Insurance Australia Group Ltd · ASX:IAG
Insurance Australia — H1 2015 Earnings Presentation
32 slides from Insurance Australia's earnings presentation, Feb 18, 2015
Slide 1: Financial Results Half Year Ended 31 December 2014
18 February 2015 ABN 60 090 739 923 For personal use only FINANCIAL RESULTS HALF YEAR ENDED 31 DECEMBER 2014 Mike Wilkins Nick Hawkins Managing Director and Chief Financial Officer Chief Executive Officer
Slide 2: Important Information
IMPORTANT INFORMATION For personal use only This presentation contains general information in summary form which is current as at 18 February 2015. It presents financial information on both a statutory basis (prepared in accordance with Australian accounting standards which comply with International
Slide 3: Group Results
For personal use only GROUP RESULTS Mike Wilkins Managing Director and Chief Executive Officer
Slide 4: Key Highlights
KEY HIGHLIGHTS SOUND OPERATING PERFORMANCE IN TOUGHER CONDITIONS For personal use only FIRST-TIME INCLUSION OF Main driver of GWP growth FORMER WESFARMERS BUSINESS Impacts all three operating divisions in Australia and New Zealand, to varying degrees Integration progressing to plan UNDERLYING
Slide 5: Financial Summary
FINANCIAL SUMMARY ROBUST PERFORMANCE For personal use only 1H14 1H15 CHANGE GWP ($M) 4,786 5,603 17.1% NET EARNED PREMIUM ($M) 4,320 5,154 19.3% INSURANCE PROFIT ($M) 758 693 8.6% UNDERLYING MARGIN (%) 13.7 13.3 40bps REPORTED MARGIN (%) 17.5 13.4 410bps NET PROFIT AFTER TAX ($M) 642 579 9.8% CASH E
Slide 6: 1H15 Gross Written Premium
1H15 GROSS WRITTEN PREMIUM STRONG GROWTH DRIVEN BY WESFARMERS ACQUISITION For personal use only 6,000 GROSS WRITTEN PREMIUM GROWTH KEY POINTS 5,800 Overall growth of 17.1% 10 3 5,600 Main driver was first-time consolidation of former 232 5,400 Wesfarmers business – Attrition level towards upper
Slide 7: 1H15 Reported Insurance Margin
1H15 REPORTED INSURANCE MARGIN ADVERSE PERIL AND RESERVE RELEASE IMPACTS For personal use only REPORTED INSURANCE MARGIN KEY POINTS 1H15 VS 1H14 900 Lower reported insurance margin of 17 95 13.4%, encompasses: 800 98 17.5% 86 – Lower reserve releases, but close to 13.4% 700 1 expectations 600 – Pe
Slide 8: 1H15 Underlying Margin of 13.3% Delivers on Return Target
1H15 UNDERLYING MARGIN OF 13.3% DELIVERS ON RETURN TARGET For personal use only GROUP INSURANCE MARGIN KEY POINTS (REPORTED VS. UNDERLYING) Underlying margin slightly lower than 1H14 (13.7%) 14.2% 13.3% Underpinning features: 12.5% 11.4% 12.0% 10.9% – Incoming Wesfarmers business – Minimal integ
Slide 9: 1H15 Divisional Performance
For personal use only 1H15 DIVISIONAL PERFORMANCE
Slide 10: Personal Insurance
PERSONAL INSURANCE STRONG PROFITABILITY MAINTAINED For personal use only KEY METRICS 1H14 1H15 Change KEY POINTS Gross written premium ($m) 2,686 2,802 +4.3% GWP growth of 4.3%, comprising: Insurance result ($m) 467 391 -16.3% – Maiden input from former Wesfarmers volumes Underlying margin (%) 14.
