Insurance Australia Group Ltd · ASX:IAG
Insurance Australia — FY2003 Earnings Presentation
33 slides from Insurance Australia's earnings presentation, Aug 21, 2003
Slide 1: Investor Presentation - Year ended 30 June 2003
21 August 2003 Ms Pam Ross Manager, Company Announcements Office Australian Stock Exchange Limited Level 4, Exchange Centre 20 Bridge Street SYDNEY NSW 2000 Dear Ms Ross INSURANCE AUSTRALIA GROUP LIMITED INVESTOR PRESENTATION-~YEAR ENDED 30 JUNE 2003 Insurance Australia Group Limited ABN 60 690 739
Slide 2: Financial results - Year ended 30 June
Financial results Year ended 30 June Michael Hawker, Chief Exe ut George Venardos, Chief Finan 21 August 2003 ABI GC O80 739 923 Be Insurance Ausralia Group tindng Good morning. Welcome to the Insurance Australia Group FY03 results briefing. We would appreciate it if you could keep your questions un
Slide 3: Agenda
Agenda 1. Performance overview 2. Capital protection & position 3. Returns & dividend 4. CGU/NZI performance 5. Integration update 6. Segment analysis 7. MCR multiple 8. Conclusion & questions some 4 Michael Hawker Michael Hawker Michael Hawker George Venardos George Venardos George Venardos George
Slide 4: Overview of performance
Overview of performa Michael Hawker, Chief Exec pie Ckesabs aio. awe omit ye ime] ll Insurance Australia Group Lined Lee See ee ° ABN 6 O80 739 62% 21/08/2003
Slide 5: A watershed year
21/08/2003 A watershed year + Strengthened strategic position * Diversified risk profile * Improved levels of new business and customer retention + Reduced operating costs + Maintained a very strong balance sheet - rated AA BS treuracice busliadia Group tied ABN 69 060 739.928 This has been a waters
Slide 6: Improved business performance
21/08/2003 Improved business performance © IAG + Gross written premium up 45% to $5.2bn ~ Includes $1.3bn from CGU/NZI ~ 9% organic growth, including Australian policies in force growth of 5% Administration ratio decreased to 18.4% from 18.7% Combined ratio stable at 95.7% versus 95.6% ~ Integration
Slide 7: Overview of FY03 - a successful year
Overview of FY03 —a successful year © 1AG * Net profit after tax of $153m (loss of $25m in FY02) reflecting ~— Increase in the size of the business — 6 months of CGU/NZI results ~ Improved business performance ~— Reduced losses from equity markets + Strong capital position restored on successful com
Slide 8: Financial results overview
Financial results overview © Fuli year = Full ye. Full year 1G nai results/ratios ended ended Net earned premium {A$m} Underwriting profiti(less} (A$m)} Total investment income (A$m) Reported NPAT (A$m)} ROE % (Average Equity) to ordinary shareholders Basic EPS (cents) DPS Loss ratio Expense ratio A
Slide 9: Fifth consecutive half-year of underwriting profit
Fifth consecutive half-year of t underwriting profit Insurance margin {pre-tax} 16.1% 9.9% & < 50 oO (50; (4100) (4180; (2003 4HO0 2HOO 1HO4 2HOt 4HOZ 2HO02 41HO03 2H03 #@ Underw iting result g investment return on technical reserve Cc Ey This chart provides a picture of the improvement in the under
Slide 10: Further GWP growth & diversification
Further GWP growth & diversification © 1G Pe Gross Written Premium by class A$bn $6.abn Ava FYB FYSS FYOO Fyot FYO2 FYe3 FY¢3 Proforma Brio: WHore @Snoittall Commercial D Workers’ Comp ECTRMbior iabviy mHeatn OLLiabilly m Other Short-tail The main components of Other short-tail are: 2% other acciden
Slide 11: Key operating ratios - margins up
21/08/2003 Key operating ratios ~ margins up t Expense ratio fand commission ratio for FYO4 - FYUS) ‘Lose ratio Comibined ratio In recent years we have simply noted that the trends on this slide are all as desired. This is still the case for FY03 but there is an added complexity due to the change in
Slide 12: Updated operating targets
21/08/2003 Updated operating targets Previous post- Revised integration FY63 FY04 targets results Status targets a mee COR - Group COR - Short-tail COR - Long-tail COR - International Insurance margin (pre-tax) + Achieved post integration targets in FY03 « Upgraded COR targets for the coming year to
Slide 13: Investment returns improved
Investment returns improved Actual Actual Benchmark investment returns return return return FY02 FY03 FY03 Australian equities International equities New Zealand equities Fixed interest Cash Total Asset overlay Total with overlay Tactical option programme Total (including derivatives) (1.3) 3.1 Wa T
Slide 14: Capital carefully protected during a difficult period
difficult period + Loss of $120m on shareholders’ funds includes the $68m cost of the tactical protection programme Capital carefully protected during a © iAG * Tactical protection programme undertaken to protect capital in the context of: — Being thinly capitalised during completion of the CGU/NZI
Slide 15: Updated investment sensitivities
21/08/2003 Updated investment sensitivities Combined Group mid-August Sensitivity on net profit before tax Change in assumption 30-Jun-03 Equity market values: Australian equities Intemational equities 39 43 New Zealand equities 06 06 Interest rates Investment returns 144.7 166.4 Outstanding claims
Slide 16: Strongly capitalised
21/08/2003 Strongly capitalised + Approach to capital unchanged — Risk of ruin of 1 in 750 years ~ An ‘AA’ category rating — currently AA (Outlook stable) — Group MCR multiple in 1.35x — 1.65x range, now at 1.62x Minimum probability of sufficiency of 90% retained for claims reserves . Strengthened r
Slide 17: Return on equity to improve
