Insurance Australia Group Ltd · ASX:IAG
Insurance Australia — FY2004 Earnings Presentation
28 slides from Insurance Australia's earnings presentation, Aug 19, 2004
Slide 1: Financial results
Financial results Full-year ended 30 June 2004 Michael Hawker, Chief Executive Officer George Venardos, Chief Financial Officer 19 August 2004 ineorance ferare WEE a shee . f “es NEMA SGIO cou & os Bag ce enseeance Good morning. Welcome to the Insurance Australia Group FY04 results briefing. Copies
Slide 2: Agenda
Agenda * Overview of results and financial position Michael Hawker * Dividends * Integration update George Venardos * Segmental analysis * Capital and ROE * Strategic targets & short-term outlook Michael Hawker * Conclusion & questions niga soto sive ‘ The presentation will follow our usual format a
Slide 3: Our operating environment
Our operating environment * Continuing regulatory change — FSR implementation — Potts and Davis reviews — Terrorism insurance pool implemented — 39 changes to legislation — Draft APRA Stage II reforms * Outcomes versus business expectations — Motor accident frequency under long-term averages — Major
Slide 4: Highlights of improved performance
Highlights of improved performance © * Group Gross Written Premium of $6.4bn — More than double $2.6bn at listing four years ago * Insurance margin of 13.5%, up from 12.3% for FY03 — Exceeding long-term target range of 9~12% — Includes 15.2% for 2HO4 (11.8% for 1HO4) — Reflects a confluence of favou
Slide 5: Financial position strong
Financial position strong © * Net cash generated from operations exceeded $1.1bn for FY04 * Reported ROE for ordinary shareholders of 21.1% for FY04 — Normalised ROE of 15.1% for FY04 (12.9.% for FY03) Average ROE for the four years since listing — Reported 7.6% ~— Normalised 12.1% * Very strong cap
Slide 6: Annual dividend increased by 91%
Annual dividend increased by91% @) IAG * Increased dividend payout — all fully franked ‘ — Final dividend 14 cents per share (Final ‘03: 7.0 cps) — Annual dividend per share up 91% to 22 cps * Full year dividend payout represents 68% of normalised profits — Atthe upper end of policy range of 50 — 70
Slide 7: Financial results overview
Financial results overview © IAG is Full-year Haif-year Half-year — Full-year| Financial resultsiratios ended ended — ended. ended Jun-03 Dec-02 _ Jun-04 Jun-04) Net earned premium (ASm) : $2,912 $2,954 insurance profit (A$m) 2 $344 $448 Sharehoiders’ funds investment income (A$m) 12 $204 $230 $484
Slide 8: Growth in business versus premium
Growth in business versus premium © IAG * Gross written premium increased 25% on FY03 to $6,427m FY03 reported $5,150m Add annualised CGU and NZI GWP ($1,291m for 2H03) Exclude FY03 health insurance GWP of $173m Re-based FY03 GWP of $6,268m * Underlying growth in GWP is 2.5% * Risks in force (exclud
Slide 9: Contributions to profit before tax
Contributions to profit before tax © Components of IAG EBITDA (excl OE!) 800 $o5m ($54m) $142m $263m $559m $718m 700 : 600 500 - 100 300 Z 200 33. 100 (100) 9} {27) (21) (200} (300} 1He2z 2Ho2 4H03 2Ho3 4HO4 2H04 Minsurance result Winvestment retum on shareholder funds MOperating margin (excluding i
Slide 10: Combined ratio components
Combined ratio components © IAG Expense ratio Loss ratio (inet comics an satio ) esis ever sem NEM PCa wyee vou Yoo YO? FYoz ByEe IHN He FYOA Expense ratio woes Combined ratio + New business investments * Data cleansing + IT transformation + Integration expenses HyBR FYE YEO H¥eS Kya ema 64 This sli
Slide 11: Insurance margin exceeding long-term target range
Insurance margin exceeding long-term target range Insurance margin (pre-tax) Half-veers. E Full years 1B.0% | 8.0% 9.4% 16.7% 9.9% 11.8% 45.2% 7.6% 8.7% 12.3% 13.5% 16.0% 14.0% 12.0% 10.0% 8.0% 6.0% 4.0% 2.0% 0.0% (2.0%} (4.0%) Long tern target range of 92-42% 4H02 2HO2 1HO3 2HO3 4HO4 2HO4 gFYG1 FYO
Slide 12: Significant improvement in investment returns
Significant improvement in investment returns 2 ey Shareholders’ funds (126) (6.5%) Boe Total investment mcome aap 21% Oh a% 607, 3. B.1% * Returns for 1HO4 anc 2H04 are annualised. ° The technical reserves return of 3.8% includes active return of 68 basis points for the year * Shareholders’ funds r
Slide 13: Another improved result
Another improved result * Reported profit of $665m for shareholders * Growth in premium rates slowed but out-paced by volume growth * Operating performance exceeding Group targets supported by — The industry environment — Lower claims frequency — improved internal performance * Result boosted by pro
Slide 14: CGU & NZI integration
© CGU & NZI integration ineorance ferare WEE a alia soe * r¢ “Ke NEMA SGIO cou & os Bag ce enseeance Hand-over to George Venardos, CFO.
