Standing by, and welcome to the IAG Strategic Alliance with RAC WA stakeholders. All participants are in listen-only mode. There will be a question-and-answer session. If you wish to ask a question, you will need to press the star key followed by the number one on your telephone keypad. I'd now like to hand the conference over to IAG CEO Nick Hawkins. Please go ahead.
Good morning, everyone, and thanks for joining us this morning at short notice. Today, we're very pleased to be announcing our strategic alliance with the Royal Automobile Club of Western Australia. I'm in Perth this morning with Julie Batch, Chief Executive of our Australian retail business, and joined on the call is also our CFO, William McDonnell, who's in our offices in Sydney. William is on Gadigal land while we're on the Wadjuk Noongar country. Of course, we acknowledge the traditional owners of country throughout Australia, and we pay respects to elders past, present, and emerging. Just in terms of our agenda for today, I'm just going to step you through the transaction and the strategic rationale of why we're doing it. Julie's going to add some detail around the RAC portfolio and how we're going to integrate the business.
William is going to cover the financial elements of the transaction together with an update on our financial outlook. We will try to get through all of that in 10 to 15 minutes, so there is plenty of time for questions. I know we have only just put this on the exchange, so we will try and go through it quickly. On the deck that we sent around, on slide six, we just turn to that. As I mentioned today, we have announced the starting new strategic alliance with RAC here in Western Australia. What we have done is we have put in place a long-term partnership with one of Western Australia's most trusted brands, complementing and extending our proud history with motoring clubs. We will be able to offer our leading products and services to RAC's 1.3 million members.
Of course, what this announcement does, it further supports our growth agenda in RAC's core markets with a clear focus on our retail insurance business. For our shareholders, the financial outcomes are improved ROE and an EPS outlook for the IAG Group. Of course, what we also have is a more diversified retail-orientated business comprising leading premium brands across Australia and New Zealand. Just stepping through the financials of the arrangement that are set out on this page, so there's a couple of different parts to this deal. We're essentially buying 100% of the insurance company for around AUD 400 million. That's RAC Insurance. That's got net tangible assets of around about AUD 400 million. So essentially buying the insurance company at its net book value.
In addition to that, we're paying AUD 950 million for a long-term exclusive distribution agreement to be the insurance provider of products through the RAC network and, of course, to be using the RAC brand. The deal structure is kind of conceptually similar to that which we announced with RACQ in November last year. RAC, as we know, is a quality insurance business that writes around about AUD 1.5 billion of premium in home, motor, and niche products. The financials of this business here in Perth are very strong with current annualized net profit after tax of around about AUD 150 million. At the high level, it writes about AUD 1.5 billion of premium, and it makes after tax around about AUD 150 million. We put that with our group.
We expect it to be EPS accretive to IAG shareholders from day one, so straight away. Over time, we expect that to increase to sort of mid-single digit EPS accretive once we sort of realize the full synergy benefits of this transaction. Importantly, it's consistent with our through-the-cycle 15% insurance margin target, and it's going to contribute to our, and what we're also doing today is sort of upgrading our ROE target to 15%, and this is contributing to that. Sort of step back and look at the combination of this deal that we're announcing today with RAC here in Perth and the RACQ transaction that we announced last November.
The combination of those two transactions are going to provide an additional AUD 3 billion of premium to IAG, so around about AUD 2 billion of NPAT after quota shares, and an estimated AUD 300 million of at least AUD 300 million of additional insurance profits on a full synergy run rate basis. You can sort of see if you step back from that, you can see the combination of those transactions to the existing profile of IAG. It's going to deliver sort of double-digit EPS accretion to IAG shareholders, a combination of both those deals. On slide seven, we sort of tried to step out sort of the rationale of the transaction with RAC. I think we know that RAC is a highly trusted brand, and it's got a high-quality business here in Western Australia. Look back to IAG.
Of course, our foundations are with motoring clubs, and we've got a successful track record as a group of profitably growing customer bases of mutuals. The actual portfolio, and Julie is going to talk about this more in a minute, the portfolio of RAC is complementary to sort of our existing retail portfolios. A key element of this deal, and similar to what we've done with Queensland, is going to be our ability to integrate the business onto our retail enterprise platform with its leading pricing, policy, and claims technology. That is a material part of sort of the rationale about why we're doing this. As you know, we've transitioned over 5 million insurance policies onto this platform already across Australia and New Zealand, and we're adding around 300,000 each month. We are well with a well-established platform for which we're utilizing across Australia and New Zealand.
