Switching sector preference to IAG; IAG Up to Buy, SUN down to Neutral

Research evidence excerpt

Switching sector preference to IAG; IAG Up to Buy, SUN down to Neutral

Equity Research

25 June 2026 | 9:11AM AEST

AUSTRALIA INSURANCE

Overall Comments: For IAG/SUN, we think the premium rate cycle is likely eroding Julian Braganza, FIAA

+61(2)9321-8487 |

margin buffers at a group level driven by NZ/commercial & competition in AU julian.braganza@gs.com

Goldman Sachs Australia Pty Ltd

personal lines (motor). However, SUN/IAG noted that a large % of their premium is

Chris Matthews, FIAApriced on an input cost basis (see Exhibit 5) with pricing responding to input costs +61(2)9321-8370 |

offering some margin protection, albeit with a lag as pricing earns through. We chris.matthews@gs.comGoldman Sachs Australia Pty Ltd

believe margin buffers should help provide some stability in margins as pricing

evolves and responds to inflation with the sector proving a defensive hedge against

inflation with levers around AI driven expense ratio savings, reinsurance benefits and

higher yields supportive. In our view, AI risks around policy acquisition remain a

medium term overhang over the personal lines space particularly around price

transparency / competition and associated volume impacts.

With this note, we upgrade IAG to Buy (from Neutral) and downgrade SUN to

Neutral (from Buy). Key points:

n We think IAG is guiding to higher underlying margins compared to

consensus: Commentary from IAG at the May-26 Investor Day (and prior

disclosures) suggests they see margins in excess of 15%+ as the benefit of profit

commissions from their QS earns through - see Exhibit 6. Consensus is tracking at

15.8% versus guidance of 14-16% plus 1-2% from profit commissions with

potential upside from perils budget resilience worth 1%. IAG should also benefit

from improving RACQ margins.