Insurance Australia Group Ltd · ASX:IAG
Insurance Australia — H1 FY2014 Earnings Presentation
33 slides from Insurance Australia's earnings presentation, Feb 21, 2014
Slide 1: Financial Results Half Year Ended 31 December 2013
21 February 2014 ABN 60 090 739 923 FINANCIAL RESULTS HALF YEAR ENDED 31 DECEMBER 2013 Mike Wilkins Nick Hawkins Managing Director and Chief Financial Officer Chief Executive Officer
Slide 2: Important Information
IMPORTANT INFORMATION This presentation contains general information in summary form which is current as at 21 February 2014. It presents financial information on both a statutory basis (prepared in accordance with Australian accounting standards which comply with International Financial Reporting S
Slide 3: Group Results
GROUP RESULTS Mike Wilkins Managing Director and Chief Executive Officer
Slide 4: Key Highlights: Underlying Improvement Across All Divisions
KEY HIGHLIGHTS UNDERLYING IMPROVEMENT ACROSS ALL DIVISIONS STRONG UNDERLYING Underlying margin of 13.7% (1H13: 12.1%) PERFORMANCE All individual business units performing well – Improved underlying result from Australia Direct, as NSW CTP pressures ease – Sustained double digit margin from CGU,
Slide 5: Financial Summary: Key Measures Continue to Improve
FINANCIAL SUMMARY KEY MEASURES CONTINUE TO IMPROVE 1H13 1H14 CHANGE GWP ($M) 4,593 4,786 4.2% NET EARNED PREMIUM ($M) 4,095 4,320 5.5% INSURANCE PROFIT ($M) 815 758 7.0% UNDERLYING MARGIN (%) 12.1 13.7 160bp REPORTED MARGIN (%) 19.9 17.5 240bps NET PROFIT AFTER TAX ($M) 461 642 39.3% CASH NPAT ($M)
Slide 6: 1H14 Gross Written Premium Growth of 4.2%
1H14 GROSS WRITTEN PREMIUM GROWTH OF 4.2% (6.0% EX-VICTORIAN FSL) GROSS WRITTEN PREMIUM KEY POINTS 1H14 VS 1H13 Overall growth of 4.2% (6.0% ex-Victorian FSL) 4,800 Lower level of growth than prior periods reflects net effect of: 161 109 77 – Reduced need to recover higher input costs, 4,600 not
Slide 7: 1H14 Reported Insurance Margin
1H14 REPORTED INSURANCE MARGIN INCREASED PERILS ACTIVITY COMPARED TO BENIGN 1H13 REPORTED INSURANCE MARGIN KEY POINTS 1H14 VS 1H13 Strong reported margin of 17.5% 0 (1H13: 19.9%) 97 202 19.9% 126 27 Improved underwriting performance of $126m, 0 51 17.5% sourced from all divisions Higher than e
Slide 8: 1H14 Underlying Margin of 13.7%
1H14 UNDERLYING MARGIN OF 13.7% FURTHER IMPROVEMENT IN UNDERLYING PERFORMANCE GROUP INSURANCE MARGIN KEY POINTS REPORTED VS. UNDERLYING (EX-UK) Improved underlying margin of 13.7% (1H13: 12.1%) 13.7% Prolonged improvement reflects pursuit of 12.0% 12.5% focused strategy 11.4% 10.9% Performance
Slide 9: Divisional Performance
DIVISIONAL PERFORMANCE Refer to slide 27 for ownership details
Slide 10: Australia Direct: Improved Underlying Performance
AUSTRALIA DIRECT IMPROVED UNDERLYING PERFORMANCE KEY METRICS 1H13 1H14 CHANGE KEY POINTS Gross written premium ($m) 2,264 2,279 +0.7% GWP growth of 0.7% (2.3% ex-Victorian FSL) Insurance result ($m) 453 409 -9.7% – Reduced need for input cost recovery, notably in home Underlying margin (%) 13.1 15
Slide 11: Australia Intermediated (CGU): Sustained Underlying Improvement
AUSTRALIA INTERMEDIATED (CGU) SUSTAINED UNDERLYING IMPROVEMENT KEY METRICS 1H13 1H14 CHANGE KEY POINTS Gross written premium ($m) 1,433 1,459 +1.8% GWP growth of 1.8% (4.8% ex-Victorian FSL) Insurance result ($m) 301 248 -17.6% – Derived from rate and volume Underlying margin (%) 10.7 11.6 +90bps
