Good morning and welcome everyone. For those that are joining us here in the office, there's a voluminous number of people in the office. If there is a need to evacuate, please follow the instructions of the team and they'll look after you. Let me begin, obviously, as usual, by acknowledging the traditional owners of the lands on which we meet and to pay our respects to all elders past and present. Today I'm joined by our CFO, Jeremy Robson, to present our financial results for the FY 2025 year. The other members of our leadership team will join Jeremy and I for the Q&A session that follows. The first slide is one I always start with, and it's what we refer to as our Value Creation Framework. It shows why grounding our organization through purpose is so important to us.
Our purpose, delivered through our people to support our customers and the community in that order, will always lead to good financial outcomes for our shareholders. To the next slide, here we've captured the key numbers from the full year result. Net profit after tax of AUD 1.823 billion was supported, obviously, by the one-off profit on the sale of the Suncorp Bank and New Zealand Life operations. Cash earnings, which back out these numbers, was AUD 1.486 billion. Importantly, the underlying performance of the business, which is best reflected in the underlying insurance trading result, has increased by 20% to AUD 1.566 billion, or on a ratio basis to 11.9%. Natural hazard costs, which are always a feature of the result, were AUD 1.355 billion, and they were AUD 205 million below our allowance.
Investment returns were again a significant contributor, continuing to demonstrate the resilience of investment markets, and particularly, I would point out, the outperformance of our manager panel. On the bottom of the slide, I've included the high-level GWP results, which have landed largely as we have guided. The premium moderation reflects lower input costs, more benign inflation, and the outworkings of a competitive market. Our approach, and it's very important to point out, our approach at this point of the cycle is to manage price and volume to optimize margin while maintaining appropriate levels of growth across the portfolio. We remain very confident that the strength of our brands and the quality of our underwriting gives us the firepower to allow us to achieve these dual objectives.
Now, finally, on the slide, the Board has declared a final ordinary dividend of AUD 0.49 per share, and that brings the full year dividend to AUD 0.90 per share, which I think is, you have to go back to 2008 to when the Suncorp and prominent businesses came together to replicate a full year dividend outcome of that magnitude. We're also today announcing a AUD 400 million buyback, which again is the maximum possible for FY 2026, given trading windows, blackout periods, and average daily volumes. Jeremy will provide more detail on capital, and I'll come back to this topic in the Outlook comments later. Of course, our business, like any business, is about far more than just the headline financial metrics.
I personally spent a lot of time this year visiting customers, communities, and industry stakeholders across Australia and New Zealand, talking about the important role that insurance plays in our society and advocating for an increased focus on risk reduction, on resilience, and on mitigation. At each and every customer visit, I am reminded of the critical role that we as insurers play in our customers' lives and the difference we make when we get it right, as we do in the vast majority of cases. Equally, I understand the impacts if we get it wrong. This year we responded to more than 120,000 natural hazard claims from extreme weather events across Australia and New Zealand and paid out AUD 9.8 billion across all of the claims categories.
Our ability to support customers in the wider community during these events has been enhanced through our investment in a disaster response centre based in our Brisbane headquarters, and I know many of you have had the opportunity to visit that centre. This and the establishment of a regional hub in Townsville and our mobile hubs that we deploy into claims events are core parts of our commitments, as agreed with the Queensland Government through the sale of the bank. These facilities ensure we're better prepared to respond before, during, and after disaster strikes. Now, to the next slide, insurance affordability has remained a topic of interest over the course of FY 2025. Here's an update of a slide that I've used over the last couple of results presentations that details the factors that have driven insurance pricing over the past five years.
On the top left of the slide, I've shown the absolute number of natural hazard claims by year. Now, even though we've landed below our allowances in FY 2025, the absolute number of natural hazard claims remains in line with the most recent trends. To the top right is the good news. After a multi-year price and capacity reset, reinsurance markets have stabilized, with combined reinsurance and natural hazard costs slightly lower in FY 2026 than they were in FY 2025. This will take pressure off premiums, particularly in the home insurance portfolio. On the bottom of the slide, I've plotted cost per policy annual inflation for both Home and Motor. Motor first, and the good news is that repair capacity has been restored and supply chain inflation has continued to moderate.
It's a slightly different story in Home, however, with reductions in reinsurance costs being offset by the emergence of two key risk factors inside the home: flexi pipes and lithium batteries, which are driving escape of liquid and large loss fire claims. I've included some detail on the slide, particularly around some trials that we've done through home repair, and we're happy to come back to that in more detail during the Q&A. At that point, let me hand back to Jeremy, hand over to Jeremy, and I'll come back later in the presentation.
All right, thanks very much, Steve. Good morning, everyone. Steve's already touched on the highlights, the group highlights, but I'd just like to reinforce a couple of key points. Notwithstanding, our net profit was up 52% to AUD 1.8 billion, assisted by the gain on the sale of the bank and New Zealand Life, as well as favorable investment markets, Natural Hazards, and prior year reserve releases. Our underlying insurance profit was also up a healthy 20%. It was also pleasing to deliver another rewarding year for our shareholders. We returned a total of AUD 4.1 billion of capital from the sale of the bank. We achieved a total shareholder return of 33% for the year. As Steve said, the full year dividend is AUD 0.90 per share, fully franked. Of course, today we've announced a AUD 400 million buyback to be executed over FY 2026, and importantly, with a residually strong balance sheet.
Now let's get into the results in a little bit more detail, and we'll start with underlying margin. The underlying ITR improved by 80 basis points to 11.9%, with 12% for the second half at the top end of our 10%- 12% range. This reflected the earned through of pricing and moderating input costs, but with some headwinds from lower investments and prior year reserve releases. On a portfolio basis, the increase was driven by Motor and New Zealand, where inflation has eased significantly, offset by deteriorating loss ratios in both the Queensland and New South Wales CPT portfolios and elevated fire and water claims in home. Looking forward, we expect the FY 2026 margin to continue to be in the top half of the range.
Importantly, with a favorable FY 2026 reinsurance renewal, we've also further strengthened the sufficiency of our natural hazard allowance, now at AUD 1.77 billion for FY 2026. On a like-for-like basis, the underlying margin outlook would have been above the top end of our target range, and we believe this adds resilience and quality to our underlying ITR. Within this margin outlook, we're also continuing to focus on organic growth, as well as our investment in our key strategic imperatives of platform modernization and operational transformation. The prior year reserve release assumption is now down to just 30 basis points. Let's now move to the divisional results, and we'll start with consumer. In Motor, gross written premium increased 7%, reflecting the impact of moderating inflationary pressures. As expected, unit growth was softer in Q3 as we maintained a disciplined approach to pricing for inflation.
Pricing and marketing changes were implemented in Q3, giving an improved position on renewals and strike rates into Q4 and then into FY 2026. In home, GWP grew by 9% as we continued to price for a higher natural hazard allowance. A broader market contraction contributed to flat unit growth in home for the year, although we also saw improved momentum in Q4 and into FY 2026. Underlying ITR for consumer improved from 8.1% to 9.6%. In Home, whilst the higher Natural Hazard allowance has been priced for, we did experience elevated severity in both fire and water claims. In Motor, claims inflation continued to moderate with easing supply chain constraints, improving repair capacity. Looking forward, we expect margins in home to continue to improve and Motor to moderate, both towards their respective target levels. Next, to Commercial and Personal Injury. GWP growth of 7% was across most portfolios.
An important feature of our Commercial business is the portfolio diversification. You can see we've included a new pie chart on the chart there that shows that diversification on the bottom left-hand side. Whilst market rates are under pressure for top-end property and financial lines, these were a relatively smaller part of our portfolio. We've seen very strong growth in platforms with improved broker connectivity, as well as good growth in our fleet and heavy motor portfolios. Underlying ITR in commercial was largely flat across the year and remains strong, albeit with some ongoing price remediation across the packages portfolio. The Underlying ITR for Personal Injury is below target level and has been impacted by weaker industry loss ratios in compulsory third party insurance for both Queensland and New South Wales, lower investment income from a reduced ILB carry, and lower expected prior year reserve releases, as we've been flagging.
