Insurance Australia Group Limited

Material risks (pp. 38–39). Two material climate-related physical risks are identified, each with a Long Term (Hot House Scenario) time horizon:

• Increasing natural perils costs: ongoing climate change is anticipated to continue to increase the cost of natural peril claims and reinsurance.
• Government intervention in insurance markets: significant premium price increases could increase political pressure on governments to intervene.

Both are categorized as physical risk. Other potential risks and opportunities considered through the climate-related risks and opportunities process were assessed as not material (p. 38). No specific opportunity is described in section 1.1.

Time horizons (pp. 39, 45). Short Term: 2026–2028; Medium Term: 2029–2035; Long Term: 2036–2050. Short Term aligns with the 3-year financial planning processes, and Medium and Longer Terms with broader strategic considerations.

Basis (pp. 38, 45–46). The assessment is made on an inherent basis; uncertain, planned or future mitigations are not considered. The materiality threshold is a projected percentage of Net Profit After Tax (NPAT); no percentage is stated. Identification uses reasonable and supportable information available without undue cost or effort, including past events, current conditions and forecasts.

Business model (p. 38). Key elements embedded in the business model: underwriting procedures including risk-based pricing, supported by climate-risk modeling capabilities and historical claims data; reinsurance arrangements as part of the capital platform; regional scale and geographic and product diversification; claims management experience; and climate-risk advocacy. The majority of revenue is derived from portfolios which actively measure, price and accept transfer of peril risk to physical assets.

Effects (pp. 38–39). Climate changes are impacting the severity, frequency and geographical distribution of weather events, leading to increasing peril claims and reinsurance costs. The current business model is expected to remain effective in managing climate-related risks in the scenarios and timeframes considered, apart from the Hot House Scenario in the long term to 2050. Potential effects: pressure on premium pricing from higher input costs, a reduction in the addressable insurance market, earnings impact from reduced ability of some customers to pay the full risk price or from inability to fully price for risks, and impacts of government imposed product constraints.

Concentration (pp. 38–39). Property insurance portfolios in acute natural peril zones (floodplains, bushfire hazard zones); product and pricing; claims management and fulfillment; capital management; and, for government intervention, regulatory management and corporate affairs.

Strategic response (p. 39). The continued development of the capital platform, including the reinsurance program, is a key element of the inherent strategic response to increasing natural perils risks. From FY24 a five-year strategic reinsurance arrangement provides up to $4 billion of volatility protection for natural perils losses alongside whole-of-account quota share arrangements. In FY26 natural perils reinsurance coverage was extended to the RACQ Insurance (RACQI) portfolio and whole-of-account quota share arrangements were increased by 2.5%.

Transition plan (pp. 39–41). The IAG Climate Action Plan (CAP) has two action areas: Innovate (mitigation; Targets 1 to 4) and Educate (adaptation; Targets 5 to 7). Three targets (5, 6, 7) were added and RACQI was included in scope. Initiatives include renewable energy procurement, a low-emissions tool of trade fleet, property energy efficiency, fuel switching, carbon removal offsets for residual emissions in FY30, natural hazard risk education and awareness, and supplier engagement. Assumptions and dependencies are tabled by target (p. 41), for example the external availability and cost of alternative fuels and technology, and the expiry profile of vehicle leases.

Resourcing (p. 44). Activities are primarily managed and funded through business-as-usual activities. CAP delivery is supported by renewable electricity contracts, energy attribute certificates and low emissions vehicles. No amounts are given.

Current and anticipated effects (p. 43). Estimated effects of the two material risks on financial performance, financial position and cash flow:

Basis (p. 44). No material current financial impacts are assessed for the two risks. The estimates represent the annual net impact of foregone insurance margin (against an FY26 baseline) from a modeled reduction in domestic property portfolios in high-risk natural peril zones, presented as the annual impact in FY 2050. They assume in-place mitigation measures continue to be effective, that reinsurance capital is likely to remain available with reduced capacity and at higher cost, and that rational repricing continues, preserving margin while increasing prices. The report states a high degree of measurement uncertainty, particularly over medium- to long-term horizons, and that simplifying assumptions were adopted to avoid undue additional cost or effort.

Resilience assessment (p. 42). Three scenarios are used: Orderly – Net Zero 2050, Disorderly – Delayed Transition, and Hot House World – Current Policies. Resilience is rated High, Moderate or Low using a time-horizon weighted approach:

Supporting notes (pp. 42–43) cover existing financial resource availability and flexibility, asset redeployment or repurposing, and business model effectiveness; strategy and business model implications are given per scenario.

Uncertainties (p. 43). The type and timing of government intervention, future growth in natural perils costs, global economic impacts under the Hot House Scenario, the level of reinsurance cost increase, and consumer perception of the value of insurance.

Inputs (pp. 45–46). Scenarios were selected for a broad range of outcomes, legislative scenario requirements and alignment to global agreements. Primary source: Network for Greening Financial Sector (NGFS) Climate Scenarios Phase IV; warming by 2100 of 1.5°C, 1.8°C and 3.9°C respectively. For Hot House World the Representative Concentration Pathway (RCP) was increased from 4.5 to 7.0. Energy mix: AEMO Integrated System Plan 2024. Scope: consolidated entity. Horizons: 2026–2028, 2029–2035, 2036–2050. Undertaken in FY26.