Insurance Australia Group Ltd · ASX:IAG
Insurance Australia — FY2002 Earnings Presentation
41 slides from Insurance Australia's earnings presentation, Aug 20, 2002
Slide 1: Financial results Year ended 30 June 2002
Financial results Year ended 30 June 2002 Michael Hawker, Chief Executive Officer George Venardos, Chief Financial Officer 20 August 2002 Insurance Australia Group Limited ABN 60 090 739 923 Note: In this presentation all data and comparisons referring to FY01 relate to a full year’s operation of In
Slide 2: Agenda
Agenda Overview of performance M Hawker Dividend M Hawker Results analysis G Venardos Conclusion & M Hawker & Questions G Venardos Insurance Australia Group Limited ABN 60 090 739 923 2 2
Slide 3: Overview of performance
Overview of performance Michael Hawker, Chief Executive Officer Insurance Australia Group Limited ABN 60 090 739 923 Will go through the overall results. Important to look at these in the context of the two main cycles in which insurers operate. Will look at IAG’s recent performance and trends in th
Slide 4: Record performance from underlying business
Record performance from underlying business Full year Full year Financial Results/Ratios ended ended June-01 June-02 Net earned premium $2,775 $3,195 Total investment income $358 ($98) Underwriting profit/(loss) ($22) $142 Reported result $143 ($25) ROE % (Actual) 5.32 (1.00) ROE % (Normalised) 10.9
Slide 5: The result includes a number of significant items
The result includes a number of significant items Pre-tax Pre-tax Pre-tax Post-tax Significant items 1H02 2H02 FY02 FY02 A$m A$m A$m A$m Reinsurance recoveries (WAASL valuation) 110 75 185 130 Net claims from WTC, major storms & bushfires (90) (10) (100) (70) Net impact on underwriting profit 20 65
Slide 6: Significant improvements on last year
Significant improvements on last year • Net earned premiums up 15% to $3,195m • Underwriting profit of $142m • Expense ratio improved from 20.3% to 19.7% • Combined ratio of 95.6%, down from 100.8% • Insurance margin up from 7.6% to 8.7% • Insurance profit up 32% to $278m Insurance Australia Group L
Slide 7: Impact of equity markets
Impact of equity markets • Bottom line loss of $25m • Worst equity market performance in 14 years – Local market down 4.7% – International market down 23.5% * • Applying 2001 returns would have increased the reported result by $315m * MSCI ex Australia, unhedged Insurance Australia Group Limited ABN
Slide 8: Operating environment
Operating environment Insurance Australia Group Limited ABN 60 090 739 923 •This year will be remembered as one of the most difficult for the general insurance industry. Not only did we have one of the largest catastrophes ever, with the events of September 11, the investment market returns have bee
Slide 9: Investment markets - worst performance in a decade
Investment markets - worst performance in a decade ASX MSCI Aust Bonds 42.2% 50.0% 31.8% 40.0% 28.5% 26.6% 23.8% 22.1% 30.0% 18.5% 16.8% 15.8% 15.3% 15.5% 14.2% 13.9% 13.3% 11.9% 20.0% 10.9% 9.9% 9.5% 9.1% 8.2% 7.4% 7.1% 6.7% 6.2% 6.2% 5.7% 10.0% 3.3% 1.6% 0.0% 0.0% -1.1% -4.7% -6.0% -10.0% -20.0% -
Slide 10: Insured catastrophes – WTC may be worst ever
Insured catastrophes – WTC may be worst ever >$50bn? 45.0 40.0 35.0 1994 30.0 AUD$bn 25.0 20.0 15.0 1992 1995 1996 10.0 1998 1999 5.0 1991 2001 0.0 Wind, hail & flooding, US Typhoon "Vicki", Japan 2001 Explosion in fertilizer factory, France Winter Storm "Anatol", Western/Northern Europe Tropical St
Slide 11: A decade of underwriting losses in Australia
A decade of underwriting losses in Australia Underwriting result 0 (500) ? (1,000) A$m (1,500) (2,000) (2,500) 1992 1993 1994 1995 1996 1997 1998 1999 2000 2001 2002 Source: APRA Statistics: Total private sector underwriting results. Insurance Australia Group Limited ABN 60 090 739 923 11 •The ten y
Slide 12: So what has IAG done?