Slide 12: New Zealand: Strong Underlying Performance Maintained
NEW ZEALAND STRONG UNDERLYING PERFORMANCE MAINTAINED KEY POINTS KEY METRICS 1H13 1H14 CHANGE Gross written premium ($m) 751 884 +17.7% GWP growth of 17.7% (local currency 4.7%) Insurance result ($m) 52 92 +76.9% – Domestic home rate increases Underlying margin (%) 11.5 14.2 +270bps Improved unde
Slide 13: Asia Development on Track
ASIA DEVELOPMENT ON TRACK FINANCIAL CONTRIBUTION BY COUNTRY KEY POINTS Strong proportional GWP growth (7.1% of Group) Proportional GWP Earnings Contribution – Thai motor growth impacted by significant contraction in new vehicle sales 1H13 1H14 1H13 1H14 A$m A$m A$m A$m – A full six-month contribut
Slide 14: Capital and Investments
CAPITAL AND INVESTMENTS Nick Hawkins Chief Financial Officer
Slide 15: Investment Portfolio: Conservative Mix and High Credit Quality
INVESTMENT PORTFOLIO CONSERVATIVE MIX AND HIGH CREDIT QUALITY TOTAL INVESTMENT GROUP ASSET ALLOCATION SHAREHOLDERS’ FUNDS PORTFOLIO – $14.8BN 13% 17% $5.5bn 19% 64% $9.3bn 87% Technical Reserves Shareholders' Funds Fixed Interest and Cash Growth Fixed Interest and Cash Equities Alternatives Two di
Slide 16: Investment Returns: Strong Performance Maintained
INVESTMENT RETURNS STRONG PERFORMANCE MAINTAINED INVESTMENT INCOME TECHNICAL RESERVES ($M) TECHNICAL RESERVES RETURNS 201 Lower return of $87m (1H13: $201m) reflecting: – Slightly lower running yield 69 87 198 – Reduced credit spread contraction effect – FX effect primarily on earthquake reinsuran
Slide 17: Reserve Releases Higher Than Expected
RESERVE RELEASES HIGHER THAN EXPECTED AUSTRALIAN LONG TAIL RELEASES GROUP RESERVE RELEASES (% NEP) KEY POINTS Higher than expected 1H14 releases of $187m 7% (1H13: $90m), equivalent to 4.3% of NEP 6% – Driven by favourable inflationary environment in Australian long tail classes 5% 4% FY14 reser
Slide 18: Catastrophe Reinsurance Cover Bolstered for Calendar 2014
CATASTROPHE REINSURANCE COVER BOLSTERED FOR CALENDAR 2014 2014 CATASTROPHE PROGRAMME KEY POINTS $m 5600 Australia/NZ Protection raised to $5.6bn 5500 Earthquake Aggregate cover increased to $375m AMI incorporated one year ahead of original plan Main Catastrophe Programme Maximum event retent
Slide 19: Reinsurance Expense: More Favourable Outlook
REINSURANCE EXPENSE MORE FAVOURABLE OUTLOOK REINSURANCE EXPENSE (EX-CTP QUOTA SHARE) KEY POINTS 8.6% Significantly higher 1H14 reinsurance expense of $565m (1H13: $399m), primarily owing to 8.2% 9.0% CTP quota share impact 6.5% 7.4% Ex-CTP quota share expense similar to 2H13 6.3% 6.2% 6.3% 6.2%
Slide 20: CTP Quota Share Improves Capital Efficiency
CTP QUOTA SHARE IMPROVES CAPITAL EFFICIENCY CTP – GWP CONTRIBUTION / CAPITAL KEY POINTS REQUIREMENT (% OF GROUP) Quota share relates to 30% of total CTP book – Equates to ~$270m of GWP per annum – Applies retrospectively from 1 July 2013 25% 9% Improves overall capital efficiency – Reduction in
Slide 21: Capital Position Boosted by Capital Raising
CAPITAL POSITION BOOSTED BY CAPITAL RAISING CAPITAL RATIOS - 31 DECEMBER 2013 KEY POINTS Very strong capital position – PCA multiple 2.31 (benchmark 1.4–1.6) – CET1 multiple 1.71 (benchmark 0.9–1.1) – Temporarily inflated by capital raising 1H14 Pro forma capital ratios in line with benchmarks 1
Slide 22: Interim Dividend Increase of Over 18%