Slide 11: Commercial Insurance
COMMERCIAL INSURANCE TOUGHER MARKET CONDITIONS For personal use only KEY METRICS 1H14 1H15 CHANGE KEY POINTS Gross written premium ($m) 1,052 1,514 +43.9% GWP growth of 44%, driven by first-time inclusion of former Insurance result ($m) 190 102 -46.3% Wesfarmers business Underlying margin (%) 12.0
Slide 12: New Zealand
NEW ZEALAND CONTINUING TO PERFORM STRONGLY For personal use only KEY METRICS 1H14 1H15 CHANGE KEY POINTS Gross written premium ($m) 884 1,116 +26.2% Strong GWP growth driven by addition of Lumley Insurance Insurance result ($m) 92 193 +109.8% GWP growth from existing business relatively flat Und
Slide 13: Asia
ASIA IMPROVED CONTRIBUTION For personal use only FINANCIAL CONTRIBUTION BY COUNTRY KEY POINTS Proportional GWP Earnings Contribution Proportional GWP growth of 4.8%, driven by: 1H14 1H15 1H14 1H15 – Strong performance in India A$m A$m A$m A$m – Return to strong growth in Thailand Thailand 140 155
Slide 14: Investments, Reinsurance and Capital
For personal use only INVESTMENTS, REINSURANCE AND CAPITAL Nick Hawkins Chief Financial Officer
Slide 15: Investment Portfolio
INVESTMENT PORTFOLIO CONSERVATIVE MIX AND HIGH CREDIT QUALITY For personal use only TOTAL INVESTMENT GROUP ASSET ALLOCATION SHAREHOLDERS’ FUNDS PORTFOLIO – $15.2BN 11% 18% $4.7bn Fixed Interest and Cash Technical Fixed Interest Reserves Equities and Cash 18% Shareholders' Growth Funds 64% Alternativ
Slide 16: Investment Returns
INVESTMENT RETURNS MORE SUBDUED EQUITY MARKET PERFORMANCE For personal use only TECHNICAL RESERVES INCOME TECHNICAL RESERVES RETURNS Increased return of $427m (1H14: $87m) 427 reflecting: 352 – c.$190m unrealised capital gain (1H14: c.$80m loss) 188 – Similar credit spread benefit of $40m (1H14: $
Slide 17: Reinsurance Expense
REINSURANCE EXPENSE FAVOURABLE MARKET CONDITIONS For personal use only 1,200 REINSURANCE EXPENSE 10.0%KEY POINTS 1,077 8.2% 8.6% 8.3% 8.4% 9.0% Increased 1H15 reinsurance expense of 1,000 7.4% 267 8.0% $651m (1H14: $565m) embraces: 6.5% 817 7.0% – Inclusion of former Wesfarmers business 800 6.3% 6.
Slide 18: Catastrophe Reinsurance
CATASTROPHE REINSURANCE WESFARMERS-RELATED SYNERGIES FULLY REALISED For personal use only $m 2015 CATASTROPHE PROGRAMME KEY POINTS 7000 Australia/NZ Group main cover raised to $7bn for calendar 2015 Earthquake/Cyclone 6750 Former Wesfarmers business covered by Group programme from 1 January 2015
Slide 19: Reserve Releases
RESERVE RELEASES TRENDING TOWARDS LONG TERM EXPECTATION For personal use only GROUP RESERVE RELEASES (% NEP) KEY POINTS 6% Lower 1H15 releases of $92m, equivalent to 1.8% of NEP 5% – Favourable inflationary environment in 4% Australian long tail classes 3% Reserve release expectation of around 2
Slide 20: New Zealand Earthquake Reserving
NEW ZEALAND EARTHQUAKE RESERVING FY11 EVENTS REMAIN WITHIN REINSURANCE COVER For personal use only FY11 CANTERBURY EARTHQUAKE EVENTS KEY POINTS 2010 Reinsurance Year 2011 Reinsurance Year NZ$950m gross reserve strengthening at 4 31 December 2014 NZ$bn – Increased forecast repair and rebuild costs
Slide 21: Regulatory Capital
REGULATORY CAPITAL STRONG POSITION MAINTAINED For personal use only KEY POINTS PCA MOVEMENT SINCE 30 JUNE 2014 2 2.00 Strong capital position, around the top end of targeted 0.01 1.80 benchmarks 0.05 0.04 0.04 0.04 1.60 – PCA multiple 1.62 (benchmark 1.4–1.6) 2 1.40 – CET1 multiple 1.04 (benchmark
