Insurance Australia Group Ltd · ASX:IAG
Insurance Australia — H1 2003 Earnings Presentation
35 slides from Insurance Australia's earnings presentation, Feb 27, 2003
Slide 1: Financial results, half year ended 31 December 2002
© LAG leseeranice Financial results Half year ended 31 December 2002 Michael Hawker, Chief Executive Officer George Venardos, Chief Financial Officer a7 = 5 bruary 2003 AO’D Good morning. Welcome to the Insurance Australia Group 1H03 results briefing. We would like to proceed through the presentatio
Slide 2: Agenda
Agenda a 20 oe © TAG 1. Overview of performance ‘Michael Hawker Insurance Australia Group 2. IAG results analysis George Venardos 3. CGUINZI acquisition update Michael Hawker 4, Questions Michael Hawker & George Venardos AO'’D Mike Hawker will lead off this morning providing us with an overview of t
Slide 3: Overview of performance
© LAG leseeranice Overview of performance =, | Michael Hawker, ChiefExecutive Officer MH: Good morning. The six month period to December 2002 was a defining one for the Group. We agreed to acquire the CGU and NZI businesses and undertook a major capital raising programme. However, we never let this
Slide 4: Sustained improvement and growth in underlying operations
Sustained improvement and growth in underlying operations __ Group ° Half-year Half-year Financial results/ratios ended ended Jun-02 Net earned premium ($m) i Total investment income ($m) Underwriting profit ($m) Reported result ($m) Annualised ROE % (Actual) Annualised ROE % (Normalised) insurance
Slide 5: Continued delivery of improving results
y Continued delivery of improving results © [ACs Relative to 1H02: Insurance ONPAT increased to $62m from $49m OExpense ratio improved to 19.2% from 20.1% ~ Flat from 2HO2 — investment in systems and process improvements iCombined ratio of 96.0%, down from 97.6% & 2HO2 included one-off benefits to r
Slide 6: Unusual/non-recurring items in 1H03 results
ms in 1HO03 resu Half-year Half-year Half-year Half-year Impact of unusual/non-recurring items on ended ended ended ended insurance result 7 _ dun-61 Dec-01 Ju et premium revenue Underwriting profit/{ioss) One-off items: WAASL vatuation adjustment Net loss S14, storms & bushfires Net one-off items A
Slide 7: Fourth consecutive underwriting profit
y Fourth consecutive underwriting profit. © Fanice @ Underwriting result [ One-off impacts 1HOO = 2HOO =1HO1 = 2HO1 =1HO2 2HO2 = 1HO3 1 ee WGA coil soto ggg Cou Bem. sate G mA RUN EA OOD RUA ce coe cE" anewtnace This chart provides a picture of the improvement in the underwriting results over the pa
Slide 8: Insurance operations driving margin growth
Insurance operations driving margin growth i Insurance result (pre-tax) a 16.1% 300- ~ 280- 260- 240- 220- 200- 9 g™ 50% 2.8%, 219 |} <0 7.3% 440- a 120° 48 -— 400- 8 88. 80 103 40: y fi * 7 ean 2401 4H02 2H02 103 B Lindenwriting result One-off impact Cilnvestment return ons TR : wis cil soio ggg ju
Slide 9: Continued growth and diversification of gross written premium pre-CGU
Continued growth and diversification of gross written premium pre-CGU Gross Written Premium By Business $1.abr $1.7bn Wilcior Eiriewa Hoke: do) dogudes (he GWE of al! businesses except inwards Memsurance, which is in run-off. cot soio ggg ju Sen. gee © M4 The sustainability of the improved insurance
Slide 10: Improving insurance margins and components
Improving insurance margins & y components. a Expense Ratio ‘Loss Ratio Group Combinod Rave . Insurance Margin {before tax} One-off impacts: . : oe wits cof solo agg ou Bom. bee © wa The Group’s expense ratio of 19.2% includes nearly 2% in respect of fire service levies. If these are excluded from t
Slide 11: Return on equity
20.0% 18.0% 16.0% 14.0% 12.0% + 10.0% 8.0% 6.0% 4.0% 2.0% 0.0% 4 (2.0%) (4.0%) (6.0%) (8.0%) 4H01 2HO41 tHOZ 2HO2 THOS MROE (Actual) ROE (based on pre-tax investment returns of 8% on TR and 11.5% on SHF} @ ROE (based on pretax investment retums of 6% on TR and 7.4% on SHF) LAGOS Actual @OE includes
Slide 12: Interim year dividend maintained
