Insurance Australia Group Ltd · ASX:IAG
Insurance Australia — Merger or Acquisition (December 2006)
58 slides from Insurance Australia's merger presentation, Dec 4, 2006
Slide 1: Presentation to Investors: Acquisition of Equity Insurance
© IAG insurance Australia Group Presentation to Investors Acquisition of Equity Insurance: A specialist UK motor underwriter and distributor Mike Hawker, Chief Executive Officer George Venardos, Chief Financial Officer 4 December 2006 Insurance Australia Group Limited ABN 60 090 739 923
Slide 2: Important Notice
important Notice THIS 1S NOT A PROSPECTUS - IMPORTANT INFORMATION The information in this presentation ("Information") is highly confidential and is provided to you solely for your information. This information must not be reproduced or distributed to any other person (including any general distribu
Slide 3: Contents
Contents 1. Transaction highlights 2. Strategic rationale a) Recap on IAG strategy b) Attraction of the UK c) Why Equity Insurance Group? 3. Impact on [AG 4. Shareholder value creation 5. Funding 6. Summary Appendices Mike Hawker Mike Hawker Mike Hawker Mike Hawker Mike Hawker George Venardos George
Slide 4: Transaction highlights
© IAG insurance Australia Group 1 — Transaction highlights Note: (1) £1-= $2.45 (2) $-Represents Australian dollars (3) Year of Account (“YoA’) is equivalent to. underwriting year Insurance Australia Group Limited ABN 60 090 739 923
Slide 5: Transaction highlights
Transaction highlights © Overview ) IAG insurance e Acquisition of Equity Insurance for £570m Astral ¢ Brings a high quality management team e Financially attractive — expected to be immediately EPS accretive and 10% EPS accretive in FY2008 ¢ Acquisition consistent with our growth strategy * AA rati
Slide 6: Strategic rationale: Recap on IAG strategy
© IAG insurance Australia Group 2 — Strategic rationale ; 2a. — Recap on IAG strategy Insurance Australia Group Limited ABN 60 090 739 923
Slide 7: IAG strategy: long-term strategic objectives
IAG strategy y IAG’s long-term strategic objectives IAG ¢ Cement leadership position in Australia and NZ insurance ustralia Group ¢ Normalised ROE of at least 1.5x WACC * Maintain an 80:20 mix of short-tail:long-tail premium Top quartile total * Maintain conservative risk appetite (eg, ‘AA’ rating)
Slide 8: Strategy in large mature markets
IAG strategy y Strategy in large mature markets IAG Lead with motor hustle Group 6 ¢ Diversification benefit * Focus on sustainable and profitable niche opportunities: — Selective underwriting | Equity Insurance — Retail customer access delivers each of these ¢« Team with quality management e Earnin
Slide 9: IAG is pursuing parallel strategies in mature markets
IAG strategy y IAG is pursuing parallel strategies in mature markets IAG Strategy Highlights usta, Group ¢ Target underwriting profit pools where returns are generated through targeted risk pricing rather than scale Selective « Leverage risk and capital diversification benefits Underwniti ng ¢ Utili
Slide 10: Attraction of the UK
© IAG insurance Australia Group 2b. — Attraction of the UK Insurance Australia Group Limited ABN 60 090 739 923
Slide 11: Niche motor opportunities outside the competitive mass market
11 Attraction of the UK y Niche motor opportunities ‘outside’ the competitive mass market AG insurance Australia Overall UK P+C general Group. insurance market (2004) 100% - £41.9bn 80% 5 60% + 40% + 20% + 0% T UK P+C general Personal Total Motor insurance equity Source: Datamonitor (published Jan 2
Slide 12: Niche players have generated above market growth and profitability
Attraction of the UK A number of niche players have generated above market growth and y profitability IAG Insurance CORA Australia verage rou 5000 . 2004 UK Personal Market Insurers P a 120% Channel Focus UAW Loss || Direct 110% 5 a Bancassurance Affinity of | r 100% | Hybrid player 90% + U/W Equit
Slide 13: Evolving distribution dynamics create opportunities for new entrants
Attraction of the UK y Evolving distribution dynamics create opportunities for new entrants IAG insurance Motor Australia : : : er Group Distribution mix by channel for UK personal motor insurance 90% 80% | Mass Market * Increased churn creates Direct opportunities 70% ws : * Affinity market growing
Slide 14: Signs of motor industry cycle turning
220 210 200 190 180 170 160 140 Jan-01 14 Attraction of the UK “The ‘mood music’ in the back drop feels to be signalling a turn in that insurance cycie for motor” Sir Fred Goodwin, Group CEO RBS AA British insurance Premium Index 7 Market average trends since 1994 Jan-02 Jan-03 —¢#— Comprehensive Ja
Slide 15: Why Equity Insurance Group?