Return on equity to improve Actual and Normalised ROE Integration expense of 345m (2.0%) - FY98 Fys¢ F¥00 FYO1 FY02 FYO3 a@ROE (Actual) attributable to afl shareholders ROB (Actual) attrbetabie to ordinary sharsholders BBROE (Norinalised) 1. FY88-FYO1 normatised ROE uses 8% return on technical reser
Slide 18: Dividend increased
21/08/2003 Dividend increased . Normalised earnings up 8% to $343m . Final dividend of 7c per share, fully franked — Payable on 13 October 2003 (record date 10 September) Total dividend for FY03 of 11.5c per share ~— Up 9.5% from last year . Dividend reinvestment plan (‘DRP’) will operate — Price wi
Slide 19: Conclusion
Conclusion . A watershed year for the Group . Continued improvement in overall operating performance Good organic growth in policy numbers Newly acquired businesses performing very well Administration ratio continuing to trend down Strongly capitalised following completion of the acquisition funding
Slide 20: Areas to be covered in more detail
21/08/2003 Areas to be covered in more detail @> IAG . CGUI/NZ! performance integration update Segment analysis MCR multiple Thank you. | will now provide some information on the CGU/NZI standalone performance before providing some analysis on the performance of the business segments. | will finish
Slide 21: CGU/NZI performing strongly
CGU/NZI performing strongly CGUINZI insurance result Actual Business case Gross written premium ASI 291m A$1,125m Net earned premium A$1 023m A$972m Combined ratio G1 5% 98.3% Contribution to group NPBT’ ss ASBEM. nla ’ Stated after allowing for goodwill amortisation, integration expenses and borrow
Slide 22: Integration progressing well
* Integration programme in the synergy realisation phase — All synergies in business plans and budgets + Synergies of $54m per annum were in place by 30 June 2003 — Ahead of target of $21m for 2HO3 * $160m annual sustainable benefits to be delivered slightly ahead of schedule during 2H04 ABN 69 290
Slide 23: Updated synergy realisation timeframe
Updated synergy realisation timeframe Synergy realisation schedule 2H03 2H93 +HO4 2104) Estimated Actual Estimated Estimated Al Bini ate ereHiaK ey Maint 2 ‘bans Cumulative run-rate per annum Personal lines Commercial IT, shared services & overheads Australia sub-total International - New Zealand To
Slide 24: Domestic short-tail ratios
21/08/2003 Domestic short-tail ratios Combined ratio jnsurance margin (before tax) Fye8 FY99 FYGS «FYD? =FYO2 FYC3 Fyss FYOD «= FYDO «FYO! «FYO2 FYG3 + New COR target of 92 ~ 94% for FY04 mie Chew seal 25 cn en This is the fourth consecutive year of improvement in our short tail COR down from a high
Slide 25: Domestic short-tail performance
21/08/2003 Domestic short-tail performance Full year Full year Domestic short-tail ended ended June-01 June-02 CAS Net premium revenue Underwriting profit investment income on technical reserves ‘Tnsurance promt Insurance ratios Lass ratio Expense ratio '” Administration ratio Commission ratio Combi
Slide 26: Domestic long-tail ratios
Domestic long-tail ratios Combined ratio Insurance margin (before tax) vyYoseyORKYSD YER FOR ES e889 + New target COR of 100 ~ 105% for FY04 Cn se cc ee ed The long tail COR is up on last year but well within our new target zone of a COR of 100 to 105%. The important thing to note is that the loss r
Slide 27: Domestic long-tail performance
21/08/2003 Full year Full year Domestic tong-tail ended ended 6-02 Gross written premium ‘Gross earned premium Net premium revenue Underwriting profit Investment income on technical reserves! ‘surance profit Profit from fee based businesses ‘otal Tong-tail resul insurance ratios Loss ratio Expense r
Slide 28: International performance
21/08/2003 International performance Fullyear Full year Full year i International operations ended ended June-01 June-02 RS) D Gross written pre Gross earned premium Net premium revenue Underwriting profit/(loss) Investment income on technical reserves nsurance profi Insurance ratios Loss ratio Expe
Slide 29: Retirement Services
Retirement Services Fult year Fullyear Full year ClearView Retirement Sojutions ended ended ended Ri 02 June-0: Net profit before statutory fund and income tax Funds uncer management Life embedded value Note: $30m in dividends paid out of the Life company + ClearView results impacted by investment m
Slide 30: MCR multiple
MCR multiple Insurance Coverage of regulatory capital requirements {AG Group Australia un-03 30-Jun-03 Tier 1 capital Paid-up ordinary shares Hybrid equity Reserve Retained earnings Excess technical provisions (net of tax) Less: deductions Tier 2 capital Term subordinated notes: Capitai base Minimum
Slide 31: FY04 outlook
21/08/2003 FY04 outlook © . Consider organic growth of 7 — 9% achievable — Continued robust economy/GDP growth ~ Moderate premium rate increases reflecting claims inflation Focused on organic growth and improved efficiency Upgraded COR targets for FY04 to maintain insurance margins in 9 — 12% range
Slide 32: Platform for ongoing value delivery
Platform for ongoing value delivery © 1AG . Business now has scale and momentum . Supported by robust capital and risk management . Customer focus being enhanced to improve service and loyalty Technology transformation to deliver step change in value in 2 — 3 years Our people and culture being devel
Slide 33: Questions
Questions Be Insurance Australia Group Linled ABI GC O80 739 923 21/08/2003 32
Insurance Australia Group — FY2003 Earnings Presentation on 6ix