oe Interim year dividend maintained - |, (AG Olnterim dividend of 4.5 cents per share, fully fr franked uence ~ Maintained from last year Se — Balance of strong business performance offset by pour equity markets 2 Dividend payment details are: ~Ex-dividend date —- 6 March 2003 ~ Record date ~ 12 Mar
Slide 13: Results analysis
Results analysis George Venardos, Chief “inat Officer © LAG letgeeranice: Australia Group Good morning. The purpose of my slides is to provide you with a bit more detail on the components of the results about which Mike has spoken. 13
Slide 14: Record short-tail profitability
Record short-tail profitability _ Half-year Half-year Half-year Domestic short-tail ended ended ended Dec-01 Jun-02 Dec-02 Gross written premium ‘Gross earned premium Reinsurance expense Net premium revenue Net claims expense Underwriting expense Underwriting profit investment income on technical re
Slide 15: Short-tail ratios moving to new target zones
Reflecting strong performance, short-tail © ratios moving to new target zones _ 2 Combined Ratio Insurance Margin AOD QO. 50% 2HDt 102 2H82_ AMAR mom Vanget ranges are based on-resuits.eestintegration of CGU coon scio cou Bom. Gass wa aa 5 aon basnne Conse ial PONG OS These results reflect: «Rationa
Slide 16: Long-tail benefits from major scheme stability
Long-tail benefits from major scheme stability Domestic fong-tail ended Dec-01 Gross written premium Gross earned premium Reinsurance expense Net premium revenue 386 Net claims expense (296) Impact of discount rate (30) = (80) Net claims expense E g (326) (897) Underwriting expense Underwriting prof
Slide 17: Long-tail operating in target zone
Long-tail operating in target zone Combined Ratio insurances Margin (before tax) BOM: mm Target fanges are based omresuits.postibtegration of CCU aes NBA cual soto ggg Cou Bo. aac G wa hush EO 0097 Bia. The operating performance reflects the schemes’ stability as well as: «Mix of business and risk s
Slide 18: International business
) International business. a © [AG Half-year Half-year Haif-year Insurance international Operations ended ended ended aa " ‘Gross written premium ‘Gross earned premium Reinsurance expense Net premium revenue Net claims expense Underwriting expense Underwriting profit/{loss) Investment income on techn
Slide 19: Retirement Solutions
Retirement Ser ClearView Retirement Solutions Net profit/{loss} before corporate tax Funds under management ($m) Life embedded value tiLife risk continues to generate profits ii Clearview operating model embedded, but poor sales environment CLFUM retention credibleawithin market context — Net redemp
Slide 20: Positive investment yield aided by increased fixed interest exposure
Positive investment yield aided by ©) increased fixed interest exposure _ a ee Portfolio return (Pre-tax} and incl hedge & put option 1H02 coon soio ggg ju Bow. Gee iS) wa The migration over the past year to exclude equity market exposure from the technical reserves portfolio enabled the Group to fu
Slide 21: Producing active returns
Producing active returns. @ Actual return m Benchmark return 40.0 6.0) (10.0) (15.0) Australian equities —_ International Fixed interest Cash equities Invested: $1.08bn + $0,460 * $ 4.0950 +, $0.26bn = $5.89bn Note: 4.0 Ajnder the equity overlay the Group. stitialds approximately $520m in Australian
Slide 22: In summary
In summary..... Delivering stated targets oConsistent delivery of improved pe past t two years : _ initiatives ongoing Oinsurance operations contin) operating zones : 1 Revised post-integration targets are eto exceed ai a Strength of underlying operations limiting effect of adverse equity market con
Slide 23: CGU/NZI acquisition update and pro-formas
© LAG leseeranice CGU/NZI acquisition update & pro-formas = Michael Hawker, Chief Executive Officer As you are aware we completed the acquisition of NZI and CGU on 2 January and, as the acquired businesses had a calendar based financial year, they have just been through their year end financial stat
