Insurance Australia Group Ltd · ASX:IAG
Insurance Australia — H1 FY2010 Earnings Presentation
24 slides from Insurance Australia's earnings presentation, Feb 25, 2010
Slide 1: Financial results: Half year ended 31 December 2009
For personal use only Financial results Half year ended 31 December 2009 Mike Wilkins, Managing Director & Chief Executive Officer Nick Hawkins, Chief Financial Officer 25 February 2010 ABN 60 090 739 923
Slide 2: Important Information
IMPORTANT INFORMATION For personal use only The information in this presentation is an overview and does not contain all information necessary to an investment decision. It should be read in conjunction with IAG’s other periodic and continuous disclosure announcements lodged with the Australian Secu
Slide 3: Group results & divisional performance
For personal use only 1 Group results & divisional performance Mike Wilkins
Slide 4: Progressing to Plan
PROGRESSING TO PLAN Further improvement during 1H10 For personal use only • Improved result in 1H10 – Net profit after tax of $329m (1H09: $4m) – Underlying GWP grew 5.1% – Insurance profit increased to $488m (1H09: $227m) – Insurance margin of 13.4% (1H09: 6.2%) • More than half of margin expansion
Slide 5: Insurance Margin
INSURANCE MARGIN More than half of margin expansion from operational improvement For personal use only Group Insurance Margin (1H10 vs. 1H09) 1.1% 4.7% 3.1% 3.1% 0.1% 1.5% 13.4% 6.2% 1H09 Reported Reserve Natural Perils Credit Spreads DAC/LAT Running Yield Operational 1H10 Reported Margin Releases I
Slide 6: Key Insurance Ratios
KEY INSURANCE RATIOS Trending in the right direction For personal use only Expense ratio Loss ratio 29.9% 29.0% 90% 70.6% 30% 28.3% 3.1% 80% 65.0% 3.8% 3.6% 70.9% 25% 70% 9.7% 60% 20% 9.5% 9.4% 50% 15% 40% 83.8% 10% 30% 64.3% 64.1% 17.1% 15.7% 15.3% 20% 5% 10% 0% 0% 1H09 2H09 1H10 1H09 2H09 1H10 Adm
Slide 7: Divisional Results
DIVISIONAL RESULTS Positive contribution from all divisions For personal use only 1H09 2H09 1H10 INSURANCE PROFIT A$m A$m A$m Australia Direct 194 179 281 Australia Intermediated (7) 55 112 New Zealand (17) 17 68 UK Retained 77 36 24 Asia 9 - 2 Corporate & Other - - 3 Total Retained 256 287 490 Disc
Slide 8: Australia Direct
AUSTRALIA DIRECT Continued strong performance For personal use only GWP & Margin GWP (A$m) 1,800 16.9% 18% Key points 16% • GWP growth of 7.8% 1,750 12.6% 11.4% 14% – Across all States 12% 1,700 – Price and volume 10% 8% • Insurance margin of 16.9% 1,650 1,779 1,729 6% – Earned rate increases 4% 1,6
Slide 9: Australia Intermediated
AUSTRALIA INTERMEDIATED Turnaround on track For personal use only GWP & Margin Key points GWP (A$m) • Reported GWP down 3.6% 1,200 12% 10.2% 1,150 10% – ING withdrawal and St George transition 8% • Underlying GWP up 2% 1,100 1,050 1,198 1,159 5.0% 1,117 6% – Underwriting discipline 1,000 950 4% – Ra
Slide 10: New Zealand
NEW ZEALAND Strong turnaround in 1H10, building on 2H09 improvement For personal use only GWP & Margin Key points GWP (A$m) • GWP up 5% in local currency 500 20% • Insurance margin of 15% 480 15.0% 15% – Earned rate increases 460 10% – Improved underwriting discipline 440 482 483 472 420 4.0% – Bett
Slide 11: United Kingdom
UNITED KINGDOM Strong GWP growth, underlying insurance margin of 10% For personal use only GWP & Margin GWP (A$m) Key points 425 • GWP up 24% in local currency 25% 20.2% 400 20% – Average rate increases of 10% 375 406 15% – 15% growth in fleet and special risks 398 350 389 9.9% 10% • Reported insura
Slide 12: Asia
