Insurance Australia Group Ltd · ASX:IAG
Insurance Australia — H1 2012 Earnings Presentation
29 slides from Insurance Australia's earnings presentation, Feb 23, 2012
Slide 1: Financial Results Half Year Ended 31 December 2011
23 February 2012 ABN 60 090 739 923 For personal use only FINANCIAL RESULTS HALF YEAR ENDED 31 DECEMBER 2011 Mike Wilkins Nick Hawkins Managing Director and Chief Financial Officer Chief Executive Officer
Slide 2: Important Information
IMPORTANT INFORMATION For personal use only This presentation contains general information in summary form which is current as at 23 February 2012. It presents financial information on both a statutory basis (which has been prepared in accordance with the Australian accounting standards, which compl
Slide 3: Group Results
For personal use only GROUP RESULTS Mike Wilkins Managing Director and Chief Executive Officer 1H12 RESULTS 23 FEBRUARY 2012
Slide 4: Key Highlights
KEY HIGHLIGHTS ON TRACK FOR IMPROVED FULL YEAR RESULT For personal use only IMPROVED UNDERLYING Higher underlying margin, in line with expectations, comprising: PERFORMANCE – Strong performance by Australia Direct – Further improvement by CGU – A solid result in New Zealand – Significant strides t
Slide 5: Financial Summary
FINANCIAL SUMMARY IMPROVED UNDERLYING PERFORMANCE For personal use only GWP GROWTH OF 9.7% GWP of $4,318m (1H11: $3,936m) GWP growth in Australia and New Zealand of 10.7% Driven by rate increases, volume gains and bolt-on acquisitions HIGHER REINSURANCE COSTS NEP of $3,839m (1H11: $3,710m),
Slide 6: 1H12 Insurance Margin
1H12 INSURANCE MARGIN IMPROVED UNDERLYING PERFORMANCE For personal use only 1H12 INSURANCE MARGIN – REPORTED VS UNDERLYING Underlying margin is reported margin adjusted for: 0 – Reserve releases in 1.9% 0 3.4% excess of 1% of NEP – Net natural peril claim 0 costs less allowances 2.1% – Credit spre
Slide 7: Financial Summary
FINANCIAL SUMMARY BOTTOM LINE AFFECTED BY INVESTMENT MARKET VOLATILITY For personal use only SHAREHOLDERS’ FUNDS INCOME Shareholders’ funds loss of $30m (1H11: profit of $147m) REFLECTS WEAK EQUITY Reflects weaker equity markets - broader Australian index down 12% MARKETS NPAT AIDED BY LOWER TAX
Slide 8: Delivering on Strategic Priorities
DELIVERING ON STRATEGIC PRIORITIES CLEAR PROGRESS MADE For personal use only ACCELERATE GROWTH IN Continued strong performance by Australia Direct, volume gain in motor AUSTRALIA AND NEW ZEALAND Strong top line growth and continued improvement in performance from CGU - ready for next phase of de
Slide 9: Divisional Performance
For personal use only DIVISIONAL PERFORMANCE Refer to final slide for ownership details 1H12 RESULTS 23 FEBRUARY 2012
Slide 10: 1H12 Insurance Profit
1H12 INSURANCE PROFIT UNDERLYING IMPROVEMENT IN MOST DIVISIONS For personal use only 550 REPORTED INSURANCE PROFIT – 1H12 VS 1H11 500 9 12.7% 450 400 350 262 300 4 7.1% 250 11 58 470 200 54 80 150 37 271 100 50 0 1H11 Reserve Natural Perils Credit Australia Australia New Zealand United Asia 1H12 Rep
Slide 11: Australia Direct
AUSTRALIA DIRECT STRONG PERFORMANCE, AFFECTED BY PERILS AND SPREADS For personal use only GWP (A$M) / INSURANCE MARGIN (%) KEY POINTS 2,200 GWP growth of 8.4% 30.0% 2,080 1,972 2,000 1,919 - Motor up 5.7%; home up 16.7% 25.0% 1,800 20.0% 19.4% 19.7% - Rate and volume gains continue 1,600 15.0% I
Slide 12: Australia Intermediated
AUSTRALIA INTERMEDIATED IMPROVED UNDERLYING PERFORMANCE For personal use only GWP (A$M) / INSURANCE MARGIN (%) KEY POINTS 1,400 1,286 1,330 25.0% GWP growth of 13.0% 20.0% 1,177 1,200 15.0% - Higher rates and acquisitions 1,000 14.3% 10.0% Insurance margin of 6.7% 800 6.7% 5.0% - Higher net natu
Slide 13: Australia Intermediated: Accelerating Performance
AUSTRALIA INTERMEDIATED ACCELERATING PERFORMANCE For personal use only CUMULATIVE FTE REDUCTION Building a more integrated, function-based CGU’S REPORTED VS UNDERLYING INSURANCE MARGIN (%) organisation 14.3% – Common approaches to account management, underwriting and claims 11.8% 9.3% – Removing a
Slide 14: New Zealand
NEW ZEALAND UNDERLYING PERFORMANCE REMAINS STRONG For personal use only GWP (A$M) / INSURANCE MARGIN (%) KEY POINTS 600 40.0% 472 484 538 30.0% GWP growth of 14.0% 500 400 20.0% Insurance margin of 7.3% 19.8% 300 10.0% – Return to profitability from 2H11 7.3% - 200 (10.0%) – Absorbed more than 1