Underlying ITR for personal injury is, however, expected to improve strongly following pricing changes in New South Wales in January and in the announced and expected price increases for Queensland CTP . We continue to engage constructively with the Queensland Government for scheme reform, which is also expected to continue to improve returns to sustainable levels over time. Turning then to New Zealand, and really the standout feature was the underlying ITR at 19%, with the earned through of the rapid pricing response to the significant increase in input costs in recent periods, and then with current period claims inflation and reinsurance costs moderating significantly. The New Zealand business is also diversified, and GWP growth of just over 1% was mixed across our portfolios. In consumer, home growth continued to be strong with both AWP and unit growth.
In Motor, we saw ongoing unit growth, albeit with reducing premiums reflective of the strong margin position. GWP growth for commercial in New Zealand has been impacted by the softer competitive market conditions, as well as clients shifting to higher risk retentions. Going forward, we continue to expect margins to normalize towards the top end of the target range for New Zealand in FY 2026, as price increases have now moderated in line with inflation. Moving then to reinsurance. As previously flagged, we undertook a comprehensive strategic review of reinsurance last year. We engaged with a broad range of strategic partners and global experts. We explored all reinsurance markets, both traditional and alternative, including whole of account quota share and aggregate covers. Our key objectives were to optimize capital efficiency relative to our cost of equity and manage volatility, all with the overarching objective of maximizing long-term shareholder value creation.
Our review emphatically concluded that the comprehensive program finalized for FY 2026 best met these objectives. We are confident in our underwriting capabilities and our ability to identify and retain profitable exposures for our shareholders. The program sees improved efficiency, with some changes from the FY 2025 program achieving a very similar level of risk retention, but at a significantly lower cost. Whilst favorable rates were achieved on the main cap program and this market remains very constructive, the market for aggregate covers is markedly different and remains more constrained and expensive. Now then to natural hazards. Having increased the natural hazard allowance from AUD 1.36 billion-AUD 1.56 billion in FY2025 and natural hazard costs for the year were below allowance by AUD 205 million. This reflects favorable experience, particularly in the first half, as well as the impact of the ground-up cover from the cyclone reinsurance pool.
You'll see the cost of attritional events has increased with additional claims management resourcing following the parliamentary flood inquiry, and ongoing investment in our natural hazard claims management capability. The allowance for FY 2026 will increase further to AUD 1.77 billion, as I said. About half of this increase relates to portfolio growth and inflation, but the other half relates to an investment in the level of sufficiency and resilience of our natural hazard allowance. To put this into context, our modeling shows that based on our current reinsurance program, our current exposures and costs, so on a like-for-like basis, the FY 2026 allowance would have been sufficient in seven out of the last 10 years and four out of the last five. Over that 10-year period, we would have cumulatively been below the allowance by around AUD 1.5 billion.
That's profit that would have been retained by Suncorp shareholders and not paid out to third parties. On to investment performance. The average underlying yield on insurance funds was lower, reflecting risk-free returns in line with the prior year, but with a lower ILB carry. Our investment managers continue to perform strongly across both funds, albeit at a lower level. You'll see that we've made some changes to our investment allocations in FY 2025 with a reduced allocation to ILBs in insurance funds and some rebalancing from cash and convertible notes across other asset classes and shareholders' funds. Going forward, we'll continue to adjust investment allocations to achieve a closer match to our latest strategic asset allocation.
We expect an ongoing reduction in exposure to ILBs and a modest allocation to structured credit in insurance funds, and a further reallocation from cash to infrastructure and property in shareholders' funds as suitable opportunities arise. Finally, on investments, our insurance funds remain well matched to the underlying claims, and the investment portfolios continue to be of a high quality. Let's turn to expenses. I've focused here on the general insurance expenses given the changes to the group structure. Operating expenses here increased by 7%. This was largely in our growth-related costs driven by the investment in the digital insurer policy admin system, which is now live in AA in New Zealand, a new People Enterprise system, and an investment in AI capability and use cases. We also increased our spend on marketing, particularly search engine marketing in Q4.
You'll notice that run the business expenses increased modestly as productivity improvements continue to help offset wage and technology inflation. Our total expense ratio reduced by 100 basis points to 18.6%, slightly better than the guidance provided at the first half. Going forward, we continue to aim to keep our run costs as low as possible through operational efficiencies as we continue to invest in our key strategic priorities of platform modernization and operational transformation, including AI. In FY 2026, we expect our total expense ratio to remain largely consistent with FY 2025. Now then to capital. Following capital generation over recent periods, as we completed the bank sale, we now retain a very strong capital position with CET1 of AUD 997 million above the midpoint of our target. This has been generated over recent periods by the sale of New Zealand Life, ongoing organic capital generation, and capital target changes.
I'll just make a few comments on the usual capital walk on the slide. Firstly, the bank capital return of AUD 4.1 billion was completed in March, as you'd be aware. The Life capital release is now AUD 295 million, noting that AUD 145 million of this will become available once the second tranche of proceeds is received on July 26. The final dividend of AUD 0.49 per share represents a full year payout ratio of 71% around the midpoint of our target range, as we'd expect. The GI Capital usage was largely from the higher FY 2026 natural hazard allowance, that's net of lower reinsurance costs, business growth, and changes to the strategic asset allocation. Having completed the bank capital return in the first half, we've today announced the AUD 400 million buyback to be completed over the course of FY 2026, commencing in September.
As Steve has made the point, I'd also make the point that AUD 400 million is our estimate of what can be efficiently achieved over the 12-month period. Going forward, capital excess to our needs is expected to be returned to shareholders in the form of ongoing buybacks. I also note that we have a preference for managing capital in the top half of the range as opposed to really hard on the midpoint in order to optimize ongoing capital flexibility. I'd just like to quickly finish up by touching on the financial settings that we believe will drive long-term value creation at Suncorp. Firstly, we're committed to profitable and sustainable growth. We've demonstrated this in our disciplined approach to motor pricing, as well as our approach to the current softer rate cycle in commercial. We've got good growth opportunities across all of our portfolios, particularly in commercial.
Our focus on platform modernization and operational transformation is designed to deliver leading customer experience and competitive pricing, both to drive growth. Secondly, we deliver strong and resilient risk-adjusted returns. Our Underlying ITR targets now include even more resilience to natural hazard risk, as well as the inclusion of a sustainable investment program to support our growth aspirations and significantly reduced reliance on prior year reserve releases. Thirdly, we have a disciplined approach to capital management, as evidenced by the bank sale capital return being the same amount as committed to back in June 2022, today's announcement of the AUD 400 million buyback for FY 2026, and our long-term shareholder value approach to the FY 2026 reinsurance renewal. Finally, we have a strong and well-managed balance sheet, providing significant flexibility. We maintain an appropriately high-quality investment portfolio, a comprehensive reinsurance program, and a very robust capital position and target framework.
We continue to believe this is a compelling framework for Sunc to deliver superior shareholder value. With that, I'll hand you back to Steve.
Thank you, Jeremy. To the next slide, this is one that's titled Our Transformation Journey. Five years ago, we reset our strategy, and we had a series of investor days in 2021. We set an ambition to build a simplified, resilient, and growing Suncorp that importantly delivers for all of our stakeholders. This slide is a summary of our progress over the past five years against those four key objectives. It's reasonably self-explanatory. The sale of Asteron Life in New Zealand brings to an end the simplification journey and has seen the emergence of Suncorp as a pure play insurer. Given the complexities, the simplification program alone would constitute a significant achievement. However, alongside simplification, we have built significant resilience into our BAU financial metrics. We are now consistently delivering margin to the top of our guidance range.
