Insurance Australia Group Ltd · ASX:IAG
Insurance Australia — Corporate Update (July 2008)
35 slides from Insurance Australia's corporate update, Jul 9, 2008
Slide 1: Investor Briefing: Group Strategy and Trading Update
INVESTOR BRIEFING: GROUP STRATEGY AND TRADING UPDATE Michael Wilkins Managing Director & Chief Executive Officer 9 July 2008 Insurance Australia Group Limited ABN 60 090 739 923
Slide 2: Important Information
IMPORTANT INFORMATION The information in this presentation is an overview and does not contain all information necessary to an investment decision. The information contained in this presentation and accompanying materials has been prepared in good faith by IAG. No representation or warranty, express
Slide 3: Agenda
AGENDA 1 GROUP STRATEGY: REFINING OUR FOCUS 2 A NEW OPERATING MODEL 3 OUTCOMES OF OPERATIONAL REVIEW 4 COST INITIATIVES AND FINANCIAL IMPACT 5 TRADING UPDATE: FY08 AND FY09 6 TIMELINE AND SUMMARY PAGE 3
Slide 4: Group Strategy: Refining Our Focus
1 GROUP STRATEGY: REFINING OUR FOCUS
Slide 5: Our Business Remains General Insurance
OUR BUSINESS REMAINS GENERAL INSURANCE OUR BUSINESS • General insurance products and services • A portfolio of high performing, customer- OUR focused, diverse operations providing CORPORATE general insurance in a manner that delivers INTENT superior experiences for our stakeholders and creates share
Slide 6: We Will Actively Manage Our Portfolio
WE WILL ACTIVELY MANAGE OUR PORTFOLIO OUR • Top quartile Total Shareholder Return (TSR) TARGETS • ROE > 1.5x WACC • Deliver superior performance by actively OUR managing our portfolio, exiting businesses that do not fit our intent or return hurdles, STRATEGY and driving operational performance and e
Slide 7: And Focus on Home Markets
AND FOCUS ON HOME MARKETS • Improve our performance in Australia and New Zealand • Pursue selective international growth options – OUR STRATEGIC Asia and other narrow specialist opportunities PRIORITIES • A devolved model with the Corporate Office as portfolio manager • Driving operational performan
Slide 8: A New Operating Model
A NEW OPERATING MODEL Insurance Australia Group
Slide 9: A New Way of Working
A NEW WAY OF WORKING • Revised corporate strategy with a focus on execution and active management of our portfolio of general insurance businesses • This will drive change throughout our organisation, including our operating model - Devolved model with end-to-end businesses - Shared services integra
Slide 10: Our Business Model
OUR BUSINESS MODEL Australia – Australia Australia Australia –– New New Asia Asia United United eVentures eVentures Direct – Direct Intermediated Intermediate Zealand Zealand Kingdom Kingdom Insurance dInsurance Insurance Insurance (CGU) (CGU) ACTIVE PORTFOLIO MANAGEMENT & GOVERNANCE PAGE 10
Slide 11: New Management Structure
NEW MANAGEMENT STRUCTURE MICHAEL WILKINS MANAGING DIRECTOR & CHIEF EXECUTIVE OFFICER NICHOLAS HAWKINS JUSTIN BREHENY CHIEF FINANCIAL OFFICER CHIEF EXECUTIVE OFFICER, ASIA LEONA MURPHY DUNCAN WEST GROUP EXECUTIVE, CHIEF EXECUTIVE OFFICER, CORPORATE OFFICE CGU [TO BE APPOINTED] CHIEF EXECUTIVE OFFICER
Slide 12: Outcomes of Operational Review
3 OUTCOMES OF OPERATIONAL REVIEW
Slide 13: Australia - Direct Insurance
AUSTRALIA - DIRECT INSURANCE ACCELERATING OUR PERFORMANCE * • Unique franchise with leading brands and market positions; delivering acceptable returns on capital but potential to do much better - Focus is to optimise returns • Build greater customer understanding - Continue to target customer segmen
Slide 14: Australia - Intermediated Insurance
AUSTRALIA - INTERMEDIATED INSURANCE FOCUSING ON THE FUNDAMENTALS • Sound business with strong regional/rural market position, which requires a focus on business fundamentals and providing sustainable long-term returns - Commercial insurance currently at the bottom of cycle - This business, and the i
Slide 15: New Zealand
NEW ZEALAND IMPROVING OUR PERFORMANCE • Leading market shares but profitability affected by natural perils claims and large losses; further advanced in implementing cost savings and set to benefit from new technology platform • Improve the direct insurance business - Leverage new technology platform
Slide 16: United Kingdom
UNITED KINGDOM NARROWING FOCUS TO SPECIALIST UNDERWRITER • Equity Red Star is a profitable, specialist business, but private motor businesses affected by challenging market dynamics • Significant changes in the UK private motor market have been identified - Success of internet aggregators has increa
Slide 17: Asia
ASIA PURSUING GROWTH OPPORTUNITIES FOR THE FUTURE * • Strategy unchanged, continue to pursue selective growth opportunities in target markets • Pursue a pan-Asian strategy to deliver higher long-term growth and profitability - Increase our share in target markets - Organic growth in Thailand (Safety