What we see already with what we're doing is we're seeing significant improvements in customer experience as well as the benefits of more efficient pricing and underwriting. As I've just mentioned a few times, this transaction has delivered strong financial outcomes for our shareholders. Lastly, there's a slide there just a little bit around RAC. It sort of was formed in Western Australia 120 years ago, started selling insurance back in 1947. I think we know that it's a highly trusted brand in this market, and it really is an integral part of the Western Australian community with very strong member retention and very strong net promoter scores. It's got leading market position here in Western Australia with its one and a half million home and motor policies, and as I mentioned, AUD 1.5 billion of premium and highly profitable.
We're also looking forward to welcoming into IAG about 600 employees of RAC Insurance that are going to be joining us. I'll just now hand over to Julie. She's going to talk a little bit more about the business and the integration plans.
Thanks, Nick. It is fantastic to be here in Perth with the RAC team to announce this compelling strategic alliance. On slide 10, we set out for you the strong heritage that IAG has built over the last 100 years supporting mutuals in this country. This is the 100-year anniversary of NRMA Insurance, which just continues to grow across Australia. It operates in all states other than Victoria. In Victoria, we support the leading insurance brand, RACV, which has increased its customer base by 300,000 insurance members over the past 10 years. RAC in WA has a quality insurance business, and we know that we can provide even greater value to RAC members by contributing our insurance expertise, our global reinsurance arrangements, and our leading technology platforms that Nick just stepped through. We are committed to investing in member experiences and more broadly in Western Australian initiatives.
At the same time, we look forward to providing employment opportunity and security for the talented RAC employees that we've had the pleasure to meet over the last few months, and by continuing to support the business's local partners and suppliers, which are critical to the effective operation of the insurance business. On slide 11, you can see the RAC Insurance portfolio, which has grown strongly over the last three years and is forecast to hit AUD 1.5 billion of GWP this year. It's a really good quality portfolio that comprises home, motor, and niche products that we know very well and is strongly aligned with our current retail business. Like our NRMA Insurance business and our RACV businesses, the strength of the RAC brand ensures really strong retention rates.
The next steps for us are obviously what we need to do pre-completion, and we step that through for you on slide 12. We're aiming to settle this transaction in the first half of calendar year 2026. We know that one of the strategic advantages that we can provide to RAC is deploying our retail enterprise platform. That'll be one of the key pieces of work that we commence immediately, just creating value from that scale that we've built across the enterprise platform. We've got excellent experience from this platform now, having moved the majority of our direct and partnered portfolios both here in Australia and in New Zealand, and in fact, NRMA's transition completes in the next month. We've also established a dedicated integration team, which has built a repeatable process that we will use to deploy a successful RAC transition.
In the period between this announcement and the regulatory approvals, we will undertake joint integration and separation planning with RAC to ensure smooth transition for members and realization of value from this strategic alliance. Of course, the timing is going to depend on the regulatory approvals, but we're confident that we can appropriately manage the sequencing of the RAC integration in conjunction with RACQ. Both IAG and RAC are member-focused, purpose-led organizations, and we look forward to extending the strength of our capital, technology, and insurance platforms to RAC members. Now I'm going to hand over to you, William.
Thank you, Julie, and good morning, everyone. As Nick and Julie have said, this transaction delivers strong financial outcomes for IAG shareholders, and on slide 14, I've provided a bit more detail. The RAC business operates with a strong margin, and after synergies and amortization of the distribution assets, we believe this acquisition is consistent with our 15% margin target, and it contributes to an upgrade in our ROE target to 15% that we're announcing today. There are material synergies totaling around AUD 100 million pre-tax from claims and technology efficiencies and RAC joining IAG's comprehensive reinsurance program. We're confident in achieving these given our reinsurance arrangements and the investment and transition expertise we've already developed with the retail enterprise platform. We expect the upfront transaction costs will be around AUD 20 million, with further annual integration costs of between AUD 15 million and AUD 25 million over the next three years.
Turning to the capital impacts on slide 15, we show here that we can fund the RAC Insurance deal internally from our existing capital surplus supported by stable organic capital generation. I'll step through the individual components. As we showed in February, our CET1 position at 31 December 2024 was at the top end of our target range, pro forma for the RACQ acquisition. In addition, we're confident in strong organic capital generation supported by the solid downside protection from our reinsurance program. Although we're not specifically providing guidance for next year, you can see we've included an indicative 25 basis points of organic capital generation reflecting earnings in line with our through-the-cycle 15% margin target, less final and interim dividend at the midpoint of our target range.
We've also included a net positive 5-10 points of other expected capital benefits as we continue to develop strategies around capital light as we set out at our investor day in December. As a result, we expect our capital position at 30th of June 2026 to be at least 1.4 times. This positions us well for the 40-point capital impact of the RAC Insurance deal, arising primarily from recognizing intangible assets as well as the additional regulatory capital charges. After both deals, this results in an indicative pro forma CET1 position of 1.0 times our PCA, the midpoint of our 0.9-1.1 times target range. We have maintained this range even though our earnings are increasingly stable, both from our strong downside protections and from these two transactions increasing our geographical diversification.
