Insurance Australia Group Ltd · ASX:IAG
Insurance Australia — Non-Deal Roadshow (September 2005)
41 slides from Insurance Australia's roadshow presentation, Sep 29, 2005
Slide 1: ASX cover letter: investor presentation material
Insurance Australia Group Limited ABN 60 090 739 923 388 George Street Sydney NSW 2000 Telephone 02 9292 9222 iag.com.au 29 September 2005 Manager, Company Announcements Office Australian Stock Exchange Limited Level 4, Exchange Centre 20 Bridge Street SYDNEY NSW 2000 Dear Sir/Madam INSURANCE AUSTRA
Slide 2: Investor Roadshow September/October 2005
Investor Roadshow September/October 2005 Insurance Australia Group Limited ABN 60 090 739 923
Slide 3: Important information
Important information The information in this presentation is an overview and does not contain all information necessary to an investment decision. The information contained in this presentation and accompanying materials has been prepared in good faith by IAG. No representation or warranty, express
Slide 4: Outline of presentation
Outline of presentation y IAG – who it is y A history of improving returns y How this has been achieved and the base it provides for future success y Outlook y Questions Insurance Australia Group Limited ABN 60 090 739 923 3
Slide 5: Who is IAG?
Who is IAG? • The largest insurance group in Australasia Joint venture brands: • Over $6.6 billion in annual revenue • Insuring around $860 billion of property risk • 12,000 employees across Australia, New Zealand & China Insurance Australia Group Limited ABN 60 090 739 923 4
Slide 6: FY05 a record margin – six consecutive years of improvement
FY05 a record margin – six consecutive years of improvement Insurance Margin % (NEP) 18.0% 16.3% 16.0% 13.5% 14.0% 12.3% First year as a listed 12.0% entity 10.0% 8.7% 8.0% 7.6% 6.0% 4.6% 4.0% 3.2% 2.0% 0.0% FY99 FY00 FY01 FY02 FY03 FY04 FY05 Insurance Australia Group Limited ABN 60 090 739 923 5
Slide 7: Improved return on equity
Improved return on equity 25.0% 23.1% 20.0% 21.1% 15.0% 18.1% 14.2% 14.4% 13.9% 10.0% 7.5% 5.0% 5.3% 5.1% -1.2% 0.0% FY01 FY02 FY03 FY04 FY05 -5.0% ROE (Actual) ROE (Normalised) Averages since listing: • Actual 10.7% • Normalised 13.6% Insurance Australia Group Limited ABN 60 090 739 923 6
Slide 8: Growth in dividends and EPS
Growth in dividends and EPS 50.0 40.0 30.0 45.9 Cents 37.9 20.0 26.5 22.0 10.0 11.5 10.5 10.0 9.4 8.7 (1.8) - (10.0) FY01 FY02 FY03 FY04 FY05 Dividend EPS y Dividend policy of paying 50 – 70% of normalised profits (before goodwill amortisation) Insurance Australia Group Limited ABN 60 090 739 923 7
Slide 9: How this has been achieved and how quality returns can be sustained
How this has been achieved - and how quality returns can be sustained y Increased scale and diversity y Improved operating environment y Improved capital mix y Reduced risk y Clarity of purpose leveraging core skills Insurance Australia Group Limited ABN 60 090 739 923 8
Slide 10: Acquisitions and organic growth driving expansion and diversification
Acquisitions and organic growth driving expansion and diversification 56% 57% 51% % outside NSW/ACT $6.7bn $6.4bn 42% 40% 3% 3% 10% Statutory 34% 11% 6% classes $5.2bn 6% 21% 4% Short-tail 20% 22% 12% 21% 12% $3.6bn 4% commercial 5% $3.1bn 5% 15% 3% lines $2.6bn 3% 6% 17% 21% 4% 22% $2.2bn 3% 19% 9%
Slide 11: Australian industry consolidation
Australian industry consolidation 1997 Present GOVERNMENT •SGIC •MUTUAL/CLUBS •Today, •NRMA these •RACQ companies •RACV •RACWA write c70% •FOREIGN OWNED of premium •RSA •Zurich reported to •CGU & NZI APRA. •Mercantile Mutual •Four are •Fortis LISTED (Market capital $8.2bn) listed on •GIO ASX with a
Slide 12: Prudential regulatory reform
Prudential regulatory reform y Australian Prudential Regulatory Authority (APRA) – Regulates general insurance, life insurance and superannuation y Significant increase in regulatory powers and capital requirements for general insurers effective 1 July 2002 y Risk-based capital approach – Similar to
Slide 13: Improved capital mix & WACC
