Insurance Australia Group Ltd · ASX:IAG
Insurance Australia — Investor Day (December 2016)
45 slides from Insurance Australia's investor day presentation, Dec 8, 2016
Slide 1: IAG Investor Day
IAG Investor Day 8 December 2016
Slide 2: Introduction & strategy overview
Introduction & strategy overview Peter Harmer Managing Director and Chief Executive Officer
Slide 3: Program outline
09.00 am Introduction & strategy overview Peter Harmer, Managing Director & CEO 09.15 am Customer Julie Batch, Chief Customer Officer 09.30 am Optimisation Mark Milliner, Chief Operating Officer 09.50 am Agility Jacki Johnson, Group Executive People, Program 10.00 am Capital Performance & Reputation
Slide 4: Our value proposition
Our value proposition Delivering strong shareholder returns Investment Value drivers Shareholder case value • Leading player with scale Through-the-cycle targets advantage in Australia and New • Cash ROE 1.5x WACC Zealand (low single digit growth) Fuelling drivers • High dividend (60-80% of • Focuse
Slide 5: Strategic context
Strategic context Our purpose, opportunity and promise Our purpose Our opportunity Our promise We make your world Embrace Inspiring customer a safer place innovation experiences Introduction & strategy overview | 8 December 2016 5
Slide 6: Driving customer and business benefits
Driving customer and business benefits Two strategic themes Leading Fuelling 1. Digitally-enabled 1. Operational effectiveness customer experiences 2. Supply chain utilisation 2. Partnering for success and efficiency 3. Customer-influenced 3. Portfolio optimisation innovative offerings 4. Product an
Slide 7: Operating landscape
Operating landscape Predictive trends Environment Customer Technology • World awash with capital • Demographic shifts • Computing power, • Continual regulatory change • Shifting preferences / automation and connectivity needs to get the best from unlocking value chain • Climate change service provid
Slide 8: Our strategic framework
Our strategic framework Preparing IAG for multiple futures Customer engagement Deepen customer intimacy Partner selectively Optimise core Modularise platform Operational effectiveness Introduction & strategy overview | 8 December 2016 8
Slide 9: Optimise core
Optimise core Fuelling by simplifying / optimising Customer engagement Deepen customer intimacy Partner selectively Optimise core • Drive increased simplification and scalability • Supply chain utilisation and efficiency • Become an agile organisation • Deliver inspiring customer experiences Modular
Slide 10: Deepen relationships
Deepen relationships Leading with customers Deepen customer intimacy • Digitally-enabled customer experiences Customer engagement • Needs-based customer propositions • Ecosystems of adjacent services Partner selectively • Data-driven targeted marketing Optimise core Modularise platform Operational e
Slide 11: Modularise platform
Modularise platform Creating value closer to the customer Customer engagement Deepen customer intimacy Partner selectively Modularise platform • Derive maximum value from each component of the value chain • Partner for capability in areas that are not a competitive advantage Optimise core • Offer st
Slide 12: Partner selectively
Partner selectively Accessing and strengthening capabilities Partner selectively • Target partners that complement or strengthen our capabilities Customer engagement • New ventures and incubation Deepen customer intimacy Optimise core Modularise platform Operational effectiveness Introduction & stra
Slide 13: How we are organised
How we are organised Strengthening our common capabilities Customers Product design, marketing, Customer and Digital Labs innovation, experience design Australia New Zealand Asia Sales and service Consumer | Business Fulfilment Operations, including Claims and Supply Chain People, Performance & Repu
Slide 14: Customer
Customer Julie Batch Chief Customer Officer
Slide 15: Our customers' worlds are changing
Our customers’ worlds are changing And we are well positioned to respond Super-computers Everything Power People The rules are on tap has been digitised is shifting are connected are changing Mobile phones mean Artificial intelligence The cloud allows Everything that Social and pervasive we are cons
Slide 16: Creating new opportunities for IAG