Therefore, we're comfortable to operate with our capital levels in the lower half of our target range. On slide 16, I've shown the ongoing benefit of our capital strategy. The chart showed that we've continued to achieve strong GWP growth while reducing shares on issue and improving our overall capital efficiency. Going forward, we project today's announcement in combination with RACQ will add AUD 3 billion in GWP, and it's great for shareholders that we're in a position to maintain a strong capital position while funding both deals without a diluted capital rate. Finally, we've also taken the opportunity today to update the market on natural perils and GWP. At the end of April, our natural perils costs were around AUD 250 million favorable to our seasonalized allowance. We continue to maintain our FY2025 perils expectation of AUD 1,283 million, which is in our FY2025 guidance.
If we maintain this peril favorability at 30th of June, we'll increase our reported insurance profit guidance to AUD 1.65 billion-AUD 1.85 billion, and our reported insurance margin guidance will increase to towards the top end of the 16%-18% range. In relation to GWP, growth for the 10 months to 30th of April was around 5%. That included a solid contribution of 8.5% growth in retail insurance Australia's direct business. However, as we highlighted in February, our overall group growth continues to be hit by the slowdown in the New Zealand 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. I'll now hand back to Nick.
Hi, thanks, William. Before we open up for questions, I just want to make a few closing comments. I mean, today we've announced the second transaction in six months that we believe will deliver strong financial outcomes to IAG shareholders. Our expanded business will support around 10 million customers and will write around AUD 21 billion in premium. The businesses have leading brands in Australia and New Zealand enabled by superior technology platforms that we've invested heavily in. The two transactions obviously increase our geographic diversification and provide us with scale operations in Australia's largest states. They are supported by innovative reinsurance arrangements that reduce our financial volatility. Our strong capital and financial position mean that we're today increasing our ROE through the cycle target to 15%. On that note, Julie, William, and I are now happy to take any of your questions.
Thank you. If you wish to ask a question, please press star one on your telephone and wait for your name to be announced. If you wish to cancel your request, please press star two. If you're on a speakerphone, please pick up the handset to ask your question. Your first question comes from Kieren Chidgey with UBS.
Morning, guys. A couple of questions. Maybe just starting on the margin sort of outlook for this business. There is AUD 150 million of current NPAT run rate. I think you have pointed out is just under 18% ITR margin, but you have got synergies on top of that that sort of add another 8% to the margin. And even if we allow for sort of the distribution cost amortization through time, it looks like the pro forma ITR margin is sitting in the low 20%, maybe 22%. Just wanted to be clear on sort of what is the right margin for this business over the medium term in your eyes. Are you saying 15%, or should it be a higher number more consistent with the direct insurance Australia business?
Yes, sir. Hi, mate. I mean, this is sort of, and obviously the synergies are sort of not just allocated to the one business because this is sort of being combined into the broader IAG portfolio. I mean, I sort of hear the maths that you went through. I mean, really what we're saying today is that this is very complementary to our retail businesses. Some of those synergies are around about leveraging the scale of the enterprise platform, the way reinsurance works, and in a way that sort of synergy benefit is an IAG enterprise synergy, not just you've allocated it all to one business unit. I would definitely expect the financial performance of this business to be very similar to what we sort of expected, for example, an NRMA direct business in New South Wales. That's just the financial profile we would expect here.
It is very complementary, obviously, to our portfolios, and we are getting the benefit of that geographic diversification. What we are really saying today is this supports concerns, gives us more confidence, I would say, it is probably a way to describe it, of a 15% insurance margin for the broader IAG group. This actual business, and that is a blended number as we know, this actual business will deliver returns above that, but the nature of it, consistent with sort of the way NRMA in New South Wales operates as well.
Thanks. Can you just remind us what the target is for DIA relative to GRIP on margin?
Yeah, we sort of, yeah, I mean, we sort of have said that 15% is the blended outcome of IAG. The retail businesses, we would expect to be delivering above that. We know that particularly the Australian commercial business has been on a track back. Getting to that double-digit type margin for Australian commercial was our sort of first objective around 10-11%. That is now drifting up, as you know. The blended for IAG is 15%, but the retail businesses, we would expect to be delivering above that. We are sort of trying to move the commercial business up, which is what Jarrod is leading us on.
Okay, thanks. Just a second question on the funding. It is fairly unusual to see deals funded on prospective organic earnings, but yeah, appreciate you've got great reinsurance protections on the cap side that give you confidence in the underlying earnings streams. You are still saying you'll pay midpoint of your dividend payout range. Are there any other changes sort of that will be implemented to give you confidence around that earnings over the next 12-18 months around dialing back asset risk or additional AT1, Tier 2 funding?
