Insurance Australia Group Ltd · ASX:IAG
Insurance Australia — Investor Presentation (July 2008)
35 slides from Insurance Australia's investor presentation, 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 p presentation is an overview and does not contain all information necessary y 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, exp
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 f focused, d di diverse operations ti providing idi CORPORATE general insurance in a manner that delivers INTENT superior experiences for our stakeholders and
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 p p performance by y actively y OUR managing our portfolio, exiting businesses STRATEGY that do not fit our intent or return hurdles, and driving operational performan
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 IAG 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 OFFICER, ASIA LEONA MURPHY DUNCAN WEST GROUP EXECUTIVE EXECUTIVE, CHIEF EXECUTIVE OFFICER OFFICER, CORPORATE OFFICE CGU [TO BE APPOINTE
Slide 12: Outcomes of Operational Review
3 OUTCOMES OF OPERATIONAL REVIEW
Slide 13: Australia - Direct Insurance
AUSTRALIA - DIRECT INSURANCE ACCELERATING CC GOOUR PERFORMANCE O C * • 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 custom
Slide 14: Australia - Intermediated Insurance
AUSTRALIA - INTERMEDIATED INSURANCE FOCUSING OC S G ON O THE FUNDAMENTALS S • Sound business with strong regional/rural market position, which requires a focus on b i business fundamentals f d t l and d providing idi sustainable t i bl long-term l t returns t - Commercial insurance currently at the
Slide 15: New Zealand
NEW ZEALAND IMPROVING O G OUR O PERFORMANCE O C • 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 technolog
Slide 16: United Kingdom
UNITED KINGDOM NARROWING FOCUS TO SPECIALIST UNDERWRITER • Equity Red Star is a profitable, profitable specialist business business, but private motor businesses affected by challenging market dynamics • Significant changes in the UK private motor market have been identified - Success of internet ag
Slide 17: Asia
ASIA PURSUING S G GROWTH G O OPPORTUNITIES O O S FOR O THE FUTURE * • Strategy St t unchanged, h d continue ti to t pursue selective l ti growth th opportunities t iti in i target t t markets • Pursue a pan pan-Asian Asian strategy to deliver higher long long-term term growth and profitability - Inc
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 g IAG’s operating p g businesses -
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 g shared services functions to operating p g businesses • Rationalising roles in Australian businesses - Removing duplication and focusing on value-add activities • Leaner Corporate Office focused on governance and portfolio manag
Slide 21: Carrying Value of UK Assets
CARRYING VALUE OF UK ASSETS NOW O RECOGNISES COG S S OUR O MORE O FOCUSED OC S APPROACH O C IMPAIRMENT *: • Impairment off UK identifiable f 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 IAG 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 competitive,
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 grogrowthth 6% In line with the 5.5 – 6.5% revised guidance Net earned premium $7 3b $7.3b Up from $6.7b in FY07 Insurance margin (excluding restructuring) 6 – 8% Expected to be at the bottom end of the 6 – 8% revised guidan
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 G t
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* U d l i Underlying GWP growth th 3 5% 3-5% Group p GWP growth g 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 Protecti
Slide 30: Timeline and Summary
~ TIMELINE AND SUMMARY IAG Insurance Australia Group
Slide 31: Timeline
TIMELINE Date Market announcement 9 July FY08 results lt announcementt 22 A Augustt New management structure takes effect 29 August Final FY08 dividend - Record date p 3 September - Dividend paid 3 October j y of initiatives in p Majority place 30 September p 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 • Effi Efficiency i programme tot deliver d li $130m $130 p
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
APPENDIX OIAG Insurance Australia Group
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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