Improved capital mix & WACC IAG Capital Mix 100% 11% 17% 90% 21% 20% 19% 20% 80% 13% 12% 12% 12% 12% 70% 60% 50% 100% 40% 79% 76% 68% 69% 71% 68% 30% 20% 10% 0% FY00 FY01 FY02 FY03 FY04 FY05 Target Ordinary equity Hybrid capital Debt y Issued reset preference shares and took on debt to improve WACC
Slide 14: Improved risk based capital position
Improved risk based capital position 2.50x 0.32x 2.00x 1.75x 2.00x 1.62x 0.35x MCR Multiple (times) MCR 1.60x 0.39x MCR 1.55x 1.50x 0.31x 0.39x 0.33x 0.32x 1.00x 1.34x 0.50x 1.03x 0.91x 0.00x 30-Jun-03 30-Jun-04 30-Jun-05 T1 Non-hybrid capital Hybrid T2 RES Insurance Australia Group Limited ABN 60 0
Slide 15: Investment risk/return improved
Investment risk/return improved y Equity overlay in technical reserves – Net exposure of technical reserve investments remains in the nature of fixed income, primarily invested in high quality fixed income securities – Duration of the portfolio remains closely matched to the expected duration of the
Slide 16: Extensive quality reinsurance protections
Extensive quality reinsurance protections y Catastrophe event protection increased to $3.5bn from $3.0bn for 2005 y Maximum event retention remains at $100m – 1.6% of FY05 NEP (practice of keeping <2% NEP) – Represents a reduction in volatility when measured against premium base – Retention for a se
Slide 17: Conservative reserving for claims
Conservative reserving for claims y Probability of adequacy (POA) at 92.5% for claims reserves – Risk margins of $1.1bn are 25.6% of the central estimate – the highest disclosed in the market y Including premium liability (reserves for claims yet to be incurred on unexpired risk), the POA is 90.2% y
Slide 18: Clarity of purpose leveraging core skills
Clarity of purpose leveraging core skills • Clear purpose aligns our people • Delivery underpinned by core values of • Honesty • Transparency • Teamwork • Meritocracy • Social responsibility Insurance Australia Group Limited ABN 60 090 739 923 17
Slide 19: Delivering on clear medium term goals
Delivering on clear medium term goals y Top quartile total shareholder return y ROE of at least 1.5x WACC on normalised basis y Establishing an Asian foothold y Maintaining an 80:20 mix of short-tail:long-tail premium y Maintaining a ‘AA’ category rating Insurance Australia Group Limited ABN 60 090
Slide 20: Short-term outlook for FY06
Short-term outlook for FY06 y Organic premium growth – Goal of >2% while market premium growth expected to be flat in Australia and New Zealand y Insurance margin to moderate but should remain above the 13.5% margin generated in FY04 – Supported by ongoing expense savings initiatives y Expect divide
Slide 21: Outlook beyond FY06
Outlook beyond FY06 y Expect organic premium growth to return to longer term norm of 1.5 – 2.0x GDP for Australia and New Zealand y Insurance margins to remain sufficient to generate ROE of at least 1.5x WACC y Returns from current operations supplemented by returns from acquisitions in overseas mar
Slide 22: Questions
Questions Insurance Australia Group Limited ABN 60 090 739 923
Slide 23: Investor Roadshow Appendices
Investor Roadshow Appendices September/October 2005 Insurance Australia Group Limited ABN 60 090 739 923
Slide 24: Segment results
Segment results Insurance Australia Group Limited ABN 60 090 739 923
Slide 25: Australian personal lines
Australian personal lines Half-year Half-year Half-year Full-year Full-year Australian Personal Lines ended ended ended ended ended Jun 04 Dec 04 Jun 05 Jun 04 Jun 05 A$m A$m A$m Gross written premium 1,980 2,002 1,976 3,900 3,978 Gross earned premium 1,921 1,986 1,950 3,794 3,936 Reinsurance expens
Slide 26: Australian commercial lines
Australian commercial lines Half-year Half-year Half-year Full-year Full-year Australian Commercial Lines ended ended ended ended ended Jun 04 Dec 04 Jun 05 Jun 04 Jun 05 A$m A$m Gross written premium 845 827 867 1,613 1,694 Gross earned premium 779 831 803 1,572 1,635 Reinsurance expense (113) (100
Slide 27: International businesses
