Insurance Australia Group Ltd · ASX:IAG
Insurance Australia — FY2007 Earnings Presentation
33 slides from Insurance Australia's earnings presentation, Aug 24, 2007
Slide 1: Financial results, Year ended 30 June 2007
For personal use only Financial results Year ended 30 June 2007 Michael Hawker, Chief Executive Officer George Venardos, Chief Financial Officer 24 August 2007
Slide 2: Agenda
Agenda For personal use only • Results summary Michael Hawker • Shareholder returns • Segment results • Expenses George Venardos • Capital • Reserving • Outlook Michael Hawker All currency denominated in A$ unless otherwise stated PAGE 2
Slide 3: Highlights
Highlights For personal use only ; Overall growth in GWP +14.7% to $7,381m from $6,435m – Growth of 2.9% organically and 11.8% from acquisitions ; Momentum regained in Australian Personal Lines – GWP +1.3% (+2.6% adjusted for LTCS) ; Progress in NZ and Asia ; Executed acquisitions in UK (16% of 2H07
Slide 4: Financial summary
Financial summary For personal use only Group 2H06 2H07 ∆ FY06 FY07 ∆ A$m A$m % A$m A$m % GWP 3,229 4,057 25.6% 6,435 7,381 14.7% Underwriting result 259 163 (37.1%) 533 407 (23.6%) Insurance profit 374 347 (7.2%) 843 767 (9.0%) Fee based 2 52 - 1 78 - Share of profit from associates 2 2 - 2 5 - Con
Slide 5: Insurance ratios
Insurance ratios For personal use only Expense ratio Loss ratio 30.0% 25.9% 27.7% 27.6% 26.4% 80.0% 66.7% 65.0% 65.3% 67.5% 25.0% 2.7% 3.8% 3.3% 70.0% 2.9% 20.0% 8.4% 60.0% 7.9% 8.2% 8.2% 50.0% 15.0% 66.5% 66.4% 64.6% 63.6% 40.0% 10.0% 30.0% 15.2% 15.2% 15.7% 15.9% 20.0% 5.0% 10.0% 0.0% 0.0% FY04 FY
Slide 6: Shareholder returns
Shareholder returns For personal use only • Reported ROE of 13.5% compared to FY06 22.1% – Normalised cash ROE of 12.9% versus 16.0% in FY06 • Earnings per share of 32.8cps compared to FY06 47.7cps – Cash earnings per share of 36.1cps versus 48.1cps in FY06 • Net cash flow from operations of $401m c
Slide 7: Australian General Insurance
Australian General Insurance For personal use only Australian General Insurance 2H06 2H07 ∆ FY06 FY07 ∆ A$m A$m % A$m A$m % GWP 2,703 2,800 3.6% 5,400 5,489 1.6% Underwriting result 230 149 (35.2%) 434 375 (13.6%) Insurance profit 330 286 (13.3%) 714 671 (6.0%) Fee based 7 38 - 8 65 - Share of profi
Slide 8: Australian General Insurance
Australian General Insurance For personal use only ; Improved market share to 20.4% from 19.7% – Latest APRA statistics for March 2007 versus December 2006 ; GWP increased to $5,489m (74% of Group GWP) – +1.6% year on year – +3.6% half on half ; Expense ratio improved 0.6% year on year to 27.1% : Lo
Slide 9: Australian Personal Lines
Australian Personal Lines For personal use only Australian Personal Lines 2H06 2H07 ∆ FY06 FY07 ∆ A$m A$m % A$m A$m % GWP 1,924 1,986 3.2% 3,860 3,909 1.3% Underwriting result 141 107 (24.1%) 266 203 (23.7%) Insurance profit 218 213 (2.3%) 464 416 (10.3%) Fee based - - - - - - Share of profit from a
Slide 10: Australian Personal Lines – Direct
Australian Personal Lines – Direct For personal use only Direct channel (39% of Group GWP) ; GWP of $2,889m – Total +1.2% half on half – Short-tail +4.7% half on half ; Growth in each State (half on half) – NSW/ACT +4% Queensland +13% – Victoria +3% West. Aust +11% ; Improved expense ratio – red
Slide 11: Australian Personal Lines – Direct
