INSURANCE AUSTRALIA GROUP LIMITED INVESTOR PRESENTATION · 2014-11-05 · INSURANCE AUSTRALIA GROUP...

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16 October 2003

Ms Pam Ross Manager, Company Announcements Office Australian Stock Exchange Limited Level 4, Exchange Centre 20 Bridge Street SYDNEY NSW 2000

Dear Ms Ross

INSURANCE AUSTRALIA GROUP LIMITED INVESTOR PRESENTATION

Please find attached copy of presentation by Insurance Australia Group’s Limited CEO, Mr Michael Hawker, to the Merrill Lynch Australasian Investment Conference held in New York. Yours truly

Glenn Revell Company Secretary

Insurance Australia Group Limited ABN 60 090 739 923 388 George Street Sydney NSW 2000 Telephone 02 9292 9222 iag.com.au

Insurance Australia Group Limited ABN 60 090 739 923

Insurance Australia Group Limited

Michael Hawker, CEO

Presentation to Merrill Lynch Australasian Investment Conference – 15 October 2003


2

A watershed year

• Undertook the acquisition of CGU and NZI– Added nearly 60% to gross written premium

• Delivered improved performance from both the existing and acquired businesses

– Reduced loss ratios– Reduced operating costs– Improved levels of new business and customer retention

• Achieved target capital mix, retaining 'AA' insurer financial strength ratings for key insurance entities


3

Outline

• The markets in which we operate– Market size and consolidation

• Our mix of business and diversification• Market cycles and conditions• FY03 results

– Key ratios– Acquired business performance & integration

• Capital strength• Outlook


4

Australia’s consolidated market

Source: APRA Statistics June 2002 – Inside Australia general insurance premiums (excluding reinsurers)

0

1000

2000

3000

4000

5000

6000

IAG (pro-forma)

Promina Suncorp Allianz QBE Next 15 The rest

GW

P A

$m

30.0%

13.1%11.9%

7.9% 7.3%

15.0% 14.8%

CGU


5

0

200

400

600

800

1000

IAG NZ Promina Lumley AMI The rest

GW

P N

Z$m

Source: Insurance Council of New Zealand – Calendar 2002 Statistics

New Zealand’s consolidated market

NZI

40.0%

20.6%

8.8% 8.2%

22.4%


6

Market shares by product

• Leading market shares in each line of business – except in Australian commercial insurance where our focus is on the smaller end of the market

Australia

45%38%

27%18%

30%

0%

10%

20%

30%

40%

50%

Motor Home Motorliability

Commercial Employerliability

% m

arke

t sha

re

New Zealand

38% 39% 43%

29% 25%

0%

10%

20%

30%

40%

50%

Motor Home Comm.Motor

Comm.property

Comm.liability

% m

arke

t sha

re


7

Premium diversification

34%

56% 52% 50% 51% 49% 47% 37%

22%

17% 17%16%

16%

17%18%

20%

20%

1% 1% 2%4%

5%

9%

15%

3%

2%3%

6%5%

4%

26% 30%

10%

28%

23%

19%17%

12%3%

4%

4%

3%

2%

5%

5%

FY97 FY98 FY99 FY00 FY01 FY02 FY03 FY03 Proforma

Motor Home Short-tail Commercial Workers' Comp CTP/Motor liability Health Liability Other Short-tail

$1.7bn $1.8bn$2.2bn

$2.6bn

$3.1bn$3.6bn

$5.2bn

$6.3bn

6%

12%

20% 21%

34%40% 42%

51%56%

The main components of Other short-tail are: 2% other accident; 1% extended warranty; and 1% consumer credit business

Premium by class and % outside NSW/ACT


8

Broadened distribution channel mix

86%

53%

12%

36%

11%2%

0%

10%

20%

30%

40%

50%

60%

70%

80%

90%

100%

FY02 Proforma GroupFY03

Direct Intermediated Third party


9

Market conditions and cycles

• A tale of three cycles• Personal lines

– Structural change – considered sustainable

• Commercial lines– The larger the business, the more susceptible to ongoing

global cyclical influences

• Statutory classes (motor & employer liability)– Long cycles influenced by the balance of social

expectations and regulatory reform

• All cycles currently in favourable position


10

FY03 financial results overview

Consolidated financial results FY 2001 FY 2002 FY 2003

A$m A$m A$mGross written premium 3,198 3,558 5,150Net premium revenue 2,775 3,195 4,636Underwriting profit/(loss) (22) 142 199Investment income on technical reserves 232 136 372Insurance profit 210 278 571Investment income/(loss) on shareholders' funds 126 (234) (120)Amortisation & interest (39) (67) (128)Other items (net) (42) (78) (26)Profit before income tax 255 (101) 297Income tax (expense)/benefit (44) 18 (80)Profit after income tax 211 (83) 217Outside equity interests (68) 58 (64)Profit/(loss) attributable to all shareholders 143 (25) 153ROE % (Average Equity) to ordinary shareholders 5.32 (1.00) 4.70Basic EPS (cents) 9.40 (1.78) 8.65DPS 10.0 10.5 11.5Consolidated MCR multiple n/a 1.56 1.62Australian insurance operations multiple n/a n/a 2.03Minimum probability of sufficiency of general insurance claims reserves >90% >90% >90%