Yeah, I'll make some high-level comments, and I'll throw to William in Sydney as well. I mean, let's sort of start at the beginning. It feels like there's strong earnings momentum in IAG right now. We're very confident, obviously, in June 2025, but in the outlook too, because we can see where we're placed. We've got strong earnings momentum. Secondly, we've got very material reinsurance protection in place, particularly the peril stop loss, I would say, that sort of boxes up volatility and particularly downside risk and any downside risk from perils in our outlook as well. Not only have we got strong earnings momentum in the franchise right now, in addition to that, that sort of volatility is driven by perils. We've got that boxed up and got that downside. We're very confident on the financial outlook of IAG.
In relation to sort of having to do sort of, and sort of secondly, we like being capital light. That concept that we've been putting in place for the last 10 years, we're going to maintain that concept of being biased towards more capital light. We'll continue, and William's mentioned this before, we'll continue to look for things where we think it makes sense to lighten the capital load in relation to IAG. I'll throw to William. In turn, we don't have any, there's no sort of tactical plays that we're contemplating to sort of create any capital over the next six to twelve months. William, maybe you, and then you might want to add some more color to that, William, sorry.
Yeah. Thanks, Nick. Thanks, Karen. That's right. No, we're not planning to de-risk assets or something to free up capital. That's not it. I mean, the business is running well. We're running around the top end of margin guidance. We are confident in a strong capital generation, and we've got all the downside protection, as Nick described. On the capital front, we are continuing to work on the things I indicated at the investor day, seeing whether there's a good way to bring in some outside capital behind the commercial part of the commercial business and free up some capital, effectively reallocating capital from commercial to retail and continue to stabilize earnings. I think on the funding side of things, you've seen how we've managed the debt and the AT1, and we tend to do things in good time.
It may be that as we go into the next financial year that we'll do a further, maybe a few hundred million AUD of debt issue. Also as the P&L expands, and we absolutely expect to remain as we are at the moment, very comfortably in the kind of debt gearing levels that are in accordance with rating agency expectations.
Interesting. Sorry, just one last comment from me. There is no change to dividend policy. I think we did not answer that question. There is no change. The expectations on dividends are the same going forward.
Yep. Yep. All right. I'll leave it there. Thank you.
Your next question comes from Andrew Buncombe with Macquarie Group.
Hi guys. Congratulations on the announcement. Just a couple of questions from me, please. Just the first one, just interested in the feedback that you've had from your quota share partners on how this deal has been structured. Thanks.
I mean, our quota share partners are the largest reinsurers in the world, and of course, know both Queensland and WA businesses already because they're sort of the largest four reinsurers in the world. I mean, I'm in favorable. I mean, our arrangements contemplate this. We'll have to work through a process with them in the detail. The way we've presented this, and even the way we've indicated gross premium of AUD 3 billion, net net end premium of AUD 2 billion, we're assuming that they would be captured as part of these quota share deals. We'll just need to work through that over the next few months with each of them in the detail. I would say the answer to that is favorably indeed in my summary.
Yep. The next one, can you give us some color around what you're going to be paying back to the auto club for distribution over the next 20 years? Essentially, what's the commission that you're paying back?
Yeah, these deals are a combination of commission structures and sort of the distribution fee and brand fee that we've indicated today that we're paying upfront. I would say similar arrangements to, I mean, I won't go into the detail of that. I would say similar to other arrangements we have in place with other clubs.
Great. And then just the final one from me, please. Can you give us some confidence about being able to integrate two major transactions at once? Thanks.
Yeah. I mean, I'll make a comment, and I'll hand to Julie on that as well. You'll see her next to me here in Perth. We've invested heavily in this enterprise platform, and we've sort of started in Perth, as you know, and migrating our Western Australian and South Australian businesses onto it. We spent a year ironing out bugs on that. There was a couple of hundred thousand customers on that. Now we've gone to scale. Now we've accelerated into that across Australia and New Zealand. We've now got 5 million on there, and we're migrating, I think, 300,000 a month. I would say the organization has invested heavily in the platform in the first place, and two, has developed a lot of organizational capability to actually know how to do this. Because of that, we feel pretty confident.
Julie, I'll hand to you to give a bit more color.
Sure. Thanks, Nick. Maybe just to touch on a few points. I think obviously the last five or six years has been heavily about putting the right technology in place. On top of the technology is also the ability that you need to be able to operate the business effectively. What we've got in WA and in fact in Brisbane in our existing business are hundreds of employees who've been trained on the new systems, on how to work effectively, and developing new processes as we work our way through, and they've done a wonderful job. By being able to integrate both of these businesses, we're doing them in states where it's already live, where we've got people that know what they're doing, and we've taken all the learnings from the technology side over the last period.
We've also done, obviously, since we announced the RACQ transaction, we've built an integration office, we've developed blueprints and plans, and we're very advanced to the extent we can be with RACQ currently. There is a lot of learnings there for us to take straight into RAC, and we feel very confident about our ability to do that.
