Insurance Australia Group Ltd · ASX:IAG
Insurance Australia — Debt Investor Presentation (May 2003)
40 slides from Insurance Australia's debt investor presentation, May 21, 2003
Slide 1: ASX cover letter: Investor presentation new $200 million reset preference share offer
Insurance Australia Group Limited ABN 60 090 739 923 388 George Street Sydney NSW 2000 Telephone 02 9292 9222 Facsimile: 02 9292 8072 iag.com.au 21 May 2003 Ms Pam Ross Manager, Company Announcements Office Australian Stock Exchange Limited Level 4, Exchange Centre 20 Bridge Street SYDNEY NSW 2000 D
Slide 2: Reset Preference Shares (RPS2) issue of up to $200 million
Reset Preference Shares (RPS2) issue of up to $200 million George Venardos, Chief Financial Officer Anne O’Driscoll, Head of Investor Relations Michael Woods, Corporate Treasurer 21 May 2003 Insurance Australia Group Limited ABN 60 090 739 923
Slide 3: Disclaimer
Disclaimer • This presentation has been authorised by Insurance Australia Group Limited (ABN 60 090 739 023) (IAG or the Company) in connection with a proposed offering (Issue) of IAG Reset Preference Shares (RPS2). The Issue will proceed pursuant to a prospectus which has been lodged with the Austr
Slide 4: Agenda
Agenda • Offer summary • The issuer – Operations & strategy • The issuer – Financial position • Offer structure • Timetable Insurance Australia Group Limited ABN 60 090 739 923 3
Slide 5: Offer summary
Offer summary • Issuer – Insurance Australia Group Limited • Issue – Up to $200 million of reset preference shares (RPS2) – Face value of $100 each – up to 2 million shares • Issue Credit Rating – 'A-' by Standard & Poor’s • Key features – Preferred non-cumulative dividend fixed until first reset da
Slide 6: The issuer – Operations & strategy
The issuer – Operations & strategy Insurance Australia Group Limited ABN 60 090 739 923
Slide 7: Leading general insurer in Australia and New Zealand
Leading general insurer in Australia and New Zealand • Market leader (by gross premium written) in each of Australia & New Zealand • Owns leading direct and intermediated brands Insurance Australia Group Limited ABN 60 090 739 923 6
Slide 8: History of growth and diversification
History of growth and diversification Gross Written Premium By Business • >14% CAGR in gross written $6.0bn premium from FY99 to FY02 3% 5% $3.8bn • Market growth of 9–11% $3.6bn 10% 3% • Well diversified book $3.1bn 1% 3% 21% $2.6bn 4% 1% $2.2bn 4% 4% 17% $1.8bn 17% 3% 4% 19% 5% 22% 9% 2% 6% 9% $1.
Slide 9: Improving insurance margins & components
Improving insurance margins & components Expense Ratio Loss Ratio 22.5% 95.0% 90.0% 85.0% 20.0% 80.0% 1.3% 4.0% 90.2% 21.1% 20.8% 75.0% 20.1% 19.7% 80.9% 19.2% 17.5% 19.2% 80.1% 77.5% 76.8% 70.0% 74.3% 65.0% 15.0% 60.0% 2H00 1H01 2H01 1H02 2H02 1H03 2H00 1H01 2H01 1H02 2H02 1H03 Combined Ratio Insur
Slide 10: Five year strategy announced in May 2002
Five year strategy announced in May 2002strategy Reinvigorate Goals customer focus Core operations Top quartile total shareholder return Extend scale in general insurance Deliver earnings ROE 13 – 15% Leverage core Double gross capabilities Build capability written premium by FY 2007 to $6.6bn Risk
Slide 11: Key elements of progress to date
Key elements of progress to date • Reinvigorate customer focus – Getting It Right • Extend scale in general insurance – Targeted CGU/NZI as most suitable acquisition – Continued to apply benefits of scale to existing business • Leverage core capabilities – Getting It Right and brands • Risk manageme
Slide 12: CGU/NZI acquisition – summary
CGU/NZI acquisition – summary • Purchased Australia & New Zealand general insurance business of Aviva plc – Announced 18 October 2002 – Completed on 2 January 2003 • Acquired for $1.85bn – Gross premium income stream of $2.3bn – Ongoing operations with a combined ratio of <100% – Leading intermediat
Slide 13: Provides market leading position in core products
Provides market leading position in core products Market share – Australia Market share – NZ Based on gross premium revenue Based on gross written premium 50% 47% IAG CGU 60% IAG NZ NZI 45% 9% 40% 48% 40% 50% 45% 20% 38% 35% 30% 27% 40% 34% 30% 14% 21% 7% 25% 27% 18% 30% 20% 23% 21% 20% 15% 14% 20%