So what has IAG done? Insurance Australia Group Limited ABN 60 090 739 923 So moving onto our performance against this backdrop … 12
Slide 13: Underwriting Result ($m)
Underwriting Result ($m) Achieved underwriting profit 200 100 0 (100) (200) (300) (400) FY95 FY96 FY97 FY98 FY99 FY00 FY01 FY02 Insurance Australia Group Limited ABN 60 090 739 923 13 We have delivered our first full year underwriting profit and the third consecutive half year with underwriting prof
Slide 14: Sustained growth in GWP
Sustained growth in GWP GWP (A$bn) NEP (A$bn) 4.0 3.5 3.0 3.6 GWP / NEP ($b) 3.2 3.2 2.5 2.8 2.0 2.6 2.4 2.2 1.5 2.0 2.0 1.8 1.8 1.0 1.7 1.7 1.5 1.4 1.2 0.5 0.0 FY95 FY96 FY97 FY98 FY99 FY00 FY01 FY02 Insurance Australia Group Limited ABN 60 090 739 923 14 •The Group has delivered GWP growth of over
Slide 15: Diversified GWP by product
Diversified GWP by product $ 1,7 16 $ 1,7 7 2 m $ 2 ,12 3 m $ 2 ,5 5 4 m $ 3 ,110 m $ 3 ,5 5 2 m 4% 4% 17 % 19 % 5% 3% 9% 6% 2% 23% 5% 3% 18 % 28% 17 % 4% 26% 30% 2% 16 % 2% 1% 1% 16 % 17 % 17 % 47% 49% 5 1% 56% 52% 50% FY97 FY98 FY99 FY00 FY01 FY02 M o to r Ho m e SME Wo rke rs C o m p CTP He a lth
Slide 16: Reduced claims exposure to NSW/ACT
Reduced claims exposure to NSW/ACT Outstanding Claim s outside NSW/ACT 30.0% 25.0% 26.3% 20.0% 23.5% 19.8% 20.6% 15.0% 10.0% 5.0% 7.4% 5.4% 6.4% 0.0% FY96 FY97 FY98 FY99 FY00 FY01 FY02 Insurance Australia Group Limited ABN 60 090 739 923 16 •Within the premium growth and product diversification show
Slide 17: Improved insurance ratios
Improved insurance ratios Expense Ratio Loss Ratio 25.0% 90.0% 85.0% 22.5% 80.0% 23.9% 85.9% 20.0% 75.0% 83.8% 80.5% 21.6% 75.9% 70.0% 20.3% 19.7% 17.5% 65.0% 15.0% 60.0% FY99 FY00 FY01 FY02 FY99 FY00 FY01 FY02 Combined Ratio Insurance Margin (before tax) 110.0% 10.0% 105.0% 7.5% 107.7% 5.0% 107.5%
Slide 18: Remained strongly capitalised
Remained strongly capitalised • Strong MCR multiple of 1.56x • 90% probability of sufficiency reserving policy • Strengthened reinsurance programme • Restructured investment holdings • Reduced cost of capital Insurance Australia Group Limited ABN 60 090 739 923 18 We remain strongly capitalised with
Slide 19: Result – further improvement in underlying returns
Result – further improvement in underlying returns Actual and Norm alised ROE 20.0% 15.0% 18.1% 10.0% 13.3% 11.0% 10.9% 10.4% 5.0% 7.1% (1.0%) 5.7% 5.3% 0.0% (5.0%) FY99 FY00 FY01 FY02 ROE (Actual) ROE (based on pre-tax investment returns of 8% on TR and 11.5% on SHF) ROE (based on pre-tax investmen
Slide 20: Full year dividend increased
Full year dividend increased • Normalised earnings up 51% to $440m using the historic assumptions • Normalised earnings up 9% to $318m using the new investment assumptions • Final dividend of 6 cents per share, fully franked • Total dividend for FY02 of 10.5 cents per share – Fully franked – Up 5% o
Slide 21: Outperformed the market in the two years since listing
Outperformed the market in the two years since listing IAG share price 130.0 index 105.5 120.0 110.0 100.0 90.0 S&P/ASX200 index 94.9 80.0 70.0 60.0 MSCI index 61.8 50.0 08/08/00 08/10/00 08/12/00 08/02/01 08/04/01 08/06/01 08/08/01 08/10/01 08/12/01 08/02/02 08/04/02 08/06/02 08/08/02 S&P/ASX200 In
Slide 22: Results analysis