© IAG insurance Australia Group 2c. — Why Equity Insurance Group? Insurance Australia Group Limited ABN 60 090 739 923
Slide 16: Overview of Equity: Structure
Overview of Equity y Structure IAG insurance Australia Group ponnenanecnnccannnccng ' Commercial | . — ! Syndicate 1208?) | | Commission and 1Lo-l_-o----- ==. : ! other broking ; ' income /Nigmt Fee 64%(1) F os a 3° Party 36%(1 Underwriting External broker & Affinity 81% GWP 13% GWP 6% GWP (1) In re
Slide 17: Overview of Equity: Company highlights
Overview of Equity Company highlights y IAG equity insurance INSURANCE GROUP Australia Group (_Underwsing ¢ The UK’s 5th largest motor insurer and largest motorcycle insurer « The largest motor syndicate at Lloyd’s « 37 year track record of unbroken profitability « Outperformed the UK motor market b
Slide 18: Disciplined underwriting: historic motor GWP growth
GWP £m 18 Disciplined underwriting y Historic motor GWP growth 2 IAG Insurance Australia . . ° . Group Historic Motor GWP (100% ownership) 500.0 450.0 4 400.0 4 350.0 4 300.0 4 250.0 4 200.0 4 150.0 4 100.0 4 50.0 4 0.0 T T T T T T T T T T 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006E (1)
Slide 19: Underwriting excellence
19 Underwriting excellence ) .. outperforming the UK motor market by an average 15% over the y past 25 years IAG insurance Australia Percentage out-performance by Equity against the UK motor market (COR) Group Median = 15% over 25 years Median 15% 15 fever EE 2 os os so oe OR os oie os os os os a: 2
Slide 20: Low volatility
Low volatility Performance of Syndicate 218 compared to the Lloyd’s market © IAG insurance “estralia sup se °° Volatility © 60 5 Market 18.1% D Mean outperformance = 20.5% Syndicate 218 6.1% 3 80 5 od o 100 5 ao) ® £& 120 5 wo) § oO 140 a 160 T T T T T T T T T T T T T T T T T T T T T T T T 1 a7 \& ©
Slide 21: Business mix weighted towards profitable niche motor products
21 Overview of Equity (total syndicate) y Business mix weighted towards profitable niche motor products Volume £309m of GWP Business Mix - Volume (GWP) (*) Household Personal 20% Accident 5% Roadside rescue Motorcycle / 6% 19% Private car - Private car - broker direct 34% 16% {1} GWP is stated on a
Slide 22: Equity's distribution strategy complements Hastings'
Overview of Equity y Equity’s distribution strategy complements Hastings’ IAG insurance Australia Group Distribution mix Distribution highlights * Increasing control over distribution and Syndicate 218 - Sources of Business customer experience * Managing share of premium written whilst maintaining i
Slide 23: Overview of Equity: Financial summary
Overview of Equity y Financial summary IAG Years ending 31 December Insurance f milions) Z0SA——_2006€ | _2007F Group Underwriting: GWP o ; ; 300 336 357 The forecast financial Underwriting profit 31 30 28 information is based EBITDA” 59 53 64 on information Distribution: obtained from Equity Revenue
Slide 24: Key management retained and incentivised for growth
24 Overview of Equity y Key management retained and incentivised for growth IAG insurance * Quality management team with a track record of success eustatia * Management is passionate about their business and is therefore supportive of IAG’s UK strategy, business model and their continuing role in dr
Slide 25: Impact on IAG
© IAG insurance Australia Group 3 — Impact on IAG Insurance Australia Group Limited ABN 60 090 739 923
Slide 26: Pro-forma overview of the combined group: business mix
Pro-forma overview of the combined group y Motor continues to be a key portfolio in the Group’s product mix Y/E 30 June 2006 GWP of $6.4bn Group business mix IAG insurance Y/E 30 June 2006 GWP of $7.6bn Australia Group business mix (pro-forma) “) Group Other Short-tail Liability 4% 6% \ CTP (Motor L
Slide 27: Increasingly diverse earnings streams and geographic mix
Pro-forma overview of the combined group y Increasingly diverse earnings streams and geographic mix AG Insurance Y/E 30 June 2006 Profitability Y/E 30 June 2006 GWP Australia Mix of Earning Streams (pro-forma) Geographic Mix (pro-forma) roup Fee Based . Business UK on 0 2% 9% 14% Australia 71% Under
Slide 28: Acquisition history and benefits
28 Acquisition history and benefits Delivering significant diversification benefits Diversification — Product and Geography “Since 1997, IAG’s ambition has been to double its GWP every 5 years” CAGR = 15.9% (1997-2006) $1.7bn 100% FY97 FY02 FY06 FY06 Pro-forma Years end 30 June wm Australia it New Z
Slide 29: Strategic fit
