Insurance Australia Group Ltd · ASX:IAG
Insurance Australia — Investor Day (May 2002)
69 slides from Insurance Australia's investor day presentation, May 15, 2002
Slide 1: Strategy update
Strategy update 15 May 2002 Insurance Australia Group Limited ABN 60 090 739 923
Slide 2: Strategy review
Strategy review Michael Hawker, Chief Executive Officer 15 May 2002 Insurance Australia Group Limited ABN 60 090 739 923
Slide 3: Purpose of the day
Purpose of the day • Communicate updated strategy • Discuss our views on current industry issues • Provide insights into core competencies • Set our aspirational 5 year financial goals Insurance Australia Group Limited ABN 60 090 739 923 3
Slide 4: Agenda
Agenda Strategy overview Mike Hawker 10.00am Industry Issues Ian Brown 11.00am Questions 11.30am Lunch 12.00pm Sales & Marketing Karyn Baylis 12.45pm Research Tony Coleman 1.20pm Fraud & Security Nola Watson 2.00pm Vehicle research Robert McDonald 2.30pm Tea break 3.10pm Statutory Schemes Doug Pearc
Slide 5: Our focus
Our focus • General insurance • Direct distribution • Continually strengthening our core capabilities Insurance Australia Group Limited ABN 60 090 739 923 5
Slide 6: Why general insurance industry?
Why general insurance industry? • Brand strength • Core competencies • Competitive arena • Scale important • Profitable Insurance Australia Group Limited ABN 60 090 739 923 6
Slide 7: Why general insurance industry?
Why general insurance industry? • Brand strength • Core competencies • Competitive arena • Scale important • Profitable Insurance Australia Group Limited ABN 60 090 739 923 7
Slide 8: Brand strength
Brand strength 100 Brand strength NRMA - NSW 50 NRMA - QLD SGIO - WA SGIC- SA 0 0 50 100 Brand stature Insurance Australia Group Limited ABN 60 090 739 923 Brand AssetValuatorTM Wave 3 Australia - Adults - Region 8
Slide 9: Relative strength of NRMA Insurance brand nationally
Relative strength of NRMA Insurance brand nationally 100 Brand strength 50 Australian Commercial Union Pensioners RACV AXA 0 NZI 50 100 Brand Insurance Australia Group Limited stature ABN 60 090 739 923 TM Brand AssetValuator Wave 3 Australia - Adults - Region 9
Slide 10: Why general insurance industry?
Why general insurance industry? • Brand strength • Core competencies • Competitive arena • Scale important • Profitable Insurance Australia Group Limited ABN 60 090 739 923 10
Slide 11: Core competencies
Core competencies • 75 year history in general insurance • Personnel skilled in insurance • Extensive direct distribution • Considerable database of information about insurance risk • Strong risk management framework • Strong claims management skill set Insurance Australia Group Limited ABN 60 090 7
Slide 12: Why general insurance industry?
Why general insurance industry? • Brand strength • Core competencies • Competitive arena • Scale important • Profitable Insurance Australia Group Limited ABN 60 090 739 923 12
Slide 13: Competitive arena
GWP $M 0 500 1000 1500 2000 2500 3000 Su IAG nc Al orp liia nz 16% RS CG A 19% IAG NU 13% Q 8% BE IN 7% Zu G ric Insurance Australia Group Limited 76% h AI W Lum G es l fa ey rm G ers er lin ABN 60 090 739 923 RA g C AC I CB E A Au C Ins Competitive arena Ca st hu th Me bb ol di ic ca C l W hurc es
Slide 14: Why general insurance industry?
Why general insurance industry? • Brand strength • Core competencies • Competitive arena • Scale important • Profitable Insurance Australia Group Limited ABN 60 090 739 923 14
Slide 15: Scale important
Scale important IAG national market share by line 50.0% 42% 36% 24% 20% 17% 6% 3% 0.0% e or k er or TP k om is is ot th ot -R -r C M O M H on al al /C -N ci ci W er er /C m m W om om Source : APRA June 2000- 2001 C C Insurance Australia Group Limited ABN 60 090 739 923 15
Slide 16: Why general insurance industry?