11

Fifth consecutive half-year of underwriting profit

Insurance margin (pre-tax)

37105 71

128102187

129 10387

48

219153

(39)

(139)

4(26)

(200)

(150)

(100)

(50)

0

50

100

150

200

250

300

350

1H00 2H00 1H01 2H01 1H02 2H02 1H03 2H03

A$m

Underw riting result Investment return on technical reserve

5.7

3.7%7.8%

7.3%8.0%

9.4%

16.1% 9.9%


12

Key operating ratios – margins up

87.3

%

83.8

%

85.9

%

80.5

%

75.9

%

72.5

%

60.0%

65.0%

70.0%

75.0%

80.0%

85.0%

90.0%

FY98 FY99 FY00 FY01 FY02 FY03

Loss ratio

109.

4%

107.

7%

107.

5%

100.

8%

95.6

%

95.7

%

70.0%

75.0%

80.0%

85.0%

90.0%

95.0%

100.0%

105.0%

110.0%

115.0%


Combined ratio

4.5%

3.2% 4.

6%

7.6% 8.

7%

12.3

%

0.0%

2.5%

5.0%

7.5%

10.0%


Insurance margin (before tax)

22.1

%

23.9

%

21.6

%

19.0

%

18.7

%

18.4

%

1.0%1.3%

4.8%

0.0%2.5%5.0%7.5%

10.0%12.5%15.0%17.5%20.0%22.5%25.0%27.5%


Expense ratio (and commission ratio for FY01 - FY03)


13

CGU/NZI performing strongly

• The acquired CGU/NZI business out-performed the initial business case on all key measures for 2H03

CGU/NZI insurance result Actual Business case

Gross written premium A$1,291m A$1,125mNet earned premium A$1,023m A$972mCombined ratio 91.5% 98.3%Contribution to group NPBT 1 A$88m n/a

1 Stated after allowing for goodwill amortisation, integration expenses andborrowing costs associated with the acquisition


14

Synergy realisation progressing well

• Implementation cost unchanged at $145m - $12m less capitalised• $13m increase in benefits expected in FY04 profit• On track to deliver $160m (pre-tax) in sustainable benefits by June

2004

Synergy realisation schedule 2H03Estimated

2H03Actual

1H04Estimated

2H04Estimated

All amounts are pre-tax A$m A$m A$m A$mCumulative run-rate per annumPersonal lines 6 15 49 70Commercial 4 14 20 35IT, shared services & overheads 8 13 25 35Australia sub-total 18 42 94 140International - New Zealand 3 12 17 20Total synergies in run-rate 21 54 111 160Reported income statementSynergy benefits collected 7 9 38 74Costs of implementation expensed (49) (45) (40) (12)Net impact on pre-tax profit for period (42) (36) (2) 62


15

Updated operating targets

• Achieved post integration targets in FY03• Upgraded COR targets for the coming year to maintain

insurance margins in context of low interest yields

Previous post-integration

targetsFY03

results Status

Revised FY04

targets% % %

COR - Group 96-98 95.7 � 93-96COR - Short-tail 94-96 93.7 � 92-94COR - Long-tail 105-110 102.2 � 100-105COR - International 92-95 95.3 In line 91-93Insurance margin (pre-tax) 9-11 12.3 � 9-12


16

Strongly capitalised

• Approach to capital unchanged – Risk of ruin of 1 in 750 years– 'AA' category rating – currently 'AA' (Outlook stable)– Group MCR multiple in 1.35x – 1.65x range, now at 1.62x

• Australian insurance entities at 2.03x MCR• Strengthened risk margins in claims reserves and

maintained minimum probability at 90%• Max retained loss per event is $70m – <1.3% of NEP• Capital mix at target & cash flow generation strong• High quality, liquid investment portfolio


17

FY04 outlook

• Consider organic growth of 7 – 9% achievable– Continued robust economy/GDP growth– Moderate premium rate increases reflecting claims

inflation

• Focused on organic growth and improved efficiency• Upgraded COR targets for FY04 to maintain

insurance margins in 9 – 12% range• Well positioned to deliver improved and more stable

returns if equity markets no longer negative


18

Platform for ongoing value delivery

• Business now has scale and momentum• Supported by robust capital and risk management• Customer focus being enhanced to improve service

and loyalty• Technology transformation to deliver step change in

value in 2 – 3 years• Our people and culture being developed to provide

long-term value for the Group• Recognise the Group’s role in the community &

environment


19

Our strategic focus over time

Progress

Time

June 2003

Progressing this will depend on being able to show internationally applicable core competencies

We believe that there are substantial opportunities locally for a few years

DeliveredGeneration ofdomestic scale

Generation ofdomestic organicgrowth andprofitability

Generation ofinternationalgrowth andprofitability


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