Overview of Equity y Strategic fit IAG insurance Strategy for large mature markets eearala Sustainable niche strategy * Unbroken track record of profitability over 37 years * Significantly outperformed the UK motor market ; * Consistent with I[AG’s core capabilities Lead with motor * Growth through
Slide 30: Shareholder value creation
© IAG insurance Australia Group 4 — Shareholder value creation Insurance Australia Group Limited ABN 60 090 739 923
Slide 31: Equity with the market leading combined ratio
Shareholder value creation y 2003 - 2005 combined shows Equity with the market leading COR AG insurance Australia Group ‘ r 30 Market average = 99.5% ! RBS | o ' F 25 t : -20 = H g t x : 2 H @ ' a i pis & Aviva ‘ x * ft ResA t ° : H ezurich F 10 : H | en Co-op, tAlliang, . a e 5 AXAG Foitise o Liv V
Slide 32: Acquisition price metrics
Shareholder value creation y Acquisition price metrics (excluding synergies) Z IAG Dec ‘06E Net] Dec 06E | Dec ‘07F Implied Multiples Insurance (€ millions) Value Assets NPAT ( NPAT O6PB | O6PE | O07 PE Group Underwriter 485 333 36 44 15x 13.4 x 10.9 x Distribution 85 4 3 4 NA 26.7 x 20.9 x Total 57
Slide 33: Equity and Hastings: matching underwriting and distribution skills
Shareholder value creation y Equity and Hastings: matching underwriting and distribution skills Yj IAG insurance Australia Group Distribution Underwriting Risk / Cap Mgmt " Branch network Shareholder Value | manageme MSURANCE GROUP 33
Slide 34: Synergies
Shareholder value creation © Z Synergies IAG « Overall synergy run-rate expected to be approx. £22m post-tax per annum by 2008 Insurance istfaite ~ £9m generated by IAG Group - £13m generated by Hastings (comprised of both cost and structuring synergies) - Cost savings within the Hastings synergies,
Slide 35: Funding
y IAG insurance Australia Group 5 — Funding Insurance Australia Group Limited ABN 60 090 739 923
Slide 36: Overview of proposed funding
Fundin © Overview g proposed funding y IAG insurance Source of funds Amount {tle External: + Placement to institutional investors via bookbuild $600m £245m * Share Purchase Plan (“SPP”) and, if required, underwriting of $225m £92m FY07 interim dividend?) * £ denominated issue of term subordinated de
Slide 37: Bookbuild process
37 Funding Bookbuild process () y IAG insurance * $600m underwritten institutional placement eearala ¢ JLMs and Bookrunners: Macquarie'?) and UBS®) * Bookbuild price range: $5.10-$5.50 per share * Lower end of the range ($5.10) represents a: - 9.6% discount to the closing price of $5.64 on Friday 1
Slide 38: Summary
y IAG insurance Australia Group 6 - Summary Insurance Australia Group Limited ABN 60 090 739 923
Slide 39: Complementary skill sets
Shareholder value creation Compiementary skill sets Equity * Full spectrum of motor u/w skills + Affinity relationships and mgmt + Focussed external broker service model IAG Governance Risk and capital management Diversification Structuring and reinsurance Broad product capabilities IAG insurance Au
Slide 40: Governance going forward
40 Governance going forward Governance structure aligned to international operations IAG Group IAG insurance Australia Group development Australia New Zealand Asia UK * Local board * Local board + Asian Advisory + Local board governance governance Board governance * Local * Local + Local + Local man
Slide 41: Transaction summary
41 Transaction summary Re-cap Sustainable niche strategy Lead with motor Growth platform vie ‘Back’ quality management Value accretive Low risk execution © IAG insurance Australia Group MSURANCE GROUP coutty
Slide 42: The next months
42 The next 12 months y IAG insurance ¢ Main focus in 2007 on: Australia Group Maintaining momentum in the core Australian and New Zealand businesses Realising planned benefits and synergies from UK acquisitions Continuation of Asian expansion strategy (eg completion of China investment, opportunity
Slide 43: Appendices
y IAG insurance Australia Group Appendices Insurance Australia Group Limited ABN 60 090 739 923
Slide 44: Appendix: Additional Equity Information
© IAG insurance Australia Group Appendix 1 — Additional Equity Information Insurance Australia Group Limited ABN 60 090 739 923
Slide 45: Overview of Equity: Management
Overview of Equity y Management IAG Neil Utley insurance Group Chief Executive Officer eerie Nell Util ey joined as Chief Executive Officer of Cox Retail Division in 1999. Formerly CEO of Privil lege Insurance, he has hands-on experience of all aspects of the insurance industry, including sales, di
Slide 46: Management cont...