Customer-led products and experiences New products developed by listening and responding to our customers Creating new opportunities Powered by smart teams New thinking derived from collaboration of diverse teams for IAG with customers and partners Blending art, psychology, Creating new methods engi
Slide 17: Customer Labs
Customer Digital Data Customer Labs Customer Marketing Analytics Bringing capability Labs together to shape customer-experience strategy and innovation Venturing Design Innovation Customer | 8 December 2016 17
Slide 18: Placing customers at the centre
Placing customers at the centre Understanding whole-of-customer needs and leveraging the power of data Customers Our business Understanding people Understanding what and what they value drives value at IAG Individuals and families Brands Initiatives Organisations Communities IAG’s customer-centric O
Slide 19: Embracing innovation
Embracing innovation Entrepreneurial mindset, drawing on research initiatives, universities, start-ups Inputs Product innovation process Outputs External Disruptive Researchers, students, entrepreneurs, start-ups New and technology enhanced products and processes Product Venturing Funnel Discover an
Slide 20: Delivering new value
Delivering new value Resulting in 25+ new partnerships, products and collaborations Indonesia ride share opportunity Customer | 8 December 2016 20
Slide 21: Accelerating our development
Accelerating our development New initiatives, including launch of $75m IAG Ventures fund Customer Value chain New pathways understanding disruptors to market e.g. e.g. e.g. Internet of things, Artificial intelligence, Peer-to-peer and new data and robo-advice the sharing economy applications and cyb
Slide 22: Optimisation
Optimisation Mark Milliner Chief Operating Officer
Slide 23: Operations
Optimisation Simplifying the business to achieve more with lower costs Operations Enabling and empowering Powering IAG’s strategy IAG’s strategy Operational Customer excellence experience Leveraging scale in Enabling faster claims, supply chain response times and and partnerships new digital experie
Slide 24: Optimisation program
Optimisation program At least 10% reduction in run rate exiting FY19 Three core pillars Progressive realisation of benefits Expected net profile 1 Effective 2 Core systems 3 Procurement partnering consolidation maximisation FY17 FY18 FY19 Small Broadly >$100m net negative neutral net benefit ~$2.5bn
Slide 25: Effective partnering
Effective partnering Accessing process expertise and lowering costs Scalability • Simplifying our processes and reducing complexity • Customer centricity and Global insurance …to help improve our …and lower operational excellence and business customer and our operating go hand-in-hand process employ
Slide 26: Core systems consolidation
Core systems consolidation Initial emphasis on claims, then policy administration FY17 FY18 FY19 FY20-22 Migrate legacy platforms Claims Consolidate to single Guidewire platform Decommissioning of legacy policy and claims platforms administration Policy Planning of harmonisation Harmonise policies a
Slide 27: Procurement maximisation
Procurement maximisation Range of other initiatives contributing to lower costs Deliver • Build and deliver simple, scalable Significant Australian floor space reduction and agile procurement solutions value-adding by 2019 procurement • Leverage group-wide model spend to realise savings and increase
Slide 28: Claims indemnity cost reductions
Claims indemnity cost reductions Increased utilisation of simple and scalable supply chain Progressive implementation of national claims Supporting leading supply chain – largely complete early FY17 customer experiences Fragmented Aligned, maturing • National supply chain partnerships network and in
Slide 29: Agility
Agility Jacki Johnson Group Executive People, Performance & Reputation
Slide 30: To enable strategy
To enable strategy Shaping an agile organisation Relational Connected Accountable • Unsustainable • Complexity cost structure • Duplication • Ripe for disruption • Lack of as competitors with innovation zero cost to scale • Low levels of Transactional Siloed Avoidant continue to enter accountability
Slide 31: To enable strategy