As Jeremy pointed out, with that margin inclusive of a material reset in natural hazard allowances and record investment in the business, with the key programs of work that will completely transform this organization captured in the middle of the slide. With the simplification complete, our business financially resilient, and the platform build well underway, the question inevitably turns to what's next. Let me start with some high-level strategic principles. We see ourselves as a skilled manufacturer of risk products with superior underwriting capabilities that are enhanced by technology. Hence, our bias is to leverage that capability for our shareholders rather than the shareholders of others in the insurance value chain. That's not to say for a moment that we won't look for opportunities to utilize others' balance sheets where we can achieve superior returns on capital and reduce volatility.
I apply the caveat that anything fitting into this category has to be sustainable longer term and be with trusted counterparties. Our preference is for organic growth, albeit we recognize there may be opportunities to supplement our footprint as we move deeper into the current insurance cycle and as assets become more challenged. We will always retain a disciplined approach to our balance sheet and our capital levels. We'll always hold appropriate buffers. We'll pay at the midpoint of our payout range and using a perpetual buyback facility to return excess capital to shareholders, all along creating long-term shareholder value, which I've mapped in the middle of the slide. Now, to the right of the slide, I've given you our five key differentiators, which I'll talk briefly about now ahead of an investor day in late October, where we'll cover them in a lot more detail.
In distribution, our multi-brand strategy remains a key differentiator, and it allows us to access a broader customer base than any of our market competitors. We'll continue to optimize our brand reach and market segmentation. We'll reduce brand overlap, and we'll specifically focus on geographies where we see material growth opportunities or where inorganic activity is disrupting current customer flows. Digital remains our preferred method for routine sales, service, and claims lodgement. However, as we build out our platforms and we continue to invest in AI, we see a great opportunity for straight-through processing and fulfillment of more complex processes with limited, to no, human intervention. At the core of our strategy is our platform modernization and operational transformation programs of work. Platform modernization is the single most important investment in Suncorp's future.
Started with data, which is now fully cloud-based across Australia and New Zealand, our broader public cloud footprint now represents 93% of all technology workloads, which enabled us to completely exit our legacy data centers over the course of the past year. We then moved to pricing, which is now in place across Australian home and motor and is soon to be deployed across the Vero and New Zealand business. Our multi-year investment in policy administration is the centerpiece of any modern insurance platform. We'll have more to say about this at investor day, having already gone live with Duck Creek PAS in our New Zealand JV partner AAI, and we're now deepened in delivery across our AAMI brand in Australia. I'm pleased to say that what we've already seen in AAI has reinforced our business case and the benefits that we expect will be realized over time.
At the heart of our operational transformation has been the emergence of AI. It works hand-in-glove with our digitization, automation, partnering, and best-in-claims programs to deliver business improvements, but importantly, through the lens of the customer. That's because we know that if we improve and automate processes, we use AI tools to do so, we will have the dual effect of improving customer outcomes and making our business more efficient. At our last investor day, we described our adoption of AI through a mix of firstly third-party AI utilities, also AI capabilities that are embedded in our core system, new core system build, and finally, our own deep AI capability and the partnerships that we've built. Now, almost 12 months on, and the program of work is really taking shape.
As you can see from the slide, we already have over 100 AI and machine learning models currently in production, with many new AI use cases planned to be progressively rolled out and finding their way into our business over the next 12 months. As I said, we'll update you on all of this in a lot, lot more detail at our investor day in late October. Finally, before we move to Q&A, I'd like to briefly turn to the outlook. Gross written premium growth is expected to be in the mid-single digits as pricing moderates in line with easing inflationary pressures in some portfolios. The underlying ITR is expected to be in the top half of the 10%- 12% range, but that's inclusive of the additional resilience buffer that we've incorporated into the natural hazard allowance.
Prior year reserve releases in compulsory third party insurance are expected to be around 0.3% of group net insurance revenue. The operating expense ratio is expected to be broadly in line with FY 2025, with an increasing proportion of that expense base allocated to growing the business. Finally, we'll maintain our disciplined approach to the balance sheet, targeting a payout ratio at the midpoint of the 60%- 80% range of cash earnings, weighted as we usually do to the second half of the financial year. The announced buyback will proceed through FY 2026. As we pointed out, the AUD 400 million reflects the maximum practically possible given trading blackouts and daily volumes. However, given our pro forma capital position, post the buyback remains very strong and, always subject to any extraordinary events, we would expect the buyback facility to continue into FY 2027. With that, we'll move to Q&A.
Morning, Kieren Chidgey from UBS. A couple of questions, maybe just starting back on slide 11. Just interested in the different quarterly trends that played out in home and motor through the half. Can you discuss in a little bit more detail what actually occurred in third quarter? I think you mentioned changes to pricing and marketing that were implemented during fourth quarter and maybe at the end of third quarter. Was it a change in your willingness to accept slightly lower pricing or moderate a little bit, or have you seen the competitive backdrop change a little bit as we move through fourth quarter?
Why don't I make a few high-level comments? Jeremy can supplement them, of course, and then I wouldn't mind getting the CEOs up too, because the nuances in each of the portfolio are slightly different. The general thematic remains the same, and the word I would use is disciplined. Lisa, myself, Jeremy, and others have had a lot of experience in insurance, and what we know is that if you get behind on your pricing, it takes a long time to catch up. Through the course of Q2, we did see the inevitable moderation of inflationary factors, particularly in motor insurance. We saw availability of repair shops start to open up, but it was patchy. We saw the supply chain starting to loosen up a little bit and aggregate inflation starting to come down. We saw that, obviously.
The other point I'd make in insurance is we all do our reinsurance renewals at different times. If you're doing a 31 December renewal, you'll have line of sight to that probably through late November into December, and you'll get more confident about the trends that you're seeing in the portfolio. Ours is obviously the end of June. You'll always get this slightly different sort of interpretation between where inflation is. Our bias is to make sure that the inflationary factors that we're seeing are absolutely embedded and that they're at no risk of popping or blips occurring or something that we haven't seen. I make the point that insurance inflation is different to CPI. If you just proxy it to CPI, you can sometimes get caught up. We wanted to make sure that we had seen that embedded before we moved.
When we did get confident about that and when we started to get line of sight to our reinsurance renewal, obviously through January and February, we started to believe that we could adjust the pricing. Net of it all being that we wanted to make sure we were pricing ahead of inflation. We did move the portfolio, we moved the pricing, we increased the marketing. The most important factor that gives us a lot of confidence is that the portfolio responded exactly as we thought it would. You can see that in Q4, the volumes picked up and that trend has continued into FY 2026. I'd make the other point that's a high-level point is that we've got an incredibly diversified portfolio. If you look at our business through the prism of some of our competitors, we are different. We're a different composition in New Zealand. Our commercial business is fundamentally different.
We do have a compulsory third party insurance portfolio, which stretches across many jurisdictions, particularly into Queensland. We've been engaged with the Queensland Government very constructively around premium rates and the compulsory third party insurance scheme, and we're making very good progress there. I think, Kieren, that's a sort of high-level philosophical view. We're all involved in these decisions. Lisa takes primary accountability for it, and she does a fantastic job of understanding that. Our bias is to be disciplined around price and volume, to see the inflation embedded in our business before and levels embedded in our business before we move pricing. I think that's the right way to do it because if we get on the wrong side of that, it takes a long time to catch up.
Lisa, do you want to quickly, just a few comments on home and motor, and then I'll get Michael and then Jimmy to come up?
