Insurance Australia Group Ltd · ASX:IAG
Insurance Australia — Investor Presentation (July 2008)
38 slides from Insurance Australia's investor presentation, Jul 9, 2008
Slide 1: ASX cover letter: Investor Briefing Group Strategy and Trading Update
For personal use only 9 July 2008 Manager, Company Announcements Office ASX Limited Level 4, Exchange Centre 20 Bridge Street SYDNEY NSW 2000 Dear Sir/Madam, INSURANCE AUSTRALIA GROUP LIMITED (‘IAG’) INVESTOR BRIEFING: GROUP STRATEGY AND TRADING UPDATE Attached for immediate release to the market ar
Slide 2: Media release: IAG refines corporate strategy and moves to new operating model
MEDIA RELEASE 9 JULY 2008 IAG refines corporate strategy and moves to new operating model For personal use only Insurance Group Australia Limited (IAG) Chief Executive Officer Mr Michael Wilkins today outlined the Group’s plan to improve its largest businesses in Australia and New Zealand and pursue
Slide 3: Media release continued: dividends, FY09 outlook and executive changes
From the financial year 2009, dividends will be assessed around a target payout range of 50-70% of reported cash earnings, and will continue to be fully franked for the foreseeable future. For personal use only Mr Wilkins said the Group expected to generate underlying GWP growth of 3-5% for the year
Slide 4: Investor Briefing: Group Strategy and Trading Update
For personal use only INVESTOR BRIEFING: GROUP STRATEGY AND TRADING UPDATE Michael Wilkins Managing Director & Chief Executive Officer 9 July 2008 Insurance Australia Group Limited ABN 60 090 739 923
Slide 5: Important Information
For personal use only IMPORTANT INFORMATION The information in this presentation is an overview and does not contain all information necessary to an investment decision. The information contained in this presentation and accompanying materials has been prepared in good faith by IAG. No representatio
Slide 6: Agenda
For personal use only AGENDA 1 GROUP STRATEGY: REFINING OUR FOCUS 2 A NEW OPERATING MODEL 3 OUTCOMES OF OPERATIONAL REVIEW 4 COST INITIATIVES AND FINANCIAL IMPACT 5 TRADING UPDATE: FY08 AND FY09 6 TIMELINE AND SUMMARY PAGE 3
Slide 7: Group Strategy: Refining Our Focus
For personal use only 1 GROUP STRATEGY: REFINING OUR FOCUS
Slide 8: Our Business Remains General Insurance
For personal use only OUR BUSINESS REMAINS GENERAL INSURANCE OUR BUSINESS • General insurance products and services • A portfolio of high performing, customer- OUR focused, diverse operations providing CORPORATE general insurance in a manner that delivers INTENT superior experiences for our stakehol
Slide 9: We Will Actively Manage Our Portfolio
For personal use only WE WILL ACTIVELY MANAGE OUR PORTFOLIO OUR • Top quartile Total Shareholder Return (TSR) TARGETS • ROE > 1.5x WACC • Deliver superior performance by actively OUR managing our portfolio, exiting businesses STRATEGY that do not fit our intent or return hurdles, and driving operati
Slide 10: And Focus on Home Markets
For personal use only AND FOCUS ON HOME MARKETS • Improve our performance in Australia and New Zealand • Pursue selective international growth options – OUR STRATEGIC Asia and other narrow specialist opportunities PRIORITIES • A devolved model with the Corporate Office as portfolio manager • Driving
Slide 11: A New Operating Model
For personal use only 2 A NEW OPERATING MODEL
Slide 12: A New Way of Working
For personal use only A NEW WAY OF WORKING • Revised corporate strategy with a focus on execution and active management of our portfolio of general insurance businesses • This will drive change throughout our organisation, including our operating model - Devolved model with end-to-end businesses - S
Slide 13: Our Business Model
For personal use only OUR BUSINESS MODEL Australia – Australia Australia Australia –– New New Asia Asia United United eVentures eVentures Direct – Direct Intermediated Intermediate Zealand Zealand Kingdom Kingdom Insurance dInsurance Insurance Insurance (CGU) (CGU) ACTIVE PORTFOLIO MANAGEMENT & GOVE
Slide 14: New Management Structure
For personal use only NEW MANAGEMENT STRUCTURE MICHAEL WILKINS MANAGING DIRECTOR & CHIEF EXECUTIVE OFFICER NICHOLAS HAWKINS JUSTIN BREHENY CHIEF FINANCIAL OFFICER CHIEF EXECUTIVE OFFICER, ASIA LEONA MURPHY DUNCAN WEST GROUP EXECUTIVE, CHIEF EXECUTIVE OFFICER, CORPORATE OFFICE CGU [TO BE APPOINTED] C
Slide 15: Outcomes of Operational Review
For personal use only 3 OUTCOMES OF OPERATIONAL REVIEW
Slide 16: Australia - Direct Insurance: Accelerating Our Performance
AUSTRALIA - DIRECT INSURANCE ACCELERATING OUR PERFORMANCE For personal use only * • Unique franchise with leading brands and market positions; delivering acceptable returns on capital but potential to do much better - Focus is to optimise returns • Build greater customer understanding - Continue to
Slide 17: Australia - Intermediated Insurance: Focusing on the Fundamentals
AUSTRALIA - INTERMEDIATED INSURANCE FOCUSING ON THE FUNDAMENTALS For personal use only • Sound business with strong regional/rural market position, which requires a focus on business fundamentals and providing sustainable long-term returns - Commercial insurance currently at the bottom of cycle - Th
Slide 18: New Zealand: Improving Our Performance
NEW ZEALAND IMPROVING OUR PERFORMANCE For personal use only • Leading market shares but profitability affected by natural perils claims and large losses; further advanced in implementing cost savings and set to benefit from new technology platform • Improve the direct insurance business - Leverage n
Slide 19: United Kingdom: Narrowing Focus to Specialist Underwriter
