Credit rating agency Standard & Poor’s (S&P) has raised its long-term financial strength and issuer credit ratings for IAG to AA from AA-. 

It has also raised the long-term issuer credit rating on IAG to A+ from A. The outlook is stable. 

MD and CEO Nick Hawkins says the change acknowledges IAG's strong capital buffers and enhanced reinsurance cover.  

“This positive outcome reflects IAG’s prudent approach to capital, balance sheet management and diverse reinsurance structures,” he said. 

Last month, S&P published revised criteria for analysing insurers' risk-based capital. Application of the revised risk-based capital criteria materially strengthened the capital adequacy and financial strength assessment of IAG, it says. 

“The stable outlook on IAG reflects our view that the insurer and its core operating entities will generate solid underwriting earnings and retain their strong financial profiles,” S&P said. The new analysis also captured the benefits of risk diversification more explicitly. 

S&P said IAG’s strengths include leading positions across Australia and New Zealand, with a well-entrenched franchise, and an “extremely strong capital buffer and capital resources capable of absorbing sizable losses”.  

“The stable outlook on the ratings reflects our view that IAG will be able to retain its robust competitive position in its home markets and appropriately manage associated risks. The quality of its reinsurance program gives the insurer some flexibility to withstand material events, and retain the 'AA' ratings,” the agency said.  

S&P says IAG will likely maintain its leading position in property and casualty insurance lines across Australia and New Zealand, and its scale advantage stems from market shares of about 20% in Australia and 40% in New Zealand, by gross written premiums.  

“This broad customer reach through well-entrenched brands helps the insurer capture and retain business. We believe IAG's trusted franchise and extensive data history, especially in direct personal lines, provide it with a key underwriting advantage. The insurer's strong and steady underwriting results reflect this,” S&P said. 

IAG has responded well to industry headwinds, as seen from a rebound in its earnings in fiscal 2023, S&P says, and even when additional catastrophe charges in New Zealand weakened the country's property and casualty contributions, return on revenue was strong at 19.6%, up from 17% the prior year. 

“We expect affordability constraints to moderate premium growth further, particularly in personal lines. A slowing economy and weaker economic conditions could also affect business customers and the performance of the group's Intermediated division,” the agency said. 

IAG's investments in advanced technologies, data use and innovation will help the insurer maintain its competitive offerings, it added. 

S&P also said IAG leads in engaging with the community and government on mitigating the impact of climate change, such as flood prevention and building codes, and is “at the forefront in balancing equitable customer outcomes on coverage and affordability under increasing community and regulatory expectations and scrutiny”.