Retail premium momentum and a full-year contribution from RACQ Insurance will drive expansion this financial year, IAG says.

The company has forecast gross written premium growth of 5%-8% and a reported insurance margin of 14.5%-16.5%.

CFO William McDonnell says momentum improved in Australian and New Zealand retail leading into the end of the financial year.

“We had 7% growth in those brands in the fourth quarter, and that we see continuing,” he said in an update released via the Australian Securities Exchange.

IAG’s full-year net profit fell 24.8% to $1.022 billion last year amid higher natural peril costs and after a business interruption provision release boosted the previous period.

The retail Australia insurance result included RACQ natural disaster impacts in the first half before the business was brought into the group’s overall reinsurance program, while Victorian bushfires in January hit the intermediated division.

Gross written premium last financial year grew 7.6% to $18.4 billion, including a 10-month contribution from the RACQ acquisition.

The underlying insurance profit rose 2.3% to $1.578 billion, with improved underlying claims and expense ratios contributing.

The Australian Competition and Consumer Commission is still assessing IAG’s proposed RAC deal in WA after the company provided additional commitments.

“We are optimistic that we will get the go-ahead at some point during this financial year,” Mr McDonnell said.

JP Morgan analysts say RACQ accounts for about 1.5% of the GWP growth guidance, which appears ambitious.

“Guidance requires both an acceleration in rate and a reversal of negative volume trends – which will be a challenging feat, unless the market also responds,” a research report says.

Morningstar increased its GWP growth forecast this year to 6% from 5% given rate momentum, but it is sceptical of the RAC deal gaining approval.

“We think the proposed RAC Insurance acquisition is unlikely to proceed because of competition concerns and therefore exclude it from our forecasts,” it said. “If the transaction does not take place, surplus capital could be returned.”

Analyst Jefferies notes otherwise sold results in the past year were dragged down by New Zealand commercial, where the market is proving tough and remains highly competitive.