Insurance Australia Group Ltd · ASX:IAG
Insurance Australia — Merger or Acquisition (December 2013)
41 slides from Insurance Australia's merger presentation, Dec 16, 2013
Slide 1: IAG to Acquire Wesfarmers' Underwriting Businesses and Conduct Capital Raising
16 December 2013 ABN 60 090 739 923 NOT FOR DISTRIBUTION OR RELEASE IN THE UNITED STATES For personal use only IAG TO ACQUIRE WESFARMERS’ UNDERWRITING BUSINESSES AND CONDUCT CAPITAL RAISING Mike Wilkins Peter Harmer Jacki Johnson Nick Hawkins Managing Director & Chief Executive Officer Chief Executi
Slide 2: Important Information
IMPORTANT INFORMATION For personal use only This presentation contains general information in summary form which is current as at 16 December 2013. It presents financial information on both a statutory basis (prepared in accordance with Australian Accounting Standards (AAS) which comply with Interna
Slide 3: Important Information (Continued)
IMPORTANT INFORMATION (CONTINUED) For personal use only This presentation is not an offer or an invitation to acquire New Shares or any other financial products in any place in which, or to any person to whom, it would be unlawful to make such an offer or invitation. This presentation is not a prosp
Slide 4: Agenda
AGENDA For personal use only 1. ACQUISITION OVERVIEW Mike Wilkins Transaction highlights Strategic rationale 2. AUSTRALIA Peter Harmer Overview of Australian business to be acquired The combined business 3. NEW ZEALAND Jacki Johnson Overview of New Zealand business to be acquired The com
Slide 5: Acquisition Overview
For personal use only ACQUISITION OVERVIEW WESFARMERS’ UNDERWRITING BUSINESSES Mike Wilkins Managing Director and Chief Executive Officer ACQUISITION OF WESFARMERS' INSURANCE UNDERWRITING BUSINESSES AND CAPITAL RAISING 5
Slide 6: Highly Complementary Acquisition
HIGHLY COMPLEMENTARY ACQUISITION SIGNIFICANT SYNERGIES – AT LEAST 5% ACCRETIVE IN YEAR TWO For personal use only ACQUISITION Wesfarmers’ insurance underwriting companies in Australia and New Zealand Adds FY13 gross written premium (GWP) of over $1.6 billion (ex-levies) Includes a 10-year distr
Slide 7: Wesfarmers' Underwriting Businesses Being Acquired
WESFARMERS’ UNDERWRITING BUSINESSES BEING ACQUIRED COLES DISTRIBUTION AGREEMENT INCLUDED For personal use only WESFARMERS UNDERWRITING AUSTRALIA NEW ZEALAND FY13 GWP $1.29 billion (ex-levies) FY13 GWP $354 million* (NZ$441 million) ~1,500 FTE employees ~640 FTE employees Coles distribution
Slide 8: Logical Strategic Fit with IAG Businesses
LOGICAL STRATEGIC FIT WITH IAG BUSINESSES COMBINATION WITH CGU AND NZI For personal use only Represents businesses to be acquired 100% owned unless indicated. 1 RACV is via a distribution relationship and underwriting joint venture with RACV Limited. 2 IAG holds a 98.6% beneficial interest in Safety
Slide 9: Australia
For personal use only AUSTRALIA DELIVERS INTERMEDIATED MARKET LEADERSHIP Peter Harmer Chief Executive Officer CGU ACQUISITION OF WESFARMERS' INSURANCE UNDERWRITING BUSINESSES AND CAPITAL RAISING 9
Slide 10: Wesfarmers' Australian Underwriting Business
WESFARMERS’ AUSTRALIAN UNDERWRITING BUSINESS DIVERSE CUSTOMER AND PRODUCT MIX For personal use only BUSINESS STREAMS PRODUCT MIX GEOGRAPHIC MIX 6% 11% 12% 3% SME NSW/ACT 12% 28% Personal Lines VIC/TAS Lumley 44% Specialty Lines 22% QLD 52% WFI Fleet/Commercial Motor WA 17% 36% Affinity & Direct Work