Slide 15: United Kingdom
UNITED KINGDOM SIGNIFICANT IMPROVEMENT CONTINUES For personal use only GWP / INSURANCE (LOSS) (A$M) KEY POINTS 250 Reported GWP flat 150 - Significant rate increases 271 275 273 - Reduced volumes, in line with expectations 50 - Adverse currency impact (60) (5) (50) (121) Reduced insurance loss o
Slide 16: Asia
ASIA GOOD PROGRESS EXPANDING FOOTPRINT For personal use only KEY POINTS Regional annualised GWP pool of over $435m (IAG’s share c.$300m) Thai business affected by extreme floods 1 Strong performance from Malaysian JV Continued rapid growth in Indian JV Strategic investment in China and pro
Slide 17: Capital and Investments
For personal use only CAPITAL AND INVESTMENTS Nick Hawkins Chief Financial Officer 1H12 RESULTS 23 FEBRUARY 2012
Slide 18: Regulatory Capital
REGULATORY CAPITAL 18 ROBUST POSITION, ABOVE LONG TERM BENCHMARK For personal use only REGULATORY CAPITAL (MCR) – 1H12 VS FY11 MCR of 1.69 times 2 - Above long term benchmark of 0.02 1.45–1.50 0.03 0.03 2 0.09 0.12 - Pro forma 1.57, allowing for AMI and Bohai Strengthened position since 30 June
Slide 19: Regulatory Capital: Impact of APRA's LAGIC Review
REGULATORY CAPITAL IMPACT OF APRA’S LAGIC REVIEW For personal use only REGULATORY CAPITAL – CURRENT VS LAGIC MINIMUM CAPITAL REQUIREMENT 31 DECEMBER 2011 $m New methodology of prescribed capital amount 5,000 (PCA): - Modest net impact to Group 4,000 - 2012 reinsurance programme aligned to LAGIC pr
Slide 20: Capital Mix
CAPITAL MIX 20 IN LINE WITH TARGET RANGE For personal use only CAPITAL MIX IN LINE WITH TARGET 1H11 2H11 1H12 CAPITAL MIX A$m A$m A$m Debt to total tangible capitalisation of 38.3%, within 30–40% target range Shareholder equity 4,658 4,580 4,513 NZ$325 million of unsecured subordinated Intangibl
Slide 21: Reinsurance
REINSURANCE COMPREHENSIVE CATASTROPHE PROGRAMME IN PLACE For personal use only $m 4700 Earthquake 3-year deal for additional (Australia & earthquake cover New Zealand) 4200 Main catastrophe cover for loss up to $4.2bn (2011: $4.1bn) Main Catastrophe Programme Lower layer of $250m excess 500 of $250m
Slide 22: Reinsurance Expense
REINSURANCE EXPENSE RECOVERING ADDITIONAL COSTS THROUGH PREMIUMS For personal use only Increased 1H12 reinsurance expense of $356m GROUP REINSURANCE EXPENSE (1H11:$228m), includes: 8.1% 800 7.7% 8.5% – Reinstatement costs of $110m 700 7.1% 7.5% 6.3% 6.2% 6.3% 6.3% 6.2% – Rate increase on 2011 cata
Slide 23: Reserve Releases
RESERVE RELEASES RECURRING ELEMENT EQUIVALENT TO 1% OF NEP For personal use only GROUP RESERVE RELEASES (%NEP) 1H12 releases of $112m (1H11: $103m) – equivalent to 2.9% of NEP Driven by favourable experience in Australian long tail classes Predominantly from central estimates Recurring reser
Slide 24: Investment Portfolio
INVESTMENT PORTFOLIO 24 CONSERVATIVE MIX AND HIGH CREDIT QUALITY For personal use only TOTAL INVESTMENT TECHNICAL RESERVES SHAREHOLDERS’ FUNDS PORTFOLIO – $12.7BN 17.2% Australian equities 0.8% $3.7bn International equities Alternatives 0.4% Shareholders' funds Fixed interest and 17.2% Alternatives
Slide 25: Investment Returns
INVESTMENT RETURNS 25 AFFECTED BY VOLATILE MARKETS For personal use only INVESTMENT INCOME (A$M) TECHNICAL RESERVE RETURNS 500 Higher 1H12 performance, reflecting rallying 400 bond market Widening credit spread impact of $80m 300 Continue to target 100bps of return above risk 200 free rate 100
Slide 26: Outlook
For personal use only OUTLOOK Mike Wilkins Managing Director and Chief Executive Officer 1H12 RESULTS 23 FEBRUARY 2012 26
Slide 27: FY12 Outlook
FY12 OUTLOOK IMPROVED INSURANCE MARGIN EXPECTED For personal use only GUIDANCE FY12 GWP growth 8–10% Updated from previous guidance of 6-9% Insurance margin 10–12% Now expect to be lower end of range GUIDANCE FOR FY12 ASSUMES: Net losses from natural perils of $630m (FY11: $610m) – Increased f
Slide 28: Questions
For personal use only QUESTIONS
Slide 29: Ownership details
3 1 For personal use only 4 2 5 100% owned unless indicated. 1 RACV is via a distribution relationship and underwriting joint venture with RACV Limited. 2 RACV has a 30% interest in Buzz Insurance. 3 IAG holds 98.6% voting rights in Safety Insurance, based in Thailand. 4 IAG owns 49% of the general
Insurance Australia Group — H1 2012 Earnings Presentation on 6ix