Insurance Australia Group Ltd · ASX:IAG
Insurance Australia — FY2016 Earnings Presentation
32 slides from Insurance Australia's earnings presentation, Aug 19, 2016
Slide 1: Financial results: Full year ended 30 June 2016
For personal use only Financial results Full year ended 30 June 2016 Peter Harmer Nick Hawkins Managing Director and Chief Financial Officer Chief Executive Officer 19 August 2016
Slide 2: Important information
Important information For personal use only This presentation contains general information in summary form which is current as at 19 August 2016. It presents financial information on both a statutory basis (prepared in accordance with Australian Accounting Standards which comply with International F
Slide 3: Overview
For personal use only Overview Peter Harmer Managing Director and Chief Executive Officer
Slide 4: FY16 highlights
FY16 highlights Sound result, active capital management Reported and underlying margin For personal use only 14.3% GWP and reported margin in line with guidance 10.7% 2.5% ● Modest GWP contraction, reported margin of 14.3%* 14.0% 13.1% ● Strong underlying margin of 14.0% ● Solid growth and strong pr
Slide 5: Financials
For personal use only Financials Nick Hawkins Chief Financial Officer
Slide 6: Financial summary
Financial summary Cash ROE of 13.0% For personal use only FY15 FY16 CHANGE GWP ($M) 11,440 11,367 0.6% INSURANCE PROFIT ($M) 1,103 1,178 6.8% UNDERLYING MARGIN (%) 13.1 14.0 90bps REPORTED MARGIN (%) 10.7 14.3 360bps SHAREHOLDERS’ FUNDS INCOME ($M) 223 97 56.5% NET PROFIT AFTER TAX ($M) 728 625 14.1
Slide 7: Underlying insurance margin
Underlying insurance margin Quota share uplift of c.250bps For personal use only Insurance margin (reported vs underlying) ● Underlying margin of 14.0% (2H16: 13.7%) ● Favourable Berkshire Hathaway quota share effect of approximately 250bps ● Pressure on commercial lines in soft market 14.2% 14.0% e
Slide 8: Berkshire Hathaway quota share
Berkshire Hathaway quota share Reducing earnings volatility and capital requirement For personal use only CHANGE FY16 QUOTA SHARE IMPACT VS FY15 GWP ($M) 11,367 0.6% None REINSURANCE EXPENSE ($M) 3,183 166.1% Includes 20% of GEP attributable to BH NET EARNED PREMIUM ($M) 8,228 20.3% Reflects higher
Slide 9: Natural perils
Natural perils FY16 outcome above allowance following east coast low development For personal use only Natural perils experience vs. allowance ($m) ● FY16 perils cost $59m above allowance: 1,048 o ~$120m benefit from calendar 2015 210 aggregate cover in 1H16 o Attritional activity similar to FY15 on
Slide 10: Reserve releases
Reserve releases Offsetting CTP and earthquake effects For personal use only FY16 prior period net reserve releases ($m) 6.2% NEP 2.5% NEP $254m 3.7% NEP $207m $86m Group Consumer Business New Zealand -$149m -9.4% NEP ● Higher than expected releases from Australian long tail classes, notably CTP ● I
Slide 11: Capitalised software
Capitalised software Accelerated amortisation and impairment following detailed review For personal use only Review prompted by commencement ● Detailed review conducted, in light of: of IT systems simplification ○ Environment of unprecedented digital disruption ○ Commencement of IT systems simplific
Slide 12: Consumer Division
Consumer Division Solid growth and strong profitability, despite CTP pressures For personal use only ● GWP growth of 3.3% from: GWP by class ○ Solid growth in short tail motor and home from mix of rate and volume +4.3% +3.9% ○ Strong growth from Coles Insurance +3.3% ○ Flat CTP, as higher rates offs
Slide 13: Business Division
Business Division Tough operating environment, further signs of cycle bottoming For personal use only ● GWP contraction of 6.7%, reflecting: GWP/ Insurance margin ○ Lower volumes, as underwriting disciplines maintained 10.5% ○ Slightly lower average rates - diminishing impact 10.0% as modest rate ri
Slide 14: New Zealand
New Zealand Strong underlying performance, despite soft commercial market For personal use only ● GWP lower by 3.7% (2.6% in local currency): GWP/ Insurance margin ○ Sound growth in direct personal lines ○ Lower rates and increased competition in commercial ○ 2H16 local currency reduction restricted
Slide 15: Asia
Asia Improved profit contribution and good growth in proportional GWP For personal use only ● An important long term growth opportunity focused on Financial contribution by country our chosen markets: 800 800 ○ Strong organic growth prospects 700 65 700 600 55 ○ Participation in industry consolidati
Slide 16: Capital
Capital Strong capital position For personal use only PCA movement since 31 December 2015 ● PCA of 1.72 – above 0.06 benchmark range (1.4- 2 1.6) 0.19 0.05 0.09 0.02 0.03 ● CET1 of 1.06 – upper end of benchmark 2 range (0.9-1.1) ● Full year quota share 1.80 1.72 impact of 13bps (~$400m) 1 1 Dec-15 2
Slide 17: Share buy-back
