Insurance Australia Group Ltd · ASX:IAG
Insurance Australia — H1 2016 Earnings Presentation
34 slides from Insurance Australia's earnings presentation, Feb 17, 2016
Slide 1: Financial results Half year ended 31 December 2015
For personal use only 17 February 2016 Financial results Half year ended 31 December 2015 Peter Harmer Nick Hawkins Managing Director and Chief Financial Officer Chief Executive Officer
Slide 2: Important information
Important information For personal use only This presentation contains general information in summary form which is current as at 17 February 2016. It presents financial information on both a statutory basis (prepared in accordance with Australian Accounting Standards which comply with International
Slide 3: Results overview
For personal use only Results overview Peter Harmer Managing Director and Chief Executive Officer
Slide 4: Highlights
Highlights Sound result in challenging environment For personal use only Gross written premium growth • GWP of $5,543m, down 1.1% +20.1% • Strong underlying margin of 14.2% • On track to realise $5,543m $2,848m $1,419m $1,070m $197m benefits from +1.6% integration and new operating model Group Consu
Slide 5: Strategic transactions
Strategic transactions Acquisitions and capital management initiatives to create value For personal use only History of strategic transactions • AMI and Wesfarmers insurance acquisitions • NSW CTP quota share reinsurance contract • Strategic relationship with Berkshire Hathaway Innovative reinsuranc
Slide 6: Capital and dividend
Capital and dividend Strong position, as quota share benefits flow For personal use only Regulatory capital Interim dividend 62.7% 60.0% 50.0% 10.0 46.6% 40.0% 30.0% 1.80 FY15 1.70 20.0% 1.23 1H16 13.0 13.0 1.14 10.0% 0.0% PCA CET1 1H15 1H16 Target benchmark range Interim dividend (¢) Special divide
Slide 7: Financials
For personal use only Financials Nick Hawkins Chief Financial Officer
Slide 8: Financial summary
Financial summary Cash ROE of 14.7% For personal use only 1H15 1H16 CHANGE GWP ($M) 5,603 5,543 1.1% NET EARNED PREMIUM ($M) 5,154 4,102 20.4% INSURANCE PROFIT ($M) 693 610 12.0% UNDERLYING MARGIN (%) 13.3 14.2 90bps REPORTED MARGIN (%) 13.4 14.9 150bps SHAREHOLDERS’ FUNDS INCOME ($M) 137 38 72.3% N
Slide 9: Underlying insurance margin
Underlying insurance margin Quota share uplift of c.250bps For personal use only Insurance margin (reported vs. underlying) • Higher underlying margin of 14.2% (1H15: 13.3%) from blend of: ◦ Favourable Berkshire Hathaway quota 14.2% 14.2% share effect of approximately 250bps 13.1%% 12.5% 11.4% 12.0%
Slide 10: Berkshire Hathaway quota share
Berkshire Hathaway quota share Reducing earnings volatility and capital requirement For personal use only CHANGE 1H16 (VS 1H15) QUOTA SHARE IMPACT GWP ($M) 5,543 1.1% None REINSURANCE EXPENSE ($M) 1,632 150.7% Includes 20% of GWP attributable to BH NET EARNED PREMIUM ($M) 4,102 20.4% Reflects higher
Slide 11: Reinsurance expense
Reinsurance expense Reported reinsurance expense inflated by quota share effect For personal use only Reinsurance expense 00 8.6% 1,632 9.0 • Reported reinsurance expense 8.2% 8.3% 00 7.7% amplified by commencement of 00 7.4% 8.0 00 6.8% Berkshire Hathaway quota share 00 6.3% 6.5% 6.3% 7.0 6.2% 6.2%
Slide 12: Natural perils
Natural perils Outcome below allowance, assisted by aggregate cover For personal use only Natural perils experience vs. allowance ($m) • 1H16 net perils outcome $22m below allowance: ◦ Significant aggregate protection during 165 130 period ◦ Six events capped at $20m net cost ◦ Attritional activity
Slide 13: Reserve releases
Reserve releases Offsetting CTP and earthquake effects For personal use only 1H16 prior period net reserve releases ($m) 8.3% NEP 1.5% NEP $167m 2.4% NEP $60m $29m Group Consumer Business New Zealand -$143m -18.8% NEP • Significantly higher than expected CTP releases (Consumer) • Increased risk marg
Slide 14: Reinsurance of run-off portfolios
Reinsurance of run-off portfolios Materially mitigates earthquake and asbestos exposures For personal use only Asbestos • Mainly CGU liability and workers’ compensation risks from 1970s/1980s • ADC and loss portfolio transfer February 2011 earthquake • ADC protection of NZ$600m excess NZ$4.4bn, 100%
Slide 15: New Zealand earthquake exposure
New Zealand earthquake exposure February 2011 event effective cover increased to NZ$5bn For personal use only FY11 earthquake events • February 2011 effective cover raised to NZ$5bn, via: ◦ Additional risk margin NZ$150m ◦ ADC NZ$600m • Increased cost attribution to September 2010 – remains well wit
Slide 16: Consumer Division
Consumer Division Solid short tail growth, strong profitability maintained For personal use only GWP by class • GWP growth of 1.6%, comprising: ◦ Solid growth in short tail motor and home from mix of rate and volume +2.7% 2.7% +2.3% 2.3% ◦ High retention levels +1.6% 1.6% ◦ Lower CTP GWP from market
Slide 17: Business Division