UNITED KINGDOM NARROWING FOCUS TO SPECIALIST UNDERWRITER For personal use only • Equity Red Star is a profitable, specialist business, but private motor businesses affected by challenging market dynamics • Significant changes in the UK private motor market have been identified - Success of internet
Slide 20: Asia: Pursuing Growth Opportunities for the Future
ASIA PURSUING GROWTH OPPORTUNITIES FOR THE FUTURE For personal use only * • Strategy unchanged, continue to pursue selective growth opportunities in target markets • Pursue a pan-Asian strategy to deliver higher long-term growth and profitability - Increase our share in target markets - Organic grow
Slide 21: Asset Management and Reinsurance
For personal use only ASSET MANAGEMENT AND REINSURANCE • Asset Management and Reinsurance are integral to the efficient management of the Group’s capital resources • Asset Management no longer a separate business unit - No longer pursuing third party mandates - Now focussed on servicing IAG’s operat
Slide 22: Cost Initiatives and Financial Impacts
For personal use only 4 COST INITIATIVES AND FINANCIAL IMPACTS
Slide 23: Sustainable Reduction to Australian Cost Base
For personal use only SUSTAINABLE REDUCTION TO AUSTRALIAN COST BASE INITIATIVES • Devolving shared services functions to operating businesses • Rationalising roles in Australian businesses - Removing duplication and focusing on value-add activities • Leaner Corporate Office focused on governance and
Slide 24: Carrying Value of UK Assets
CARRYING VALUE OF UK ASSETS NOW RECOGNISES OUR MORE FOCUSED APPROACH For personal use only IMPAIRMENT *: • Impairment of UK identifiable intangible assets • Impairment of UK goodwill on acquisition FY08 IMPAIRMENT OF UK ASSETS $350m * Includes Alba and Diagonal PAGE 21
Slide 25: Trading Update
For personal use only 5 TRADING UPDATE
Slide 26: 2H08 Trading Conditions: Australia and New Zealand
For personal use only 2H08 TRADING CONDITIONS • Australia - Direct Insurance remains competitive but pricing is rational and rate increases are holding - Further rate increases expected in direct market reflecting rising claims costs and recent storm frequency experience - SME market remains very co
Slide 27: 2H08 Trading Conditions: United Kingdom and Asia
For personal use only 2H08 TRADING CONDITIONS • United Kingdom - Specialist motor classes continue to trade profitably and rate rises are holding - Private motor market remains soft and rates are taking longer to harden than expected - Private motor market remains highly competitive with continued g
Slide 28: FY08 Trading Update
For personal use only FY08 TRADING UPDATE Consolidated Preliminary FY08 result (not audited)* GWP growth 6% In line with the 5.5 – 6.5% revised guidance Net earned premium $7.3b Up from $6.7b in FY07 Insurance margin (excluding restructuring) 6 – 8% Expected to be at the bottom end of the 6 – 8% rev
Slide 29: FY08 Update
For personal use only FY08 UPDATE* • The outcomes of the operational review completed in late 2H08 will result in: - A restructuring provision of around $60m ($42m after tax) in relation to initiatives that will improve the operational efficiency of the business - Non-cash impairment charges of arou
Slide 30: Actively Managing Our Capital
For personal use only ACTIVELY MANAGING OUR CAPITAL • Strong capital position - MCR multiple is expected to be around 1.7x as at 30 June 2008 • APRA changes to asset based capital charges effective from 1 July 2008 will increase regulatory capital required to be held against certain investment class
Slide 31: Revised Dividend Policy
For personal use only REVISED DIVIDEND POLICY • A revised policy for dividends on ordinary shares of: - 50 – 70% of reported cash earnings - Expect to pay fully franked dividends for the foreseeable future - As at 30 June 2008 parent entity had around $450m of franking credits capable of fully frank
Slide 32: FY09 Outlook
For personal use only FY09 OUTLOOK FY09 Target* Underlying GWP growth 3-5% Group GWP growth 0-2% (Lower growth profile due to Group’s change in its UK strategy and the expected impact of the introduction of six-month CTP policies in NSW) Group insurance margin 10%+ (Now includes NSW Insurance Protec
Slide 33: Timeline and Summary
For personal use only 6 TIMELINE AND SUMMARY
Slide 34: Timeline
For personal use only TIMELINE Date Market announcement 9 July FY08 results announcement 22 August New management structure takes effect 29 August Final FY08 dividend - Record date 3 September - Dividend paid 3 October Majority of initiatives in place 30 September PAGE 31
Slide 35: In Summary
For personal use only IN SUMMARY • Refined corporate strategy and operating model - Remediate Australia and New Zealand - End-to-end businesses and tight portfolio management - Accountability and relentless focus on execution • Grow Asia and select opportunities • Efficiency programme to deliver $13
Slide 36: Our Major Brands
For personal use only OUR MAJOR BRANDS * ** * Via a distribution relationship and underwriting joint venture with RACV Limited PAGE 33 ** Not IAG wholly owned
Slide 37: Appendix
For personal use only PAGE 34 7 APPENDIX
Slide 38: Revaluation of RES Contingent Capital
REVALUATION OF RES CONTINGENT CAPITAL CERTAIN SOURCE OF CAPITAL IN CHALLENGING TIMES For personal use only • IAG’s Reset Exchangeable Securities (ASX:IANG) provide flexibility and certainty to access regulatory Tier 1 quality capital if needed - IAG has the right to exchange a $550m group liability,
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