Insurance Australia Group Ltd · ASX:IAG
Insurance Australia — FY2006 Earnings Presentation
32 slides from Insurance Australia's earnings presentation, Aug 25, 2006
Slide 1: Financial results: full year ended 30 June 2006
Financial results Full year ended 30 June 2006 Michael Hawker, Chief Executive Officer George Venardos, Chief Financial Officer 25 August 2006 Insurance Australia Group Limited ABN 66 090 739 923 Good morning. Welcome to the Insurance Australia Group 2006 full year results briefing. Copies of all th
Slide 2: Overview
Overview Delivered second highest return on equity (ROE) and positioned the Group for growth Insurance Australia Group Limited ABN 66 090 739 923 Now I'd like to handover to Mike Hawker.
Slide 3: Delivered on ROE, dividends and positioned for growth
Delivered on ROE, dividends and positioned for growth * Second highest annual ROE (normalised and reported) since listing — 22.1% actual (15.8% normalised) — Underwriting discipline maintained — Tight management of costs — Carried costs of Care & Repair and Cyclone Larry * Final dividend of 16.0 cps
Slide 4: Delivered second highest annual insurance margin in IAG's history
Delivered second highest annual q@ insurance margin in [AG’s history nd Net profit for shareholders $759m ~ Storm costs $76m more than FYO5, including Cyclone Larry ~ Earnings on shareholders’ funds of $539m GWP of $6.4bn * Insurance margin of 14.1% ° ~ Soft cycle putting downward pressure on margin
Slide 5: Continuing to deliver on ROE targets
Continuing to deliver on ROE targets @ IAG Return on Equity 30% 25% 20% 15% 10% 5% 0% FYO3 FYO4 FYOS FY06 lif ROE (Actual) attributable to holders of ordinary shares @ ROE (Normaiised) attributable to holders of ordinary shares * ROE for FYO6 is second highest in [AG’s history * Average since listin
Slide 6: Delivered double digit dividend growth
Delivered double digit dividend growth q@) Dividends per share 1AG inswane 40.0 CAGR: 24% FYO1 FY02 FYO3 FYO4 FYO5 FYOS 2 Interim dividend: B Final dividend sa Special dividend « Excluding the special dividend, dividends for FY06 represent: — 62% of reported earnings — 87% of normalised earnings * S
Slide 7: Financial results overview
Financial results overview Financial Results /Raties Fulhyear Fut-year ended ended dun 04 dun 05 Profil altitbute ders of ordinary shares {ASM} Reporied RO: hole lo hiotders ot Alt anaunts for HOS and subsequent poriads restated under AFRS énsurancs Australia Group Limited - ABN 60 040 739.923 7 The
Slide 8: Underwriting disciplines maintained
Underwriting disciplines maintained q@ Expense ratio. Loss ratio 86.7% 6.0% BA.P% Combined ratio Insurance margin sen 92.6% 31% 92.7% Notes: 4 The inmunised combined ratio is detenninad by éssuming constant bond yields within each raporting period. 2. F'Y04 has not been restated for AF RS. Ail amoun
Slide 9: Operating expenses kept flat
Operating expenses kept flat Direct expenses FY04 FY05 FY06 Actual $1,657 $1,645 $1,660 Inflated $1,657 $1,723 $1,792 2004 2005 2006 m Direct expenses #4 inflated expenses (4%pa) Ail amounts for 108 and subsequent periods rastated undor AK'RS Insurance Australia Group Limited - ABN 80 090 729 423 On
Slide 10: Customer satisfaction sustained
Customer satisfaction sustained 88 89 87 HT 83 83 86 84 Previous Claims Salisiaction Measure Ail amounts for 1H06 anc subsequent poriogs restated undor APRS Insurances Australia Group Limited - ABN 60-090 72 42% These improvements in our results have not been achieved by sacrificing customer service
Slide 11: Australian business regaining growth
Australian business regaining growth q) profile nd Quarterly GWP trend - Austratia only Sm g ‘iE i 5 Jul-Sep Oct-Dec Jan-bhar Aprdua re FYOS mFYOG « Seasonally, the first and final quarters of each year are our strongest — this is essentially driven by our commercial business ¢ Final quarter gaining
Slide 12: Personal lines recovered & growing
Personal lines recovered & growing © NSW Direct Car Comprehensive Adjusted Weekly Dus Renewal Rate wax ia Raw Clue Ren Rane * Care & Repair perceptions and pricing position reduced renewals in 1HO6 pact ol agjusimanclactor * Renewals have now rebounded — as has new business Ail amounts for 1H06 anc
Slide 13: Relative price position has improved as competitors have increased prices
Relative price position has improved q as competitors have increased prices IAG x NSW Motor — Relative Price Position NSW Home - Relative Price Position © competitor!-2 4.10 Compettor Gorpatiior Expensive tore: Expensive 1 08 45, 18 lan 2.00 4" Competitor.& Less Expensive ‘ or 085 bm, ee, % Ge, ee,
Slide 14: Renewals for the whole direct portfolio have improved
Renewals for the whole direct portfolio have improved National Direct (All Products) Due Renewal Rate (Monthly) 92% 91% 90% 89% 88% Ail amounts for 1H06 and subsequent periods rastated undor AIRS lnsueanioe Australia Group Limited - ABN 60090 738 423 Finally, before | hand over to George, | thought
Slide 15: Segment financial results and solvency
Segment financial results and solvency Strong results achieved and prudent capital position sustained Insurance Australia Group Limited ABN 66 090 739 923 15
Slide 16: Australian Personal Lines results
Full-year Australian Personal Lines ended ended ended ended DecO4 undS Dec 0§ Jun os Gross written premium ‘Gross earned premium Reinsurance Nef premiom revenue Underwriting profit investment income insurance profit 28h | Ee 5% oh margin (belore ta: Ail amounts for 1H06 anc subsequent poriogs restat