Australian Personal Lines – Direct For personal use only Brand health Customer Satisfaction Index • Brand health finished FY07 with SGIO 85 improvements in each state in the 84 SGIC most recent quarter 83 NRMA NSW • Predisposition to buy from NRMA QLD 83 NRMA/SGIC/SGIO increased in all 83 Combined P
Slide 12: Australian Personal Lines – Affinity
Australian Personal Lines – Affinity For personal use only Affinity channel (9.4% of Group GWP) ; GWP +4.7% year on year to $694m and +8.7% half on half ; NEP +2.3% year on year ; Insurance profit up 62.5% ; Margin up 0.8% to 2.1% (needs to improve further) ; Customer service improving ; New account
Slide 13: Australian Personal Lines – Broker / Agent
Australian Personal Lines – Broker / Agent For personal use only Broker / Agent channel (4.4% of Group GWP) ; GWP +10.9% year on year to $326m and +11.3% half on half – Generally sold as accommodation line in commercial packages ; NEP +4.8% year on year : Insurance loss increased 74% to $47m : Insur
Slide 14: Australian Commercial Lines
Australian Commercial Lines For personal use only Australian Commercial Lines 2H06 2H07 ∆ FY06 FY07 ∆ A$m A$m % A$m A$m % GWP 778 814 4.6% 1,539 1,580 2.7% Underwriting result 87 42 (51.7%) 164 172 4.9% Insurance profit 110 73 (33.6%) 247 255 3.2% Fee based 7 38 - 8 65 - Share of profit from associa
Slide 15: Australian Commercial Lines
Australian Commercial Lines For personal use only ; GWP of $1,580m (21.4% of Group GWP) – +2.7% year on year – +4.7% half on half : NEP of $1,407m – (3.2)% year on year and (3.7)% half on half ; Expense ratio improved 0.6% to 33.2% ; Insurance profit +25.4% to $320m – Supported by prior period reser
Slide 16: New Zealand
New Zealand For personal use only New Zealand 2H06 2H07 ∆ FY06 FY07 ∆ A$m A$m % A$m A$m % GWP 477 508 6.5% 971 968 (0.3%) Underwriting result 28 37 32.1% 99 64 (35.4%) Insurance profit 42 47 11.9% 129 86 (33.3%) Fee based - - - - - - Share of profit from associates - - - - - - Contribution from busi
Slide 17: New Zealand
New Zealand For personal use only ; GWP of $968m (13% of Group GWP) – (0.3)% to $968m year on year (+2.1% in NZ$) – +6.5% to $508m half on half ; NEP – (3.1)% to $860m year on year – +1.6% to $432m half on half : Expense ratio – (3.9)% to 30.9% year on year – (1.2)% to 28.5% half on half ; Insurance
Slide 18: Asia
Asia For personal use only Asia 2H06 2H07 ∆ FY06 FY07 ∆ A$m A$m % A$m A$m % GWP 49 89 81.6% 65 168 158.5% Underwriting result 1 (1) - 2 1 - Insurance profit 2 4 - 3 9 - Fee based (4) (3) - (7) (5) - Share of profit from associates 2 4 - 2 7 - Contribution from businesses - 5 - - 2 11 - Insurance mar
Slide 19: Asia
Asia For personal use only ; GWP of $168m (2.3% of Group GWP) – +158% year on year – +82% half on half ; Insurance profit – +200% year on year to $9m – +100% half on half to $4m : Insurance margin – (1.2%) to 6.9% year on year – +0.9% to 6% half on half ; Substantial improvement in expense managemen
Slide 20: Offshore reinsurance
Offshore reinsurance For personal use only : Insurance result (Loss of $29m) – June storms in UK – Carrying start-up costs of $14m in administration expenses ; GWP growth of 38% in 2H07 versus 1H07 – Includes business ceded from UK operations ; Disciplined underwriting in soft market PAGE 20
Slide 21: UK
UK For personal use only Europe 2H06 2H07 ∆ FY06 FY07 ∆ A$m A$m % A$m A$m % GWP - 642 - - 725 - Underwriting result - (1) - - (3) - Insurance profit - 29 - - 30 - Fee based - 17 - - 18 - Share of profit from associates - (2) - - (2) - Contribution from businesses - 44 - 46 Insurance margin - 5.5% -