Excellent. That's it from me. Thank you.
Excellent. Our next question comes from Siddharth Parameswaran with JP Morgan.
Good morning, everybody. Just a couple of questions from me. Firstly, Nick and Will, maybe just a question on the acquisition cost, the AUD 950 million of goodwill that you'll be paying on this upfront. Could you clarify how you'll be treating this from an accounting perspective? Will this be taken, when you amortize it over 20 years, will it be taken above the line? Will it hit the insurance profit line, or will it be below the line?
Yeah. William, you answered that, but above the line. You said, "Will, you'll be good.
That's right. Not goodwill, but rather an intangible asset for the distribution agreement and brand access rights and stuff. That we will amortize over the 20 years through insurance profit. Effectively, it will be like an acquisition cost.
Yep. Okay. Great. Thank you for that clarity. Just a question on strategy in Western Australia post this deal, if it's given the approvals. Could you just comment on what's been happening with your business there currently? I think a couple of years ago you made the move to just run the NRMA brand there. If you could just comment on what's happened with market share or what you might do post AC for the brands that you're running and what's happened in the past.
Yes. I mean, just a comment from Nick, and I'll hand to Julie. I mean, we've got a multi-brand strategy in place across Australia and New Zealand. We're sort of used to having multiple brands in the same market. This is all going to be about how that's being segmented and the approach there. Julie, you maybe talk a little bit around what has been happening and sort of the go-forward plans in WA.
Sure. Thanks, Nick. As we sort of set out on slide 10, we obviously, with NRMA Insurance, have a national brand strategy. It does not participate in Victoria because of our RACV relationship, but very much NRMA will remain a national brand and a national business, and we think that is really important for the future. In Western Australia, we obviously transitioned from SGIO, which was a long-term heritage brand, and we moved that business across to NRMA and onto the enterprise platform, and that is all complete now. We will maintain that business in Western Australia. Very much our focus with this RAC relationship is by being able to work with the club that has this history with roadside, very long history that we know well, and bring products and services more broadly to Western Australians.
We see our brand strategy to be quite consistent, but obviously now with some additional access across the country through RAC and RACQ in places where we haven't necessarily always had the same market share as we've had in Victoria and New South Wales.
Okay. Thanks. Just one last question from me. You gave some color on just payroll trends, but Will, I was hoping you could just provide an update on inflation by line of business and also color on rate within your, well, it's not quite revised guidance, but just the guidance ranges you've indicated may be possible.
Yeah. I'll just give some high level on that if that is, yeah. I mean, we're definitely seeing sort of there's different themes in different parts of the company. The overall theme in retail businesses in Australia and New Zealand is that our inflationary costs are coming down. Much more so in motor than property. Property is still being a bit sticky with inflation, and more so in Australia than New Zealand would be sort of a theme that we're experiencing, and then pricing is following that. In commercial, our Australian commercial business is holding up. Yes, I know there are stories of, certainly the big end of town with quite significant reductions in pricing. We just haven't seen that in our business. Our business is more of the SMEs, more commercial side.
That business is holding up around price. There is a bit more pressure today than there was 6-12 months ago, but it is holding up. I will say our New Zealand commercial business has really got some challenges. That is a challenging market. William mentioned that. When we are sort of around the grounds on growth, I will sort of look at where we are at. We are at about year-to-date 5%. The direct retail business, the direct business under Julie, is going pretty well. That is sort of 8%. Commercial, just around about just a little bit lower than that. Our New Zealand business, and particularly the New Zealand commercial business, is the one that has got some challenges. The blend of that comes to the 5%. I would say the theme is similar to what we said in February.
The outlook on inflation is definitely getting better. We can see indicators everywhere on that, so that's sort of positive for everything. New Zealand commercial is probably one of the more challenging parts of the business.
Okay. Thank you.
Your next question comes from Nigel Pittaway with Citi.
Good morning, guys. Just a few questions on the synergies first up. I mean, you're saying obviously it's mid-single digit EPS accretive on a full synergy run rate, AC. I mean, presumably, is that FY 2029? That's the first year with full synergies, if I've got the numbers right there?
I mean, Nigel, I think you're right. I mean, some of this is reinsurance, obviously, so that's relatively quick to put in place. And then there's sort of two big buckets here. Reinsurance, so that happens quicker. The proportion of reinsurance is a bit different in Queensland. It's a much lower payroll market, WA, compared to Queensland. So sort of the synergy benefits because of that tax flow. But we would expect those benefits to be relatively quick, quite immediate. And then the second part of that bucket is obviously the sort of the integration. And really, when we say integration, really what we're talking about is migrating the entire portfolio from its current platform onto our retail enterprise platform. We're going to do that at pace, but that's going to take, I think, probably one and a half to two years to get that all done.
