Insurance Australia Group Ltd · ASX:IAG
Insurance Australia — FY2003 Earnings Presentation
32 slides from Insurance Australia's earnings presentation, Aug 21, 2003
Slide 1: Financial results Year ended 30 June 2003
Financial results Year ended 30 June 2003 Michael Hawker, Chief Executive Officer George Venardos, Chief Financial Officer 21 August 2003 Insurance Australia Group Limited ABN 60 090 739 923
Slide 2: Agenda
Agenda 1. Performance overview Michael Hawker 2. Capital protection & position Michael Hawker 3. Returns & dividend Michael Hawker 4. CGU/NZI performance George Venardos 5. Integration update George Venardos 6. Segment analysis George Venardos 7. MCR multiple George Venardos 8. Conclusion & question
Slide 3: Overview of performance
Overview of performance Michael Hawker, Chief Executive Officer Insurance Australia Group Limited ABN 60 090 739 923
Slide 4: A watershed year
A watershed year • Strengthened strategic position • Diversified risk profile • Improved levels of new business and customer retention • Reduced operating costs • Maintained a very strong balance sheet - rated AA Insurance Australia Group Limited ABN 60 090 739 923 4
Slide 5: Improved business performance
Improved business performance • Gross written premium up 45% to $5.2bn – Includes $1.3bn from CGU/NZI – 9% organic growth, including Australian policies in force growth of 5% • Administration ratio decreased to 18.4% from 18.7% • Combined ratio stable at 95.7% versus 95.6% – Integration expenses add
Slide 6: Overview of FY03 – a successful year
Overview of FY03 – a successful year • Net profit after tax of $153m (loss of $25m in FY02) reflecting – Increase in the size of the business – 6 months of CGU/NZI results – Improved business performance – Reduced losses from equity markets • Strong capital position restored on successful completion
Slide 7: Financial results overview
Financial results overview Full year Full year Full year Financial results/ratios ended ended ended June-01 June-02 June-03 Net earned premium (A$m) $2,775 $3,195 $4,636 Underwriting profit/(loss) (A$m) ($22) $142 $199 Total investment income (A$m) $358 ($98) $252 Reported NPAT (A$m) $143 ($25) $153
Slide 8: Fifth consecutive half-year of underwriting profit
Fifth consecutive half-year of underwriting profit Insurance margin (pre-tax) 350 16.1% 9.9% 300 250 200 3.7% 153 9.4% 219 150 7.8% 8.0% 5.7 7.3% 48 100 187 A$m 87 50 102 129 103 105 128 71 37 0 (39) 4 (50) (26) (100) (139) (150) (200) 1H00 2H00 1H01 2H01 1H02 2H02 1H03 2H03 Underw riting result Inv
Slide 9: Further GWP growth & diversification
Further GWP growth & diversification Gross Written Prem ium by class A$bn $6.3bn 5% 5% $5.2bn 10% 2% 3% $3.6bn 5% 3% $3.1bn 12% 21% 4% 4% $2.6bn 4% 15% $2.2bn 17% 3% 22% $1.8bn 19% 5% $1.7bn 6% 9% 20% 2% 23% 3% 5% 18% 28% 4% 17% 26% 30% 2% 16% 1% 1% 1% 16% 2% 17% 17% 34% 47% 37% 51% 49% 56% 52% 50%
Slide 10: Key operating ratios – margins up
Key operating ratios – margins up Expense ratio Loss ratio 27.5% (and commission ratio for FY01 - FY03) 90.0% 25.0% 1.3% 1.0% 85.0% 4.8% 22.5% 20.0% 80.0% 17.5% 15.0% 87.3% 85.9% 23.9% 75.0% 83.8% 22.1% 21.6% 12.5% 80.5% 19.0% 18.7% 18.4% 75.9% 10.0% 70.0% 72.5% 7.5% 5.0% 65.0% 2.5% 60.0% 0.0% FY98
Slide 11: Updated operating targets
Updated operating targets Previous post- Revised integration FY03 FY04 targets results Status targets % % % COR - Group 96-98 95.7 ü 93-96 COR - Short-tail 94-96 93.7 ü 92-94 COR - Long-tail 105-110 102.2 ü 100-105 COR - International 92-95 95.3 In line 91-93 Insurance margin (pre-tax) 9-11 12.3 ü 9
