Insurance Australia Group Ltd · ASX:IAG

Insurance Australia — FY2012 Earnings Presentation

39 slides from Insurance Australia's earnings presentation, Aug 23, 2012

  1. Slide 1: Financial Results Full Year Ended 30 June 2012

    23 August 2012 ABN 60 090 739 923 For personal use only FINANCIAL RESULTS FULL YEAR ENDED 30 JUNE 2012 Mike Wilkins Nick Hawkins Managing Director and Chief Financial Officer Chief Executive Officer

  2. Slide 2: Important Information

    IMPORTANT INFORMATION For personal use only This presentation contains general information in summary form which is current as at 23 August 2012. It presents financial information on both a statutory basis (which has been prepared in accordance with Australian accounting standards, which comply with

  3. Slide 3: Group Results

    For personal use only GROUP RESULTS Mike Wilkins Managing Director and Chief Executive Officer

  4. Slide 4: Highlights: Guidance Delivered and Outlook Positive

    HIGHLIGHTS GUIDANCE DELIVERED AND OUTLOOK POSITIVE For personal use only DELIVERED PROFITABLE GROWTH  Gross written premium (GWP) growth of 11.7%, ahead of 8-10% guidance IN LINE WITH GUIDANCE  Insurance margin of 10.6%, in line with guidance despite peril and credit spread impacts STRONG BUSINESS

  5. Slide 5: Financial Summary

    FINANCIAL SUMMARY SIGNIFICANT UPLIFT ACROSS KEY MEASURES For personal use only FY11 FY12 CHANGE GWP ($M) 8,050 8,992 11.7% NET EARNED PREMIUM ($M) 7,238 7,843 8.4% INSURANCE PROFIT ($M) 660 832 26.1% REPORTED MARGIN (%) 9.1 10.6 150bps NET PROFIT AFTER TAX ($M) 250 207 -17.2% CASH NPAT ($M) 496 583

  6. Slide 6: Financial Summary: NPAT Affected by Investment Markets and UK Intangibles

    FINANCIAL SUMMARY NPAT AFFECTED BY INVESTMENT MARKETS AND UK INTANGIBLES For personal use only SHAREHOLDERS’ FUNDS INCOME  Shareholders’ funds return of $89m (FY11: $213m) REFLECTS WEAKER EQUITY – 2H12 profit of $119m MARKETS – S&P ASX200 Accumulation Index delivered a negative full year return of

  7. Slide 7: FY12 Reported Insurance Margin

    FY12 REPORTED INSURANCE MARGIN QUALITY BUSINESS RESULT IN CHALLENGING CONDITIONS For personal use only REPORTED INSURANCE MARGIN – FY12 VS FY11 KEY POINTS  Improved margin of 10.6% (FY11: 9.1%) 900 10.6% – 2H12 margin of 14.0% 800  Stronger performances from CGU, New 700 9.1% Zealand and the UK 38

  8. Slide 8: FY12 Underlying Insurance Margin

    FY12 UNDERLYING INSURANCE MARGIN FURTHER IMPROVEMENT EVIDENT For personal use only UNDERLYING INSURANCE MARGIN – FY12 VS FY11 KEY POINTS  Further improvement in underlying margin reflects: – Pass through of higher reinsurance costs via rate increases – Improvement in UK – Ongoing business improveme

  9. Slide 9: Performance Driven by Focus on Strategy

    PERFORMANCE DRIVEN BY FOCUS ON STRATEGY SIGNIFICANT PROGRESS For personal use only ACCELERATE GROWTH IN  Strong growth in Australia Direct from rate increases and volume gains AUSTRALIA AND NEW ZEALAND  Significant top line growth in CGU from rate increases and acquisitions  Strong GWP growth in

  10. Slide 10: Divisional Performance

    For personal use only DIVISIONAL PERFORMANCE 1 RACV is via a distribution relationship and underwriting joint venture with RACV Limited. 2 RACV has a 30% interest in The Buzz Insurance. Refer to final slide for ownership details

