Insurance Australia Group Ltd · ASX:IAG
Insurance Australia — H1 2017 Earnings Presentation
31 slides from Insurance Australia's earnings presentation, Feb 22, 2017
Slide 1: Financial results Half year ended 31 December 2016
For personal use only Financial results Half year ended 31 December 2016 Peter Harmer Nick Hawkins Managing Director and Chief Financial Officer Chief Executive Officer 22 February 2017
Slide 2: Overview
For personal use only Overview Peter Harmer Managing Director and Chief Executive Officer
Slide 3: 1H17 highlights
1H17 highlights Sound result in challenging environment For personal use only ● Higher than expected GWP growth, responding GWP growth Insurance margin to claim cost pressures (notably motor) 14.9% ● Sound underlying margin of 12.6% – significant $5,824m $5,802m 13.8% $5,543m 13.5% adverse perils al
Slide 4: Driving customer and business benefits
Driving customer and business benefits Two strategic themes For personal use only Leading Fuelling 1. Digitally-enabled 1. Operational effectiveness customer experiences 2. Supply chain utilisation 2. Partnering for success and efficiency 3. Customer-influenced 3. Portfolio optimisation innovative o
Slide 5: Putting customers at the centre
Putting customers at the centre Ensuring our products and services make your world a safer place For personal use only ● Venture Fund ● Firemark Labs - Singapore-based, InsurTech innovation hub ● Use of drones ● Connected homes ● Consumer Advisory Board ● Ethics Committee 1H17 Results | 22 February
Slide 6: Optimisation focus for FY17
Optimisation focus for FY17 Partnering and systems underpin optimisation activities For personal use only Activities to date 1H17 Upcoming focus 2H17 • Contracts signed with partners in • Continue transition of next wave into broader areas – Effective Philippines and India claim recoveries and settl
Slide 7: Financials
For personal use only Financials Nick Hawkins Chief Financial Officer
Slide 8: Financial summary
1H16 1H17 CHANGE GWP ($m) 5,543 5,802 4.7% For personal use only Insurance profit ($m) 610 571 6.4% Underlying margin (%) 14.2 12.6 160bps Reported margin (%) 14.9 13.5 140bps Financial Shareholders’ funds income ($m) 38 105 176.3% summary Income tax expense ($m) 67 109 62.7% Net profit after tax ($
Slide 9: GWP growth
GWP growth Stronger top line performance than originally anticipated For personal use only GWP growth vs 1H16 Slightly higher than expected outcome • Rate increases addressing claims inflation, notably motor • Higher than expected retention in Business Division 0.7% 1.1% 0.8% • Favourable FX transla
Slide 10: Underlying insurance margin
Underlying insurance margin Includes ~70bps adverse impact from higher perils allowance For personal use only Underlying insurance margin (1H17 vs 2H16) Slightly lower than expected underlying margin of 12.6% (1H16: 14.2%) included: • ~70bps adverse effect of higher perils allowance 0.7% • Minor neg
Slide 11: Claims inflation
Claims inflation Noticeable pressure in motor, largely covered by rate increases For personal use only Unexpected degree of claims inflation, largely matched by rate but with distinct variation by class: 57.4% 57.7% • Motor incurring higher average claim costs from mixture of sources – addressed via
Slide 12: Natural perils
Natural perils 1H17 outcome above allowance following earthquake and storm activity For personal use only Natural perils experience vs. allowance 1H17 net perils cost of $420m - $80m $420m above allowance • Consistent with mid-November perils $86m update (YTD ~$340m), ahead of peak storm season $278
Slide 13: Reserve releases
$7m For personal use only $29m $24m Reserve $167m $155m $135m releases $60m -$4m 1H16 1H16 1H17 1H17 Higher than expected outcome (3.7% of NEP), -$143m driven by CTP Group Consumer Business New Zealand Asia 1H17 Results | 22 February 2017 13
Slide 14: Consumer Division
Consumer Division Solid growth and sound profitability, despite claim pressures in motor and CTP For personal use only GWP growth GWP growth of 7.4%, comprising: $4m • Solid growth in short tail motor and home, primarily $15m from rate $37m • Increased ESL collection, ahead of abolition • Strong gro
Slide 15: Business Division
Business Division Evidence cycle bottom has passed: rate rises, higher than expected retention For personal use only Excluding Swann divestment, over 4% like-for-like 10.7% increase in GWP, derived from: • Increases in rates across most classes 8.6% 8.8% • Relatively steady policy count, with higher
Slide 16: New Zealand
New Zealand Strong underlying performance, despite soft commercial market For personal use only 18.4% Return to modest GWP growth • 1.1% local currency growth, plus favourable FX effect 15.5% 15.3% • Sound growth in personal lines from mix of rate and volume, led by motor • Softer premium rates and