Results analysis George Venardos, Chief Financial Officer Insurance Australia Group Limited ABN 60 090 739 923 Mike has explained the performance of the company in terms of our capital efficiency and with the backdrop of the investment market returns. I now have the pleasure of explaining the detail
Slide 23: Improving trend in earnings composition
Improving trend in earnings composition Full year Full year Full year ended ended ended June-00 June-01 June-02 A$m A$m A$m Net premium revenue 2,384 2,775 3,195 Underwriting result (178) (22) 142 Investment income on technical reserves 288 232 136 Insurance result 110 210 278 Net corporate expenses
Slide 24: Sustainability of earnings
Sustainability of earnings Normalised Full year Result year ended ended June-02 June-02 A$m A$m Assumptions Net premium revenue 3,195 3,195 Excl WAASL, WTC & $40m Underwriting result 142 57 storm & bushfires Investment income on technical reserves 136 222 6% return Insurance result 278 279 Net corpo
Slide 25: Short tail profitability increased
Short tail profitability increased Full Year Full Year Full Year Domestic Short Tail ended ended ended June-00 June-01 June-02 A$m A$m A$m Gross written premium 1,876 2,183 2,357 Net premium revenue 1,709 1,988 2,125 Underwriting result (103) 31 97 Investment income on technical reserves 74 56 34 In
Slide 26: Continued improvement in short tail ratios
Continued improvement in short tail ratios Combined Ratio Insurance Margin (before Tax) 115.0% 112.5% 110.0% 5.0% 107.5% 4.0% 6.2% 105.0% 3.0% 4.4% 102.5% 2.0% 100.0% 1.0% 112.2% 97.5% 0.0% 109.8% (3.7%) 106.1% 95.0% -1.0% 92.5% -2.0% 98.4% (1.7%) -3.0% (7.9%) 90.0% 95.5% 87.5% -4.0% 85.0% -5.0% 82.
Slide 27: Momentum in GWP growth from emerging businesses
Momentum in GWP growth from emerging businesses Health Business SME Commercial GWP A$M GWP A$M 140 220 200 120 180 100 160 140 80 120 60 100 80 40 60 40 20 20 0 0 FY99 FY00 FY01 FY02 FY99 FY00 FY01 FY02 Insurance Australia Group Limited ABN 60 090 739 923 27 Our short tail results include the emergi
Slide 28: Solid result from long tail
Solid result from long tail Full Year Full Year Full Year Domestic Long tail ended ended ended June-00 June-01 June-02 A$m A$m A$m Gross written premium 674 788 811 Net premium revenue 601 618 729 Underwriting result (38) 28 33 Investment income on technical reserves 206 163 87 Insurance result 168
Slide 29: Long tail ratios within target zones
Long tail ratios within target zones Combined Ratio Insurance Margin (before tax) 120.0% 115.0% 40.0% 110.0% 105.0% 100.0% 30.0% 95.0% 115.4% 90.0% 106.4% 85.0% 36.1% 20.0% 30.9% 95.5% 95.4% 80.0% 27.9% 90.0% 75.0% 21.8% 16.5% 70.0% 10.0% 65.0% 60.0% FY98 FY99 FY00 FY01 FY02 0.0% FY98 FY99 FY00 FY01
Slide 30: Positive contribution from International
Positive contribution from International Full Year Full Year Full Year International Operations ended ended ended June-00 June-01 June-02 A$m A$m A$m Gross written premium - 139 487 Net premium revenue - 110 341 Underwriting result - (7) 12 Investment income on technical reserves - 1 15 Insurance pr
Slide 31: Retirement Services – based on two entities
Retirement Services – based on two entities Full year Full year Full year Profit Before Tax ended ended ended June-00 June-01 June-02 A$m A$m A$m NRMA Life Limited 15 10 7 NRMA Financial Management Limited (4) 1 (9) Total 11 11 (2) Insurance Australia Group Limited ABN 60 090 739 923 31 The Retireme