Slide 12: Investment returns improved
Investment returns improved Actual Actual Benchmark Investment returns return return return FY02 FY03 FY03 % % % Australian equities (4.5) (2.6) (2.1) International equities (24.5) (14.5) (18.5) New Zealand equities - 11.9 13.3 Fixed interest 6.7 8.7 8.4 Cash 4.8 5.1 5.1 Total (1.4) 2.4 2.2 Asset ov
Slide 13: Capital carefully protected during a difficult period
Capital carefully protected during a difficult period • Loss of $120m on shareholders’ funds includes the $68m cost of the tactical protection programme • Tactical protection programme undertaken to protect capital in the context of: – Being thinly capitalised during completion of the CGU/NZI acquis
Slide 14: Updated investment sensitivities
Updated investment sensitivities Combined Combined Group Group mid-August Sensitivity on net profit before tax Change in assumption 30-Jun-03 2003 % A$m A$m Equity market values: Australian equities +1% 11.2 16.5 International equities +1% 3.9 4.3 New Zealand equities +1% 0.6 0.6 Interest rates Inve
Slide 15: Strongly capitalised
Strongly capitalised • Approach to capital unchanged – Risk of ruin of 1 in 750 years – An ‘AA’ category rating – currently AA (Outlook stable) – Group MCR multiple in 1.35x – 1.65x range, now at 1.62x • Minimum probability of sufficiency of 90% retained for claims reserves • Strengthened risk margi
Slide 16: Return on equity to improve
Return on equity to improve Actual and Normalised ROE 14.0% 12.1% Target minimum of 13% 12.0% Integration 1.1% expense of 10.0% $45m 8.0% 13.3% 11.0% 11.0% 11.0% 10.9% 10.4% 10.4% 6.0% 7.7% 7.1% 5.3% 4.0% 5.7% 5.3% 4.7% 4.4% (1.0%) (1.2%) 3.3% 3.3% 2.0% - (2.0%) FY98 FY99 FY00 FY01 FY02 FY03 ROE (Ac
Slide 17: Dividend increased
Dividend increased • Normalised earnings up 8% to $343m • Final dividend of 7c per share, fully franked – Payable on 13 October 2003 (record date 10 September) • Total dividend for FY03 of 11.5c per share – Up 9.5% from last year • Dividend reinvestment plan (‘DRP’) will operate – Price will be base
Slide 18: Conclusion
Conclusion • A watershed year for the Group • Continued improvement in overall operating performance • Good organic growth in policy numbers • Newly acquired businesses performing very well • Administration ratio continuing to trend down • Strongly capitalised following completion of the acquisition
Slide 19: Areas to be covered in more detail
Areas to be covered in more detail • CGU/NZI performance • Integration update • Segment analysis • MCR multiple Insurance Australia Group Limited ABN 60 090 739 923 19
Slide 20: CGU/NZI performing strongly
CGU/NZI performing strongly CGU/NZI insurance result Actual Business case Gross written premium A$1,291m A$1,125m Net earned premium A$1,023m A$972m Combined ratio 91.5% 98.3% 1 Contribution to group NPBT A$88m n/a 1 Stated after allowing for goodwill amortisation, integration expenses and borrowing
Slide 21: Integration progressing well
Integration progressing well • Integration programme in the synergy realisation phase – All synergies in business plans and budgets • Synergies of $54m per annum were in place by 30 June 2003 – Ahead of target of $21m for 2H03 • $160m annual sustainable benefits to be delivered slightly ahead of sch
Slide 22: Updated synergy realisation timeframe
