Insurance Australia Group Ltd · ASX:IAG
Insurance Australia — FY2008 Earnings Presentation
27 slides from Insurance Australia's earnings presentation, Aug 22, 2008
Slide 1: Financial results, year ended 30 June 2008
For personal use only Financial results Year ended 30 June 2008 Michael Wilkins, Managing Director & Chief Executive Officer Nicholas Hawkins, Chief Financial Officer 22 August 2008 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. The information contained in this presentation and accompanying materials has been prepared in good faith by IAG. No representatio
Slide 3: Agenda
AGENDA For personal use only • Group results Michael Wilkins • Segment analysis Michael Wilkins • Investments, reinsurance & capital Nicholas Hawkins • Group outlook Michael Wilkins • Questions PAGE 3 FY08 Financial Results Presentation
Slide 4: Group results
For personal use only Group results Michael Wilkins ABN 60 090 739 923
Slide 5: Year in Summary
YEAR IN SUMMARY For personal use only • Disappointing result – Continued soft cycles in commercial and UK motor – Increased claims frequency – Sub-optimal expense structure and market responsiveness – Emerging economic and inflationary pressures – Exacerbated by weak investment markets • Increasing
Slide 6: Financials in Summary
FINANCIALS IN SUMMARY For personal use only FY08 RESULT GWP growth +5.6% GWP of $7,793m up from $7,381m in FY07 NEP growth +8.2% NEP of $7,295m up from $6,743m in FY07 Insurance margin (excluding Australian restructuring) 6.1% Insurance profit of $448m affected by: - Claims from natural perils of $5
Slide 7: Financials in Summary
FINANCIALS IN SUMMARY For personal use only FY08 RESULT NPAT ($261m) Affected by: - Impairment of UK assets (nil tax) $350m - Restructuring costs of Australian cost saving programme (pre-tax) $60m Reported EPS (14.29)cps Cash EPS of 9.62 cps (FY07: 39.52 cps) Cash ROE 2.7% Reported ROE of (5.9%) (FY
Slide 8: Key Insurance Ratios
KEY INSURANCE RATIOS For personal use only Expense ratio Loss ratio 35.0% 72.0% 71.1% 67.5% 71.1% 30.0% 27.8% 27.4% 28.9% 29.3% 27.6% 29.1% 80.0% 65.4% 69.4% 2.7% 3.4% 3.1% 70.0% 25.0% 3.3% 3.3% 3.3% 60.0% 8.2% 8.9% 9.1% 9.0% 50.0% 20.0% 8.5% 8.4% 71.3% 70.0% 70.7% 68.0% 66.4% 64.4% 40.0% 15.0% 30.0
Slide 9: Segment Results
SEGMENT RESULTS For personal use only RESULTS BY SEGMENT 2H07 2H08 FY07 FY08 A$m A$m A$m A$m - Direct 259 211 451 312 - Intermediated 65 21 285 207 Australia 324 232 736 519 - United Kingdom 44 7 46 24 - New Zealand 47 4 86 (17) - Asia 3 (3) 7 (4) - Asia RI (20) (14) (29) (52) International 75 (6) 1
Slide 10: Direct Insurance
DIRECT INSURANCE Solid performance but room to improve For personal use only Key points/variances to FY07 • GWP grew 3.8% (adjusted for LTCS) DIRECT INSURANCE FINANCIAL 2H07 2H08 FY07 FY08 – All portfolios grew GWP A$m A$m A$m A$m Gross written premium 1,470 1,501 2,889 2,941 – NSW short-tail up 4.1
Slide 11: Intermediated Insurance
INTERMEDIATED INSURANCE Maintained pricing discipline in soft market For personal use only Key points/variances to FY07 • GWP down 1.8% INTERMEDIATED INSURANCE 2H07 2H08 FY07 FY08 FINANCIAL PERFORMANCE – Volume ceded where price inadequate A$m A$m A$m A$m • Profitability continued in workers’ Gross
Slide 12: United Kingdom
UNITED KINGDOM Focusing on specialist motor For personal use only Key points/variances to FY07 • GWP up 55% reflecting full year of FY07 UK 2H07 2H08 FY07 FY08 acquisitions FINANCIAL PERFORMANCE A$m A$m A$m A$m • Private motor remains difficult Gross written premium 642 540 725 1,125 • Equity remain
Slide 13: New Zealand
NEW ZEALAND First full-year loss from high claims and restructuring For personal use only Key points/variances to FY07 • GWP up 2.4% in NZ$ NEW ZEALAND 2H07 2H08 FY07 FY08 • Storms, earthquakes and large losses FINANCIAL PERFORMANCE totalled $109m (net) A$m A$m A$m A$m Key actions Gross written prem
Slide 14: Asia Insurance
ASIA INSURANCE Investing for growth For personal use only Key points/variances to FY07 • GWP up 5% in THB ASIA FINANCIAL PERFORMANCE 2H07 2H08 FY07 FY08 – Market remains challenging A$m A$m A$m A$m • AmAssurance GWP up 15% in MYR Gross written premium 89 85 168 174 – Profit reduced by claims inflati