Slide 32: Retirement Services – rebuilt for the future
Retirement Services – rebuilt for the future Full year Full year Full year ClearView Retirement Solutions ended ended ended June-00 June-01 June-02 A$m A$m A$m Managed investments 5 5 5 Risk products 3 9 12 Shareholders funds investment income 6 6 1 Retirement Solutions development (2) (9) (12) Dist
Slide 33: ClearView Retirement Solutions launched
ClearView Retirement Solutions launched Insurance Australia Group Limited ABN 60 090 739 923 33 ClearView Retirement Solutions launched in February 2002. Since then, strong brand awareness achieved. Appointments over 30% higher than expected. Results don’t reflect performance of business due to lag
Slide 34: Risk in-force portfolio & investment sales
Risk in-force portfolio & investment sales Risk inforce portfolio Total Managed Investment Sales A$m 30.0 350 25.0 300 Risk in force portfolio $M 250 20.0 200 $Am 15.0 150 10.0 100 5.0 50 0 0.0 FY98 FY99 FY00 FY01 FY02 FY98 FY99 FY00 FY01 FY02 Financial year Single Premium New Business Personal Inve
Slide 35: Increase in embedded value and FUM marginally down
Increase in embedded value and FUM marginally down Life Company Embedded Value FUM 300 1,500 1,400 250 1,300 1,200 200 1,100 A$m A$m 150 1,000 1,282 1,246 900 215 1,144 100 185 800 152 150 929 700 50 600 0 500 FY99 FY00 FY01 FY02 FY99 FY00 FY01 FY02 Insurance Australia Group Limited ABN 60 090 739 9
Slide 36: Reduced returns due to equity market downturn
Reduced returns due to equity market downturn Portfolio Return (Pre-tax) FY00 FY01 FY02 and Incl hedge & put option % % % Technical reserves 8.3 6.7 3.5 Shareholder funds 18.2 4.5 (8.2) Total Yield 12.0 5.8 (1.3) Investment Returns FY00 FY01 FY02 A$m A$m A$m Technical reserves 288 232 136 Shareholde
Slide 37: Performance held up against the benchmarks
Performance held up against the benchmarks Excluding derivatives costing (0.2%) in performance Actual return Benchmark return 10.0 5.0 6.7 6.2 4.8 4.8 - (4.5) (4.7) (5.0) (23.5) (10.0) % (24.5) (15.0) (20.0) (25.0) (30.0) Australian Equities International Fixed interest Cash Equities Invested: $2,10
Slide 38: Capital mix – close to target
Capital mix – close to target IAG Capital Mix 100% 2 1.5 5% 14.39 % 20 .0 0% 80% 16.25 % 12 .0 0% 60% 10 0.0 0% 40% 78.45% 69.36% 68.00% 20% 0% FY00 FY01 FY02 Target Ordinary Capital Hybrid Capital Debt Equity Capital=Equity attributable to ordinary shareholders-outside equity interests-intangibles
Slide 39: In summary...
In summary... • Sustained double digit growth in GWP • Achieved key target ratios - sustainably • Improved underlying business profitability • Corporate expenses reduced • Investment income in line with benchmarks • Capital mix improved – close to target Insurance Australia Group Limited ABN 60 090
Slide 40: Conclusion & outlook
Conclusion & outlook • Sustainable operating performance • Delivered 13.3% ROE (normalised) and increased annual dividend • Maintained strong reserving & capital position • Reduced exposure to, and volatility of, equity investments • Customer led process review under way • Growth expectations remain
Slide 41: Questions
Questions All materials available on www.iag.com.au Insurance Australia Group Limited ABN 60 090 739 923 41
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