Why general Insurance industry? • Brand strength • Core competencies • Competitive arena • Scale important • Profitable Insurance Australia Group Limited ABN 60 090 739 923 16
Slide 17: Profitable – Return on capital
Profitable – Return on capital Insurance class Last 8 Yr Range 2001 Year ACCC expectation Dom Motor -17% to 34% 34% Moderate/High Home -8% to 40% 40% High CTP -33% to 30% 30% Moderate Other Accident 5% to 58% 52% Moderate Workers -27% to 19% 19% Low Comm Motor -20% to 75% 32% High Fire & ISR -10% to
Slide 18: Our focus
Our focus • General insurance • Direct distribution • Continually strengthening our core capabilities Insurance Australia Group Limited ABN 60 090 739 923 18
Slide 19: Why concentrate on direct distribution?
Why concentrate on direct distribution? • Differential customer experience • Utilises specialist insurance skills of our people • Lower cost • Better information • Opportunity to cross-sell • Global trends Insurance Australia Group Limited ABN 60 090 739 923 19
Slide 20: Why concentrate on direct distribution?
Why concentrate on direct distribution? • Differential customer experience • Utilises specialist insurance skills of our people • Lower cost • Better information • Opportunity to cross-sell • Global trends Insurance Australia Group Limited ABN 60 090 739 923 20
Slide 21: Why concentrate on direct distribution?
Why concentrate on direct distribution? • Differential customer experience • Utilises specialist insurance skills of our people • Lower cost • Better information • Opportunity to cross-sell • Global trends Insurance Australia Group Limited ABN 60 090 739 923 21
Slide 22: Why concentrate on direct distribution?
Why concentrate on direct distribution? • Differential customer experience • Utilises specialist insurance skills of our people • Lower cost • Better information • Opportunity to cross-sell • Global trends Insurance Australia Group Limited ABN 60 090 739 923 22
Slide 23: Lower cost: Expense Ratio %
Lower cost 31 Expense Ratio % 26 21 16 1993 1994 1995 1996 1997 1998 1999 2000 2001 Industry Expense Ratio IAG Expense Ratio Insurance Australia Group Limited ABN 60 090 739 923 Source : ACCC Insurance Industry Market Pricing Review March 2002 23
Slide 24: Why concentrate on direct distribution?
Why concentrate on direct distribution? • Differential customer experience • Utilises specialist insurance skills of our people • Lower cost • Better information • Opportunity to cross-sell • Global trends Insurance Australia Group Limited ABN 60 090 739 923 24
Slide 25: Why concentrate on direct distribution?
Why concentrate on direct distribution? • Differential customer experience • Utilises specialist insurance skills of our people • Lower cost • Better information • Opportunity to cross-sell • Global trends Insurance Australia Group Limited ABN 60 090 739 923 25
Slide 26: Why concentrate on direct distribution?