Slide 14: More balanced geographic spread
More balanced geographic spread NT New Zealand also more GWP $9m IAG 13% QLD balanced between North WA IAG&CGU 13% and South Islands GWP $345m GWP $434m IAG 3% (Auckland & Wellington) IAG 19% IAG&CGU 15% IAG&CGU 29% GWP $410m IAG 21% GWP $2,525m IAG&CGU 51% IAG 24% SA NSW/ACT IAG&CGU 29% GWP $1,081m
Slide 15: Full range of distribution channels
Full range of distribution channels IAG pre CGU & NZI IAG including CGU & NZI Please insert the last two pie charts side by side from page 18 of the prospectus (the two under distribution channels) Insurance Australia Group Limited ABN 60 090 739 923 14
Slide 16: Delivery of synergy benefits on track
Delivery of synergy benefits on track Synergy realisation schedule 2H03 1H04 2H04 A$m A$m A$m Cumulative run-rate per annum Personal lines 6 41 75 Commercial 4 14 30 IT, shared services & overheads 8 26 35 Australia sub-total 18 81 140 International - New Zealand 3 16 20 Total synergies in run-rate
Slide 17: Pro-forma half-year insurance results - December 2002
Pro-forma half-year insurance results - 31 December 2002 Consolidated Financial Results Half-year ended 31 December 2002 IAG CGU/NZI Combined A$m A$m A$m Gross written premium 1,886 1,134 3,020 Net premium revenue 1,799 953 2,752 Net claims expense (1,382) (593) (1,975) Underwriting expense (346) (3
Slide 18: Key elements of progress to date
Key elements of progress to date • Reinvigorate customer focus – Getting It Right • Extend scale in general insurance – Targeted CGU/NZI as most suitable acquisition – Continued to apply benefits of scale to existing business • Leverage core capabilities – Getting It Right and brands • Risk manageme
Slide 19: Short term operating outlook
Short term operating outlook • 2H03 will include the impact of – Net expenditure on integration – estimated to be A$43m – A$70m in claims (net of reinsurance) for Canberra fires – Ongoing weakness in equity markets – Still targeting a combined ratio of <100%, barring any other major insured catastro
Slide 20: The issuer – Financial position
The issuer – Financial position Insurance Australia Group Limited ABN 60 090 739 923
Slide 21: Financial position
Financial position • Capitalisation of $5.2bn as at 19 May 2003 – Ranked among 30 largest Australian listed companies • Pro forma balance sheet for 31 December 2002 – Total assets of $16.2bn – Net assets of $4.0bn (net tangible assets of $2.3bn) • Group distributable reserves of $550m at 31 December
Slide 22: Capital management
Capital management • Capital actively managed on three parameters – Risk of ruin of 1 in 750 years – A ‘AA‘ rating for its main operating entities – A group risk-weighted MCR multiple range of 1.35-1.65 times (set applying APRA principles to ALL operations) • Supported by – Conservative claims reser
Slide 23: Pro forma capital mix post issue of RPS2
Pro forma capital mix post issue of RPS2 IAG Capital Mix 100% 11% 90% 17% 22% 20% 80% 13% 9% 12% 12% 70% 60% 50% 40% 76% 74% 68% 30% 66% 20% 10% 0% FY02 1H03 1H03 Target Actual Proforma Ordinary equity Hybrid capital Debt • The 1H03 pro forma includes the effect of: – The acquisition of CGU and NZI
Slide 24: Group structure and S&P ratings
Group structure and S&P ratings Insurance Australia Group Limited NRMA NRMA Insurance Other NRMA Life Limited IAG Re Limited Insurance Limited International Pty Limited entities Brands including NRMA Illustrative structure only to show the Brands including location of key rated entities entities Ins
Slide 25: Group borrowings
Group borrowings • Current borrowings include – Senior borrowings of $475m (mainly commercial paper) – $300m of domestic subordinated notes ¾Issued November 2002 with an ‘AA-‘ rating ¾Dual tranche ($250m fixed & $50m floating), 10 year - non- call 5 - maturity – US$240m of subordinated notes ($401m)
Slide 26: Offer structure
Offer structure Insurance Australia Group Limited ABN 60 090 739 923