Thanks, Steve, and good morning. I will touch a little bit more on growth. First, if I step back in terms of the consumer portfolio, we have margins within the target range, which I think is a really good position for us to be in. As you saw in terms of the chart on slide 11, we did have good growth in the first half, and that growth started to come off in the second half. Steve's given a very good explanation to that. Equally, what we did see also is fewer shoppers in the market in the second half. I'm sure anyone who has watched television or listened to the radio over the last six months would know there's been an increase in marketing activity in the insurance market, and in particular for home and motor.
Importantly, as Steve said, we have been really prudent in terms of making sure that we saw those input costs sustainably come down before taking pricing action. You see a difference between Q3 and Q4 in the half as well. As Steve touched on, we deployed additional marketing. Also, once we were confident around the moderating inflation in motor, some pricing changes. We've started to see improved momentum. Whilst it's only five weeks of this financial year, importantly, we're seeing that momentum continue, which is good to see.
Mike's off. Can I just follow up? I mean, the inflation commentary on motor is clear, but I think one of your slides shows home up year on year again in 2025. Do you just mind giving you a little bit of color around the momentum in home inflation through the course of the year in the second half?
Yeah, absolutely. In terms of home inflation for 2025, obviously, natural hazard allowance went up. That's a driver of that. The other input costs are working claims inflation. We did see water and fire in particular. In terms of fire, we saw just severity. In terms of water, a little bit of frequency and severity play through, and that's been an input. We do expect that to persist. We have pricing in play for that. We're working closely with our supply chain to see if there are any other opportunities to help moderate that inflation. For now, we believe that will persist. Also, reinsurance is obviously a significant input to that.
Okay, Kim. Thanks, Lisa. Michael, do you want to?
Yeah, thanks, Steve. Look, in the context of New Zealand, if I look at the commercial business first, we're seeing quite a bit of pressure and softness in the commercial market around non-buys, high retention points, foreign capital. In the first half, rather than the second, we've had to respond to that in terms of retaining the risk at expiring terms and trying to get the price that we want to get, beyond which would be unreasonable. It's very much a discipline around getting the right target price for the risk that we want on the commercial. That's why you're seeing that sort of half and half. On the direct side, particularly around the motor business, we did see quite a drop-off in sums insured in the second half of last year. Equally, we have responded.
We did see quite a bit of competition coming in in the first half that we responded to in the second half around pricing to make sure that we were still trying to grow that new business, those units. What you'll see in the pack is that we have unit growth and we will continue to have unit growth in both the motor and the home space. We mentioned earlier about the Duck Creek in AA Insurance. We're seeing real benefits now coming through on that in terms of not just experience for customers in terms of turnaround times for quotes, but also efficiencies at the front end in terms of call center. We're expecting that that will be the catalyst for the growth, particularly in the AA business, home and motor, over the 2026-year period.
Okay, Mike.
Thanks, Steve. Hello everyone. For commercial and personal injury, I guess back to Steve and Jeremy's point, it's around diversification, not only in terms of product set, but also market segment. Particularly in commercial, you've got your top-end corporate going right down to micro SME. We're primarily a mid-market SME insuring the corporates on the commercial side. That's important to keep in mind. If we look at the portfolio, there's probably four parts: compulsory third party, workers' compensation, the platform business, which is connectivity for commercial products, and also the tattered lines business. Within CTP, the two largest portfolios are New South Wales and Queensland. As Steve said, in New South Wales, you've got a 12% price increase going through from January and probably another price increase coming through in the next few months. A wide disparity in prices in New South Wales, which is unusual.
It depends on how the competitors react, but you can see the price flowing through that book. It's about margin remediation. In Queensland, we've talked about Queensland for the last 18 months. A lot of discourse with the Queensland government, very constructive. We've got AUD 7 flowing through that book right now in terms of price increase, and we expect another price increase from October, which hasn't been announced. That will basically make that scheme sustainable. There's still further work to be done, but much more comfortable with that scheme now after talking to the government in a very constructive manner. In workers' compensation, we grew about 5%. Workers' compensation in Australia is mainly about WA. It's very strong. I think system in WA is probably about 8%. We've probably lost some market share in workers' compensation.
The reason for that is it's around margin, just trying to make sure we get the right accounts. We lost a couple of large accounts on price, and I think that's the right idea. Going forward, I expect system to be again mid-single digits, if not more. We should get some market share back in WA. Platform business grew about 11% for the year. Key strategy, connect to broker platforms. That's the way of the future. Mainly, it's the SME packages area. Our growth there will come back a little bit over the next 12 months because, again, the margins aren't quite where they need to be. We'll put some more price through there. Still confident that strategy is going to work very well. The big one there is tattered lines. I think very similar trends to what you've heard elsewhere. That top-end corporate property has been under pressure.
We've probably lost about AUD 30 million-AUD 40 million in business there. We have walked away based on price. Otherwise, it's holding up fairly well, particularly in that motor book with the underlying inflation coming through. In the second half, you'll see, although overall we grew about 5% for the year, it came back to about 1.5% growth that second half. I think if I look at where competition is, I look at what's going on, I think we're in a good position. We are launching new products in that area. The Vero specialty lines coming through, launched three products in the March-April period. We're launching more products next year. I'm very confident that we've got the right proposition for brokers there. Hopefully it gives you a good feel for the diversification and the nuances of each of those portfolios, which is very different.
Thank you.
Jeremy, just before Kieren, Jeremy, anything you wanted to add to that?
The only thing I would add is, I think it covers it pretty well, is just in home. I think you'll see in home over the course of the year, our market share's pretty much held. In fact, we might have even got a little bit. The unit growth, system unit growth in home has been a little bit softer. Relative to market, we haven't done too badly on home.
I'm sure you've got a follow-up question to all of that.
Yeah,
Kieran.
I'll move on to the second question. Just sort of more at a high level, and maybe it's one for Jeremy. You've talked to not changing the 10%- 12% underlying ITR margin target over the last couple of years because it produces a very strong, healthy return on tangible equity, you know, and potentially open yourselves up to more competitive risk if you push it higher. We're now kind of seeing that sustained, obviously taking more adequacy through the cap budget. Your risk of reported margins being stronger and actual return on tangible equity going up. It does feel like that's changed a little bit. Just interested in your thinking around your ability to kind of dial up conservatism and still make sure you're not losing market share and still able to generate good organic growth.
Yeah.
I'd like to just make some high-level comments and Jeremy can fill in the gaps. I think obviously we had quite a favorable reinsurance renewal. We were able to quite deliberately categorize that the market would get, but that we would get simply because of our size and scale. We believe that there was a rate-online benefit that we got relative to the rest of the market. The point is very obvious. You could do a number of things with that should you choose to. You could take it through to profit and to margin. You could recycle all of it to growth, keep your margin targets where they are, and recycle it to growth. Our bias was to use that synergy, that benefit that we got to improve the resilience of the allowance.
Still deliver these high-quality returns, but even higher quality with the resilience that we're building into the margin. All of those options are all viable. I think it gives, I think our investors' confidence that when we print a margin in the 10%- 12% range, particularly if it's towards the top end, then the resilience is embedded in that. Of course, we may be depressing slightly the Underlying ITR by doing that. To the extent that the actuals fall below the allowance, then the benefit goes to the reported ITR. The reported ITR is cash earnings, is dividend to our shareholders. That's the way we've thought about it. I accept that there's other ways you could think about it. Building that resilience, the fundamental financial resilience into our business has been a critical story, part of our story for the past five years.
We think it's worked well and we should continue with it within an appropriate boundary.
I'll just add that, you know, we continue to think that the returns in that top half of the range are very attractive relative to the risk profile of the business. We think that, you know, from an investor perspective, adding continued add quality into those earnings is a really important feature. We've taken the opportunity to do that. I'll just add to Steve's comment on the reinsurance that there were two sort of series of benefits for us really. One was rate online relative to the rest of the market. We need to be confident around that there is some gap there as we deploy our scale into the purchasing process. Also we've changed the structure of the program. The risk retention is pretty much the same.