INTERIM DIVIDEND INCREASE OF OVER 18% DIVIDEND HISTORY KEY POINTS 9 Full year payout policy of 50-70% cash earnings 8 71.5% 70.8% 67.1% Interim cash payout ratio of 46.6% 64.7% 7 60.5% 6 Fully franked 1H14 dividend of 13 cents 5 25.0 – 18.2% increase (cents per share) 4 Paid on expanded capi
Slide 23: Outlook
OUTLOOK Mike Wilkins Managing Director and Chief Executive Officer
Slide 24: Wesfarmers' Insurance Underwriting Businesses: Highly Complementary Acquisition
WESFARMERS’ INSURANCE UNDERWRITING BUSINESSES HIGHLY COMPLEMENTARY ACQUISITION ACQUISITION Wesfarmers’ insurance underwriting companies in Australia and New Zealand Adds FY13 GWP of over $1.6bn (ex-levies) Includes a 10-year distribution agreement with Coles Purchase price of $1.845bn STRONG
Slide 25: FY14 Outlook: Strong Full Year Performance Expected
FY14 OUTLOOK STRONG FULL YEAR PERFORMANCE EXPECTED GUIDANCE FY14 ASSUMPTIONS Net losses from natural perils in line with GWP growth 3-5% budgeted allowance of $640m Insurance margin 14.5-16.5% Reserve releases of around 3% of NEP No material movement in foreign exchange rates or investment mar
Slide 26: Questions
QUESTIONS
Slide 27: 1H14 Results – 21 February 2014
100% owned unless indicated. 1 RACV is via a distribution relationship and underwriting joint venture with RACV Limited. 2 IAG holds a 98.6% beneficial interest in Safety Insurance, based in Thailand, which trades under the Safety and NZI brands.. 3 IAG owns 49% of the general insurance arm of Malay
Slide 28: Appendix - Group Performance
APPENDIX - GROUP PERFORMANCE 1H13 2H13 1H14 Insurance Ratios (Continuing Operations) 1H13 2H13 1H14 GROUP RESULTS A$m A$m A$m Loss ratio 59.5% 60.3% 58.1% Gross written premium 4,593 4,905 4,786 Immunised loss ratio 61.6% 63.5% 60.9% Gross earned premium 4,494 4,641 4,885 Expense ratio 25.5% 26.8% 2
Slide 29: Appendix – Divisional Performance
APPENDIX – DIVISIONAL PERFORMANCE 1H13 1H14 GWP INSURANCE MARGIN GWP INSURANCE MARGIN Reported Growth Reported Underlying Reported Growth Reported Underlying DIVISIONAL PERFORMANCE A$m % % % A$m % % % Australia Direct 2,264 8.8 21.9 13.1 2,279 0.7 20.1 15.1 Australia Intermediated 1,433 7.7 23.1 10.
Slide 30: Appendix – Australia Direct
APPENDIX – AUSTRALIA DIRECT 1H13 2H13 1H14 GWP ($M) / INSURANCE MARGIN (%) A$m A$m A$m Gross written premium 2,264 2,320 2,279 21.9% 20.1% Gross earned premium 2,199 2,246 2,317 17.6% Reinsurance expense (134) (147) (287) Net earned premium 2,065 2,099 2,030 Net claims expense (1,372) (1,386) (1,332
Slide 31: Appendix – Australia Intermediated (CGU)
APPENDIX – AUSTRALIA INTERMEDIATED (CGU) 1H13 2H13 1H14 GWP ($M) / INSURANCE MARGIN (%) A$m A$m A$m Gross written premium 1,433 1,595 1,459 23.1% Gross earned premium 1,428 1,458 1,514 Reinsurance expense (124) (121) (117) 17.8% Net earned premium 1,304 1,337 1,397 12.6% Net claims expense (609) (70
Slide 32: Appendix – New Zealand
APPENDIX – NEW ZEALAND 1H13 2H13 1H14 GWP ($M) / INSURANCE MARGIN (%) A$m A$m A$m Gross written premium 751 824 884 12.4% Gross earned premium 739 785 880 Reinsurance expense (113) (124) (140) 9.5% 8.3% Net earned premium 626 661 740 Net claims expense (399) (375) (387) Commission expense (67) (75)
Slide 33: Appendix – Asia
APPENDIX – ASIA 1H13 2H13 1H14 IAG ASIA GWP 1H14 – A$m A$m A$m PROPORTIONAL BASIS Gross written premium 137 158 154 Gross earned premium 122 145 167 Reinsurance expense (25) (22) (18) Net earned premium 97 123 149 Net claims expense (56) (74) (84) Thailand Commission expense (22) (29) (37) 40% Under
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