I would expect that sort of timeline from approval is what we're working to. I'd like to think it'll be earlier than sort of end of 2029.
Okay. Fine. Thanks for that. I was actually going to follow up on the proportion of reinsurance. Presumably, the actual dollar value of the reinsurance synergy is lower as well because of the lower payrolls market, that's effectively what you're saying, right?
Yeah. It just follows the risk. That's exactly your point.
Yeah. Yeah. Okay. And then just in terms of the, I mean, just on the payrolls, if the payrolls do stay the same, that's the AUD 250 million favorable, can you just remind us? I mean, that obviously means you generate full profit commission. Does the guidance actually take that into account?
Sorry, Nigel. Last year, that question was that we generate full profit commission on the reinsurance cover?
Yeah. On the insurance, sorry.
On the, yeah, on the ag effectively. So is that in the guidance? Can you just remind us whether that's already in the guidance, the full profit commission in the revised guidance? I mean, I'll throw it at William, but just a reminder, these are all multi-year as well. I think the question is the more favorable payrolls experience, if we get the best, if that stays through June, we've got multi-year quota shares, multi-year payroll stop-loss covers in place. How does that sort of, how does all that flow through to those? Is that the question?
Yeah. And look, on that one, Nigel, as I indicated at half year, we are taking a conservative approach on these things. So we're not accruing the maximum possible profit commission at this stage. And as Nick said, the profit commission is actually a calculation over the full five-year transaction. I wouldn't expect to book an additional kicker from that.
Okay. Fair enough. And then on the treatment of the, just on the sort of capital flow chart, I mean, is there any sort of immediate change in the level of BI provision in that, or is that sort of at the moment presumed stays the same? At the moment, we're assuming that that stays the same. So there's no benefit assumed from that, but obviously, we'll review that at year-end, and that's possible.
Nigel, I think we can also say nothing's changed on that. I think from our, we're taking a pretty conservative view on that point, and there's nothing new that has occurred that we're aware of that has changed that view. We have not factored that in in that capital slot.
Okay. Fine. And maybe just finally, I mean, obviously, the New Zealand GWP comments do suggest that it's fallen off a fair bit in the second half. You're probably down low mid-single digit in GWP. Is that fair? And that's, as you said, pretty much all commercial, right? Yeah.
Yeah. I would say in Aussie dollars, it's low. I think in New Zealand currency, it's very low, like 1% or 2%. That's the blended New Zealand. Retail's more than that, and commercial's not negative slightly.
That was full year, though, no? Sorry if I misread. That second half will be down.
Yeah. That's year-to-date, what we're just saying.
Yeah. Yeah. It's the second half. It'll be down sort of low single digit-ish, low mid-single digit.
Oh, I think it's probably the same. That was what I just said. Yeah.
Yeah. That's right. That's about where we that's similar to where we were at half year.
Right. Okay. All right. Thanks for that.
Once again, if you have a question, please press star one on your telephone and wait for your name to be announced. Your next question comes from Andrei Stadnik with Morgan Stanley.
Good morning. Can I ask that first question just around the strong GWP top-line growth in RAC? They are running at almost 20% CAGR over the last three years into 2025. Can you comment a little bit on volume versus pricing split that is driving that 20% CAGR growth?
Hi there. Sure. It's Julie. Yeah, of course, I'm happy to do that. I mean, they have both volume and rate growth going through the portfolio. Obviously, the rate growth that's going through follows the reinsurance cost changes that have happened across the industry over the last couple of years. There's probably been a little bit of a lag on that relative to perhaps some of the more East Coast-centric insurance companies, as that cost of capital has sort of spread more broadly across the country following that sort of acute period of change after the 2022 floods. They've also, both in home and motor, delivered some unit growth over the last period of time. They're a pretty special brand here, and so they've got a great membership base, and it's a combination of both of those things.
Thank you. Look, my second question, just want to understand the gearing or the debt side of this because I think there was AUD 500 million of tier-two debt issued a couple of months ago, and that takes the debt tangible capital to 44%. Then I think you mentioned possibilities to raise another AUD 200 million of debt. That would take roughly to call it 45-47%. I think QBE is at about 30%, and Suncorp is below 30%. I think you've removed the target range on debt. That looks quite high versus peers. What are your thoughts on that? Do you have a plan to reduce the debt to maybe below 40% where it was maybe a year ago in terms of the debt tangible capital matrix?
Yeah. Thanks for that.
I think the thing to remember is that the issue that we did a couple of months ago, we're also calling the debt that's due in, has a call date in June, which is AUD 450 million. The issue earlier is kind of neutral. It's just right now today, obviously, we're carrying a higher amount because we pre-funded. As we plan through going forward, we expect that our debt levels will stay in normal ranges, and relationships with both balance sheet and P&L will be normal. There may be a modest issue next year just as part of all of this.