Why concentrate on direct distribution? • Differential customer experience • Utilises specialist insurance skills of our people • Lower cost • Better information • Opportunity to cross-sell • Global trends Insurance Australia Group Limited ABN 60 090 739 923 26
Slide 27: Global trends
Global trends Australia UK US(1) $5.9 B $6.9 B $49.4 B $51.0 B $264.2 B $310.6 B 5% 6% 21% 16% 31% 28% 54% 45% 14% 15% 55% 51% 16% 59% 64% 24% 14% 4% 21% 21% 15% 10% 1999 2001 1998 2000 1996 2001E Source: AM Best, Data Monitor, APRA, JP Morgan 2001 Insurance Survey Direct(2) Financial Tied Independe
Slide 28: Our focus
Our focus • General insurance • Direct distribution • Strengthening our core capabilities Insurance Australia Group Limited ABN 60 090 739 923 28
Slide 29: Focus on strengthening our core capabilities
Focus on strengthening our core capabilities • Customer focus • Community focus • Highly trained people Insurance Australia Group Limited ABN 60 090 739 923 29
Slide 30: Core capabilities – Customer focus
Focus on strengthening our core capabilities – Customer focus • Pay claims • Competitive pricing • Simple policies • Convenient experience • Quality review Insurance Australia Group Limited ABN 60 090 739 923 30
Slide 31: Core capabilities – Community focus
Focus on strengthening our core capabilities – Community focus • HELP • Sponsorship • Advertising Insurance Australia Group Limited ABN 60 090 739 923 31
Slide 32: Core capabilities – Highly trained people
Focus on strengthening our core capabilities – Highly trained people • Increased training • New evaluation processes • New remuneration schemes • New management team Insurance Australia Group Limited ABN 60 090 739 923 32
Slide 33: Management team
Management team David Smith Rick Jackson Doug Pearce Mario Pirone Karyn Baylis State Ins. NZ Motor Workers Asset Sales Home CTP Management Marketing Home Commercial ClearView Distribution Health Retirement Services IT&T Ian Brown George Venardos Sam Mostyn Tony Coleman Deputy CEO CFO CCRO CRO Insura
Slide 34: Our business
Our business • General insurance • Asset management • ClearView Retirement Solutions • Inwards reinsurance Insurance Australia Group Limited ABN 60 090 739 923 34
Slide 35: General insurance
General insurance Premiums by line of business 00/01 Mkt size Mkt share in $Bn IAG $3.3 42% Motor $2.2 20% Home $1.6 36% CTP Commercial Motor $1.0 6% Commercial Other $2.7 3% W/C - Risk $0.8 24% Health $7.1 1.7% Life Risk $1.4 1.8% * Travel $0.16 0% * 0 1000 2000 3000 4000 5000 6000 7000 8000 Insura
Slide 36: Asset management
Asset management • Performance above benchmark • Cost lower than outsourcing • Focus on after tax earnings • Managed within the Group Insurance Australia Group Limited ABN 60 090 739 923 36
Slide 37: ClearView Retirement Solutions
ClearView Retirement Solutions • Customer need focused • Low cost distribution • Initial experience very positive Insurance Australia Group Limited ABN 60 090 739 923 37
Slide 38: Inwards reinsurance
Inwards reinsurance • Poor experience • Exit strategy • Actively looking to commute existing portfolio • Strongly reserved Insurance Australia Group Limited ABN 60 090 739 923 38
Slide 39: Our growth prospects
Our growth prospects • Natural premium growth • Increase market share through cross-sell • Enter new general insurance pools • Opportunity to underwrite government underwritten schemes • Market consolidation • International expansion • Continued expense management disciplines Insurance Australia Gro
Slide 40: Our growth prospects
Our growth prospects • Natural premium growth • Increase market share through cross-sell • Enter new general insurance pools • Opportunity to underwrite government underwritten schemes • Market consolidation • International expansion • Continued expense management disciplines Insurance Australia Gro
Slide 41: Natural premium growth
Natural premium growth General insurance gross premium (Y1980 - 2001, Australia, $Bn) 24.0 22.0 20.0 18.0 $17B 16.0 14.0 12.0 11.4% R 10.0 CAG 8.0 6.0 $2B 4.0 2.0 0.0 1980 1981 1982 1983 1984 1985 1986 1987 1988 1989 1990 1991 1992 1993 1994 1995 1996 1997 1998 1999 2000 Source: APRA (1980-2000) Not