Slide 22: UK
UK For personal use only ; Completed acquisitions – Equity Insurance Group cash earnings per share accretive – EBITDA contribution for CY07 from Equity Insurance Group is still expected to be £69m ; $725m in new GWP – Underlying year on year growth of +8.7% : Insurance profit of $30m was below expec
Slide 23: Expenses, capital and reserving
For personal use only Expenses, capital and reserving
Slide 24: Cost discipline maintained
Cost discipline maintained For personal use only Australia & New Zealand direct operating expenses 2,000 1,864 1,792 1,723 1,750 1,657 1,657 1,645 1,660 1,672 1,500 1,250 A$m 1,000 750 500 250 - FY04 FY05 FY06 FY07 Actual 4% inflated PAGE 24
Slide 25: Expected synergies on the UK acquisitions upgraded to £25m
Expected synergies on the UK acquisitions upgraded to £25m For personal use only SYNERGY BENEFITS - Target pa run- rate by Jun-08 IAG GAAP £m Underwriting 17 Brok ing 8 Pre-tax operational benefits 25 Tax at 30% (8) After tax benefits 17 Other underwriting synergies (Gibraltar) 1 Corporate structuri
Slide 26: Investment performance – De-risked portfolio
Investment performance – De-risked portfolio For personal use only Asset allocation Actual return 10.6% Full-year Full-year 1.7% ended Jun 06 ended Jun 07 9.6% A$m Return* A$m Return* (%) (%) SHF 47.8% SHF 8.9% 2006 2006 310 3.7% 360 4.4% 539 20.0% 301 13.1% 18.3% 849 8.3% 661 6.4% 3.1% Aust equitie
Slide 27: MCR capital mix remains above internal benchmark of 1.55 times
MCR capital mix remains above internal benchmark of 1.55 times For personal use only 2.32x 2.13x 0.32x 0.30x 1.94x 2.00x 0.27x 1.85x 1.83x 0.35x 1.62x 0.35x 0.34x 1.67x 0.31x 0.39x 0.56x Current 0.31x 0.30x Benchmark MCR 0.32x 0.27x 1.55x 1.34x 1.18x 1.19x 0.91x 0.85x 30-Jun-03 30-Jun-04 30-Jun-05 3
Slide 28: Benefits of diversification being realised
Benefits of diversification being realised, improving our competitive position For personal use only • Group central estimate increased by $1,043m but only needed to increase Group risk margins $26m to retain 90% PoA • Risk margins now 18.6% (of NCE), compared to 22.2% at June 2006 • Reflects: – $86
Slide 29: Prudent reserving – Consistently favourable development of central estimates
Prudent reserving – Consistently favourable development of central estimates For personal use only Accident year Net central estimate basis 2002 2003 2004 2005 2006 2007 $m $m $m $m $m $m Development At end of accident year 2,171 3,401 3,546 3,661 4,057 5,264 One year later 2,130 3,224 3,383 3,607 3
Slide 30: Outlook
For personal use only Outlook
Slide 31: Outlook – FY08
Outlook – FY08 For personal use only • GWP growth of 10 – 12% • Normalised cash ROE in line with strategic target of at least 1.5x WACC • Maintain cost discipline and enhance productivity to drive increased profitability and thus sustain our competitive leadership position in core markets • Continue
Slide 32: On track to double GWP again by FY12
On track to double GWP again by FY12 For personal use only FY98 GWP mix • Growing at 11% (mid-point of guidance range) in 13% FY08 would deliver 15% CAGR in GWP from FY98 with a much more diversified portfolio 45% 26% GWP CAGR 15% 10.0 8.2 1% 7.4 8.0 6.4 6.7 6.4 15% 6.0 5.2 FY07 GWP mix A$b 3.2 3.6
Slide 33: Questions
For personal use only Questions
Insurance Australia Group — FY2007 Earnings Presentation on 6ix