Slide 27: Offer structure – key terms
Offer structure – key terms • Issuer – Insurance Australia Group Limited • Issue of RPS2 – Up to $200 million of reset preference shares – Face Value of $100 each – up to 2 million shares • Dividend and franking – Preferred non-cumulative Dividend fixed until the first Reset Date (15 June 2008) – Di
Slide 28: Details – Dividends
Details – Dividends • Payment conditions for Dividends (same as RPS1): – Directors declare a dividend – Available profits ¾Standard Corporations Act requirements ¾APRA’s basis of determining available profits – Post-dividend compliance with APRA capital adequacy – APRA not objecting to the payment o
Slide 29: Details – Reset Date
Details – Reset Date (first is 15 June 2008) • Terms that can be reset (subject to any APRA restrictions) are: – Margin and Market Rate – Frequency and timing of payment of Dividends – Next Reset Date • Changes to be advised - 50 Business Days prior notice • Deemed acceptance of Reset of Terms unles
Slide 30: Details of Exchange by Holder
Details of Exchange by Holder • A Holder may request Exchange of some or all RPS2 on a Reset Date. IAG’s choice to – Convert the RPS2 into Ordinary Shares at Face Value using a 20 day VWAP; – Arrange third party acquirer to pay the Holder $100 per RPS2; or – Redeem, buy-back or cancel each RPS2 for
Slide 31: Exchange by IAG
Exchange by IAG • IAG may Exchange RPS2 on: – A Reset Date; or – Earlier in respect of all RPS2 following a Tax Event, Regulatory Event or Trigger Event (eg certain takeover bids or schemes of arrangement); and – Subject to the specified notification periods • If converting some, must leave RPS2 wit
Slide 32: Bookbuild and indicative timetable
Bookbuild and indicative timetable Insurance Australia Group Limited ABN 60 090 739 923
Slide 33: Syndicate and Bookbuild
Syndicate and Bookbuild • Joint Lead Managers (‘JLMs’)and Bookrunners: – Deutsche Bank AG – UBS Warburg Australia Ltd • Co-managers – Commonwealth Securities Limited – UBS Warburg Private Clients Ltd • Bookbuild will be conducted by the JLM’s and will close: – For institutions (through the JLM’s onl
Slide 34: Indicative timetable
Indicative timetable Lodgment of Prospectus 20 May 2003 IAG RPS1 in trading halt 21- 22 May 2003 IAG RPS1 ex-dividend date 22 May 2003 Bookbuild 21- 22 May 2003 Margin and Institutional / broker firm allocations advised 23 May 2003 (prior to 10am) Market Rate and Dividend announced 23 May 2003 (prio
Slide 35: Questions
Questions Insurance Australia Group Limited ABN 60 090 739 923
Slide 36: Appendix – Additional information
Appendix – Additional information Insurance Australia Group Limited ABN 60 090 739 923
Slide 37: Consolidated pro forma statement of financial position
Consolidated pro forma statement of financial position The Group Pro forma adjustments Pro forma A$m Acquisition Funding RPS2 Cash and investments 8,925 2,663 -1,307 - 10,281 Other assets 2,289 1,906 3 - 4,198 Intangibles 616 1,076 - - 1,692 Total assets 11,830 5,645 -1,304 - 16,171 Claims outstandi
Slide 38: RPS1 trading performance
RPS1 trading performance 112 300 280 110 260 108 240 S pread (bps ) 220 Price ($) 106 200 104 180 102 160 140 100 120 98 100 Aug-02 Aug-02 Apr-03 Apr-03 Jun-02 Jun-02 Jul-02 Oct-02 Jan-03 Jan-03 Mar-03 S ep-02 Nov-02 Nov-02 Dec-02 Feb-03 Dirty Price S pre a d Source: IRESS, Deutsche Bank & UBS Warbu
Slide 39: Sub-debt credit performance
Sub-debt credit performance NRMA Insurance Subdebt Secondary Levels 115.0 110.0 Spread to AUD Swap (bps) 105.0 100.0 95.0 90.0 85.0 November-02 December-02 January-03 February-03 March-03 April-03 Source: Average of Deutsche Bank and UBS Warburg closing levels Insurance Australia Group Limited ABN 6
Slide 40: Important information
Important information The information in this presentation is an overview and does not contain all information necessary to an investment decision. It is intended to constitute a summary of certain information relating to Insurance Australia Group Limited (‘IAG’) and does not purport to be a complet
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