Slide 17: Asia
Asia Lower result from increased competition and claim costs in key markets For personal use only Financial contribution by country Lower earnings contribution of $2m 400 $8m 20 (1H16: $10m) from combination of: • Increased competitive pressures and adverse claim $66m cost trends in Thailand and Mal
Slide 18: Optimising our capital mix
Optimising our capital mix Capital sustainability For personal use only Equity Two key decisions • Quantum of capital • Form of capital (mix) Capital Debt / hybrid platform Capital mix trends • Increased diversification Reinsurance • Reduced emphasis on equity • Greater use of reinsurance capital 1H
Slide 19: Capital
Capital Strong capital position maintained For personal use only CET1 movement since 30 June 2016 PCA of 1.81 – above benchmark range 0.11 (1.4-1.6) 0.17 0.11 0.01 0.07 0.07 CET1 of 1.09 – upper end of benchmark range 0.11 (0.9-1.1) Position enhanced by tactical investment 1.12 1.09 derivatives posi
Slide 20: Outlook
For personal use only Outlook Peter Harmer Managing Director and Chief Executive Officer
Slide 21: FY17 outlook
FY17 outlook GWP growth and reserve release expectations raised For personal use only FY17 guidance Underlying assumptions GWP growth Raised to ‘low 1Net losses from 2Reserve releases 3No material single digit’ natural perils of of at least 2% movement in $680m (previously ‘at foreign exchange Repor
Slide 22: Our value proposition
Our value proposition Delivering strong shareholder returns For personal use only Investment Value drivers Shareholder case value • Leading player with scale Through-the-cycle targets advantage in Australia and New • Cash ROE 1.5x WACC Zealand (low single digit growth) Fuelling drivers • High divide
Slide 23: We make your world a safer place
For personal use only For ownership details, see www.iag.com.au We make your world a safer place 1H17 Results | 22 February 2017 23
Slide 24: Appendix – Group Results
Appendix – Group Results 1H16 2H16 1H17 For personal use only GROUP RESULTS A$m A$m A$m Gross written premium 5,543 5,824 5,802 Gross earned premium 5,734 5,677 5,868 Reinsurance expense (1,632) (1,551) (1,624) Net earned premium 4,102 4,126 4,244 Net claims expense (2,589) (2,808) (2,625) Commissio
Slide 25: Appendix – Group Ratios and Key Metrics
Appendix – Group Ratios and Key Metrics Insurance Ratios 1H16 2H16 1H17 For personal use only Loss ratio 63.1% 68.1% 61.9% Immunised loss ratio 62.7% 65.4% 63.9% Expense ratio 26.2% 25.2% 25.6% Commission ratio 10.3% 9.4% 9.8% Administration ratio 15.9% 15.8% 15.8% Combined ratio 89.3% 93.3% 87.5% I
Slide 26: Appendix – Divisional Performance
Appendix – Divisional Performance For personal use only 1H16 1H17 GWP INSURANCE MARGIN GWP INSURANCE MARGIN Reported Growth Reported Underlying Reported Growth Reported Underlying DIVISION A$m % % % A$m % % % Consumer Division 2,848 1.6 24.6 15.5 3,060 7.4 21.5 14.1 Business Division 1,419 (6.3) 8.4
Slide 27: Appendix – Consumer Division
Appendix – Consumer Division 1H16 2H16 1H17 GWP ($M) / INSURANCE MARGIN (%) For personal use only 24.6% CONSUMER DIVISION RESULTS A$m A$m A$m 21.5% 15.1% Gross written premium 2,848 2,953 3,060 Gross earned premium 2,834 2,852 2,980 Reinsurance expense (818) (804) (837) Net earned premium 2,016 2,04
Slide 28: Appendix – Business Division
Appendix – Business Division 1H16 2H16 1H17 GWP ($M) / INSURANCE MARGIN (%) For personal use only A$m A$m A$m Gross written premium 1,419 1,560 1,423 Gross earned premium 1,597 1,525 1,550 Reinsurance expense (413) (406) (417) Net earned premium 1,184 1,119 1,133 11.6% Net claims expense (748) (719)
Slide 29: Appendix – New Zealand
Appendix – New Zealand 1H16 2H16 1H17 GWP ($M) / INSURANCE MARGIN (%) For personal use only NEW ZEALAND RESULTS A$m A$m A$m 15.2% Gross written premium 1,070 1,112 1,128 Gross earned premium 1,101 1,100 1,143 Reinsurance expense (340) (283) (311) 1,070 1,112 1,128 Net earned premium 761 817 832 Net
Slide 30: Appendix – Asia Division
Appendix – Asia Division For personal use only 1H16 2H16 1H17 IAG ASIA GWP 1H17 - ASIA RESULTS A$m A$m A$m PROPORTIONAL BASIS Gross written premium 197 189 182 Gross earned premium 193 193 186 Thailand Indonesia 47% Reinsurance expense (57) (54) (53) <1% Net earned premium 136 139 133 Vietnam Net cl
Slide 31: Important information
Important information For personal use only This presentation contains general information current as at 22 February 2017 and is not a recommendation or advice in relation to Insurance Australia Group Limited (IAG) or any product or service offered by IAG’s subsidiaries. It presents financial inform
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