Slide 18: Asset Management and Reinsurance
ASSET MANAGEMENT AND REINSURANCE • Asset Management and Reinsurance are integral to the efficient management of the Group’s capital resources • Asset Management no longer a separate business unit - No longer pursuing third party mandates - Now focussed on servicing IAG’s operating businesses - Will
Slide 19: Cost Initiatives and Financial Impacts
4 COST INITIATIVES AND FINANCIAL IMPACTS
Slide 20: Sustainable Reduction to Australian Cost Base
SUSTAINABLE REDUCTION TO AUSTRALIAN COST BASE INITIATIVES • Devolving shared services functions to operating businesses • Rationalising roles in Australian businesses - Removing duplication and focusing on value-add activities • Leaner Corporate Office focused on governance and portfolio management
Slide 21: Carrying Value of UK Assets
CARRYING VALUE OF UK ASSETS NOW RECOGNISES OUR MORE FOCUSED APPROACH IMPAIRMENT *: • Impairment of UK identifiable intangible assets • Impairment of UK goodwill on acquisition FY08 IMPAIRMENT OF UK ASSETS $350m * Includes Alba and Diagonal PAGE 21
Slide 22: Trading Update
TRADING UPDATE Insurance Australia Group
Slide 23: 2H08 Trading Conditions
2H08 TRADING CONDITIONS • Australia - Direct Insurance remains competitive but pricing is rational and rate increases are holding - Further rate increases expected in direct market reflecting rising claims costs and recent storm frequency experience - SME market remains very competitive, however, so
Slide 24: 2H08 Trading Conditions
2H08 TRADING CONDITIONS • United Kingdom - Specialist motor classes continue to trade profitably and rate rises are holding - Private motor market remains soft and rates are taking longer to harden than expected - Private motor market remains highly competitive with continued growth in internet aggr
Slide 25: FY08 Trading Update
FY08 TRADING UPDATE Consolidated Preliminary FY08 result (not audited)* GWP growth 6% In line with the 5.5 – 6.5% revised guidance Net earned premium Up from $6.7b in FY07 6 – 8% *Subject to final audit, actuarial and Board sign-offs. PAGE 25
Slide 26: FY08 Update
FY08 UPDATE* • The outcomes of the operational review completed in late 2H08 will result in: - A restructuring provision of around $60m ($42m after tax) in relation to initiatives that will improve the operational efficiency of the business - Non-cash impairment charges of around $350m (nil tax) in
Slide 27: Actively Managing Our Capital
ACTIVELY MANAGING OUR CAPITAL • Strong capital position - MCR multiple is expected to be around 1.7x as at 30 June 2008 • APRA changes to asset based capital charges effective from 1 July 2008 will increase regulatory capital required to be held against certain investment classes - Revised Group tar
Slide 28: Revised Dividend Policy
REVISED DIVIDEND POLICY • A revised policy for dividends on ordinary shares of: - 50 – 70% of reported cash earnings - Expect to pay fully franked dividends for the foreseeable future - As at 30 June 2008 parent entity had around $450m of franking credits capable of fully franking around $1.0b of di
Slide 29: FY09 Outlook
FY09 OUTLOOK FY09 Target* Underlying GWP growth 3-5% Group GWP growth 0-2% (Lower growth profile due to Group’s change in its UK strategy and the expected impact of the introduction of six-month CTP policies in NSW) Group insurance margin 10%+ (Now includes NSW Insurance Protection Tax and corporate
Slide 30: Timeline and Summary
TIMELINE AND SUMMARY Insurance Australia Group
Slide 31: Timeline
TIMELINE Date Market announcement 9 July FY08 results announcement 22 August New management structure takes effect 29 August Final FY08 dividend - Record date 3 September - Dividend paid 3 October Majority of initiatives in place 30 September PAGE 31
Slide 32: In Summary
IN SUMMARY • Refined corporate strategy and operating model - Remediate Australia and New Zealand - End-to-end businesses and tight portfolio management - Accountability and relentless focus on execution • Grow Asia and select opportunities • Efficiency programme to deliver $130m pa in the run rate
Slide 33: Our Major Brands
OUR MAJOR BRANDS * ** * Via a distribution relationship and underwriting joint venture with RACV Limited PAGE 33 ** Not IAG wholly owned
Slide 34: Appendix
7 APPENDIX PAGE 34
Slide 35: Revaluation of RES Contingent Capital
REVALUATION OF RES CONTINGENT CAPITAL CERTAIN SOURCE OF CAPITAL IN CHALLENGING TIMES • IAG’s Reset Exchangeable Securities (ASX:IANG) provide flexibility and certainty to access regulatory Tier 1 quality capital if needed - IAG has the right to exchange a $550m group liability, which is currently of
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