Slide 15: Asian Reinsurance
ASIAN REINSURANCE Impacted by UK floods For personal use only Key points/variances to FY07 • Floods in UK and NZ weather ASIAN REINSURANCE 2H07 2H08 FY07 FY08 events impact result ($40m) FINANCIAL PERFORMANCE A$m A$m A$m A$m • Unfavourable performance of Gross written premium 18 14 31 26 Advantage q
Slide 16: Investments, Reinsurance, Capital & Dividend
For personal use only Investments Reinsurance Capital & Dividend Nicholas Hawkins ABN 60 090 739 923
Slide 17: Investment Assets
INVESTMENT ASSETS For personal use only INVESTMENT ASSETS 1H07 2H07 1H08 2H08 AT END OF: A$bn A$bn A$bn A$bn Technical reserves 7.2 8.0 8.2 7.6 Shareholders’ funds 2.4 2.4 2.5 2.1 Investment Assets 9.6 10.4 10.7 9.7 Minority interest – Unitholders’ funds 0.3 0.3 0.3 0.1 Investments in Joint Ventures
Slide 18: Investments
INVESTMENTS Mix stable and high credit quality maintained For personal use only Group Net Investment Asset Exposure - $10.6bn FY08 Fixed Interest & Cash - $9.7bn - Asset Quality Growth Other Bonds Bonds 'BBB' Assets 'A' 1% 9% 4% Cash 12% Risk Free Assets Banks, 'AAA' Financial 33% Institutions & Oth
Slide 19: Investments: Performance affected by weak markets
INVESTMENTS Performance affected by weak markets For personal use only PORTFOLIO INCOME INCLUDING DERIVATIVES 2H07 1H08 2H08 FY07 FY08 A$m Return* A$m Return* A$m Return* A$m Return* A$m Return* (%) (%) (%) (%) (%) Technical reserves 184 2.2 224 2.6 208 2.7% 360 4.4% 432 5.6% Shareholders’ funds 135
Slide 20: Reinsurance Protections Reduce Earnings Volatility
REINSURANCE PROTECTIONS REDUCE EARNINGS VOLATILITY For personal use only • The upper limit of the Group’s catastrophe programme is $4bn • Maximum event retentions for the Group from 1 July 2008 are: – For a first event: Australia $118m; United Kingdom $104m; New Zealand $94m – For a second event: $7
Slide 21: Balance Sheet Remains Strong
BALANCE SHEET REMAINS STRONG For personal use only As at 30 June 2008 AT END OF: 1H07 2H07 1H08 2H08 • Very liquid balance sheet A$m A$m A$m A$m Cash & Investments % Total Assets 63.1% 55.7% 56.6% 55.3% – >55% cash and investments Reinsurance Recoveries % Total Assets 2.8% 4.5% 3.5% 3.5% Debt Levera
Slide 22: Regulatory Capital Remains Strong
REGULATORY CAPITAL REMAINS STRONG For personal use only COVERAGE OF REGULATORY CAPITAL • MCR multiple of 1.62x in FY08 vs REQUIREMENTS - IAG CONSOLIDATED 1.87x in 1H08 due to: AT END OF: 1H07 2H07 1H08 2H08 A$m A$m A$m A$m – Buy-back of $200m of Tier 1 RPS2 Tier 1 capital Paid-up ordinary shares 4,0
Slide 23: Return on Equity
RETURN ON EQUITY For personal use only Return on Equity (annualised) 19.8% 19.5% 14.9% 13.5% 11.3% 9.2% 6.0% 4.7% 2.7% (5.9%) (1.0%) 1H07 2H07 1H08 (16.5%) 2H08 FY07 FY08 ROE (Actual) attributable to holders of ordinary shares ROE (Cash) attributable to holders of ordinary shares • Target remains ca
Slide 24: Dividend History
DIVIDEND HISTORY For personal use only 60.0 50.0 Dividends per share 42.0 40.0 50.0 12.5 40.0 29.5 Cents 26.5 29.5 30.0 22.0 22.5 16.0 16.0 20.0 14.5 9.0 11.5 14.0 10.0 10.5 10.0 6.0 6.0 7.0 13.5 13.5 13.5 12.0 8.0 4.0 4.5 4.5 0.0 FY01 FY02 FY03 FY04 FY05 FY06 FY07 FY08 Interim dividend Final divide
Slide 25: Outlook
For personal use only Outlook Michael Wilkins ABN 60 090 739 923
Slide 26: Improving Performance
IMPROVING PERFORMANCE For personal use only • Increase discipline and focus – Ongoing rate increases and underwriting discipline • Executing revised corporate strategy – Restructure of operating model completed – $130m pa (pre-tax) productivity saves in Australia on track – Scale-back of operations
Slide 27: Our Business Model and Brands
OUR BUSINESS MODEL AND BRANDS For personal use only DIRECT INTERMEDIATED DIRECT DIRECT INTERMEDIATED INSURANCE INSURANCE INSURANCE INSURANCE INSURANCE UNITED KINGDOM NEW ZEALAND eVENTURES AUSTRALIA INTERMEDIATED INTERMEDIATED INSURANCE INSURANCE ASIA * ACTIVE PORTFOLIO MANAGEMENT & GOVERNANCE (CORPO
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