Slide 11: Wesfarmers' Australian Underwriting Business: Scope to Enhance Performance
WESFARMERS’ AUSTRALIAN UNDERWRITING BUSINESS SCOPE TO FURTHER ENHANCE UNDERLYING PERFORMANCE For personal use only WFI / LUMLEY (AUSTRALIA) – Strong recent GWP growth from mix of price and volume FINANCIAL PERFORMANCE (FY10-13) 1,300 7% 8% Well-advanced with portfolio remediation 1,250 6% 5% ‒ F
Slide 12: Australia – Combined CGU / WFI/Lumley Business
AUSTRALIA – COMBINED CGU / WFI/LUMLEY BUSINESS MARKET-LEADING POSITION For personal use only INTERMEDIATED MARKET SHARE GWP BY PRODUCT ($M) GEOGRAPHIC GWP 25% 1,600 WFI/Lumley 12% 20% 1,400 WFI/Lumley 24% CGU 1,200 CGU NSW / ACT 15% VIC / TAS 1,000 21% QLD 800 10% WA 600 SA / NT 5% 400 24% 18% 200 0
Slide 13: New Zealand
For personal use only NEW ZEALAND SECURES NZI’S MARKET-LEADING POSITION Jacki Johnson Chief Executive Officer New Zealand ACQUISITION OF WESFARMERS' INSURANCE UNDERWRITING BUSINESSES AND CAPITAL RAISING 13
Slide 14: Wesfarmers' New Zealand Underwriting Business
WESFARMERS’ NEW ZEALAND UNDERWRITING BUSINESS COMPLEMENTARY PRODUCT MIX For personal use only CHANNEL MIX PRODUCT MIX REGIONAL PROPERTY EXPOSURE Northland & Auckland 6% 3% 12% Home Owners 10% 2% Waikato & Bay of Plenty Home Contents 31% 14% 8% 31% Tanaki, Manawatu, Hawkes Private Motor 12% Bay, Wair
Slide 15: Wesfarmers' New Zealand Underwriting Business: Strong Underlying Profitability
WESFARMERS’ NEW ZEALAND UNDERWRITING BUSINESS STRONG UNDERLYING PROFITABILITY For personal use only LUMLEY NEW ZEALAND – FINANCIAL 400 PERFORMANCE (FY10-13) 20% Strong GWP growth driven by premium increases 11% across the majority of product lines 350 6% 10% 300 0% FY11 and FY12 insurance margin
Slide 16: New Zealand – Combined NZI / Lumley Business
NEW ZEALAND – COMBINED NZI / LUMLEY BUSINESS CLEAR MARKET LEADER For personal use only 45.0% INTERMEDIATED MARKET SHARE GWP BY PRODUCT (NZ$M) 40.0% 500 35.0% Lumley Lumley 30.0% NZI 400 NZI 25.0% 300 20.0% 15.0% 200 10.0% 100 5.0% 0.0% 0 IAG Vero QBE Lloyd's AIG Allianz ACE Tower Other Home Home Pri
Slide 17: Financial Impacts & Funding
For personal use only FINANCIAL IMPACTS & FUNDING STRONG BALANCE SHEET MAINTAINED Nick Hawkins Chief Financial Officer ACQUISITION OF WESFARMERS' INSURANCE UNDERWRITING BUSINESSES AND CAPITAL RAISING 17
Slide 18: Financial Impacts
FINANCIAL IMPACTS AT LEAST 5% EPS ACCRETIVE IN YEAR TWO For personal use only STRONGLY ACCRETIVE ACQUISITION Expected modest EPS accretion in year one, over 5% EPS accretion in year two Excludes integration costs and amortisation of identified intangibles ANNUAL PRE-TAX NET SYNERGY BENEFITS OF A
Slide 19: Integration Process
INTEGRATION PROCESS BULK EXPECTED TO BE COMPLETE WITHIN TWO YEARS For personal use only INTEGRATION PRINCIPLES Bring together and refine the ‘best of both’ organisations Maintain focus on ‘business as usual’ performance and service Joint integration team with clear accountability for execution
Slide 20: Funding Mix
FUNDING MIX COMBINATION OF SOURCES For personal use only BROAD FUNDING MIX SOURCES AND USES Equity (up to $1.4 billion) SOURCES $m − Fully underwritten $1.2 billion institutional placement Placement 1,200 (Placement) at $5.47 per share (4% discount to 13 SPP – maximum 200 December close) Internal
Slide 21: Capital Position
