Insurance Australia Group Ltd · ASX:IAG

Insurance Australia — FY2015 Earnings Presentation

33 slides from Insurance Australia's earnings presentation, Aug 21, 2015

  1. Slide 1: Financial Results Full Year Ended 30 June 2015

    For personal use only ABN 60 090 739 923 FINANCIAL RESULTS FULL YEAR ENDED 30 JUNE 2015 21 AUGUST 2015 Mike Wilkins, Managing Director and Chief Executive Officer Nick Hawkins, Chief Financial Officer FY15 Results – 21 August 2015 1

  2. Slide 2: Important Information

    IMPORTANT INFORMATION For personal use only This presentation contains general information in summary form which is current as at 21 August 2015. It presents financial information on both a statutory basis (prepared in accordance with Australian Accounting Standards which comply with International F

  3. Slide 3: Mike Wilkins, Managing Director & Chief Executive Officer

    For personal use only ABN 60 090 739 923 Mike Wilkins, Managing Director & Chief Executive Officer FY15 Results – 21 August 2015 3

  4. Slide 4: Highlights

    HIGHLIGHTS YEAR OF SOUND PERFORMANCE AND KEY STRATEGIC INITIATIVES For personal use only  GWP growth of 17%, driven by first-time inclusion of former SOUND OPERATING Wesfarmers business PERFORMANCE  Underlying margin in excess of 13% despite tougher commercial market conditions WESFARMERS INTEGRAT

  5. Slide 5: Financial Summary

    FINANCIAL SUMMARY CASH ROE IN EXCESS OF LONG TERM TARGET For personal use only FY14 FY15 CHANGE GWP ($M) 9,779 11,440 17.0% NET EARNED PREMIUM ($M) 8,644 10,329 19.5% INSURANCE PROFIT ($M) 1,579 1,103 30.1% UNDERLYING MARGIN (%) 14.2 13.1 110bps REPORTED MARGIN (%) 18.3 10.7 760bps NET PROFIT AFTER

  6. Slide 6: FY15 Gross Written Premium

    FY15 GROSS WRITTEN PREMIUM STRONG GROWTH DRIVEN BY WESFARMERS ACQUISITION For personal use only GROSS WRITTEN PREMIUM GROWTH  Overall growth of 17.0%, relatively consistent across the year 12,000 11,800 36 1 11,600 11,400  First-time consolidation of former 11,200 421 11,000 10,800 Wesfarmers busi

  7. Slide 7: FY15 Reported Insurance Margin

    FY15 REPORTED INSURANCE MARGIN LOWER OUTCOME FOLLOWING SEVERE PERIL ACTIVITY For personal use only REPORTED INSURANCE MARGIN - FY14 VS FY15  Higher underlying underwriting result 1,800 7 reflects first-time contribution from 18.3% 81 former Wesfarmers business 1,600 160  Insurance profit influence

  8. Slide 8: FY15 Underlying Margin

    FY15 UNDERLYING MARGIN DELIVERING ON LONG TERM TARGET For personal use only UNDERLYING INSURANCE PROFIT / MARGIN  Underlying margin of 13.1% delivers on 14.8% 13.3% 14.2% 13.1% 16.0% 15% cash ROE target 13.7% 13.0%  Slightly lower outcome incorporates 14.0% 12.0% combination of: 10.0% – Inclusion

  9. Slide 9: Personal Insurance

    PERSONAL INSURANCE PERFORMING WELL IN LOW GROWTH ENVIRONMENT For personal use only KEY METRICS FY14 FY15 Change  GWP growth of 5.2%, embracing: Gross written premium ($m) 5,335 5,614 +5.2% – First input from former Wesfarmers volumes Insurance result ($m) 1,016 788 -22.4% – Relative absence of cost

  10. Slide 10: Commercial Insurance

    COMMERCIAL INSURANCE SOUND PERFORMANCE IN SOFTER MARKET For personal use only KEY METRICS FY14 FY15 CHANGE  GWP growth of over 40%, driven by first-time Gross written premium ($m) 2,268 3,192 +40.7% inclusion of former Wesfarmers business Insurance result ($m) 371 93 -74.9% Underlying margin (%) 12

  11. Slide 11: New Zealand

    NEW ZEALAND STRONG UNDERLYING PERFORMANCE MAINTAINED For personal use only KEY METRICS FY14 FY15 CHANGE  Local currency GWP growth of over 19%, driven by Gross written premium ($m) 1,846 2,267 +22.8% addition of Lumley Insurance Insurance result ($m) 180 216 +20.0% – Reported growth of ~23% after f