In fact, it might have actually improved modestly. The risk retention is very similar, but at a significantly lower cost. We've got a much more efficient, effective reinsurance program. We're able to deploy that benefit into it as well.
Hi, Freya Kong from Bank of America. Just following up on the natural hazard allowance. The growth was 13%. How much of this is exposure growth versus less reinsurance costs versus prudence? Could you just break it down for us?
This is for FY
2026.
FY 2026.
Half of it is exposure. None of it's reinsurance. The changes we made to reinsurance didn't impact capital or risk or natural hazards. There's some quota share runoff that does come through. Half of that increase, the AUD 200 million increase, is basically exposure and inflation. The other half, that's sort of 100% to 100%. The other half is just pure increase in sufficiency.
Thanks. Just a question on the recent reinsurance renewals as well. What was the thinking behind retaining a similar sort of retention level when prices are falling? A lot of your peers in the market seem to be increasing reinsurance because the prices are lower. Do the conclusions of the big strategic review therefore now rule out any major reinsurance changes in the next few years, or would you rather maintain flexibility?
Yeah, look, I think the really important point to get across on reinsurance is that it is a bifurcated market nearly. Absolutely, main cap covers a very constructive market. Prices did reduce. There's a lot of capacity, a lot of interest, a lot of appetite, et cetera. We benefited from that. We did benefit from that. That's an element I spoke about in terms of that improved outcome there. In order to reduce the retention, offlay more risk, we're then getting into the aggregate cover part of the market effectively. That part of the market for us sits below the AUD 350 million exposure. That part of the market is quite different. It is more constrained, more limited counterparties, less appetite. In our view, very expensive. The capacity has increased a little bit.
There are a few more players interested, et cetera, but it hasn't fundamentally changed the level of attractiveness for us for that market. It comes down to pretty simple economics around it. In terms of the future, we're open-minded to all things reinsurance. We'll continue to explore all things reinsurance, but our framework that I outlined around optimizing capital, importantly relative to our cost of equity, and optimizing it for volatility for long-term shareholder value creation, will stay the same. If opportunities to deploy more reinsurance fall within that framework, we'd absolutely look to deploy them. If rates do continue to soften, as we expect they might, that may well lead to some future opportunities as well.
I just wanted to add quickly, I mean, make the point very clearly that there is no philosophical objection to any of these mechanisms. The ability for us to leverage others' balance sheet to our benefit is always going to be part of our annual reinsurance discussion. Either at the board or at management or anywhere else, we're not philosophically opposed. We just need to see it work constructively for our shareholders.
Okay, thanks. Just one more on capital. I think the CET1 ratio post-buyback is 1.06. Can we take this as a sign that you're willing and comfortable to move to the lower end of the target range?
The CET1 post-buyback at the group level will be well above the 1.06. It'll still be towards the top end of the range, slightly above the top end of the range, which is, you know, 1.35. You might have the GI Capital ratio, the group ratio, we will still be above the top end of the range post the buyback. To the point we made a couple of times, part of the reason for the buyback is about the maximum amount we can do in a 12-month period anyway.
Michelle.
Michelle Leong, Australian Ethical. Can you please let us know, I know you want to target organic growth, but there have been a couple of inorganic opportunities that a peer has taken. Did you look at those opportunities and are you able to comment as to why that didn't suit your profile?
I can confirm you would expect us to look at those opportunities. I've got a very good investment banking panel who will always bring these things to us. We did look at them. I'm not going to go into the pros and the cons of what we saw and what we otherwise put into our decision-making. They weren't appropriate for us. We didn't feel that they were critical enough to embark upon. As I mentioned in my presentation, our bias is to organic growth. That doesn't mean where assets can, like the reinsurance discussion we have, we're not philosophically opposed to doing something in an inorganic sense, but it has to reach a number of different thresholds.
Having seen those acquisitions play out, knowing where they're going to be playing out, I think our process now is to build our firepower and direct our firepower into those areas where those assets are being managed within the portfolios that they're moving to and see if there's opportunities for us to grow organically out of what inevitably will be some disruption. I'm not going to go into the reasons why we did or didn't, we certainly did have a look at why we didn't participate, but we think we've got huge opportunity organically. We're in the middle of a big core system redesign. We've got AI opportunities that are available to us right across the business, and that's our focus at the moment.
Thank you. Should we expect if the environment turns competitive that you would act like you did in the third quarter, maintain your margins, and potentially reduce your GWP growth guidance if that was to happen?
Obviously, you know, we disclose as would be appropriate at the time. You know, we've done a lot of work on our, obviously, our forecasting and our outlook. Our philosophy is obviously to manage price and volume to maintain margin, but to get appropriate level of growth across the portfolio. I think we've got, as I mentioned, we've got the distribution firepower through our multi-brand strategy, the bias that we have to digital, but also the efficiencies that we're seeing coming through the business to be able to offset the competitive dynamic, grow sustainably within line with system or slightly ahead in some portfolios, but maintain that margin outlook at the top end of the range. We've got all the tools we need. I wouldn't anticipate that outcome.
Again, I make the point constructively that we will always focus on making sure that we're covering the costs of inflation with our pricing and that we're maintaining the margin that we believe is appropriate across the portfolio. Okay, we might go to the phones.
Thank you, Steve. 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 speaker phone, please pick up the handset to ask your question. Your first question comes from Julian Braganza from Goldman Sachs. Please go ahead.
Good morning, guys. Thanks so much for taking our question. Just a first question on the reinsurance renewal. Can you maybe just talk about the nature of the profit share arrangement that's been structured over three years? Also, what's been factored in your guidance for profit sharing that could be earned? Just getting to understand how that's bringing up in your numbers.
It is formed as an expectation of multi-year. There is a profit sharing. Obviously, there's commercial sensitivity around the exact details of it, but upfront premium with an expectation of profit commission. There is an expectation of profit commission. As we set our Natural Hazard allowance on an expected basis, yes, we would expect in an ordinary course of events to get the profit commission or to at least get some profit commission on that arrangement. We have factored some of that into the Underlying ITR outlook, as you'd expect, but it's a pretty modest amount.
Okay, approximately how much would that be? Is it AUD 10 billion or is it?
I just think we'd leave it for the moment at a modest amount. Yeah, it's modest. It's not a material, you know, driver to the Underlying ITR outlook.
Okay, that's clear. Maybe just to help us understand the resilience, when would theoretically be the kind of best estimate to balance, or what would your function have been had you adopted a best estimate of the allowance? How should we think about that?
Sure, I didn't, maybe if you could just repeat that, Julian, I didn't quite get it.
Yeah, just to understand the sales budget and how much resilience has been built into it. If you were to take a more 50/50 kind of view on your sales budget in terms of sufficient needs, where would that have kind of landed, and what would your margin for 2026 have been had you taken a more set limits view of sales budget for 2020?
I think the question is how much is the resilience buffer impacting upon margin. If we hadn't put the resilience buffer in, what would the margin have been?
Thanks, Julian.
Thanks, Julian. Sorry, the line's not great. I just said before that the additional resilience that we've put into the natural hazard allowance beyond what we would have ordinarily done is about AUD 100 million. I think there's a sort of a neat little picture in the analyst slide presentation that shows where we expect the FY 2026 margin to be, which is in the top half of the range. If you were to simply add AUD 100 million onto that back into that Underlying ITR, that would be where we would have arrived at in terms of Underlying ITR without the added sufficiency. It would have been well comfortably above 12%.
Got it. That's super clear. Just a question on the volume growth. Just getting to understand the sustainability of the volume growth that's coming through in the fourth quarter, and just contextualizing that into what may have been assumed in guidance. Just noting that you're kind of starting to reinvest some bargain or some of the reinsurance benefits in price. We just want to understand where is the sort of sustainable level of volumes and what that could look like in 2026.