Overview of Equity y Management cont... IAG John Castagno insurance Managing Director, Direct Broking Group John oe has worked across the i insurance industry, as General Manager of Mar cet eons and : John Josiah Joint Active Underwriter John Josiah joined Equity Red Star i in 1995 from Dominion ins
Slide 47: Recent Equity history
Recent Equity history y + Syndicate established in 1946 IAG insurance Australia Group 4995 «1996 = 1907, «1998 += 1999-2000 equity SURANCE GROUP (1) Neil Utley originally joined Equity in 1999 47
Slide 48: Broad distribution platform and brand portfolio
Broad distribution platform and brand portfolio y Channel Brands Comm. Mix‘? Distribution Mix (2) IAG insurance Australia Group Direct Distribution 59%!) CE BROKERS Branch network Hastings Direct insure — 20% “* inguranee reinvented Third Party Distribution 6% 13% NA 21% NA 81% (1) Excludes Hastings
Slide 49: Equity's branch footprint
Equity’s branch footprint y IAG insurance Australia Broad UK Branch footprint Group * Since February 2000, the Group’s high street Broking Call Centres branch-based network & Branch Network has been expanded to almost 70 branches equity SURANCE GROUP. 49
Slide 50: Appendix: Comparable Multiples
© IAG insurance Australia Group Appendix 2 — Comparable Multiples Insurance Australia Group Limited ABN 60 090 739 923
Slide 51: Comparable trading multiples - Distribution
51 Comparable trading multiples - Distribution y EV/EBITDA (x) IAG Share price © Market Core EV (£m) (p)_ cap (£m) (£m) Benfield 341 797 543 JLT 4i2 870 649 Mean Source: Datastream, Bloomberg I/B/E/S estimates as at 1 December 2006 Note: Numbers are based on publicly available information and should
Slide 52: Comparable trading multiples - Underwriting
Comparable trading multiples - Underwriting y P/E (x) PNTA (x) RONTA (%) IAG Insurance Share Market Dividend yield eearala Name price (p) cap (£m) 2006E _—-2007E 2008E Latest 2006E 2007E 2008E 2006E (%) UK non-life comps Royal & SunAlliance 148 4,347 10.9 114 11.3 4.54 5.5 18.2 16.1 3.4 Admiral 905
Slide 53: Precedent transaction multiples
Precedent transaction multiples y IAG UK non-life insurance and insurance broker precedents Insurance Precedents since 2003 Group Implied Stated NAV Adjusted NAV Historic net Target Acquirer Date announced Traded (%) value (£m) * 09) &) income (x) Non-life insurers Wellington Catlin Oct-06 100 591 1
Slide 54: Appendix: Additional information
© IAG insurance Australia Group Appendix 3 — Additional information Insurance Australia Group Limited ABN 60 090 739 923
Slide 55: IAG strategy: history of successful acquisitions and integration
55 IAG strategy y A history of successful acquisitions and integration Calendar Year ewe IAG insurance Australia Group Acquired * Acquired SGIO & SGIC in WA & SA through on-market takeover of SGIO Ltd $321m ¢ RACV Strategic Alliance in VIC $333 m j¢ Acquisition of State Insurance in NZ $297 m « Acqu
Slide 56: Appendix: Risk factors
© IAG insurance Australia Group Appendix 4 — Risk factors Insurance Australia Group Limited ABN 60 090 739 923
Slide 57: Key risks of the acquisition and our international strategy
57 Considerations/key risks of the acquisition and y ZY our international strategy Our international strategy generally IAG Insurance Australia This acquisition Group Growth in our existing businesses (especially in Asia) may not be as strong as we are anticipating and this could make our gross writ
Slide 58: Key risks relating to the Group and the insurance industry
58 Considerations/key risks relating to the Group and the insurance industry generally * Estimation of claims provisions — predicting and provisioning for claims is the biggest challenge facing general insurers * Concentration — although this acquisition and our recent international transactions hav
Insurance Australia Group — Merger or Acquisition (December 2006) on 6ix