  11. Slide 11: Australia Direct: Continued Strong Growth

    AUSTRALIA DIRECT CONTINUED STRONG GROWTH For personal use only GWP GROWTH 1H12 2H12 FY12 KEY POINTS Motor 5.7% 9.9% 7.8%  Strong GWP growth of 10.5% from rate and volume gains Home 16.7% 24.0% 20.4% – Motor up 7.8% Total Short Tail 9.8% 15.0% 12.5% – Home up 20.4% Long Tail 5.2% 5.5% 5.4% – Long ta

  12. Slide 12: Australia Direct: Continued Strong Performance

    AUSTRALIA DIRECT CONTINUED STRONG PERFORMANCE For personal use only KEY METRICS FY12 CHANGE KEY POINTS  Insurance margin of 14.3% (FY11: 19.5%) Gross written premium ($m) 4,299 10.5% – Net natural peril claim costs increased by over $200m Insurance result ($m) 544 22.5% – Lower reserve releases Ins

  13. Slide 13: Australia Intermediated (CGU)

    AUSTRALIA INTERMEDIATED (CGU) CONTINUED IMPROVEMENT IN UNDERLYING PERFORMANCE For personal use only KEY METRICS FY12 CHANGE KEY POINTS  GWP growth of 12.0% Gross written premium ($m) 2,759 12.0% – Bolt-on acquisitions Insurance result ($m) 258 84.3% – Rate increases Insurance margin (%) 10.8 430bps

  14. Slide 14: 'One CGU' Operating Model

    ‘ONE CGU’ OPERATING MODEL SIGNIFICANT PROGRESS MADE ON IMPLEMENTATION For personal use only Capture benefits Transition and ONGOING TO  embed model END OF FY15 ACHIEVEMENTS: New structure  Established CGU Service  live Centre COMPLETED  Integrated two personal Senior MARCH 2012 lines platforms 

  15. Slide 15: New Zealand: Strong Recovery Continues

    NEW ZEALAND STRONG RECOVERY CONTINUES For personal use only KEY METRICS FY12 CHANGE KEY POINTS  GWP growth of 26.6% (24.4% in local currency terms) Gross written premium ($m) 1,210 26.6% – Significant rate increases Insurance result ($m) 103 large – Volume growth in NZI – 3 month contribution from

  16. Slide 16: United Kingdom: Close to Breakeven

    UNITED KINGDOM CLOSE TO BREAKEVEN For personal use only KEY METRICS FY12 CHANGE KEY POINTS  GWP decline of 9.0% (4.4% in local currency terms) Gross written premium ($m) 497 9.0% – Rate increases Insurance result ($m) (13) large – Exit from unprofitable segments and broker relationships Insurance m

  17. Slide 17: Asia: Established Businesses Performing Well

    ASIA ESTABLISHED BUSINESSES PERFORMING WELL For personal use only EXPANDING ASIAN FOOTPRINT KEY POINTS  Established businesses performing strongly at underlying level – AmG (Malaysia) insurance margin of 18.1% – Thai loss of $59m owing to severe flood event, but improved underlying margin (9%) and

  18. Slide 18: Capital and Investments

    For personal use only CAPITAL AND INVESTMENTS Nick Hawkins Chief Financial Officer

  19. Slide 19: Regulatory Capital: Robust Position

    REGULATORY CAPITAL ROBUST POSITION, ABOVE LONG TERM BENCHMARK For personal use only REGULATORY CAPITAL (MCRx) KEY POINTS  MCR of 1.74 times – Above long term benchmark of 1.45– 1.50 times – Pro forma 1.71 times, allowing for Kurnia acquisition  Strengthened position since 31 December 1.74 2011, fr

  20. Slide 20: Regulatory Capital: Remains Strong Under LAGIC

    REGULATORY CAPITAL REMAINS STRONG UNDER LAGIC For personal use only 30 JUNE 2012 30 JUNE 2012 PRO FORMA KEY POINTS POST-KURNIA  Capital position remains strong under LAGIC  More onerous treatment of JV investments proposed  Common Equity Tier 1 (CET1) requirement reduced to 0.6 of the 4,402 4,200