Slide 24: CGU/NZI calendar 2002 results
© IAG Insurance Australia Corp & internation Year ended Baggs Short-tait Long-tail ‘Gross written premium Net premium revenue Net claims expense Undervaiting expense 4450) (oS) Underwriting profit(loss) 7 7) Investment income on technical reserves 38 52 a = = insurance profit 126 25 Discontinued ope
Slide 25: CGU/NZI GWP better than expected
y CGUINZI GWP better than expected & leseeranice Australia Gross written premium Australia Grose written Premium New Zealand Group Gross written premium Australia and New Zealand $6. ies GIN) Tera’ we coll so gag Gy Bes ose mA ee hush EO 0097 Bia. Firstly, the GWP of both CGU and NZI exceeded the ba
Slide 26: GWP over $6 billion
GWP. - over $6 billion Gross Written Premium By Business $3.6br $3.6bn $2.66n Be Rm * miveners Comp DOU miei 8 ROA SN ii a cn Hin te i epi leaf SF oe ‘Oi Sh ta (aig EOS AU Cc a aipinhd Bonarheneiadk RoDReHE sed eas There have also been changes to the pro-forma mix reflecting the business written and
Slide 27: GWP diversification exceeds 50% target
) GWP diversification exceeds 50% target © Gross written premium outside NSW/ACT . 50% # cory, 50% gee | 58% 5 40% ° ¢ a ? 42% 42% wa a 20 34% 3 id 20% 1% . 20% 10% = “2% ov. & 2 & & & 2S & si & & & & & & coon scio cou Bom. Gass wa aa uae unset ned a The proportion of business written outside NSW/AC
Slide 28: Outcome of key metrics ahead of business case
Outcome of key metrics ahead of business case Combined CGUINZI Business case Actual result GWP for 2002 Goodwill Rate on $ 250m of fixed tate subordinated debt improved premium base and performance provided higher.net asset base leading to lower goodwill (The quality of the Group’s rating enabled it
Slide 29: Synergies: current expectations
) Synergies. irrentexpectations = © Synergy realisation schedule Cumulative run-rate per annum Personal lines Commercial IT, shared services & overheads Australia sub-total International - New Zealand Total synergies in run-rate Reported income statement Synergy benefits collected Costs of implement
Slide 30: Coverage of statutory capital requirements
LAG Coverage of statutory capital requirements Unaudited aime 1AG Group IAG Group Proforma Aaa Tier 1 capital Paid-up ordinary shares Hybrid debtfequity Retained earnings & reserves Excess technical provisions (net of tax) Less: deductions Tier 2 capital Term subordinated notes Capital base Minimum
Slide 31: Remained strongly capitalised
y Remained strongly capitalised =. es © IAG Fanice O Maintained S&P rating of AA (stable outlook) on rated operating entities OExpanded strong reinsurance protections Minimum 90% probability of sufficiency reserving policy retained Structured collar programme,{6 protect capital base from major falls
Slide 32: IAG and CGU/NZI pro-forma statement of financial results
IAG & CGU/NZI pro-forma statement of fi i Pro-torma consolidated tinancial results Half-year ended 31 December 2002 AG CGUINZ! Combined Gross written premium Net premium revenue Underwriting profit/(loss} Investment income on technical reserves: insurance profit Profit before income tax income tax (
Slide 33: Conclusion
Conclusion OThe Group has delivered a very strong result) for 41H03 and its fourth consecutive underwriting profit O Quality result and financial strength enabled the dividend to be maintained this period despite , continuing poor equity market performance Go 1 The acquired CGU/NZI business i ig per
Slide 34: Questions
© LAG letgeeranice: Australia Group Questions aaa ju Bsn. Ge OG WA AO’D As usual, in consideration of those people listening on the phones and the webcast, please use the microphones for all questions and identify yourself. Thank you.
Slide 35: IAG share price performance against benchmarks
IAG share price performance agai benchmarks Index 8: eee Wed ae SBP /4SX200 Index em AAG Share F vowrcMSCl WORLD EX AUS Index © Share price from listhigdate 8 August 2000'to 24 February 2003 aaa Ge LAG letgeeranice: Australia Group <i © WA 35
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