Slide 22: Dividend
DIVIDEND INTERIM CASH PAYOUT RATIO OF 46.6% For personal use only INTERIM DIVIDEND HISTORY KEY POINTS Full year payout policy of 50-70% of cash earnings 100.0% 1H15 cash earnings of $653m, after adjustment for: 90.0% 80.0% – Increased amortisation of $43m (Wesfarmers-related 67.1% 70.0% intangib
Slide 23: Outlook
For personal use only OUTLOOK Mike Wilkins Managing Director and Chief Executive Officer
Slide 24: FY15 Outlook
FY15 OUTLOOK MARGIN GUIDANCE MAINTAINED For personal use only FY15 GUIDANCE FY15 ASSUMPTIONS Net losses from natural perils in line with GWP growth Lower end of 17-20% range budgeted allowance of $700m Reported insurance margin 13.5-15.5% Reserve releases of around 2% of NEP No material moveme
Slide 25: Questions
For personal use only QUESTIONS
Slide 26: Appendix – Brand Portfolio
APPENDIX – BRAND PORTFOLIO 100% owned unless indicated. For personal use only 1 RACV is via a distribution relationship and underwriting joint venture with RACV Limited. 2 IAG holds a 98.6% beneficial interest in Safety Insurance, based in Thailand, which trades under the Safety and NZI brands. 3 IA
Slide 27: Appendix - Group Performance
APPENDIX - GROUP PERFORMANCE For personal use only 1H14 2H14 1H15 Insurance Ratios 1H14 2H14 1H15 GROUP RESULTS A$m A$m A$m Loss ratio 58.1% 62.3% 67.5% Gross written premium 4,786 4,993 5,603 Immunised loss ratio 60.9% 59.3% 63.7% Gross earned premium 4,885 4,836 5,805 Expense ratio 26.5% 26.9% 27.
Slide 28: Appendix – Divisional Performance
APPENDIX – DIVISIONAL PERFORMANCE For personal use only 1H14 1H15 Insurance Insurance Insurance Insurance GWP GWP Profit/(Loss) Margin Profit/(Loss) Margin DIVISIONAL PERFORMANCE A$m A$m % A$m A$m % Personal Insurance 2,686 467 19.5 2,802 391 16.0 Commercial Insurance 1,052 190 18.5 1,514 102 6.6 Ne
Slide 29: Appendix – Personal Insurance
APPENDIX – PERSONAL INSURANCE 1H14 2H14 1H15 GWP ($M) / INSURANCE MARGIN (%) For personal use only A$m A$m A$m 23.3% Gross written premium 2,686 2,649 2,802 19.5% Gross earned premium 2,732 2,663 2,814 16.0% Reinsurance expense (334) (303) (365) Net earned premium 2,398 2,360 2,449 2,686 2,802 2,649
Slide 30: Appendix – Commercial Insurance
APPENDIX – COMMERCIAL INSURANCE 1H14 2H14 1H15 GWP ($M) / INSURANCE MARGIN (%) A$m A$m A$m For personal use only Gross written premium 1,052 1,216 1,514 18.5% 18.1% Gross earned premium 1,099 1,076 1,673 Reinsurance expense (70) (75) (122) Net earned premium 1,029 1,001 1,551 Net claims expense (506
Slide 31: Appendix – New Zealand
APPENDIX – NEW ZEALAND 1H14 2H14 1H15 GWP ($M) / INSURANCE MARGIN (%) For personal use only A$m A$m A$m 19.2% Gross written premium 884 962 1,116 Gross earned premium 880 936 1,148 Reinsurance expense (140) (117) (143) Net earned premium 740 819 1,005 12.4% Net claims expense (387) (505) (538) 10.7%
Slide 32: Appendix – Asia
APPENDIX – ASIA For personal use only IAG ASIA GWP 1H15 - PROPORTIONAL BASIS 1H14 2H14 1H15 A$m A$m A$m Gross written premium 154 163 164 Gross earned premium 167 155 163 Thailand Reinsurance expense (18) (16) (19) 42% Net earned premium 149 139 144 Vietnam Net claims expense (84) (76) (84) 2% Commi
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