Yeah, look, you know, conscious that the second half, we obviously don't report across the portfolio by quarter, but the second half growth was across the portfolio 3% or 4%. We guide into that mid-single digit number. The team's just been through where each of the portfolios sit. I think, you know, across the board, we feel pretty confident that that is the right outlook for us. In the consumer portfolios, we do expect to continue to see rate going through those portfolios. It's going through home in response to that fire and water, for example, in response to some of that natural hazard allowance, albeit with some offset from reinsurance. We continue to expect to see rate needing to go through home. I spoke about home margins needing to remediate to the target range. In motor, a different story. Margins are above where we need them to be.
We would expect to get some unit growth come back into motor. We're starting to see that in Q4 and into the first five weeks of FY 2026. In New Zealand, you know, they started the cycle a bit earlier. At some point, we would expect that cycle to reach bottom. We'll expect to see some turnaround in New Zealand. Also, some turnaround in consumer, particularly in the AA portfolio and unit growth there. Now we've seen the price changes. We've got the benefits of the digital policy admin system coming in. Then, as Michael said, in the commercial portfolios, we've got rate coming through, very clear rate now coming through compulsory third party insurance portfolios, which, by the way, has been a reasonably significant depressor of our margin in FY 2025, that should come back.
We've got the benefits of the investment we've made in Vira specialty lines coming through, as well as various rate coming through other parts of the portfolio.
Okay, now that's clear. Just one last question, Stephanie. In terms of, Steve, you mentioned the potential for M&A if there is a sort of stressed asset, given the rate environment. Just strategically talk down, where would that be? Is that to accelerate your commercial growth strategy? I know you mentioned that would be organic, but where would that, how should we think about that?
Look, I wouldn't rule anything out, obviously, but you know, given the nature of the market shares that we've got in these portfolios, you would expect the priority to be commercial New Zealand, then consumer.
Perfect. Thanks so much guys . Much appreciated.
Thank you. Your next question comes from Simon Fitzgerald from Jefferies. Please go ahead.
Hi there. Just to begin with, Steve, I know that you touched on, we're going to talk about this at the upcoming investor day, but I just wanted to get a little bit more clarity if you had any early anecdotes. I think last time you talked about getting greater data clarity to more discriminately price for risk at a more micro level. I was just wondering, with the work that you've done thus far, how you're sort of feeling that will pan out and what sort of early anecdotes you might have on that?
I'm going to get Adam Bennett to come up, our CIO , who's obviously got a good line of sight to some of the things that, both through his position on the board of AAI in terms of both the platform modernization, the Duck Creek deployment there, but also, you know, some of the benefits of AI that we've already seen through the deployment of the hundred-odd use cases that we've got in place, without sort of going all the way down the path of what we'll talk about at investor day.
Yeah, thanks, Simon, for the question. At the investor update we gave in November last year, kind of talked quite broadly about the two pillars of our strategy around platform modernization and AI, and particularly the impact on our transformation agenda across the operations. We started with the New Zealand joint venture AA Insurance, and back in April, we launched our new digital insurer platform. We talk about the policy admin system, but it was a lot more than that. It was a new pricing capability, new digital front ends, and kind of integration into the broader ecosystem. We've started to see some early benefits from that already in AI, as Jimmy and Steve talked to. We've seen better strike rates in our digital channels for sales of Motor and Home. We've seen almost an elimination of manual underwriting referrals in the business, so they're all automated.
The speed to competency for our contact center staff is a lot quicker, and just broad efficiencies across the business. That kind of gives us some early indications of the opportunities that we see. New Zealand also moving to more risk-based pricing across their portfolios in that direct consumer business. That's the kind of the foundations that we've built already, and we develop on that as we take that capability into our Australian consumer businesses and then incrementally across the other portfolios over time. That's a little bit of color on the platform agenda. On AI, we have a few data points in the presentation that Steve gave. We're starting to scale out those use cases across many different parts of the enterprise.
Again, we start with the customer outcomes as the first and foremost agenda that we're driving there, but we are seeing improvements in productivity and efficiency as we roll those out and just starting to see the momentum of that grow quite significantly as we look to the future. That's a quick set of highlights, Steve. Thanks, Simon.
Great. Just one more question, just around the mark to markets, Jeremy. Specifically, contact the sensitivities that are disclosed in the investor pack and apply them to the ending value of the portfolio. Just at AUD 152 million, if I look at the 82 basis point change on the three-year risk-free rate at the AUD 2.7 million mark, it should be closer to AUD 220 million. I understand that doesn't include New Zealand, it's just the AU business, but just wanted any comments there.
Yeah, I mean, there's a couple of facets to that. The sensitivities are parallel shift and they are pointed to a specific duration. Obviously, the actual duration of the portfolio is a little bit different. They're there as an approximate guide. As an approximate guide, they should hold, but maybe we can sort of get into a bit more detail offline on that.
Sounds good. Thank you.
Thank you. Your next question comes from Siddarth Parameswaran from JP Morgan. Please go ahead.
Good morning, gentlemen. A couple of questions if I can. I was hoping to just ask about the inflation environment that you're seeing and your assumptions around inflation into next year. I think you do make the comment that you're seeing moderating inflation, but your charts do suggest at least home cost inflation is rising. Motor is moderating. Maybe if you could just put some numbers to what you're seeing in Australia, in the commercial business, and also in New Zealand, and what you're expecting going forward.
I might just talk to the facts again, Jeremy, to put some directional guidance around it. Obviously, as I talked about in, I think, Kieren's question earlier, the motor dynamic is very much one of supply chain availability and repair shop labor capacity, and that's freed up quite materially over the past 6 to 12 months for the whole industry. That's driving, alongside the competitive market, the reductions in Motor, which are to be expected. On the Home side, the macro factors, obviously, you've got the reinsurance cost coming down, replaced somewhat by the Natural Hazard increase that we're putting through the portfolio. Then the fire, lithium battery-inspired fire claims, all severity, and then the water. As I mentioned, we've got a home repair business.
We've sent that out on a broad-based trial across Australia in terms of 1,800-odd properties to understand the quality of the flexi piping in those homes. We found that up to 30% of the homes that we inspected had somewhat deficient flexi piping that needed to be repaired, and then also issues with water pressure, which obviously goes to the potential for those pipes to burst. We're also predicting very clearly that, based off some of the government research, it'll be 33-odd individual lithium batteries on average in every Australian home by next year. Obviously, as the government subsidies for the in-home batteries off the back of the solar panels start to roll out, there'll be more. We are seeing in terms of water, escape of liquids, higher frequency, and then higher claims cost. That sits alongside some of the factors of the way that buildings are constructed, homes.
Attracted open plan living, et cetera. On the lithium battery elements of home fire severity, you're seeing the lithium batteries create an accelerant for larger scale damage, which, you know, these are issues that we can price for and we are pricing for, but they're issues that I call out industry-wide, but I do call out as being factors that we really need as an industry to raise awareness of in consumer and the consumer dialect to make sure that they're understood and that, you know, insurance is one element of this, but safety is another one. They're the high-level comments.
Yeah, just to put some dimension around it, for home, inflation last year was in the higher single digits, and obviously that's off the back of what Steve's spoken about with the fire and water. Equally, we had a reasonably large increase in Natural Hazard allowance last year as well in home. It's high single digits. We'd expect that to come down to lower than that in FY 2026. Similar trends around the pricing around fire and water. Natural Hazard allowance has obviously gone up, but we've had quite a significant benefit coming through reinsurance. Having said that, from a price perspective, we still need to make sure that home gets back to within its target margin ranges, having had that fire and water experience. In Motor, inflation last year, cost per policy was running in that mid-single digit, slightly above the midpoint of the mid-single digits.
That's just inflation in the repair chain that has moderated quite significantly, but we have seen some price increases in parts and paints, probably less so labor. We'd expect the inflation in motor to continue around that mid-single digit for outlook.