Share buy-back $300m off-market buy-back, via tender process For personal use only Part of IAG’s ● Expected to enhance future EPS and ROE active capital ● Estimated to represent over 2% of outstanding issued capital management ● Eligible shareholders with a registered address in Australia or New Zea
Slide 18: Strategy progress and outlook
Strategy progress and For personal use only outlook Peter Harmer Managing Director and Chief Executive Officer
Slide 19: Strategy context
Strategy context For personal use only Our purpose We make your world a safer place Our opportunity Embrace innovation Our objective World class customer experiences 19
Slide 20: Our two strategic themes
Our two strategic themes IAG will deliver on its purpose and objective by focusing on two key For personal use only strategic themes 1 2 leading fuelling IAG has made a strategic decision to To fuel the investments in our leadership, embrace innovation, and to help customers we need to be leaner and
Slide 21: Driving customer and business benefits
Driving customer and business benefits Two strategic themes covering the range of work needed For personal use only Leading drivers Fuelling drivers 1. Digitally-enabled customer experiences 1. Operational effectiveness 2. Partnering for success 2. Maximise efficiency and expand use of supply chain
Slide 22: Shareholder value proposition
Shareholder value proposition Delivering strong shareholder returns For personal use only Investment Value Shareholder case drivers value Through-the-cycle returns • Leading player with scale FUELLING drivers advantage in Australia and New (short to medium Zealand (low single digit growth) term) 1.5
Slide 23: FY17 guidance
FY17 guidance Continuation of sound operating performance For personal use only ● Relatively flat GWP growth expectations: FY17 guidance o Sound growth in short tail personal lines GWP growth Relatively flat o Entry into South Australian CTP market Reported insurance margin 12.5-14.5% o Continued to
Slide 24: We make your world a safer place
We make your world a safer place For personal use only 24
Slide 25: Appendix – Group Results
Appendix – Group Results 1H15 2H15 1H16 2H16 FY15 FY16 For personal use only GROUP RESULTS A$m A$m A$m A$m A$m A$m Gross written premium 5,603 5,837 5,543 5,824 11,440 11,367 Gross earned premium 5,805 5,720 5,734 5,677 11,525 11,411 Reinsurance expense (651) (545) (1,632) (1,551) (1,196) (3,183) Ne
Slide 26: Appendix – Group Ratios and Key Metrics
Appendix – Group Ratios and Key Metrics Insurance Ratios 1H15 2H15 1H16 2H16 FY15 FY16 For personal use only Loss ratio 67.5% 66.9% 63.1% 68.1% 67.2% 65.6% Immunised loss ratio 63.7% 67.0% 62.7% 65.4% 65.3% 64.0% Expense ratio 27.3% 27.9% 26.2% 25.2% 27.6% 25.7% Commission ratio 10.1% 10.0% 10.3% 9.
Slide 27: Appendix – Insurance Profit Reconciliation
Appendix – Insurance Profit Reconciliation CAPITALISED MANAGEMENT For personal use only RUN-OFF SOFTWARE RESULTS STATUTORY PORTFOLIO ACCELERATED (NON IFRS PER RESULTS REINSURANCE AMORTISATION INVESTOR CONSOLIDATED (IFRS) PROTECTION AND IMPAIRMENT REPORT) A$m A$m A$m A$m Gross earned premium 11,411 -
Slide 28: Appendix – Divisional Performance
Appendix – Divisional Performance For personal use only FY15 FY16 GWP INSURANCE MARGIN GWP INSURANCE MARGIN Reported Growth Reported Underlying Reported Growth Reported Underlying DIVISION A$m % % % A$m % % % Consumer Division 5,614 5.2 15.9 13.9 5,801 3.3 19.8 16.0 Business Division 3,192 40.7 3.0
Slide 29: Appendix – Consumer Division
Appendix – Consumer Division For personal use only 1H15 2H15 1H16 2H16 FY15 FY16 GWP ($M) / INSURANCE MARGIN (%) CONSUMER DIVISION RESULTS A$m A$m A$m A$m A$m A$m Gross written premium 2,802 2,812 2,848 2,953 5,614 5,801 Gross earned premium 2,814 2,780 2,834 2,852 5,594 5,686 24.6% 19.8% Reinsuranc
Slide 30: Appendix – Business Division
Appendix – Business Division For personal use only 1H15 2H15 1H16 2H16 FY15 FY16 GWP ($M) / INSURANCE MARGIN (%) BUSINESS DIVISION RESULTS A$m A$m A$m A$m A$m A$m Gross written premium 1,514 1,678 1,419 1,560 3,192 2,979 Gross earned premium 1,673 1,594 1,597 1,525 3,267 3,122 Reinsurance expense (1
Slide 31: Appendix – New Zealand
Appendix – New Zealand For personal use only 1H15 2H15 1H16 2H16 FY15 FY16 GWP ($M) / INSURANCE MARGIN (%) NEW ZEALAND RESULTS A$m A$m A$m A$m A$m A$m 19.2% Gross written premium 1,116 1,151 1,070 1,112 2,267 2,182 Gross earned premium 1,148 1,151 1,101 1,100 2,299 2,201 Reinsurance expense (143) (1
Slide 32: Appendix – Asia Division
Appendix – Asia Division For personal use only 1H15 2H15 1H16 2H16 FY15 FY16 IAG ASIA GWP FY16 - ASIA RESULTS A$m A$m A$m A$m A$m A$m PROPORTIONAL BASIS Gross written premium 164 189 197 189 353 386 Gross earned premium 163 187 193 193 350 386 Reinsurance expense (19) (22) (57) (54) (41) (111) Net e
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