Updated synergy realisation timeframe Synergy realisation schedule 2H03 2H03 1H04 2H04 Estimated Actual Estimated Estimated All amounts are pre-tax A$m A$m A$m A$m Cumulative run-rate per annum Personal lines 6 15 49 70 Commercial 4 14 20 35 IT, shared services & overheads 8 13 25 35 Australia sub-t
Slide 23: Domestic short-tail ratios
Domestic short-tail ratios Combined ratio Insurance margin (before tax) 120.0% 8.0% 115.0% 7.0% 110.0% 6.0% 9.2% 105.0% 5.0% 4.0% 6.2% 100.0% 4.4% 3.0% 95.0% 2.0% 112.2% 1.0% 109.8% 90.0% 106.1% 0.0% (3.7%) 85.0% -1.0% 98.4% 95.5% 93.7% 80.0% -2.0% (1.7%) -3.0% (7.9%) 75.0% -4.0% 70.0% -5.0% 65.0% -
Slide 24: Domestic short-tail performance
Domestic short-tail performance Full year Full year Full year Domestic short-tail ended ended ended June-01 June-02 June-03 A$m A$m A$m Gross written premium 2,183 2,357 3,415 Gross earned premium 2,097 2,266 3,222 Net premium revenue 1,988 2,125 3,031 Underwriting profit 31 97 192 (2) Investment in
Slide 25: Domestic long-tail ratios
Domestic long-tail ratios Combined ratio Insurance margin (before tax) 120.0% 40.0% 115.0% 110.0% 105.0% 30.0% 100.0% 95.0% 115.4% 36.1% 90.0% 20.0% 106.4% 30.9% 102.2% 27.9% 85.0% 25.2% 95.5% 95.4% 21.8% 16.5% 80.0% 90.0% 75.0% 10.0% 70.0% 65.0% 60.0% 0.0% FY98 FY99 FY00 FY01 FY02 FY03 FY98 FY99 FY
Slide 26: Domestic long-tail – performance
Domestic long-tail – performance Full year Full year Full year Domestic long-tail ended ended ended June-01 June-02 June-03 A$m A$m A$m Gross written premium 788 811 1,049 Gross earned premium 718 817 1,019 Net premium revenue 618 729 982 Underwriting profit 28 33 (22) (2) Investment income on techn
Slide 27: International performance
International performance Full year Full year Full year International operations ended ended ended June-01 June-02 June-03 A$m A$m A$m Gross written premium 139 390 685 Gross earned premium 122 365 644 Net premium revenue 110 341 623 Underwriting profit/(loss) (7) 12 29 Investment income on technica
Slide 28: Retirement Services
Retirement Services Full year Full year Full year ClearView Retirement Solutions ended ended ended Variance June-01 June-02 June-03 A$m A$m A$m A$m Net profit before statutory fund and income tax 20 (6) 2 8 Funds under management 1,282 1,246 1,182 (64) Life embedded value 185 215 200 (15) Note: $30m
Slide 29: MCR multiple
MCR multiple Insurance Coverage of regulatory capital requirements IAG Group Australia 30-Jun-03 30-Jun-03 A$m A$m Tier 1 capital Paid-up ordinary shares 3,434 885 Hybrid equity 539 - Reserve (2) - Retained earnings (396) 2,555 Excess technical provisions (net of tax) 352 327 Less: deductions (1,838
Slide 30: FY04 outlook
FY04 outlook • Consider organic growth of 7 – 9% achievable – Continued robust economy/GDP growth – Moderate premium rate increases reflecting claims inflation • Focused on organic growth and improved efficiency • Upgraded COR targets for FY04 to maintain insurance margins in 9 – 12% range • Well po
Slide 31: Platform for ongoing value delivery
Platform for ongoing value delivery • Business now has scale and momentum • Supported by robust capital and risk management • Customer focus being enhanced to improve service and loyalty • Technology transformation to deliver step change in value in 2 – 3 years • Our people and culture being develop
Slide 32: Questions
Questions Insurance Australia Group Limited ABN 60 090 739 923
Insurance Australia Group — FY2003 Earnings Presentation on 6ix