Insurance Australia Group Ltd · ASX:IAG
Insurance Australia — FY2003 Earnings Presentation
32 slides from Insurance Australia's earnings presentation, Aug 21, 2003
Slide 1: Financial results
insurance Susciralie CoLape Financial results Michael Hawker, Chief Execut George Venardos, Chief id Insurance Australia Group Limited ABN 60 090 739 923
Slide 2: Agenda
Agenda Performance overview Michael Hawker 2. Capital protection & position Michael Hawker 3. Returns & dividend Michael Hawker 4. CGU/NZI performance George Venardos 5. Integration update George Venardos 6. Segment analysis George Venardos 7. MCR multiple George Venardos 8. Conclusion & questions M
Slide 3: Overview of performance
insurance Susciralie CoLape Overview of performanc id Insurance Australia Group Limited ABN 60 090 739 923
Slide 4: A watershed year
A watershed year q@ IAG insurance * Strengthened strategic position croup ¢ Diversified risk profile * Improved levels of new business and customer retention ¢« Reduced operating costs « Maintained a very strong balance sheet - rated AA nypiiee - ro . ae aoe . y 2 Insurance Australia Group Limited e
Slide 5: Improved business performance
improved business performance © * Gross written premium up 45% to $5.2bn — Includes $1.3bn from CGU/NZI — 9% organic growth, including Australian policies in force growth of 5% « Administration ratio decreased to 18.4% from 18.7% * Combined ratio stable at 95.7% versus 95.6% — Integration expenses a
Slide 6: Overview of FY03 — a successful year
Overview of FY03 — a successful year © IAG insurance * Net profit after tax of $153m (loss of $25m in FY02) aay” reflecting — Increase in the size of the business — 6 months of CGU/NZI results — Improved business performance — Reduced losses from equity markets * Strong capital position restored on
Slide 7: Financial results overview
Financial results overview q@ Full year Full year Financial results/ratios ended ended June-01 June-02 Net earned premium (A$m) Underwriting profit/(loss) (A$m) Total investment income (A$m) Reported NPAT (A$m) ROE % (Average Equity) to ordinary shareholders Basic EPS (cents) DPS Group insurance rat
Slide 8: Fifth consecutive half-year of underwriting profit
Fifth consecutive half-year of © underwriting profit rd insurance Sisatralie Insurance margin (pre-tax) “ee 350 a, 8, 300 6.1 9.9% 4HOO 2H00 1HO1 2H01 1HO2 2HO2 1HO3 2HO3 @ Underwriting result @ Investment return on technical reserve NEHA Cla» © Sato ei enone run aera 8
Slide 9: Gross Written Premium by class
Gross Written Premium by class A$bn FY99 FYOO FYOt FY02 FYO3 FYO3 Proforma Voter Home MM Shori-tai! Commercial GWorkers'Comp [ICTP/Motor liability MHealth OLiabilty ml Other Short-tail The main components of Other short-tail are: 2% other accident; 1% extended warranty; and 1% consumer credit busine
Slide 10: Key operating ratios — margins up
Key operating ratios — margins up iosurance i Susciralie _Expense ratio Loss ratio Corcnape 27.5% {and commission ratio for FY01 - FY03) 90.0% 28.0% e 5.0% 2 2 22.5% or S 85.0% 20.0% x 175% 80.0% 15.0% 75.0% 12.5% 10.0% 70.0% 75% 5.0% 65.0% 25% 0.0% 60.0% FY98 = FY99. ss FYOO sO FYOH Combined ratio
Slide 11: Updated operating targets
Updated operating targets © IAG lesurarce Susciralie Previous post- Revised [je integration FY03 FY04 targets results Status targets COR - Group COR - Short-tail COR - Long-tail COR - International Insurance margin (pre-tax) « Achieved post integration targets in FY03 « Upgraded COR targets for the
Slide 12: Investment returns improved
investment returns improved Actual Investment returns return FY02 Australian equities International equities New Zealand equities Fixed interest Cash Total Asset overlay Total with overlay Tactical option programme Total (including derivatives 1.3 (24.5). Actual Benchmark return FY03 9 return FY03 I
Slide 13: Capital carefully protected during a difficult period
Capital carefully protected during a q difficult period rd insurance ¢ Loss of $120m on shareholders’ funds includes the 23" $68m cost of the tactical protection programme * Tactical protection programme undertaken to protect capital in the context of: Being thinly capitalised during completion of t
Slide 14: Updated investment sensitivities
Updated investment sensitivities © IAG insurance Combined Combined Group Group mid-August Sensitivity on net profit before tax Change in assumption 30-Jun-03 2003 Equity market values: Australian equities International equities New Zealand equities 0.6 0.6 Interest rates Investment returns 141.7 166
Slide 15: Strongly capitalised
Strongly capitalised « Approach to capital unchanged — Risk of ruin of 1 in 750 years — An ‘AA’ category rating — currently AA (Outlook stable) — Group MCR multiple in 1.35x — 1.65x range, now at 1.62x ¢ Minimum probability of sufficiency of 90% retained for claims reserves ¢ Strengthened risk margi
Slide 16: Return on equity to improve
Return on equity to improve Actual and Normalised ROE Integration expense of $45m FY98 FY99 FyoO FY01 FY02 FY03 tm@ROE (Actual) attributable to all shareholders W@ROE (Actual) attributable to ordinary shareholders ggROE (Normalised) Note: 1. FY98-FY01 normalised ROE uses 8% return on technical reser