International businesses Half-year Half-year Half-year Full-year Full-year International operations ended ended ended ended ended Jun 04 Dec 04 Jun 05 Jun 04 Jun 05 A$m A$m Gross written premium 460 499 502 914 1,001 Gross earned premium 449 494 496 899 990 Reinsurance expense 17 4 (6) 7 (2) Net pre
Slide 28: International business (a) New Zealand
International business (a) New Zealand Half-year Half-year Half-year Full-year Full-year New Zealand Operations ended ended ended ended ended Jun 04 Dec 04 Jun 05 Jun 04 Jun 05 A$m A$m A$m A$m A$m Gross written premium 460 499 502 914 1,001 Gross earned premium 449 494 496 899 990 Reinsurance expens
Slide 29: International business (b) Captive insurer (IAG Re)
International business (b) Captive insurer (IAG Re) Half-year Half-year Half-year Full-year Full-year Captive ended ended ended ended ended Jun 04 Dec 04 Jun 05 Jun 04 Jun 05 A$m A$m A$m A$m A$m Gross written premium 136 263 39 332 302 Gross earned premium 166 178 166 313 343 Reinsurance expense (10
Slide 30: Capital composition
Capital composition Insurance Australia Group Limited ABN 60 090 739 923
Slide 31: Capital composition – regulatory basis
Capital composition – regulatory basis Coverage of regulatory capital requirements Insurance Australia Group A$m 30-Jun-03 30-Jun-04 30-Jun-05 Tier 1 capital Paid-up ordinary shares 3,434 3,263 3,263 Hybrid equity 539 539 539 Reserves (2) (5) (6) Retained earnings(1) (396) (259) 59 Excess technical
Slide 32: Total capitalisation and debt - 30 June 2005
Total capitalisation and debt - 30 June 2005 T o ta l C a p ita lis a tio n As at 31 D ec 04 30 Jun 05 A$m A$m S h o rt-te rm d e b t 46 46 L o n g -te rm d e b t: S e n io r 45 45 S u b o rd in a te d 607 616 1 C ro s s c u rre n c y s w a p p a y a b le 95 86 T o ta l lo n g -te rm d e b t 748 747
Slide 33: International Financial Reporting Standards
International Financial Reporting Standards Insurance Australia Group Limited ABN 60 090 739 923
Slide 34: IFRS – Minimal impact on reported profits
IFRS – Minimal impact on reported profits Reconciliation of net profit (Aust GAAP to A-IFRS) $m Net profit before tax as reported under Australian GAAP 1,258 Write-back of goodwill amortisation 92 Movement in defined benefit plans (79) Share based payment expense 3 Capitalisation of software develop
Slide 35: Catastrophe programme
Catastrophe programme Insurance Australia Group Limited ABN 60 090 739 923
Slide 36: Catastrophe: Programme diagram
Catastrophe: Programme diagram 1st event 2nd event 3rd event 4th event $3,500m EQ only Australia $2,500m 1st event layers split: y APRA requires catastrophe EQ only NZ All perils: ex NZ EQ a) 70% NZ EQ, no cover to be purchased to reinstatement b) All perils, ex NZ EQ, 1 cover single event risk to (
Slide 37: Increasing storm activity
Increasing storm activity Insurance Australia Group Limited ABN 60 090 739 923
Slide 38: Increased storm activity - Australia
Increased storm activity - Australia The storm which crossed SE Australia in early February ranks 13th largest in terms of insured losses in Australia Top 20 Australian Insurance Disasters at July 2005 2500 '99 Hail / storm Earthquake 2000 Cyclone '98 Bushfire Flood Loss in July 2005 $M 1500 '74 100
Slide 39: Increased storm activity - NZ
Loss (March 2004 $NZ million**) Ba y of in May 2005 Pl en In ty ve rc Lo Ear 0 50 100 150 200 250 300 350 400 ar ss thq gil l/S of “ uak W e '87 Lo ou ah we th r N lan ine th d F ” '68 ** Figures are 2005 values Isl loo an ds d '84 Cy St Qu Ca c o ee nt lon rm '04 er e ns to bu B wn ry ola *The Hast
Slide 40: Relative insurance consolidation on a global scale
Relative insurance consolidation on a global scale Insurance Australia Group Limited ABN 60 090 739 923
Slide 41: Australia's consolidated market
Australia’s consolidated market Top 5 Players by Market Share (%) - Gross Written Premium 2001/021 Concentrated China 96% India 93% Dominated by state owned insurers2 Vietnam 91% S Korea 80% Dominated by insurers owned by conglomerates with significant cross- Japan 79% holdings & captive customers A
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