  12. Slide 12: Asia

    ASIA IMPROVED CONTRIBUTION For personal use only KEY METRICS ($m) FY14 FY15 CHANGE  Proportional GWP growth of 9.5% Gross GWP pool 1,475 1,669 +13.2% – Resumption of growth in Thailand Proportional GWP 725 794 +9.5% – Continued strong growth in India Total divisional result 14 21 +50.0% Group inves

  13. Slide 13: Nick Hawkins, Chief Financial Officer

    For personal use only ABN 60 090 739 923 Nick Hawkins, Chief Financial Officer FY15 Results – 21 August 2015 13

  14. Slide 14: Reserve Releases

    RESERVE RELEASES CTP RELEASES OFFSET BY EARTHQUAKE STRENGTHENING For personal use only GROUP RESERVE RELEASES (% NEP)  Lower FY15 net reserve releases of $167m (FY14: $248m) 6% – Equivalent to 1.6% of NEP (FY14: 2.9%) 5% – Higher than expected releases from Australian long tail classes, notably CTP

  15. Slide 15: New Zealand Earthquake Reserving

    NEW ZEALAND EARTHQUAKE RESERVING ON RISK FOR FEBRUARY 2011 EVENT For personal use only FY11 CANTERBURY EARTHQUAKE EVENTS  NZ$950m gross reserve strengthening at 2010 Reinsurance Year 2011 Reinsurance Year end of 1H15, primarily driven by: NZ$bn – Further household claims above EQC 4 NZ$100,000 limi

  16. Slide 16: Catastrophe Reinsurance

    CATASTROPHE REINSURANCE STRONG POSITION ENTERING 1H16 For personal use only 2015 CATASTROPHE PROGRAMME – AT 30 JUNE $m 7000  Group maximum event retention (MER) of $25m at Australia/NZ 30 June 2015 Earthquake/Cyclone 6750 – Reduces to $20m, after Berkshire Hathaway quota share effect Main Catastrop

  17. Slide 17: Reinsurance Expense

    REINSURANCE EXPENSE WESFARMERS-RELATED SYNERGIES REALISED For personal use only REINSURANCE EXPENSE  Higher reinsurance expense from net 1,200 1,196 10.0% effect of: 1,077 8.2% 8.6% 8.3% 310 9.0% – Inclusion of former Wesfarmers business 1,000 7.4% 7.7% 8.0% – Realisation of related synergies from

  18. Slide 18: Investment Portfolio

    INVESTMENT PORTFOLIO CONSERVATIVE MIX AND HIGH CREDIT QUALITY For personal use only TOTAL INVESTMENTS $15.5BN GROUP ASSET ALLOCATION SHAREHOLDERS’ FUNDS 12% $4.5bn 19% Technical Fixed interest reserves Fixed interest and cash and cash Shareholders' Equities funds Growth 22% 59% Alternatives $11.0bn

  19. Slide 19: Investment Returns

    INVESTMENT RETURNS MORE MODEST LOCAL EQUITY MARKET RETURN For personal use only TECHNICAL RESERVES INCOME ($M) TECHNICAL RESERVES RETURNS  Increased return of $562m (FY14: $439m) – Unrealised capital gain of $167m (FY14: $56m) – Lower credit spread benefit, with modest widening in 2H15 Running yiel

  20. Slide 20: Regulatory Capital

    REGULATORY CAPITAL STRONG POSITION MAINTAINED For personal use only PCA / CET1 MULTIPLES  Strong capital position, above long term benchmarks: – PCA target multiple 1.4-1.6 – CET1 target multiple 0.9-1.1  Post-dividend multiples within target ranges: 1H15 – PCA 1.56 1.62 1.70 FY15 – CET1 1.00 1.04

  21. Slide 21: Regulatory Capital: Significant Quota Share Benefit in FY16

    REGULATORY CAPITAL SIGNIFICANT QUOTA SHARE BENEFIT IN FY16 For personal use only PCA MOVEMENT SINCE 31 DECEMBER 2014  Modest net effect of Berkshire 0.06 Hathaway quota share to date, from: 0.11 2 0.18 0.04 0.01 – Lower insurance risk charge 2 – Reduction of excess technical 1 provisions 1  Signif

  22. Slide 22: Dividend

    DIVIDEND FULL YEAR CASH PAYOUT RATIO OF ~70% For personal use only DIVIDEND HISTORY  Payout policy remains 50-70% of full year cash 100.0% 90.0% earnings  FY15 cash earnings of $987m, after adjustment for: 80.0% 71.5% 70.8% 69.9% 70.2% 67.1% 70.0% – Increased amortisation of $90m, owing to 64.7% 6

  23. Slide 23: Mike Wilkins, Managing Director & Chief Executive Officer

    For personal use only ABN 60 090 739 923 Mike Wilkins, Managing Director & Chief Executive Officer FY15 Results – 21 August 2015 23