Slide 17: Dividend increased
Dividend increased © IAG lesurarce Susciralie * Normalised earnings up 8% to $343m Gree ¢ Final dividend of 7c per share, fully franked — Payable on 13 October 2003 (record date 10 September) ¢ Total dividend for FY03 of 11.5c per share — Up 9.5% from last year ¢ Dividend reinvestment plan (‘DRP’) w
Slide 18: Conclusion
Conclusion @ * A watershed year for the Group aust * Continued improvement in overall operating performance * Good organic growth in policy numbers « Newly acquired businesses performing very well ¢ Administration ratio continuing to trend down * Strongly capitalised following completion of the acqu
Slide 19: Areas to be covered in more detail
Areas to be covered in more detail © IAG insurance * CGU/NZI performance Group. * Integration update *« Segment analysis * MCR multiple Jone 4 . i l 7 Insurance Australia Group Limited NEMA Cee solo game cau Wea ABN 60 090 739 923 aera Cinuall™ — 49
Slide 20: CGU/NZI performing strongly
CGU/NZI performing strongly @ IAG insurance CGU/NZI insurance result Actual Business case Husain Coratape A$1,125m Gross written premium Net earned premium A$972m Combined ratio 98.3% Contribution to group NPBT ' nla ‘Stated after allowing for goodwill amortisation, integration expenses and borrowin
Slide 21: Integration progressing well
integration progressing well @ IAG lesurarce Susciralie ¢ Integration programme in the synergy realisation Gree phase — All synergies in business plans and budgets * Synergies of $54m per annum were in place by 30 June 2003 — Ahead of target of $21m for 2HO3 « $160m annual sustainable benefits to be
Slide 22: Updated synergy realisation timeframe
Updated synergy realisation © timeframe ~ isurace: Synergy realisation schedule 2H03 2H03 1H04 2H04 Ausra Estimated Actual Estimated Estimated Al AOUIS are Bie tak BCA CO Cumulative run-rate per annum Personal lines Commercial IT, shared services & overheads Australia sub-total International - New Z
Slide 23: Domestic short-tail ratios
Domestic short-tail ratios 120.0% 115.0% 110.0% 105.0% 100.0% 95.0% 90.0% 85.0% 80.0% 75.0% 70.0% 65.0% 60.0% 109.8% Combined ratio 8.0% 7.0% 6.0% 5.0% 4.0% 3.0% 2.0% 1.0% 0.0% 1.0% 2.0% 3.0% 4.0% 5.0% 6.0% 7.0% 112.2% 106.1% 98.4% 95.5% FY98 8.0% Fy99 FYOO FYO1 FY02 FYO3 Insurance margin (before ta
Slide 24: Domestic short-tail performance
Full year Full year Domestic short-tail ended Gross written premium Gross earned premium Net premium revenue Underwriting profit Investment income on technical reserves’ Insurance profit Insurance ratios Loss ratio Expense ratio Administration ratio Commission ratio Combined ratio Insurance margin (
Slide 25: Domestic long-tail ratios
Domestic long-tail ratios 120.0% 115.0% 116.0% 105.0%. 100.0%. 95.0% 96.0% 85.0% 86.0% 76.0% 70.0% 65.0% 60.0% Combined ratio 40.0% 30.0% 20.0% = I re} 4 x s — a S S 5 re) 10.0% Ss oa oO a 0.0% FY98 FY99 FYOO FYO? FYO2 FY03 Insurance margin (before tax) FY98 FYs9 FYOO FYOt Fyo2 FYO3 New target COR o
Slide 26: Domestic long-tail — performance
Domestic long-tail — performance © Full year Full year IAG insurance Domestic long-tail ended ended Australie June-01 June-02 ore _ Gross written premium Gross earned premium Net premium revenue Underwriting profit Investment income on technical reserves“ Insurance profit Profit from fee based busin
Slide 27: International performance
International performance © Full year International operations ended June ~01 Gross written premium Gross earned premium Net premium revenue Underwriting profit/(loss) Investment income on technical reserves Insurance profit/(loss Insurance ratios Loss ratio Expense ratio") Administration ratio Comm
Slide 28: Retirement Services
Retirement Services © IAG Full year Full year Full year mAs ClearView Retirement Solutions ended ended ended Variance [iil June-01 June-03 Net profit before statutory fund and income tax Funds under management Life embedded value Note: $30m in dividends paid out of the Life company « ClearView resul
Slide 29: MCR multiple
MCR multiple lesurarce Insurance Susciralie Coverage of regulatory capital requirements IAG Group = Australia Grp 30-Jun-03 30-Jun-03 NNN Tier 1 capital Paid-up ordinary shares Hybrid equity Reserve Retained earnings Excess technical provisions (net of tax) Less: deductions Tier 2 capital Term subor
Slide 30: FY04 outlook
FY04 outlook q@ IAG lesurarce Susciralie * Consider organic growth of 7 — 9% achievable Gree — Continued robust economy/GDP growth — Moderate premium rate increases reflecting claims inflation ¢ Focused on organic growth and improved efficiency ¢« Upgraded COR targets for FY04 to maintain insurance
Slide 31: Platform for ongoing value delivery
Platform for ongoing value delivery © IAG WSUEAR: Australis *« Business now has scale and momentum coup * Supported by robust capital and risk management « Customer focus being enhanced to improve service and loyalty ¢ Technology transformation to deliver step change in value in 2 — 3 years * Our pe
Slide 32: Questions
Questions ie ‘ MERA Chatter soho ed Insurance Australia Group Limited ABN 60 090 739 923 ees
Insurance Australia Group — FY2003 Earnings Presentation on 6ix