Slide 15: The integrated Group
The integrated Group * Integration programme essentially complete * Annual pre-tax synergies of $156m now in run-rate — balance in 1HO5 * Integrated operations re-organised to align on customer lines L General insurance i Austratia International inns pe , ‘ ; SGIO CGU NEMA SIO See \SS' snstemance li
Slide 16: Synergy realisation schedule
Synergy reatisation schedule Half-year Haif-year Half-year Half-year Annual ended ended «= ended = ended ~—racurring Jun-03 DenO3 = dun4—dun-04 Cumutative run-rate per. Personal lines Commmierciat IT, shared serviegs & overheads Australia sub-total International - New Zeatand Total synergies in run-
Slide 17: Segment analysis
Segment analysis ineorance ferare WEE a shee . f “es NEMA SGIO cou & os Bag ce enseeance The new basis on which we are reporting the segments is based on our business model. This segmentation delivers groupings which are far more diversified and therefore more robust when it comes to assessing goodw
Slide 18: Australian personal lines
Australian personal lines © Full-year Half-year Haif-year ended = ended ended Dec-03) June-04 Net premium revenue Underwriting profit insurance profit Loss ratio Expense ratio Administration ratio Commission ratio Combined ratio Insurance margin (before fax * Focus on customer and claims initiatives
Slide 19: Australian commercial lines
Australian commercial lines y Full-year Half-year Half-year Full-year IAG Australian Commercial Lines ended ended ended dune-03 Dec-03 June-04 un g Net premium revenue Underwriting profit insurance profit Profit from fee based business Total commercial tine result Loss fatio Expense ratio Administra
Slide 20: International performance
International performance Full-year Half-year Half-year International operations ended ended ended dun-04 LLAMAS Z Bai Gross written premiu: Net premium revenue Underwriting profit insurance prott insurance ratios Loss ratio Expense ratio Administration ratio Commission ratio Combined ratio Insuranc
Slide 21: Capital and ROE
Capital and ROE ineorance ferare WEE a alia shee . f “es NEMA SGIO cou & os Bag ce enseeance
Slide 22: MCR multiple
MCR multiple © £2 Fo at Dope DecO5. oe its Sint AER Tier 1 capitat oe Paid-up ordinary shares oo 1.286 268 1,286 Hybrid equity 639 - 38 - Reserves 8 “ae - Retained eamings'"! cag 2443, 2,308 Excess technical provisions {net of tax) ant 336 Br 326 Less: deductions es (1.403) 4.663) (4.158) 2ai4 2662
Slide 23: Improvement in return on equity
Improvement in return on equity © IAG Return on Squity 16.0% Target 13-15% s FYOt Fy02 FYO3 FYO4 POE (Actual) atirbutable to ordinary shareholders IEAOE (Normaiised) attributable to ordinary starehotlers Note: Normatised calculation was based on two adjustments to actual NPAT to ordinary shareholder
Slide 24: Strategic targets & short-term outlook
Strategic targets & short-term outlook Hand back to Mike Hawker, CEO. 24
Slide 25: Updated strategic financial goals
Updated strategic financial goals * Top quartile total shareholder return ~ TSR goal remains unchanged ~— Subsequent goals should be looked as interdependent goals to deliver the TSR goal ROE of at least 1.5x WACC on normalised basis — Do not expect to sustain more than 1.6x WACC as a return on ordi
Slide 26: Short-term outlook for FY05
Short-term outlook for FY05 © * NEP growth expected to be in 5 ~7% range — Focus on policy growth at prices that deliver target return on WACC — Overall rate increases expected to be lower than in recent years * Organic business has considerable income generating opportunities — Policy growth remain
Slide 27: To summarise ...
To summarise ... eaeeaaararararareereeneemaamy | [iite=- * Broad based financial * Focused on general institution insurance * Many cultures * Aligned & unified culture + Significant market * Diversified business concentration + Shareholders’ funds income + Profitability based on risk base larger tha
Slide 28: Questions
Questions ponte +, niin = SGtO enseeance emp s4 lia Group Limited 3 28
Insurance Australia Group — FY2004 Earnings Presentation on 6ix