CAPITAL POSITION REMAINS WITHIN BENCHMARKS For personal use only 30 JUNE 2013 CAPITAL POSITION 30 JUNE 2013 ACQUISITION1 FUNDING² PRO FORMA CET1 capital ($m) 2,798 (1,503) 1,400 2,695 Tier 1 capital ($m) 3,670 (1,503) 1,400 3,567 Tier 2 capital ($m) 592 - 300 892 Total regulatory capital ($m) 4,262
Slide 22: Summary
For personal use only SUMMARY Mike Wilkins Managing Director and Chief Executive Officer ACQUISITION OF WESFARMERS' INSURANCE UNDERWRITING BUSINESSES AND CAPITAL RAISING 22
Slide 23: Summary: A Significant Opportunity in Core Markets
SUMMARY A SIGNIFICANT OPPORTUNITY IN CORE MARKETS For personal use only Acquisition of Wesfarmers’ underwriting businesses enhances IAG’s position in the Australian and New Zealand intermediated markets Transaction aligns with IAG’s strategic priorities of accelerating profitable growth in Austr
Slide 24: Outlook: FY14 Guidance Reaffirmed
OUTLOOK FY14 GUIDANCE REAFFIRMED For personal use only On track to deliver FY14 guidance Strong underlying performance expected from existing business 2014 catastrophe reinsurance renewal progressing well Continued focus on strategic priorities FY14 GUIDANCE1 Insurance margin 12.5–14.5% GWP
Slide 25: Delivers on Strategic Priorities
DELIVERS ON STRATEGIC PRIORITIES A CLEAR FOCUS ON AUSTRALIA, NEW ZEALAND AND ASIA For personal use only ACQUISITION OF WESFARMERS' INSURANCE UNDERWRITING BUSINESSES AND CAPITAL RAISING 25
Slide 26: Appendices
For personal use only APPENDICES ACQUISITION OF WESFARMERS' INSURANCE UNDERWRITING BUSINESSES AND CAPITAL RAISING 26
Slide 27: Equity Raising – Offer Summary
APPENDIX 1 EQUITY RAISING – OFFER SUMMARY For personal use only OFFER Placement and SPP to raise up to $1.4 billion comprising: STRUCTURE ‒ $1.2 billion fully underwritten Placement AND SIZE ‒ Non-underwritten SPP, to be capped at $200 million PLACEMENT Fixed issue price of $5.47 (Placement Pric
Slide 28: Placement – Key Dates
APPENDIX 1 PLACEMENT – KEY DATES For personal use only EVENT DATE Trading halt 16 December 2013 Bookbuild 16 December 2013 Trading halt lifted and shares recommence trading 17 December 2013 Settlement of Placement 20 December 2013 Issue of New Shares 23 December 2013 New Shares commence trading on A
Slide 29: Key Risks – Acquisition-Specific Risks (1)
APPENDIX 2 KEY RISKS – ACQUISITION-SPECIFIC RISKS (1) For personal use only There are a number of risks, both specific to IAG and of a general nature, which may affect the future operating and financial performance of IAG, its investment returns and the value of its shares. Many of the circumstances
Slide 30: Key Risks – Acquisition-Specific Risks (2)
APPENDIX 2 KEY RISKS – ACQUISITION-SPECIFIC RISKS (2) For personal use only RELIANCE ON IAG undertook a due diligence process in respect of Wesfarmers' insurance underwriting businesses, which relied in part on the review of financial and other INFORMATION information provided by the vendors. IAG ha
Slide 31: Key Risks – Specific Risks
APPENDIX 2 KEY RISKS – SPECIFIC RISKS For personal use only CATASTROPHES IAG is subject to the risk of large-scale claims arising out of catastrophes which may have a significant impact on its earnings and financial condition. AND LATENT Catastrophes may include cyclones, earthquakes, tsunamis, wind
Slide 32: Key Risks – General Risks