Slide 17: Australian Commercial Lines results
Hall-year Half-year FulL-year Austratlan Commorclat tines ended ended ended Doe 04 Gross written premium : é 3 Gross eamed premium : 3 eT Reinsurance expense ES : aly, Nef premium revenue Wel é Underwiiling prot Investment income on Insurance profit Prob? [rom tee based business nical rese Ail amoun
Slide 18: International - NZ performing well & infrastructure in place for Asia
International —- NZ performing well & © infrastructure in place for Asia nd Halt-year Halt-year Holf-year Full-year international operations ended ended ended ended Dec 04 Jun 05 sun 05 Gross wiiftan premium Gross earned premium Reinsurance expense Nef premium revenue Underwiling prom Invesimeni inc
Slide 19: New Zealand sustained record margin levels
New Zealand sustained record margin q levels nr Half-year Holf-year Holl-yeor Half-yearfll full-year New Zeatand Operations ended ended ended ended Dec04 fun0$ Dec 08 Jun 0s BOBS BBN i Wee Gross written premium AVE 502: Gross earned premium Reinsurance expense Net premium revenve Insurance profit In
Slide 20: Sustained strong solvency position
Sustained strong solvency position © IAG Insura 3.00x 2.32x 2:35x, 2.50x Fe 2.13x Impact of RES on MCR, if ax a exchanged, brings the 2.00x 1624 R 10: Z04x ox MCR to 2.43x * Benchmark ee MER 1.60x ‘ 035% 4.50x 4.00x MCR Multiple (times) 0.50x 0.00x 36-Jun-03 30-Jun-04 30-Jun-08 31-Dec-05 30-Jun-06 B
Slide 21: Track record of prudent reserving
Track record of prudent reserving — © nine consecutive years of net releases nd Claims development Accident year FY04 At end of accident year 2,313 3.677 3,881 4,024 4,105 One year later 2,218 3,360 3,527 3,743 Two years later 2137 3.249 3.493 Three years later 2,087 3.163 Current estimate of net ul
Slide 22: International expansion provides scope for further capital efficiency
International expansion provides scope for further capital efficiency » Domestically IAG has been innovative in realising capital efficiencies » International expansion will provide further efficiencies ~ Provides access to additional investors, potential for local funding ~ Effective tax rate may r
Slide 23: International expansion progressing
International expansion progressing Foothold and infrastructure in place in Asia, further international expansion being actively pursued IAG ce Insurance Australia Group Limited ABN 66 090 739 923 23
Slide 24: Asian strategy progressed - delivering shareholder value
Asian strategy progressed — ' delivering shareholder value © IAG Build Asian platform Acquisitive: Organic: te + AmAssurance + Regional Head Office + Safety insurance + Labuan Re + Alba + MOU with CPIC ¥ | Capture offshore growth Pro-forma growth of 3.1%!) v | Eami ti Positive contribution to FY06 p
Slide 25: Building a platform in high growth Asian markets
Building a platform in high growth SE Asian markets © Regional focus IAG’s relative scale IAG @ Thong $F [2] AmAssurance 5 2 2 © bo Ne NR © ceri - a 2 2 7 Organic growth © tabuan Pe] Countries where IAG is present (6 Singapore |. Countries of interest Ail amounts for 1HQ6 and subsequont periods rest
Slide 26: International expansion beyond Asia
International expansion beyond Asia q@ IAG » Asia was the first step in international expansion ~ Research into other markets has been ongoing * Benefits of further international expansion include ~ Diversification of risk -~ Maintaining competitive scale position internationally ~ Taking technical
Slide 27: Strategic objectives and outlook
Strategic objectives and outlook Insurance Australia Group Limited ABN 66 090 739 923 27
Slide 28: Five year strategic objectives largely met
Five year strategic objectives (set in FY02, updated in FY04) largely met Delivered cumuiative TSR of 104.4% since 1 January 2002. Ranked 25" in S&P/ASX100 during this period Top quartile shareholder return Normalised ROE of Delivered. Average of 15.4% normalised at least 1.5x WACC ROE for FY02 to F
Slide 29: Clear about objectives to deliver top quartile shareholder returns
Ciear about objectives to deliver top q@ quartile shareholder returns IAG * GWP of A$13bn by 2012 “) A Financial | * 40% of earnings from international businesses by 2012 * Maintain conservative risk appetite (eg ‘AA’ rating) * Balance of mature & emerging markets : * Personal lines & commercial SME
Slide 30: Management team focused on delivering profitable growth
Management team focused on delivering profitable growth A G Aust Personal Business Reinsurance & te Mario Jacki Nicholas Justin Jan van der David Issa CEO: avis Pirone Johnson Hawkins Breheny Schatk GWP2; $2,890m $672m $971m $65m 2 $im Business epracy m Partners (1) Shared brands (2} Distribution of
Slide 31: FY07 Outlook
FY07 Outlook Continue to grow and diversify our earings Generate GWP growth of 5 - 10% ~ From organic business and acquisitions e ~ Excludes non-consolidated GWP of associates Deliver normalised ROE of at least 1.5x WACC * ~ Pricing discipline maintained — for GWP and acquisitions * -~ Continued foc
Slide 32: IAG share performance
lAG Share Price (SAUD) IAG share performance y $9.00 $8.00 $7.00 $6.00 $5.00 $4.00 $3.00 $2.00 $1.00 $0.00 IAG share performance - since listing insurance Austeaiia Group MIAG Share Price Including Rolavostnett af Bividends mE SUPIASX 100 Accuinofation index “SUP IASK AMI Ordinaries Accurautation in
Insurance Australia Group — FY2006 Earnings Presentation on 6ix