Insurance Australia Group Ltd · ASX:IAG
Insurance Australia — FY2010 Earnings Presentation
23 slides from Insurance Australia's earnings presentation, Aug 26, 2010
Slide 1: Financial Results Full Year Ended 30 June 2010
FINANCIAL RESULTS FULL YEAR For personal use only ENDED 30 JUNE 2010 Mike Wilkins Managing Director and Chief Executive Officer Nick Hawkins Chief Financial Officer 26 August 2010 ABN 60 090 739 923
Slide 2: Important Information
IMPORTANT INFORMATION For personal use only The information in this presentation is an overview and does not contain all information necessary to an investment decision. It should be read in conjunction with IAG’s other periodic and continuous disclosure announcements lodged with the Australian Secu
Slide 3: Group Results
1 GROUP RESULTS For personal use only Mike Wilkins Managing Director and Chief Executive Officer
Slide 4: The Year in Summary
THE YEAR IN SUMMARY STRONG UNDERLYING IMPROVEMENT IN HOME MARKETS For personal use only Result in line with 2 June 2010 guidance • Underlying GWP grew 3.8% • Insurance profit of $493m (FY09: $515m) • Insurance margin of 7 7.0% 0% (FY09: 7 7.1%) 1%) Improved performance in home markets (88% of Group
Slide 5: FY10 Insurance Margin
FY10 INSURANCE MARGIN CLEAR OPERATIONAL IMPROVEMENT DELIVERED For personal use only 600 580 560 540 7.1% 12 38 520 13 53 7.0% 500 480 460 440 420 400 367 380 313 360 340 320 300 515 493 280 260 240 220 46 200 180 160 140 120 100 FY09 Reserve Releases Natural Perils DAC/LAT UK Charge Credit Spreads U
Slide 6: Divisional Performance
2 DIVISIONAL PERFORMANCE For personal use only Mike Wilkins Managing Director and Chief Executive Officer
Slide 7: Divisional Results
DIVISIONAL RESULTS IMPROVEMENT IN HOME MARKETS For personal use only FY09 FY10 Insurance margin % % Australia Direct 12.0 16.9 Australia Intermediated 2.2 6.6 New Zealand - 14.7 United Kingdom 15.2 (65.5) Asia 1 5.9 1.4 Total retained 7.7 6.9 Discontinued operations (19.2) - Total insurance margin 7
Slide 8: Australia Direct
AUSTRALIA DIRECT STRONG PERFORMANCE, PERFORMANCE WITH IMPROVED INSURANCE MARGIN For personal use only GWP (A$m) / Insurance Margin (%) 3 800 3,800 16 9% 16.9% KEY POINTS 18 0% 18.0% • GWP growth of 8.1% 16.0% 3,600 14.0% - Across all States and products 12.0% 10.7% 12.0% 3 400 3,400 - Driven by rate
Slide 9: Australia Intermediated
AUSTRALIA INTERMEDIATED CONTINUED IMPROVEMENT IN UNDERLYING PERFORMANCE For personal use only GWP (A$m) / Insurance Margin (%) KEY POINTS 6.6% 2,500 6.0% 7.0% • Reported GWP down 3.9% 6.0% - ING withdrawal and St George 5.0% transition 4 0% 4.0% 2.2% • Modest underlying GWP growth 2,250 3.0% 2,398 2
Slide 10: New Zealand
NEW ZEALAND MARKED IMPROVEMENT, IMPROVEMENT AIDED BY BENIGN WEATHER For personal use only GWP (A$m) / Insurance Margin (%) 1,200 , 14 7% 14.7% KEY POINTS 16.0% 14.0% • GWP up 3.6% in local currency 1,000 12.0% - Rate increases and high retention 800 10.0% - Some unprofitable volume shed 600 8.0% • S
Slide 11: Asia
ASIA ESTABLISHED BUSINESSES PERFORMING WELL For personal use only KEY POINTS • GWP up 8.1% in local currency • Participating in a regional GWP pool of around $400m • Thai and Malaysian businesses performing well • SBI General commenced limited underwriting • Reported insurance margin lower - Absence
Slide 12: United Kingdom