  21. Slide 21: Regulatory Capital: Group Benchmarks Under LAGIC

    REGULATORY CAPITAL GROUP BENCHMARKS UNDER LAGIC For personal use only 30 JUNE 2012 KEY POINTS  LAGIC regime benchmarks: – Total capital target range of 1.4 – 1.6 times the PCA – CET1 target range of 0.9 – 1.1 times the PCA  Intention to operate within these ranges in medium term  Post-Kurnia posi

  22. Slide 22: Capital Management

    CAPITAL MANAGEMENT ACTIVE AND INNOVATIVE APPROACH For personal use only 1H11 2H11 1H12 2H12 KEY POINTS CAPITAL MIX $m $m $m $m  Debt to total capitalisation of 38.3%, Shareholder equity 4,658 4,580 4,513 4,524 within 30-40% target range Intangibles and goodwill (1,853) (1,869) (1,887) (1,850)  Act

  23. Slide 23: Reinsurance Expense Ratio Expected to Stabilise

    REINSURANCE EXPENSE RATIO EXPECTED TO STABILISE For personal use only GROUP REINSURANCE EXPENSE KEY POINTS  FY12 reinsurance expense of $734m (FY11: 800 8.2% 9.0% $620m), includes: 7.7% 700 7.1% 8.0% – Reinstatement costs of $110m 600 6.3% 6.2% 6.3% 6.3% 6.0% 6.2% 7.0% – Rate increase on 2012 catas

  24. Slide 24: Reinsurance Catastrophe Cover

    REINSURANCE CATASTROPHE COVER For personal use only $m 4700 Australia/NZ KEY POINTS Earthquake (3 years from 1  Comprehensive Group catastrophe programme in 4200 Jan 2012) place – calendar year basis  Standalone AMI programme renewed 1 July 2012 – Main cover up to NZ$1.3bn, including one Main Cata

  25. Slide 25: Reserve Releases

    RESERVE RELEASES RECURRING ELEMENT EQUIVALENT TO 1% OF NEP For personal use only GROUP RESERVE RELEASES (% NEP) KEY POINTS  FY12 releases of $229m (FY11: $328m) – 9% equivalent to 2.9% of NEP 8% 7%  Driven by favourable experience in 6% Australian long tail classes 5%  Predominantly from central

  26. Slide 26: Investment Portfolio

    INVESTMENT PORTFOLIO CONSERVATIVE MIX AND HIGH CREDIT QUALITY For personal use only TOTAL INVESTMENT GROUP ASSET ALLOCATION SHAREHOLDERS’ FUNDS PORTFOLIO – $13.0BN 12% 19% $3.6bn Fixed Interest and Cash Fixed Interest and Technical Reserves Cash Equities Shareholders' Funds Growth 21% 60% Alternativ

  27. Slide 27: Investment Returns

    INVESTMENT RETURNS AFFECTED BY VOLATILE MARKETS For personal use only INVESTMENT INCOME ($M) TECHNICAL RESERVE RETURNS 1100  Higher FY12 performance, reflecting stronger 900 bond market 700  Widening credit spread impact of $70m 500  Continue to target 100bps of return above risk free rate 300 

  28. Slide 28: Outlook

    For personal use only OUTLOOK Mike Wilkins Managing Director and Chief Executive Officer

  29. Slide 29: FY13 Outlook

    FY13 OUTLOOK MOMENTUM EXPECTED TO CONTINUE For personal use only GUIDANCE FY13 GWP growth 9-11% Insurance margin 11-13% GUIDANCE FOR FY13 ASSUMES:  Net losses from natural perils in line with budgeted allowances of $640m (FY12: $580m)  Reserve releases 1-2% of NEP (FY12: 2.9%)  No material moveme

  30. Slide 30: Questions

    For personal use only QUESTIONS

  31. Slide 31: Ownership Details

    For personal use only 100% owned unless indicated. 1 RACV is via a distribution relationship and underwriting joint venture with RACV Limited. 2 IAG owns 30% of AAA Assurance Corporation, based in Vietnam. 3 IAG owns 20% of Bohai Property Insurance Company Ltd, based in China. 4 IAG owns 49% of the

