IAG has posted a largely positive first-half result despite net profit dropping 35% to $505 million after severe weather claims hit its recent RACQ Insurance acquisition, analysts say.

The insurer completed the transaction last September, gaining a four-month gross written premium contribution but also wearing hailstorm effects. 

“The result is modestly weaker than our expectations, but we don’t believe the claims blowout at RACQ will repeat,” Morningstar said. “Queensland was hit by several peril events, unluckily before it was able to have the business included under the group’s more conservative reinsurance program.”

GWP rose 6% to $8.9 billion in the half, supported by the retail and Australian intermediated businesses but with New Zealand commercial dropping.

On an underlying basis, GWP grew 2.2% while insurance profit increased 7.6% to $804 million.

S&P Global Ratings says the underlying insurance margin improved by 120 basis points excluding the RACQ impact, and IAG remains on track to post a solid full-year result.

The margin improvement was driven by a stronger underlying claims ratio due to an additional profit commission on reinsurance arrangements, and a lower expense ratio, it says.

“Reported profits across all divisions remained sound, with Intermediated Insurance Australia’s profit continuing to rebound,” it said. “Meanwhile, profits in the New Zealand business reflected the slowing economy, with New Zealand intermediated hit by softening commercial market conditions.”

Equity analyst Jefferies says IAG ended the half with capital above the top end of its target range, enabling a $200 million on-market share buyback.

“This reinforces our long-held view that IAG now operates with a materially derisked earnings profile, increasingly resembling a capital-light distributor with reinsurance protection, rather than a pure catastrophe-exposed underwriter,” it said.

IAG eased its full-year GWP outlook to “high single digit” growth from about 10% previously, partly reflecting the New Zealand weakness and currency headwinds.  

The outlook implies a stronger second half for the top line, with the company to benefit from a full six-month contribution from RACQ Insurance.

IAG has maintained its reported insurance profit guidance range, expecting the result to be around the bottom end given the first-half perils impact.

“Our proactive strategy to manage perils risk and maintain underwriting discipline is delivering clear results,” CEO Nick Hawkins told a briefing. “What we have delivered in the first six months leaves us in good shape for the second.”