Commercial?
Commercial's more, you know, in a sort of large loss space, and it's been reasonably benign in commercial and obviously in CTP. The issue in compulsory third party insurance has really been around New South Wales and Queensland loss ratios for us, both of which we think are somewhat industry-related. You know, the important thing with those gains is that we're now getting price through to respond to that.
Sorry, the other question was just on New Zealand because we've seen some sharp drops in GWP in the second half. I was just wondering what's happening on inflation pricing and what you're assuming for next year.
I'm sorry to see the New Zealand. New Zealand consumer inflation is reasonably benign. You know, we're sort of talking in that low single digit number for inflation across Home and Motor. Commercial's been reasonably benign as well. We'd expect that trend to continue into FY 2026.
The only other dynamic set in New Zealand is that obviously it's, you know, we write different business in New Zealand than we do in Australia. We do write, you know, significantly higher up the commercial stack than we do in Australia. When you find you do that, and particularly if you're underwriting and insuring some government assets, government infrastructure assets, in an environment of significant increased pricing, you often find that the capacity of governments and others to take some of the risk back on their own balance sheet is more amplified. We have seen that dynamic as well in terms of foreign capital coming in, creating a competitive environment at the top end, but also those risk enforcers at the top end choosing to take more of the risk back to their own balance sheet.
Yeah, okay, that's very helpful. Thank you. Just one final question on New Zealand, where, as I mentioned, it does seem like the second half was quite weak in terms of premium growth. I mean, you flagged it as commercial that is a bit driver. Just the turnaround you're expecting into FY 2026, it does seem like if you're assuming mid-single digit GWP growth for the group, there must be a reasonable contribution from New Zealand. Are there any signs of, can you help us, I suppose, understand some of the signs of a turnaround that you expect either on units or on prices?
Yeah, I mean, I might start, and Jeremy, if Jimmy mess it up, you can come up and clean it up. On the AAI business, obviously that is a powerhouse. It's a powerhouse across, you know, almost every dimension you look at from net promoter scores all the way through to, you know, unit count and otherwise in the New Zealand market. We did put the Duck Creek policy administration systems into AAI during the second half of this financial year. Inevitably, when you put a new core system in, you just have to slow the engine down for a period of time while you go through that process. That's all done now. We're through the back of that, and we're seeing the unit count start to normalize back to, you know, pre-deployment levels as one factor.
Yeah, I mean, look, it's a story of the two portfolios, consumer and commercial. The commercial portfolio is very diversified for us and operates, has different dynamics across different components of it. We did have a negative, as you can see in the pack, growth number for New Zealand in the second half. In terms of the context of that mid-single digit growth for the group for FY 2026, we're expecting New Zealand to return to reasonably low single digits. We're not expecting a massive growth outcome for New Zealand in FY 2026. We're expecting a slightly flatter outcome in commercial and an improved unit count in motor, particularly through the AA portfolio under FY 2026 off the back of that DI implementation and the moderation in inflation and pricing changes that have already been made.
Right, Jim, here's your chance to upgrade your outlook.
Here's my chance to stuff it up. No, look, in addition to all of that, I guess I think I mentioned earlier that we did see at a market level a drop in sums insured for vehicles in the second half. That obviously goes to premium as well. There was more competition coming in, certainly off the back of the price increases we put in 12 months, 18 months ago. A lot of the local competitors starting to re-price, and we had to be very attuned to that to make sure that we're not losing new business and we're retaining good risk. That's another factor in the consumer side. On the commercial side, as I said earlier, the premium impact, higher retention points, non-buys, foreign capital. Our response to that is make sure that we want to renew the risks at the expiring terms and hopefully at the expiring price.
If we have to adjust price within our margin tolerance, then we will, which will impact, which did impact premium in the second half. The outlook for 2026 on consumer, it's still to grow units. We still see opportunity to grow units in New Zealand on the commercial book, both in motor and home across direct and intermediated with the pricing in line with inflation and of course indexation coming through. On the commercial front, you know, we write through the full stack of commercial, specialty lines, liability, corporate, marine, then mid-market, rural, CMV, and all of those portfolios respond differently to the segments that they're in, whether it be construction, which is deflated, agriculture is growing. They'll all have a different profile relevant to that market in terms of margin and growth. Net net overall for commercial, reasonably flat.
The only thing I'll pick up on the inflation side of things that correctly said, when you look at corporate high in a ton, AUD 100 million assets and above, when you look at inflation outlook and it's depressed, that depresses the property replacement values as well, which then goes to premium. That's the other factor that we look at when we renew corporate property prices in terms of the forward outlook on valuations.
Okay, thank you so much.
Thank you. Your next question comes from Nigel Pettaway from Citi. Please go ahead.
Good morning, guys. First of all, it's good maybe just to say you've given us a low single digit for New Zealand. Just breaking up the mid-single digit GWP growth for the group as a whole, obviously you've flagged the significant CTP price rises in commercial. Are we expecting slightly higher in the mid-single digits in commercial and slightly lower in consumer? Is that an accurate representation or how does it break up?
I think it's sort of slightly above the mid-single digits in consumer, which is sort of on track with what we've been doing in home. The trajectory in home would very much support that. We are expecting a little bit more unit count in Motor. Again, the trajectory we've seen in Q4 and the five weeks so far would support that. In commercial, we're saying a little bit above the midpoint of the mid-single digits as well. A lot of that's driven out of the expectation that those parts of the market that have been under pressure around commercial property insurance and financial lines will continue. We are expecting obviously improved outcomes from CTP . CTP insurance is a reasonable component of our gross written premium base in commercial. Those other attributes we spoke about, things like growth and Vero specialty lines.
If we go any further, Nigel, we'll have to give you our budget. We'll just draw a line there if we can.
Okay, fair enough. Okay, so maybe just focusing a little bit on CTP insurance. I mean, obviously the frequency in New South Wales has continued. Have you got any closer to the underlying cause of that in terms of increased New South Wales CTP claims frequency?
I'm going to get Michael to come up because I'm not sure that I can nail the answer. We've been trying to work our way through. I've got a few theses about it, but I best hold them to myself and let Michael, like Michael.
Thank you for that. Nigel, it's a long-tail scheme. What we do know is that frequency for the scheme is up, and we can see that. We can see some common law coming through as well. There is no, we can't see any one causal link. I think the scheme has reacted, whether it is advertising, whether it is the propensity to claims increase from advertising from lawyers and the like, I'm not sure. I know that it is a focus for the New South Wales regulator and for us. Hopefully that's helpful. In the short term, we've reacted very quickly on price. If you look at the price disparities at the moment, we've acted quite quickly compared to some of the competitors.
I would just add, Michael, that we're pretty confident it's an industry issue. We've seen others respond in pricing.
The other dynamic that's been coming through is that there were some scheme changes a couple of years ago that have extended benefit profile for claimants, and that's starting to come through the portfolio now as well.
Okay, and then maybe just finally, I mean, obviously you mentioned the AUD 100 million you built into the resilience in the catalyst. I mean, is that enough or do you think you'll be tempted to put away more if in future periods?
We think the extra AUD 100 million adds a significant amount of resilience to that natural hazard allowance. You'll see the numbers I put up there around the seven and 10 and four and five and the AUD 1.5 billion of surplus over the 10-year period, acknowledging that 10 years is not a full Natural Hazard cycle, of course. We're pretty confident around that level of resilience. If the opportunity were to arise, we would never say no. I think we're pretty confident and comfortable around the level we've got at the moment.
Okay, great. Thank you.
Thank you. Your next question comes from Andrew Buncombe from Macquarie. Please go ahead.