I mean, just a comment from there as well. We've got a AA- rating as well that's part of this, sorry.
That was AUD 450 million that should come off in June?
Yeah. Yeah. We're still trying to do that.
That's a brilliant comment. I mean, that's the tone of what we've done in the past. We're carrying a little bit right now. We want to make sure that we're not a regular issuer, so we're always quite conservative. When we sort of reorganize financing, we always go early and then carry the very modest cost of that. The intention is that's used to repay money next month or the next year. When we did the AC1 issue last year, that was in anticipation there was a possible change in the regulatory rules, so we were just taking advantage of the window. That was, again, sort of pre-funding for expected growth over the next year or two. As Nick said, we manage it prudently, and we try to do things in advance. In fact, I'm just sneaking another kind of slightly related question.
Did you receive the same regulatory license just earlier this week? I think previously you mentioned that might have some impact on capital, potentially some high capital on some of the synergies. Any further thoughts on that?
Nick, sorry. I mean, the answer is no. That's internal only. There is no change to the overall group capital position. Really, Nigel, if you want to add some more comments, sorry.
Hi, guys. We're in with William, and I'm in Perth, and William's in Sydney. He's not sitting next to me, so we're just managing these questions like that. William, over to you.
Yeah. Sure. Two comments. One is that, as I mentioned earlier, we're continuing to explore the next step in the capitalise strategy and potentially involving something around the commercial business. Getting the license is just a step along that journey. We're pleased to have got that license approved. The other point, as Nick just said, it's internal capital, and there might be a very small funding component internally for the new entity, but it makes no change to the group capital position. Thank you.
Your next question comes from Simon Fitzgerald with Jefferies.
Hi there. Thank you for taking my question. I'm just really briefly. Are you able to just enlighten us in terms of what market share would be with the combined entities in Western Australia, please?
Obviously, what we're doing here is building out our retail business. Our market is here. Existing market share in Western Australia previous transactions were very modest. In a way, that's the strategic rationale similar to Queensland. We've had relatively modest positions in both Queensland and WA. These businesses are stronger brands in both Queensland and WA than our brands. That's why, obviously, it's an arrangement that we like and gives us sort of opportunity to be way more relevant in this market than we were with our business before this opportunity. In relation to market shares overall, I mean, it's sort of I'll break that down. In sort of personal lines here in Western Australia, RAC is probably 40% plus plus market share.
Okay. Okay. All right. That's helpful. Thank you. Just also in terms of the acquisition multiple, 12.8 times trailing, 9.5 times forward earnings. If I look at RACQ, it's 16.5 times trailing. That was the only multiple that we got. Are you able to give us a bit of clarity in terms of how RACQ is tracking and what that forward multiple might be right now?
I mean, not really because we're going through that slightly messy process of regulatory approval, and we're competing against RACQ at the same time as we're trying to buy it. I mean, there are a few comments from me. One, that the business is a little bit different. Two, we are in integration and discussions with RACQ. We know the business is tracking well. There's nothing negative to say about RACQ. We only know things that are probably out or better. I would say sort of back to the way you were sort of breaking that up about sort of forward multiples, I would say drifting towards where the RAC is. That would be my comment. The RAC is tracking well. Sorry, RACQ's business is tracking well from what we know, which is only at a high level because of the process we're in right now, remember.
Okay. So I'm all right, though, just to at least think that you've bought the WA business a little cheaper than you have with the Queensland one. I mean, you did also mention just then that they're a little bit different businesses.
Yeah. I mean, what we see is we see both of them as fair value, and we've tried to be really clear on that. They're a little bit different. Of course, this is about long-term arrangements with these terrific brands in Queensland and Western Australia. We've tried to be really clear to shareholders what it means, that these are EPS day one accretive and favorable certainly over the next couple of years. There's sort of a double-digit EPS accretion here for the combination. I mean, it ends up being material to material change to sort of the IAG earnings profile. The key, what we've also been, unbelievably, we've been very disciplined here with issuing shares, as you can tell. We're really focused on creating the shareholder. We're really focused on delivering to members.
We're really focused on the broader IV experience, but we're also very focused on delivering value to shareholders here, too.
Yeah. My just one final question, William, you did mention that the amortization charge will go through the insurance profit line or above that. I just want to make it perfectly clear that the EPS accretion targets will include those amortization charges for both RAC WA and RACQ as being expensed.
Yes, that is right. When we talk about EPS accretive, that is after taking into account the amortization of the intangibles.
We might come up with a different word for this amortization because we do not want anyone thinking that we are putting it below the line. Sort of typical sort of old amortization of goodwill. We will come up with a different word, but yes, it is going to be part of the administration expense of running the business. I think that is the question.
Understood. That is very good.