APPENDIX 2 KEY RISKS – GENERAL RISKS For personal use only SHARE PRICE There are general risks associated with an investment in the share market. As such, the value of New Shares may rise above or fall below the Placement RISK Price, depending on various factors including investor perceptions, Austr
Slide 33: International Selling Restrictions (1)
APPENDIX 3 INTERNATIONAL SELLING RESTRICTIONS (1) For personal use only This document does not constitute an offer of new fully paid ordinary shares ("New Shares") of IAG in any jurisdiction in which it would be unlawful. New Shares may not be offered or sold in any country outside Australia except
Slide 34: International Selling Restrictions (2)
APPENDIX 3 INTERNATIONAL SELLING RESTRICTIONS (2) For personal use only Canada (British Columbia, Ontario and Quebec provinces) (continued) The following is a summary of the statutory rights of rescission or to damages, or both, available to purchasers in Ontario. In Ontario, every purchaser of the
Slide 35: International Selling Restrictions (3)
APPENDIX 3 INTERNATIONAL SELLING RESTRICTIONS (3) For personal use only China The information in this document does not constitute a public offer of the New Shares, whether by way of sale or subscription, in the People's Republic of China (excluding, for purposes of this paragraph, Hong Kong Special
Slide 36: International Selling Restrictions (4)
APPENDIX 3 INTERNATIONAL SELLING RESTRICTIONS (4) For personal use only Hong Kong WARNING: This document has not been, and will not be, registered as a prospectus under the Companies Ordinance (Cap. 32) of Hong Kong (the "Companies Ordinance"), nor has it been authorised by the Securities and Future
Slide 37: International Selling Restrictions (5)
APPENDIX 3 INTERNATIONAL SELLING RESTRICTIONS (5) For personal use only Malaysia This document may not be distributed or made available in Malaysia. No approval from the Securities Commission of Malaysia has been or will be obtained in relation to any offer of New Shares. The New Shares may not be o
Slide 38: International Selling Restrictions (6)
APPENDIX 3 INTERNATIONAL SELLING RESTRICTIONS (6) For personal use only Singapore This document and any other materials relating to the New Shares have not been, and will not be, lodged or registered as a prospectus in Singapore with the Monetary Authority of Singapore. Accordingly, this document an
Slide 39: International Selling Restrictions (7)
APPENDIX 3 INTERNATIONAL SELLING RESTRICTIONS (7) For personal use only United Arab Emirates Neither this document nor the New Shares have been approved, disapproved or passed on in any way by the Central Bank of the United Arab Emirates, the Emirates Securities and Commodities Authority or any othe
Slide 40: International Selling Restrictions (8)
APPENDIX 3 INTERNATIONAL SELLING RESTRICTIONS (8) For personal use only United States This presentation does not constitute an offer to sell, or a solicitation of an offer to buy, any securities in the United States. The new securities have not been, and will not be, registered under the U.S. Securi
Slide 41: Pro Forma Profit & Loss
APPENDIX 4 PRO FORMA PROFIT & LOSS For personal use only Wesfarmers Underwriting Businesses Pro Forma Pre- IAG Reported Levies Adjusted Synergies FY13 FY13 FY13 FY13 FY13 $m $m $m $m $m Gross written premium¹ 9,498 1,644 78 1,722 11,220 Net earned premium 8,318 1,391 74 1,465 9,783 Net claims expens
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