ASIA Strong operating performance, Indian JV investment completed For personal use only IAG Asia - GWP Pool (A$m) Key points 400 • GWP up 5.5% in local currency 300 • Regional GWP pool around $400m 200 • Thai and Malaysian businesses 100 performing well • Reported insurance margin lower 0 FY07 FY08
Slide 13: Capital, Investments, Dividend
For personal use only 2 Capital Investments Dividend Nick Hawkins
Slide 14: Balance Sheet
BALANCE SHEET Capital position further strengthened For personal use only MCR / Debt:Total Tangible Capitalisation MCR (x) As at 31 December 2009 2.50 43.3% 50% • Increased MCR multiple of 2.03 35.8% 45% 2.00 29.2% 40% – Improved financial performance 35% 1.50 30% – RES brought on-balance sheet foll
Slide 15: Reinsurance Protections
REINSURANCE PROTECTIONS Reducing earnings volatility For personal use only IAG CATASTROPHE COVER - 1 JANUARY 2010 • A key part of approach to capital $m management 4100 • Integrated programme of catastrophe cover on calendar year basis Main Catastrophe Programme (Prepaid – Main cover from $200m up t
Slide 16: Investments
INVESTMENTS Conservative mix and high credit quality For personal use only Group Investment Asset Allocation - $11.5bn Group Fixed Interest & Cash - $10.6bn Growth < "A" 8% 3% "A" 5% "AAA" 43% "AA" Fixed Interest 49% & Cash 92% • Conservative overall investment mix – 92% invested in fixed interest a
Slide 17: Investment Returns
INVESTMENT RETURNS Volatility easing For personal use only Investment income on technical reserves ($m) Investment income on shareholders' funds ($m) 800 100 700 80 600 60 40 500 20 1H09 400 0 300 (20) 1H09 2H09 1H10 (40) 200 (60) 100 (80) 1H08 2H09 A$m 0 (100) A$m 1H09 2H09 1H10 Investment income o
Slide 18: Reserve Releases
RESERVE RELEASES Trending down, but a recurring feature For personal use only Reserve Releases - Impact on Insurance Margin 10% 9% 8% 7% 6% 5% 4% 3% 2% 1% 0% 1H07 2H07 1H08 2H08 1H09 2H09 1H10 Prior year reserve releases - margin impact Expected long term reserve release level (0.5 - 1.0% NEP) • Res
Slide 19: Corporate & Other Expenses
CORPORATE & OTHER EXPENSES For personal use only EXPENSES 1H09 2H09 1H10 A$m A$m A$m Net corporate expenses (77) 55 8 Income tax expense 17 (82) (156) Amortisation and impairment (30) (35) (12) • Net corporate expenses profit of $8m (1H09: $77m net loss) – Primarily related to finalisation of divest
Slide 20: Return on Equity
RETURN ON EQUITY Targeted cash ROE of approximately 15% For personal use only Return on Equity (annualised) 17.0% 13.8% 8.2% 6.7% 0.2% 3.5% 1H09 2H09 1H10 Actual ROE attributable to holders of ordinary shares Cash ROE attributable to holders of ordinary shares • Reported ROE of 13.8% (1H09: 0.2%) •
Slide 21: Dividend
DIVIDEND Driven by increased cash earnings For personal use only 8.5cps interim dividend, fully franked Dividend Cents 10 • Equates to a cash payout ratio of 8 around 44% 6 4 8.50 2 4.00 6.00 • Full year dividend policy to pay out 50–70% 0 of cash earnings 1H09 2H09 1H10 • Cash earnings defined as N
Slide 22: Group outlook
For personal use only 3 Group outlook Mike Wilkins
Slide 23: FY10 Outlook
FY10 OUTLOOK Further improvement in underlying performance For personal use only • FY10 guidance revised FY10 Guidance Previous Updated Underlying GWP growth 3–5% 3–5% Reported GWP growth 1–3% 0% Insurance margin 9–11% 11.5–13.0% • Assumes: – Natural perils in line with budget allowance of $184m for
Slide 24: Our Business Model and Brands
OUR BUSINESS MODEL AND BRANDS For personal use only DIRECT INTERMEDIATED ONLINE DIRECT DIRECT INTERMEDIATED INSURANCE INSURANCE INSURANCE INSURANCE INSURANCE INSURANCE 2 3 4 UNITED KINGDOM NEW ZEALAND 5 AUSTRALIA ASIA INTERMEDIATED INTERMEDIATED INSURANCE INSURANCE OTHER 1 ACTIVE PORTFOLIO MANAGEMEN
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