do different approaches kind of work across different markets? Or what's kind of going on there?

No, not really. So the concept, no, we're definitely not scaling back. What we did in Australia, we created an extra part of that process. We kind of had our repair shops here, and we had sort of hubs, which were MotorServe, which was sort of almost became drop off and then we moved vehicles. And we sort of decided in our business model that we could probably reduce some of those steps. So sort of a productivity efficiency change in our mindset, that sort of -- having sort of a hub was not -- we've got some, but we didn't -- we probably don't need as many as we have. So -- but the concept of looking after our customers directly in motor repair businesses that we own, giving a greater customer experience and financial benefit in the way for our customers and the way we can price, that concept we're aligned to across Australia and New Zealand. So it's really -- it was really a question of how we're delivering that, not so much the concept of do we think it's a good idea.

And look, maybe my last question, can I ask around Coles insurance? So it looks like that's moving to order in general in September. But what does that mean in terms of like GDP impact? And then probably more importantly, what does it mean in terms of how you're going to -- your strategy, how you're going to pursue maybe attacking [ young ] customer base with rolling -- how does that kind of impact your strategy going forward? Does that free you up?

I mean a little bit. I mean Coles, I mean, I think it's winning a couple of hundred million in premium, but that's migrating away from our business, as you indicated, after the first quarter of '25. I mean we found it pretty tough, that business, to make money out of. And so for various reasons, we're no longer part of that arrangement. I mean I think we've got a sense of materiality here. That's a couple of hundred million in the $16 billion of premium that we're collecting at IAG. We have many strategies to ensure that we're targeting and opportunities for -- across Australia, 25 million -- 27 million people. There are groups that, that particular brand was attractive to and within the NRMA or the ROLLiN' or, in fact, some of our other partner brands, we see opportunities for growth there. So I don't think that's a material part of our story the -- sort of the exit of Coles from IAG.

Your next question comes from Nigel Pittaway with Citi.

I'd like to first hone in on the guidance slide, if I could, Slide 24. And just a comment there about stable claims inflation. I was perhaps a bit surprised to see that stable rather than moderating. I mean I take what you've said about persistency of home information, et cetera, but even though your main competitors sort of broadly commenting on similar trends, they're still expecting inflation to come down in both motor and home this year. So is that just being cautious? Or is that generally what you expect?

I mean I think we need to be a bit careful with our words here because we're saying inflation coming down, which is really we're saying the rate of increase is slowing. That's kind of what we mean. I mean I just -- I did some media. I just wanted to be clear about that. It's not like -- well, it's not going backwards [indiscernible] as we know. So in a world where we were in a very difficult world for all of us, where we're seeing 10% to 15%, and we felt like we're just playing catch up the whole time, and that's very difficult to run a business in that environment. We just not -- that's sort of stabilizing and -- in motor. So that sort of rate of increase is stabilizing more in equilibrium. And in fact, with motor, as I said, we're actually seeing that rate of increase slow down, if that's the right expression. So we were seeing 10% to 15% inflationary pressure on motor repair costs. That's more like 5% to 10%, still up, but it's just way more manageable, Nigel, in that environment than when you're just playing catch up and you just feel like everything you do, something else changes and it's -- and you're further away from it. We're no longer in that environment. And it feels a lot more manageable to be running our business.

Right. But stable does imply flat rather than moderating.

Yes. Flat meaning, do I see it? I mean what we're really saying is property continues to -- we're seeing inflationary pressure, the way I've said. And actually, the rate of increase of average claims cost, just to use that expression, the rate of increase is slowing in our -- in how we're repairing our customers' cars. So that's sort of -- that inflationary uplift is slowing down. I think we're using a lot of -- I think we're using similar words to describe the same thing. So I hope we haven't confused.

Yes. Okay. Well, I guess I'm just trying to home in and you state that the assumption is stable. You're now saying it's slowing. So...

In motor, motor inflation is coming -- is slowing down. That's definitely the case. In property, feels a bit more stable.

All right. So stable is in the terms of an assumption in future guidance probably is moderately cautious.

That's probably a good way to describe it. Yes. I hope we haven't confused anybody with that word. It's just the way I have describe it.

Okay. No worries. Okay. Moving on then. Just on, obviously, the fee-based business loss you'd previously guided to come down, but it's sticking at $36 million and obviously, the $20 million in there from MotorServe, $6 million from the now sold Carbar. And then also in the shareholders' funds, you've got another $74 million negative from venture investments. I mean, is this sort of ruling the line in the sand on that and sort of writing it down to what's reasonable? And how should we think of those sort of impacts moving forward?

I mean, Nigel, as a general commentary, I know we've got -- William's talked about the financials. We're trying to really get focused on running our general insurance business. We're building out some adjacencies in supply chain, as you know. Amanda and the team are also building out some road service and some property service businesses but really tightly linked to our company. That's sort of the strategy of what we're doing. And so some of these other parts of the company, we're just increasingly looking to sharpen our focus and sort of make sure we're really on the core the whole time. So the question then of we've got some other stuff and what's happening with that and the financial implication, maybe William, to you?

Yes. So as you mentioned, there is an impact from MotorServe there, and there was a bit of MotorServe and Carbar impact in the shareholders -- the investment return on shareholders' funds. But that, as we said, is all part of streamlining our motor repair network. And that's actually a really important thing for us that goes to, as Nick says, sort of helping to moderate some of those motor inflation impact. And indeed, our motor repair network in New Zealand, what we're seeing at the moment is a 10% to 20% reduction in motor repair costs. But back to your question, so the intention is that we will be -- increasingly as these things become part of core operations, they will be moving from the fee-based business into the sort of normal operational divisional results. So that's what you should expect. On the ventures, just to mention that the venture is actually we're still -- we're ahead on -- in terms of relative to original investments. So there's net gains, but it's also beneficial for the business in terms of the whole range of trials and commercial agreements that we do. And the average investment per venture is about $4 million.