Hi guys, thanks for taking my questions and congratulations on the result. Just the first one is in relation to capital. You've got AUD 250 million of debt expiring in December. You've got a strong capital position. Can you just give us some color around what your intentions would be for that as it expires? Would you intend to renew it or pay that down?
Thanks, Andrew. As you'd be aware, I think we're not really able to give views on what our intention is around those notes. I don't think our regulator would be very happy with that process. We're not able to do that. To say that our capital beyond the CET1 position, we still retain some of that stranded funding capital from the bank sale residual as well. We'd look to deploy capital efficiently across the group. Obviously, as well as the CET1 requirements, the Tier 2 and AT1 requirements will continue to grow as the business grows. We'll look to deploy all that capital efficiently, but unfortunately, I can't give you a specific view around what we'll do with notes that are coming up for early redemption.
Yeah, second one, maybe a bigger picture strategy question. In the last 12 to 18 months, we've spent a lot more time talking about your aspirations for growth in the commercial business division. Over the last 6 to 12 months, as the premium rate cycle has continued to soften, I'm just interested in how you think about that strategy over the medium term, given what's happening with the cycle. Thanks.
Yeah, I mean, Michael, you might want to come up as well. Look, you know, we are incredibly excited about the performance of our commercial insurance business. Michael and the team's leadership of it, I think the discipline that you've seen from us in the commercial space for the past five or six years has put us entering this cycle in an incredibly strong position with margins ahead of target. That gives us a huge buffer as we work our way through this part of the cycle. In addition to that, the team have also developed a range of new products that I think we've already introduced to the market to good effect.
The business is so well placed in terms of the broker, the Vero broker positioning, also the claims processes that sit behind it, which we've won consecutive Mansfield Awards, I think five or six years in a row. I think, and why I put commercial at the top of the queue in terms of any inorganic activity, I think, you know, we have a 9% market share, I think now, an aspiration to grow that business both organically and potentially inorganically over time. I just believe that as this cycle starts to work its way through, at any point from halfway through the cycle through to its full conclusion, there will be opportunities that will emerge. I think this business is in pretty good shape to at least consider those opportunities and put our framework around that to good test.
Thank you. Just a couple of comments to add to it. Clear aspiration to grow commercial, but we're very cognizant that we need to be disciplined. The worst thing you can do is try and grow a commercial business into a soft market. I say at the beginning, but it's a long-term proposition. The fundamentals are technology and people. Specialization is so important in commercial. It's around product breadth, having really good underwriters, knowing what they do really well. We've invested heavily in our people. The technology stack that's coming through for commercial will give us a huge leap, and that'll be over the next couple of years. We are all old technology at the moment. Very excited by that and AI as well. The big thing there is around our customers and our brokers. Our proposition has to be first class.
Our NPS has been increasing over the last couple of years. If I hark back to the investor day last year, you saw that graph. I'm very, very proud of it. Steve, I'm sure you know, it's six Mansfields we've won in a row for our claims service. We're very proud of that because that is, stick with the brokers. They do that time and time again. You get that working really well. It plays to our proposition. I think that focus on that community and the broker partners is a big part of it. Connectivity, our brokers are using platforms. We've got to connect to those, very strong on the technology side. Lastly, the new product, we want to break the product. We want to specialize. We want really good underwriters. We want to give our broker partners in Australia what they need and not go offshore.
I'm very confident that the groundwork's there, but you've got to pick your time as well, Andrew. I think that's really important.
Thank you. Great. Just the final one from me, maybe for Jeremy. You've increased the Hazards allowance again above the pace of volume growth. How should we be thinking about the half-on-half delta for the Underlying ITR driven by that Hazards allowance change? Thanks.
I think, Andrew, that we wouldn't expect to see that come through the half-on-half too much. The hazard allowance won't be perfectly phased 50/50 half-on-half, and I think you shouldn't see a first half, the usual first half, second half margin drag from that change.
Great. That's it from me. Thank you.
Thank you. Your final phone question comes from Andrei Stadnik from Morgan Stanley. Please go ahead.
Good morning. Can I ask my first question around customer use of deductibles and also trends in sum insured? Like you called out in New Zealand, saw lower sums insured in the second half. What are you seeing in Australia, in terms of sum insured and also in terms of how customers are using deductibles?
Yeah, Lisa's on her way up now.
Morning, Andrei. In terms of sum insured and excesses, I'll start with excesses first. We have continued to see customers choose a higher excess. It probably goes up about 10% year on year from our customers, and that's probably a little bit more in home than it is in motor. In terms of sum insured for the home portfolio, we obviously do put some sum insured inflation that we're seeing in the portfolio, and that automatically flows through on renewals unless our customers give us a call. One thing we have done throughout the year is invest in digital tools to enable our customers to look at things like what would happen with an excess change to their premium or a sum insured change. However, what I would say is we do have caps and collars on some of those sums insured as well.
Thank you. That's very helpful. My second question, kind of leaning in, would be my final question, leaning into that tech side as well. Can I just go back to that third quarter flow down in volumes? Apologies, losing my voice. In terms of the third quarter dip in volumes in consumer, can you talk a little bit about, you know, maybe which brands might have been impacted more relative to other brands? You mentioned that search, you know, Google search advertising spend with the sign of it increased in the fourth quarter. Was that one of the key drivers of the turnaround in the fourth quarter?
Look, I don't know that there's any particular brand that I would call out. I think it was broadly, I mean, we do price this portfolio in aggregate. We don't price specifically by brand. We use the multi-brand strategy to differentiate and segment as appropriate. I wouldn't call out, I mean, obviously New South Wales has been an incredibly competitive market and I think we've seen that. If there was a disproportionate or one brand that of course slightly ahead of others, it would be GIO in terms of some of the competitive pressures in New South Wales. I don't think you could isolate any one particular brand as being more impacted by it than any others. In terms of search engine marketing, it's a factor that we deployed proactively into Q4 to get some more momentum into the portfolio. It's one of the tools.
It's only one of the tools. Obviously, once we felt that we had established a reasonable platform for where inflation was heading, once we got line of sight to our reinsurance renewal, which we did obviously through February and March, that gave us a lot more confidence as to where inflation was tracking and gave us an ability to reset the pricing. Pricing is obviously a tool. Digital is also a tool. Obviously, search engine optimization and marketing is the third string to the bow. I think, Kieran, you had a final question in the room here.
Yeah, thanks. Just a final question on the investment portfolio. You flagged a strategic asset allocation review. I've seen ILB carries, I think, probably in the second half, inch negative. You've trimmed exposure there. How meaningful will the asset shift be? Are there any impacts on PCA as you trim ILB? What's your outlook for your underlying yield next year?
Yeah, so ILBs, obviously, need to be careful flagging what we might be doing in trading in a fed market and that stuff. It's probably something like getting on for half what we have today. The logic around it is not around where we think inflation markets are going because we don't invest in inflationary bonds as a punt, if you like, against inflation. It's there as a hedge against inflation. Over the years, the profile of our portfolio has changed, and a reduced exposure to inflationary bonds is supported by the logic of we just need less inflation hedge in the portfolio. It's not taking a view on rates per se, but the timing of when we would do the reduction would take into account our view on, you know, when's the right time to do it. Yes, there will be some impact on PCA from that.
As I sort of flagged, we'd probably expect most of that to go into structured credit, so there would be a relatively modest capital impact from that. In terms of going forward yields, you can have a look at the exit yield rate for FY 2025, and it will be substantially lower than the average for FY 2025 purely because the yield curve has come down. Our yield would be we are exposed to 2.5 -ish three-year yield curve. 60-odd percent of the portfolio now going to 70% would be invested in credit, and we'd expect to get some, you know, fairly neutral on inflation carry. We'd expect to continue to get some manager alpha.
Thank you.
Okay, I think we're right to wrap up. Thank you, everyone, for coming along in the room here and also online. We look forward to seeing many of you in the next two or three weeks. Thank you.