Slide 42: Natural premium growth: policies issued
Natural premium growth Total insurance market Policies issued 50000 G R Policy No. '000s 7% CA 40000 30000 20000 10000 0 93 94 95 96 97 98 99 00 01 19 19 19 19 19 19 19 20 20 Insurance Australia Group Limited ABN 60 090 739 923 42
Slide 43: JP Morgan survey
JP Morgan survey General Insurance gross premium (Y1980 - 2000, Australia, $Bn) 24.0 22.0 $22.6B 20.0 18.0 $17B 16.0 14.0 11.4% R CAG 12.0 10.0 8.0 6.0 $2B 4.0 2.0 0.0 20 F 20 F F 80 81 82 83 84 85 86 87 88 89 90 91 92 93 94 95 96 97 98 99 20 0 0 01 02 03 19 19 19 19 19 19 19 19 19 19 19 19 19 19 19
Slide 44: IAG performance: Historical GWP 1995-2001
IAG performance Historical GWP 1995-2001 3.5 3.0 GR 13% 3.2 3.3 CA GWP / NEP ($b) 2.5 2.6 2.0 2.2 2.0 1.5 1.8 1.7 1.0 1.4 0.5 0.0 Annualised * FY95 FY96 FY97 FY98 FY99 FY00 FY01 1H02 * Merely 1H02 doubled – not a forecast Insurance Australia Group Limited ABN 60 090 739 923 44
Slide 45: Our growth prospects
Our growth prospects • Natural premium growth • Increase market share through cross-sell • Enter new general insurance pools • Opportunity to underwrite government underwritten schemes • Market consolidation • International expansion • Continued expense management disciplines Insurance Australia Gro
Slide 46: Growth in market share
Growth in market share Motor 25% Motor 9% Home 11% Home 4% Com Mtr 15% CTP 1% Com Othr 16% W/Comp 28% 8% 3% Motor 56% Home 37% 21% CTP 41% 20% Com Mtr 10% Com Othr 1% 26% W/Comp 18% Motor 13% Motor 44% Home 10% Home 19% Com Mtr 8% 17%Com Mtr 2% Com Othr 20% Com Othr 1% 12% W/Comp Insurance Australia
Slide 47: Our growth prospects
Our growth prospects • Natural premium growth • Increase market share through cross-sell • Enter new general insurance pools • Opportunity to underwrite government underwritten schemes • Market consolidation • International expansion • Continued expense management disciplines Insurance Australia Gro
Slide 48: New insurance pools
New insurance pools Premiums by line of business 00/01 Market size $m Public & Product 761 Liability Professional Indemnity 363 Builders Warranty 25 ? Mortgage 169 Consumer Credit 134 0 250 500 750 1000 Insurance Australia Group Limited ABN 60 090 739 923 Source: APRA July 00 – June 01 48
Slide 49: Our growth prospects
Our growth prospects • Natural premium growth • Increase market share through cross-sell • Enter new general insurance pools • Opportunity to underwrite government underwritten schemes • Market consolidation • International expansion • Continued expense management disciplines Insurance Australia Gro
Slide 50: Opportunity in CTP - Govt schemes
Opportunity in CTP - Govt schemes Private Public Market share 1% Market share 100% (claims processing) Market share 41% Market Penetration opportunity $1.1bn share Privatisation opportunity $1.4bn 100% Insurance Australia Group Limited ABN 60 090 739 923 Source: APRA, MAA, MAIC 50
Slide 51: Opportunity in W/comp – Govt schemes
Opportunity in W/comp – Govt schemes Private Market share Public 11% Market share 28% Market share 17% (claims processing) Market share 13% (Funds mgmt) Source: APRA, Workcover Market share 16% Penetration Opportunity $583m Market share 21% Privatisation Opportunity $3.6bn Market share 18% (claims p
Slide 52: Our growth prospects
Our growth prospects • Natural premium growth • Increase market share through cross-sell • Enter new general insurance pools • Opportunity to underwrite government underwritten schemes • Market consolidation • International expansion • Continued expense management disciplines Insurance Australia Gro
Slide 53: Market consolidation
Market consolidation • Scale matters • Capital constraints • Changing off-shore interests Insurance Australia Group Limited ABN 60 090 739 923 53
Slide 54: Our growth prospects
Our growth prospects • Natural premium growth • Increase market share through cross-sell • Enter new general insurance pools • Opportunity to underwrite government underwritten schemes • Market consolidation • International expansion • Continued expense management disciplines Insurance Australia Gro
Slide 55: International expansion