  24. Slide 24: Strategic Priorities

    STRATEGIC PRIORITIES ASIAN GROWTH OPPORTUNITY, IAG LABS For personal use only OUR STRATEGY To deliver great customer experiences by leveraging our market leadership to create value for our customers, people, partners, shareholders and the community OUR LONG TERM FINANCIAL TARGETS ROE ≥ 1.5 x WACC To

  25. Slide 25: FY16 Guidance

    FY16 GUIDANCE STRONG PROFITABILITY EXPECTED TO BE MAINTAINED For personal use only FY16 FY16 GUIDANCE ASSUMPTIONS GWP growth Relatively flat  Net losses from natural perils of $600m (after allowance for the quota Reported insurance margin 14.0-16.0% share effect)  Reserve releases of at least  Lo

  26. Slide 26: We help make your world a safer place

    We help make your world a safer place For personal use only 100% owned unless indicated. 1 IAG’s short tail personal insurance products are distributed in Victoria under the RACV brand, via a distribution relationship and underwriting joint venture with RACV. These products are distributed by RACV a

  27. Slide 27: Appendix - Group Results

    APPENDIX - GROUP RESULTS 1H14 2H14 1H15 2H15 FY14 FY15 For personal use only GROUP RESULTS A$m A$m A$m A$m A$m A$m Gross written premium 4,786 4,993 5,603 5,837 9,779 11,440 Gross earned premium 4,885 4,836 5,805 5,720 9,721 11,525 Reinsurance expense (565) (512) (651) (545) (1,077) (1,196) Net earn

  28. Slide 28: Appendix - Group Ratios & Key Metrics

    APPENDIX - GROUP RATIOS & KEY METRICS Insurance Ratios 1H14 2H14 1H15 2H15 FY14 FY15 For personal use only Loss ratio 58.1% 62.3% 67.5% 66.9% 60.2% 67.2% Immunised loss ratio 60.9% 59.3% 63.7% 67.0% 60.1% 65.3% Expense ratio 26.5% 26.9% 27.3% 27.9% 26.7% 27.6% Commission ratio 9.3% 9.5% 10.1% 10.0%

  29. Slide 29: Appendix - Divisional Performance

    APPENDIX – DIVISIONAL PERFORMANCE For personal use only FY14 FY15 GWP INSURANCE MARGIN GWP INSURANCE MARGIN Reported Growth Reported Underlying Reported Growth Reported Underlying DIVISION A$m % % % A$m % % % Personal Insurance 5,335 n/a¹ 21.4 15.4 5,614 5.2 15.9 13.9 Commercial Insurance 2,268 n/a¹

  30. Slide 30: Appendix - Personal Insurance

    APPENDIX – PERSONAL INSURANCE 1H14 2H14 1H15 2H15 FY14 FY15 GWP ($M) / INSURANCE MARGIN (%) For personal use only PERSONAL INSURANCE RESULTS $m $m $m $m $m $m 23.3% Gross written premium 2,686 2,649 2,802 2,812 5,335 5,614 21.4% Gross earned premium 2,732 2,663 2,814 2,780 5,395 5,594 19.5% Reinsura

  31. Slide 31: Appendix - Commercial Insurance

    APPENDIX – COMMERCIAL INSURANCE 1H14 2H14 1H15 2H15 FY14 FY15 GWP ($M) / INSURANCE MARGIN (%) For personal use only COMMERCIAL INSURANCE RESULTS $m $m $m $m $m $m 18.1% 18.5% 18.3% Gross written premium 1,052 1,216 1,514 1,678 2,268 3,192 Gross earned premium 1,099 1,076 1,673 1,594 2,175 3,267 Rein

  32. Slide 32: Appendix - New Zealand

    APPENDIX – NEW ZEALAND 1H14 2H14 1H15 2H15 FY14 FY15 GWP ($M) / INSURANCE MARGIN (%) For personal use only NEW ZEALAND RESULTS $m $m $m $m $m $m 19.2% Gross written premium 884 962 1,116 1,151 1,846 2,267 Gross earned premium 880 936 1,148 1,151 1,816 2,299 Reinsurance expense (140) (117) (143) (151

  33. Slide 33: Appendix - Asia

    APPENDIX – ASIA For personal use only 1H14 2H14 1H15 2H15 FY14 FY15 IAG ASIA GWP FY15 - ASIA RESULTS $m $m $m $m $m $m PROPORTIONAL BASIS Gross written premium 154 163 164 189 317 353 Gross earned premium 167 155 163 187 322 350 Reinsurance expense (18) (16) (19) (22) (34) (41) Net earned premium 14

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