To enable strategy Shaping an agile organisation An integrated and Real time, data Highly visible Greater rigour and Further focus whole systems approach rich insights into performance and accountably for driving on embedding to accelerating IAG’s the health of our reward frameworks cultural transfo
Slide 32: IAG strategic workforce plan
IAG strategic workforce plan Internal factors (demand drivers) External factors Customer experiences Agility Socio-economic Political Simplicity and scale Legal Technological Capability profile dimensions Skills Size Shape Spend Site The right The right The right The right The right strategic and co
Slide 33: Balancing leading and fuelling
Balancing Leading Fuelling leading Deliver inspiring customer experiences Make IAG simpler and more scalable and fuelling Enabling Build an agile organisation Agility | 8 December 2016 33
Slide 34: Capital
Capital Nick Hawkins Chief Financial Officer
Slide 35: Optimising our capital mix
Optimising our capital mix Capital sustainability Two key decisions Equity • Quantum of capital • Form of capital (mix) Capital Debt / hybrid platform Capital mix trends • Increased diversification • Reduced emphasis on equity Reinsurance • Greater use of reinsurance capital Capital | 8 December 201
Slide 36: Equity
Equity Past growth driven by M&A funding needs Ordinary Share Capital ($m) Growth driven by 7,500 Jun-15 funding of acquisitions Berkshire Hathaway placement (e.g. Wesfarmers) 7,000 Oct-16 Reduced M&A appetite 6,500 Share buyback going forward – large 6,000 market shares in Australia Feb-09 and New
Slide 37: Dividend policy
Dividend policy Increased payout ratio 10.0 Payout policy 71.5% 70.8% 72.9% increased to 60-80% of 69.9% 70.2% 67.1% 64.7% cash earnings in FY16 60.5% Strong pro forma 25.0 26.0 16.0 30 June 2016 franking 13.0 position 7.0 • Able to frank ~$370m 4.5 12.0 of further dividends 6.0 13.0 13.0 13.0 • Aft
Slide 38: Debt and hybrid capital
Debt and hybrid capital Actively managed instrument mix $m Pro Forma Debt Maturity Profile Years from 31 December 2016 42.6% 38.3% 2000 36.0% 36.8% 33.7% 34.5% 35.4% 33.8% 1962 1500 29.2% 1659 1620 1752 1762 1401 1450 1377 1000 1053 500 0 FY08 FY09 FY10 FY11 FY12 FY13 FY14 FY15 FY16 0-1 1-2 2-3 3-5
Slide 39: Reinsurance capital
Reinsurance capital Diversification away from traditional forms Reinsurance Capital ($m) Reinsurance capital 7,000 3,000 6,000 2,500 5,000 Catastrophe Operating Volatility 2,000 protection capital cover 4,000 1,500 3,000 • $7bn of gross Quota shares: • Aggregate cover 1,000 catastrophe cover • 20% w
Slide 40: Reinsurance capital
Reinsurance capital Lowering earnings volatility and regulatory capital requirement Rationale / appeal Future considerations Catastrophe • Intrinsic part of capital management approach • Increased multi-year component cover • Scale driven by peak exposures • Many long-standing counterparty relations
Slide 41: Regulatory capital
Regulatory capital Strong position, above or within benchmark range multiples 2.31 1.80 1.71 1.72 1.70 1.72 1.67 1.62 1.23 1.09 1.14 1.04 1.14 1.06 FY13 1H14 FY14 1H15 FY15 1H16 FY16 PCA CET1 PCA target range (1.4-1.6) CET1 target range (0.9-1.1) Capital | 8 December 2016 41
Slide 42: Trading update, summary and Q&A
Trading update, summary and Q&A Peter Harmer Managing Director and Chief Executive Officer
Slide 43: FY17 trading update
FY17 trading update GWP growth and reported insurance margin guidance reaffirmed FY17 guidance Underlying assumptions GWP growth Relatively flat 1Net losses from 2Reserve 3No material natural perils of releases of movement in $680m at least 1% foreign exchange Reported rates or investment 12.5 - 14.
Slide 44: Conclusion
Conclusion Our story 3-5 years Customer Growth Efficiency Capital Delivers Improved • Australia-New Zealand – Gross cost run rate management Strong understanding system growth, ~3-5% reduction of at least shareholder Optimised mix – and segmentation 10% by end FY19 returns • Asia – higher growth, re
Slide 45: Important information
Important information This presentation contains general information in summary form which is current as at 8 December 2016. It presents financial information on both a statutory basis (prepared in accordance with Australian Accounting Standards which comply with International Financial Reporting St
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