International expansion • Secure the home base • Focus on personal lines insurance • Leverage core competencies • Preference for developed market players with customer bases and brands • Potential of emerging markets for longer term development Insurance Australia Group Limited ABN 60 090 739 923 55
Slide 56: Our growth prospects
Our growth prospects • Natural premium growth • Increase market share through cross-sell • Enter new general insurance pools • Opportunity to underwrite government underwritten schemes • Market consolidation • International expansion • Continued expense management disciplines Insurance Australia Gro
Slide 57: Continued expense management disciplines
Continued expense management disciplines • Expense ratio reduction • Simplification of system infrastructure • Reduction in head office overhead • Further synergy benefits from acquisitions • Simplification of processes Insurance Australia Group Limited ABN 60 090 739 923 57
Slide 58: Risks we will be managing
Risks we will be managing • Catastrophes • Investment volatility • Brands • Statutory schemes • No further consolidation Insurance Australia Group Limited ABN 60 090 739 923 58
Slide 59: Strategic direction – 5 year financial goals
Strategic direction – 5 year financial goals Reinvigorate customer focus Core operations Financial goals Top quartile TSR Extend scale in Deliver earnings core GI ROE 13 – 15% Leverage core Double GWP by Build capability FY 2007 capabilities Risk Maintain COR management <100% Investigate & pursue Gr
Slide 60: Why we will continue to be successful
Why we will continue to be successful • Customer & community focus - powerful brands • Highly skilled people • Process review – quality focused • Cost disciplines • Strong asset management • Pricing disciplines Insurance Australia Group Limited ABN 60 090 739 923 60
Slide 61: Industry issues
Industry issues Ian Brown, Deputy CEO 15 May 2002 Insurance Australia Group Limited ABN 60 090 739 923
Slide 62: Industry issues
Industry issues • Builders’ warranty • Public liability • Medical indemnity • HIH Royal Commission • Regulatory change • Industry reputation Insurance Australia Group Limited ABN 60 090 739 923 62
Slide 63: Builders’ warranty
Builders’ warranty • Two main underwriters since HIH demise – Royal Sun Alliance – Alliance/Dexta • Issues – Increase in cost due to poor loss experience – Vic & NSW. – Cover given for faulty/defective workmanship, as well as providing a financial guarantee. – 7 year cover – many claims received in
Slide 64: Public liability issues
Public liability issues • Litigious attitude in the community - even those not seriously or permanently injured • Claims reporting discipline or limitation is too broad • Inconsistent court awards • Legal system encourages claims inflation • Lack of consistency in various State legal systems • Lump
Slide 65: Medical indemnity issues
Medical indemnity issues • Community - only course of action is litigation • Focus on “lotto” mentality rather than providing the necessary support to the injured • Support uniform basis of injury costs and claims management – but tort reform required • IAG wants to underwrite – provided the environ
Slide 66: HIH Royal Commission
HIH Royal Commission • Long term and significant effects on policyholders - questioning – Security and trust of insurance – Insurance as a reliable and cost effective way to minimise exposure to risk. • Deficiencies in HIH management in managing and reporting of risk – Misled shareholders – Raised d
Slide 67: Regulatory change
Regulatory change • IAG strongly supports APRA regulatory amendments • Essential to ongoing viability of our industry • Provide our customers, present and future, with level of confidence that we are both willing and able to fulfil our promises of claims settlement promptly for valid claims Insuranc
Slide 68: Industry reputation
Industry reputation • Standing of the industry will take time and effort to improve – Requires evidence and experience provided by the entire industry – Should then be trusted to provide help when it is needed most • Our responsibility to show the way – Improve the value of our business – Improve re
Slide 69: Questions
Questions Insurance Australia Group Limited ABN 60 090 739 923 69