We'll probably come up with a different word because we've got two of them now, one in Queensland and one in WA, and we'll just be really clear so we don't cause any confusion.
Thank you.
Your next question comes from Freya Kong with Bank of America.
Hi, good morning, guys, and congrats on the deal. Is there any color you can share on the competitive process behind the bid as there was another large player named in the prize, and it looks like you're effectively paying nine times earnings before synergies on a pretty high-margin business, high-return business? Thanks.
I mean, it's probably not right for us to make comments on the process. I mean, all we're sitting here in Perth pretty excited that we've formed this partnership. It's a wonderful business, great brand. We think the value's fair, and we see this as an opportunity, obviously, for IAG shareholders, but we also see it as a wonderful opportunity for RAC because what they're doing, they've got a great brand, access to and relationships to 1.3 million, and they want to expand that. We want to be the partner providing insurance products to help deliver that. What we've got, obviously, is technology, capability, pricing, claims, access to capital, reinsurance, structures that are innovative. In a way, that's a partnership that makes a lot of sense, I think. That's really the positioning here.
It is not right for us to talk about the process, I do not think.
Okay. Thanks. Next one on the synergies that you're targeting, comparing RACQ and RAC, it looks like you're targeting more synergies on a similar size premium footprint, high-margin business as well. The pie chart of, I guess, the claims or the operating efficiencies that will come through looks a little bigger. Is there any, are you more progressed in your tech transformation that this gives you confidence in the synergies you can deliver? Is there an implicit upgrade we can assume on the RACQ deal as well?
Hi, it's Julie. I might make a couple of comments, and then, William, I don't know if you want to touch base on the chart. I think what we're looking at here are two different geographies. WA, it has low attritional peril, and it's really around reinsurance here. Low attritional perils, higher earthquake exposure, but a reasonably stable portfolio. In Queensland, the Queensland business is exposed to different perils. There are different reinsurance structures, including the cyclone pool that exists. You are really seeing there just a different capital structure being combined and rolled into ours. We would then look across both those portfolios as being able to deliver a consistent return in line with the retail targets over time.
I might just ask, I do not know, William, if you want to touch base for a second on this transaction and what you are looking at in terms of the synergies there.
Yeah, exactly. I think we've already covered the reinsurance synergies and sort of the relationship on those. I mean, on operating efficiencies, there's both bringing them onto our technology, and they're on different technology, which I think RACQ is on a version of Guidewire already. Also, speaking of supply chain, that goes both ways because, I mean, they have scale and all sorts of supply chain relationships in Western Australia that our existing businesses will also be able to benefit from. Not all the synergies arise specifically in the acquired business. Then there's also a few other things. I mean, when we apply our investment strategy to that portfolio, we believe there's a bit of uplift there as well, but that's a smaller component.
Okay. Thanks. And then finally, just on the integration timeline, I think you mentioned it would take one and a half to two years from approval. Is that because you're migrating parts of the book slowly, or I thought it would have just been a one-year renewal process? But yeah, any color on that would be helpful.
Yeah. I mean, my experience on these is that we get the keys. I don't think we'll be able to start from day one, unfortunately. There is obviously some planning and processes involved there. Yeah, the intention is what you've described. I mean, that's what we've done all around Australia and New Zealand and the way we've done essentially the transition onto the retail enterprise platform. Normally, by the time we sort of have renewals, we send out notices about three months before, but that sort of 12-month cycle is actually really 15 months. For some of the planning, we're obviously going to plan before, but we won't be able to sort of start on the very first day. That's why we've sort of assumed that one and a half to two years is the way we've set it.
Okay. Thank you.
Your next question comes from Karen Chiddey with UBS.
Just a quick follow-up question on sort of the ACCC process. Obviously, different assets, different states, but would this transaction potentially have any implications for ACCC's process around RACQ, or do you just think they're completely independent?
Yes, Karen. I mean, we won't make too much comment on that because I think you know that we're waiting on the Queensland review at the moment. Nothing's changed. Our confidence around this topic. Yes, we would expect that they would look at them separately the way you've described.
All right. Thank you.
There are no further questions at this time. I'll now hand back to Mr. Hawkins for closing remarks.
Thanks, everyone, for joining us at short notice. It's a good day for IAG today. The sort of positive news, we're building out our retail business and really delivering on the capability that we've been creating and building over the last number of years. The partnership here is a very highly trusted brand with a high-quality insurance business that sits underneath it. We would see this as sort of a natural fit where we've got a wonderful brand, great customer member network attached to it, combined with the capability that we're bringing. We've been super focused on shareholder value here as well. We're confident of the value creation that we've stepped you through in discussions. Have a look forward to talking more about this, which will be results in August. Thank you again for making the time to join us today. Thank you. Bye-bye.
That does conclude our conference for today. Thank you for participating. You may now disconnect.