  32. Slide 32: Appendix - Group Performance

    APPENDIX - GROUP PERFORMANCE 1H11 2H11 1H12 2H12 FY11 FY12 Insurance Ratios 1H11 2H11 1H12 2H12 FY11 FY12 For personal use only GROUP RESULTS $m $m $m $m $m $m Loss ratio 63.6% 77.4% 78.3% 69.5% 70.3% 73.8% Gross written premium 3,936 4,114 4,318 4,674 8,050 8,992 Immunised loss ratio 66.4% 75.5% 70

  33. Slide 33: Appendix - Divisional Performance

    APPENDIX - DIVISIONAL PERFORMANCE For personal use only FY11 FY12 Insurance Insurance Insurance Insurance GWP GWP Profit/(Loss) Margin Profit/(Loss) Margin DIVISIONAL PERFORMANCE $m $m % $m $m % Australia Direct 3,891 702 19.5 4,299 544 14.3 Australia Intermediated (CGU) 2,463 140 6.5 2,759 258 10.8

  34. Slide 34: Appendix - Divisional Insurance Margin

    APPENDIX - DIVISIONAL INSURANCE MARGIN For personal use only 1H11 2H11 1H12 2H12 FY11 FY12 INSURANCE MARGIN % % % % % % Australia Direct 19.4 19.7 12.3 16.2 19.5 14.3 Australia Intermediated (CGU) 14.3 (1.3) 6.7 14.9 6.5 10.8 New Zealand 19.8 (23.3) 7.3 13.0 0.4 10.4 Total Australia and New Zealand

  35. Slide 35: Appendix - Australia Direct

    APPENDIX - AUSTRALIA DIRECT 1H11 2H11 1H12 2H12 FY11 FY12 GWP ($M) / INSURANCE MARGIN (%) For personal use only FINANCIAL RESULTS $m $m $m $m $m $m Gross written premium 1,919 1,972 2,080 2,219 3,891 4,299 19.4% 19.7% 19.5% Gross earned premium 1,877 1,902 1,996 2,076 3,779 4,072 16.2% Reinsurance e

  36. Slide 36: Appendix - Australia Intermediated (CGU)

    APPENDIX - AUSTRALIA INTERMEDIATED (CGU) 1H11 2H11 1H12 2H12 FY11 FY12 GWP ($M) / INSURANCE MARGIN (%) For personal use only FINANCIAL RESULTS $m $m $m $m $m $m Gross written premium 1,177 1,286 1,330 1,429 2,463 2,759 14.9% 14.3% Gross earned premium 1,170 1,170 1,307 1,326 2,340 2,633 Reinsurance

  37. Slide 37: Appendix - New Zealand

    APPENDIX – NEW ZEALAND 1H11 2H11 1H12 2H12 FY11 FY12 FINANCIAL RESULTS $m $m $m $m $m $m GWP ($M) / INSURANCE MARGIN (%) For personal use only Gross written premium 472 484 538 672 956 1,210 19.8% Gross earned premium 484 463 517 623 947 1,140 13.0% Reinsurance expense (29) (90) (63) (86) (119) (149

  38. Slide 38: Appendix - United Kingdom

    APPENDIX – UNITED KINGDOM 1H11 2H11 1H12 2H12 FY11 FY12 GWP ($M) / INSURANCE MARGIN (%) For personal use only FINANCIAL RESULTS $m $m $m $m $m $m Gross written premium 271 275 273 224 546 497 Gross earned premium 309 293 279 252 602 531 (1.9%) (2.6%) (3.3%) (2.0%) Reinsurance expense (16) (47) (21)

  39. Slide 39: Appendix - Asia

    APPENDIX – ASIA 1H11 2H11 1H12 2H12 FY11 FY12 IAG ASIA – GWP POOL ($M / % OF GROUP GWP) For personal use only FINANCIAL RESULTS $m $m $m $m $m $m Gross written premium 97 92 94 125 189 219 Gross earned premium 95 89 92 101 184 193 600 4.0% Reinsurance expense (17) (18) (19) (21) (35) (40) 3.5% Net e

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