UNITED KINGDOM SIGNIFICANT RESERVE STRENGTHENING For personal use only UK GWP KEY POINTS 1,000 • Reported GWP impacted by adverse FX 800 movement 600 • GWP growth in local currency terms 400 806 • Substantial second half loss 787 712 - Significant reserve strengthening 200 361 364 396 following dete
Slide 13: United Kingdom: Update on Remedial Actions
UNITED KINGDOM UPDATE ON REMEDIAL ACTIONS For personal use only Remedial action underway • Aggressive rating action taken - Implementation of further rate increases of up to 20% commenced - Across most classes • Exiting unprofitable broker relationships - 2,900 broker relationships, over 8% already
Slide 14: Capital, Investments and Dividend
3 CAPITAL INVESTMENTS AND CAPITAL, For personal use only DIVIDEND Nick Hawkins Chief Financial Officer
Slide 15: Balance Sheet
BALANCE SHEET STRONG CAPITAL POSITION For personal use only MCR (x) 2.50 50.0% 43 3% 43.3% MCR remains above benchmark 45.0% 35.8% 2.00 36.0% 40.0%• MCR multiple of 1.92 at 30 June 29.2% 35.0% 2010, above long term benchmark 1.50 30.0% of 1.45-1.50 1 45-1 50 25.0% 1.00 2.03 1.92 20.0%• Retain strong
Slide 16: Reinsurance
REINSURANCE REDUCING EARNINGS VOLATILITY For personal use only • A key part of our approach to capital management • Integrated programme of catastrophe cover on calendar year basis - Main M i cover ffrom $200m $200 up tto $4 $4.1bn 1b - Buy-down below $200m as well as second and third event covers -
Slide 17: Reserve Releases
RESERVE RELEASES LONG TERM EXPECTATION OF 0 0.5-1.0% 5-1 0% OF NEP For personal use only 10% 9% 8% 7% 6% 5% 4% 3% 2% 1% 0% 1H07 2H07 1H08 2H08 1H09 2H09 1H10 2H10 Prior period reserve releases - margin impact Expected long term reserve release level (0.5 - 1.0% NEP) • FY10 reserve releases higher th
Slide 18: Investments
INVESTMENTS CONSERVATIVE MIX AND HIGH CREDIT QUALITY For personal use only INVESTMENT ASSET GROUP FIXED INTEREST & ALLOCATION – $11.7B CASH – $10.5B 2% 3% 10% Fixed Interest and Cash "AAA" "AA" Growth 50% 45% "A" < "A" 90% • 90% of investments in fixed interest and cash - 95% of fixed interest and c
Slide 19: Investment Returns
INVESTMENT RETURNS SOUND PERFORMANCE For personal use only 900 Technical reserve returns 800 700 • Income of $554m (FY09: $780m) 600 500 • Fall influenced by risk free discount 400 rate adjustments 300 200 • $53m impact from lower running 100 yield 0 1H09 09 2H09 09 1H10 0 2H10 0 FY09 09 FY10 0 Inve
Slide 20: Dividend
DIVIDEND FULL YEAR DIVIDEND UP 30% For personal use only Cents 4.5cps fully franked final dividend 14.0 13.0 • Brings full year dividend to 13cps, 12.0 up 30% from previous year 10.0 4.5 10.0 • Equates to a payout ratio at top end of 50-70% range of cash earnings 8.0 6.0 • Cash C h earnings i off $3
Slide 21: Outlook
4 OUTLOOK For personal use only Mike Wilkins Managing Director and Chief Executive Officer
Slide 22: FY11 Outlook
FY11 OUTLOOK SIGNIFICANT MARGIN IMPROVEMENT For personal use only FY11 Insurance margin 10.5-12.5% Underlying GWP growth 3 5% 3-5% • Strong performances from Australia Direct and New Zealand • An improved performance from CGU • A modest full year contribution from the UK Guidance for FY11 assumes: •
Slide 23: Business Model and Brands
BUSINESS MODEL AND BRANDS For personal use only DIRECT INTERMEDIATED ONLINE DIRECT DIRECT INTERMEDIATED INSURANCE INSURANCE INSURANCE INSURANCE INSURANCE INSURANCE 2 3 4 UNITED KINGDOM ZEALAND 5 TRALIA ASIA A AUST NEW Z INTERMEDIATED INTERMEDIATED INSURANCE INSURANCE OTHER 1 ACTIVE PORTFOLIO MANAGEM
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