Business Division Tough operating environment, early signs of cycle bottoming For personal use only GWP / Insurance margin • GWP contraction of 6.3%, reflecting: ◦ Reduced average rates in soft market ◦ Lower GWP in specific portfolios – 10.7% 10.7% workers’ compensation and strata ◦ Maintained unde
Slide 18: New Zealand
New Zealand Strong underlying performance, despite pressures in commercial For personal use only • GWP lower by 4.1%, reflecting: GWP / Insurance margin ◦ Sound growth in direct personal lines ◦ Softening premium rates and increased competition in commercial 19.2% ◦ Minor FX effect 18.4% • Strong un
Slide 19: Asia
Asia Strong growth in proportional GWP For personal use only Financial contribution by country • An important long term growth opportunity focused on five markets: ◦ Strong organic growth prospects ◦ Participation in industry consolidation ◦ Ownership dial-up • Proportional GWP growth of 11.7% • Low
Slide 20: Investments
Investments Lower technical reserves as a result of quota share effects For personal use only Asset allocation • Total investments of $14bn (FY15: $15.5bn): ◦ Conservative mix and high credit quality characteristics unchanged ◦ Progressive effect of quota share on technical reserves position ◦ Growt
Slide 21: Capital
Capital Strong capital position, in excess of benchmarks For personal use only PCA movement since 30 June 2015 • Stronger capital position • Favourable quota share effect – skewed to front half of FY16 • Modest earthquake effect: ◦ Settlement of claims ◦ Gross strengthening • Ongoing intent to manag
Slide 22: Strategy & Outlook
For personal use only Strategy & Outlook Peter Harmer Managing Director and Chief Executive Officer
Slide 23: Strategy
Strategy Delivering great customer experiences and creating value For personal use only 1H16 Results Page 23
Slide 24: Realising our strategy
Realising our strategy Building our capability platform For personal use only Customer-led, Simpler Agile and and and more quick to data-driven scalable respond 1H16 Results Page 24
Slide 25: Realising our strategy
Realising our strategy Building our capability platform For personal use only Customer-led, Simpler Agile and and and more quick to data-driven scalable respond 1H16 Results Page 25
Slide 26: Realising our strategy
Realising our strategy Building our capability platform For personal use only Customer-led, Simpler Agile and and and more quick to data-driven scalable respond 1H16 Results Page 26
Slide 27: FY16 guidance
FY16 guidance Lower end of margin guidance range expected For personal use only FY16 GUIDANCE FY16 ASSUMPTIONS GWP growth Relatively flat • Net losses from natural perils of $600m Reported insurance margin Lower end of 14.0-16.0%* • Reserve releases of at least 1% • Modest growth in short tail perso
Slide 28: We make your world a safer place
We make your world a safer place For personal use only 1H16 Results Page 28
Slide 29: Appendix - Group results
APPENDIX - GROUP RESULTS 1H15 2H15 1H16 Insurance Ratios 1H15 2H15 1H16 GROUP RESULTS A$m A$m A$m For personal use only Loss ratio 67.5% 66.9% 63.1% Gross written premium 5,603 5,837 5,543 Immunised loss ratio 63.7% 67.0% 62.7% Gross earned premium 5,805 5,720 5,734 Expense ratio 27.3% 27.9% 26.2% R
Slide 30: Appendix – Divisional performance
APPENDIX – DIVISIONAL PERFORMANCE For personal use only 1H15 1H16 GWP INSURANCE MARGIN GWP INSURANCE MARGIN Reported Growth Reported Underlying Reported Growth Reported Underlying DIVISION A$m % % % A$m % % % Consumer Division 2,802 4.3 16.0 14.0 2,848 1.6 24.6 15.5 Business Division 1,514 43.9 6.6
Slide 31: Appendix – Consumer Division
APPENDIX – CONSUMER DIVISION GWP ($M) / INSURANCE MARGIN (%) For personal use only 1H15 2H15 1H16 CONSUMER DIVISION RESULTS A$m A$m A$m 24.6% Gross written premium 2,802 2,812 2,848 15.9% 16.0% Gross earned premium 2,814 2,780 2,834 Reinsurance expense (365) (279) (818) 2,802 2,812 2,848 Net earned
Slide 32: Appendix – Business Division
APPENDIX – BUSINESS DIVISION 1H15 2H15 1H16 GWP ($M) / INSURANCE MARGIN (%) For personal use only BUSINESS DIVISION RESULTS A$m A$m A$m Gross written premium 1,514 1,678 1,419 Gross earned premium 1,673 1,594 1,597 1,678 Reinsurance expense (122) (90) (413) 1,514 1,419 Net earned premium 1,551 1,504
Slide 33: Appendix – New Zealand
APPENDIX – NEW ZEALAND GWP ($M) / INSURANCE MARGIN (%) For personal use only 1H15 2H15 1H16 19.2% NEW ZEALAND RESULTS A$m A$m A$m Gross written premium 1,116 1,151 1,070 1,116 1,151 1,070 Gross earned premium 1,148 1,151 1,101 Reinsurance expense (143) (151) (340) Net earned premium 1,005 1,000 761
Slide 34: Appendix – Asia
APPENDIX – ASIA For personal use only IAG ASIA GWP 1H16 - 1H15 2H15 1H16 PROPORTIONAL BASIS A$m A$m A$m Gross written premium 164 189 197 Gross earned premium 163 187 193 Reinsurance expense (19) (22) (57) Indonesia 1% Thailand Net earned premium 144 165 136 50% Net claims expense (84) (106) (75) Vi
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