And Nigel, I mean, we would expect that line to come down in '25, that sort of fee-based business line as in the loss reduced.

Losses reduced.

Yes.

Yes. All right. And then maybe just finally, just -- I mean on the intermediated business, you are still saying that you want to improve the margin in underperforming portfolios. You've obviously mentioned the loss of the small Coles premium of $200 million. But it's a -- and this year, obviously, there was the decline in liability premium. So in terms of sort of premium reductions moving forward, is that largely over apart from the Coles thing? Or is that -- as part of that remediation, are we expecting more premium to -- rolling off?

Nigel, maybe you sort of used volume as a way of talking about that. Yes. Are there a big chunks of volume that we're -- no, we're not. We've done a lot of work in that business. Jared and the team have really brought a whole lot of systems and process and capability to the way we run that business. So no, I'm not expecting big chunks of volume to change. And in fact, we'd like that to be neutral and be looking to actually -- depending on market cycles, to look for a bit of growth over the next couple of years. And we'll be cautious about that point, but I'm not expecting big portfolio losses in the way we're looking at '25.

Your next question comes from Simon Fitzgerald with Jefferies.

Just on the reinsurance expenses up 12% for FY '24, I was just hoping you could give us some sort of sense of your expectations what that will look like in FY '25, given the new perils programs and the ADCs?

Well, just briefly, so NEP in '25, that is going up a bit over 10%. And we expect the reinsurance cost will go up a little bit ahead of that. And that's including both the cost of the ADC and the cost of the new perils protection. Of course, the perils protection gives us -- it does give us more extensive protection. So there were some corresponding component of additional recoveries that we expect. And of course, all of that then feeds through to the -- what I said earlier about margin.

That's very helpful. Then also, just on the mark-to-market adjustments for FY '24 in terms of the technical funds, they certainly do look minor. Can I just clarify that's on the 2-year on rate? And if there are any sort of changes in the portfolio and particularly the duration over the last sort of 12 months?

No. In terms of duration, we continue to -- the technical division's fund, the liability duration is within 0.1 years of the duration of the assets. And there's been no significant change in the investment mix.

Perfect. And then just a little bit on the guidance. The range in terms of the insurance profit at the top end of the range is that are you assuming close to that sort of 10% in the bottom GWP growth or over the sort of higher end of that high single digit?

So your question is, does it impact the relationship between GWP growth and insurance margin? I mean is there's sort of less -- it's less sensitive to that because that often then becomes a story for '26, not '25 because, I mean, as William just said, we sort of know what pretty close to what our earned premium is going to be for '25 already, which sort of sets a P&L sense. It's -- that then becomes a question for GWP growth in '25 is often setting the scene for what the financial performance in '26 looks like. So it's less sensitive to that. I think it's probably more sensitive around perils experience and sort of the normal day-to-day activity of running our company.

Yes. That's very fair. And just a final one on the intermediated business. I know you said that the $250 million is an ambitious target, but just to be clear, you've got there this year from the gain in investment yields and investment income. I mean the investment income is now even more than the underwriting profit. So as you look further out with this business, you want -- I imagine you're going to be targeting more than that level with or without the help of investment yields? Is that fair to say?

Yes. Just -- so just to be clear, I'm just sort of walking sort of going past $250 million, that was a point in time 3 or 4 years ago. What I'm saying for that business and what I expect Jared and his team within the Australian business is sort of double-digit margins, sort of percentage margins. It's roughly sort of 9 to 10 at the moment. I expect that to be low teens over the next couple of years. So that -- that's been assisted as you point out with investment returns. I'll also point out that is the market that we're trading against our competitors in, too. So that's -- in pricing in that market around Australia, New Zealand or in the world, that is a market that's got those higher interest rates, and that's factored into pricing. So to be fair to our team that their competitors have the same structure. And so -- but just to be clear, I expect that business, $250 million is we sort of moved past that. We've celebrated. And actually, this is a double-digit margin, double-digit sort of insurance margin percentage business going forward, and that's what I expect out of the team.

And just add a very [ briefly ] on the investment returns. So yes, 5.7% this year. Risk-free rates coming down a little bit. So -- but based on 3.6, 3.7, we still expect a decent spread. So you might assume something like 5% for FY '25.

Okay. Is that blended between New Zealand and Australia, sorry, when you say 5%?

Yes.

That concludes our question-and-answer session. I'll now hand back to Mr. Hawkins for closing remarks.

Thanks, everyone, for joining us today to listen to us talk us through the results. I mean the message we want to leave you with today is around one, we're in good shape. And hopefully, we're demonstrating that. But two, the go forward. We're all about our -- the opportunities in our retail business and the momentum that's got and the opportunities for growth there. We're going to be very focused on productivity and efficiency and leveraging the investments we've made and getting the gains out of that, that we should. And we've just had a conversation about the intermediated business, particularly here in Australia. It's all about sustainable profits out of that business and the growth opportunities around that. And we're going to be super focused on that. Together, we're continuing to be sort of optimized and make sure we've got a very efficient capital platform to run our business but importantly, to run our business so we can be there for our customers when they need us at that very important point. Thanks again for joining us, and enjoy the rest of your day.