Insurance Australia Group Ltd · ASX:IAG
Insurance Australia — FY2011 Earnings Presentation
25 slides from Insurance Australia's earnings presentation, Aug 25, 2011
Slide 1: Financial Results Full Year Ended 30 June 2011
For personal use only FINANCIAL RESULTS FULL YEAR ENDED 30 JUNE 2011 Mike Wilki Mik Wilkins Managing Director and Chief Executive Officer Nick Hawkins Chi f Financial Chief Fi i l Officer Offi 25 August 2011
Slide 2: Important Information
For personal use only IMPORTANT INFORMATION The information in this presentation is an overview and does not contain all information necessary to an investment decision. It should be read in conjunction with IAG’s other periodic and continuous disclosure announcements lodged with the Australian Secu
Slide 3: Group Results
For personal use only 1 GROUP RESULTS Mike Wilkins Managing Director and Chief Executive Officer
Slide 4: The Year in Summary
For personal use only THE YEAR IN SUMMARY SOLID PERFORMANCE IN CHALLENGING CONDITIONS Key financial metrics improved • Underlying GWP growth of 4.8% (2H11: 6.3%) • Improved insurance profit of $660m (FY10: $493m) and insurance margin of 9.1% (FY10: 7.0%) • Cash return on equity of 11.1% (FY10: 8.3%)
Slide 5: FY11 Insurance Margin
For personal use only FY11 INSURANCE MARGIN FURTHER IMPROVEMENT IN UNDERLYING PERFORMANCE 700 680 9.1% 660 640 620 600 580 170 560 540 100 520 7.0% 147 500 480 460 440 420 127 400 83 380 660 360 340 320 300 493 280 260 240 220 200 180 160 140 120 100 FY10 Reserve Releases Natural Perils Incremental
Slide 6: Divisional Performance
For personal use only 2 DIVISIONAL PERFORMANCE Mike Wilkins Managing Director and Chief Executive Officer
Slide 7: Divisional Results
For personal use only DIVISIONAL RESULTS SOLID PERFORMANCE IN HOME MARKETS FY10 FY11 FY11 GWP BUSINESS MIX Insurance Profit (A$m) and Margin (% ) A$m % A$m % Australia Direct 569 16 9 16.9 702 19 5 19.5 Australia Intermediated 139 6.6 140 6.5 New Zealand 131 14.7 3 0.4 T t l Australia Total A t li a
Slide 8: Australia Direct
For personal use only AUSTRALIA DIRECT STRONG PERFORMANCE MAINTAINED GWP (A$m) / Insurance Margin (%) 3,891 KEY POINTS 4,000 3,653 25.0% 3,379 19.5% • GWP growth of 6.5% 3,096 16.9% 20.0% 3,000 – Volume gains continue 12.0% 15.0% • Increased I d insurance i margin i off 19 19.5% 5% 2,000 10.7% 10.0%
Slide 9: Australia Intermediated
For personal use only AUSTRALIA INTERMEDIATED UNDERLYING TURNAROUND CONTINUING GWP (A$m) / Insurance Margin (%) KEY POINTS 6.6% 2,500 6.0% 6.5% 7.0% • Top line growth restored 6.0% – GWP increased by 8.8% 2.2% 5.0% – Higher rates, new business, acquisitions 4.0% • Insurance margin of 6.5% 2,250 3.0%
Slide 10: New Zealand
For personal use only NEW ZEALAND EARTHQUAKE IMPACTS IN 2H11 – UNDERLYING PERFORMANCE STRONG 1,200 GWP (A$m) / Insurance Margin (%) 16.0% KEY POINTS 14.7% 1,000 14.0% • GWP grew by 3.4% in local currency 974 965 961 12.0% • Reported insurance margin of 0.4% 800 956 10 0% 10.0% – Significant 2H11 per
Slide 11: United Kingdom
For personal use only UNITED KINGDOM REDUCED 2H11 LOSS, AS REMEDIAL ACTIONS TAKE HOLD 1,000 GWP / Insurance Profit/(Loss) (A$m) KEY POINTS 800 • 23% decrease in reported GWP 600 – Unprofitable business shed 400 806 787 – Significant rate increases 712 200 113 546 – Adverse currency impact 53 • Reduc
Slide 12: Asia
For personal use only ASIA GOOD PROGRESS IN INDIA AND CHINA IAG ASIA – GWP POOL (A$M) KEY POINTS • Regional GWP pool of over $420m (IAG’s share c.$300m) 500 4.0% • Established businesses ((Thailand and 3.5% Malaysia) continue to perform soundly 400 • Expanded launch of Indian JV in 2H11 3.0% • Regio
Slide 13: Capital, Investments and Dividend
For personal use only 3 CAPITAL, INVESTMENTS AND DIVIDEND Nick Hawkins Chief Financial Officer
Slide 14: Reinsurance
For personal use only REINSURANCE CATASTROPHE COVER HAS SERVED THE GROUP WELL IAG CATASTROPHE COVER - 30 JUNE 2011 $m 4100 Key part of capital management • Significant reinsurance protections in both 1H11 and 2H11 • Integrated programme of catastrophe cover on Main Catastrophe Programme calendar yea
Slide 15: Regulatory Capital
For personal use only REGULATORY CAPITAL ABOVE LONG TERM BENCHMARK • MCR of 1.58 times at 30 June 2011, remains above long term 1.45-1.5 benchmark • MCR movement since 31 December 2010 reflects temporary impact of 2H11 natural peril events • Movement expected to unwind over coming periods, as: – Cla
Slide 16: Capital Mix
For personal use only CAPITAL MIX IN LINE WITH TARGET RANGE MCR (x) / Debt: Total Tangible Capitalisation (%) Capital mix in line with target 2.20 40.0% 35.8% 36.0% 38.0% • Debt to total tangible capitalisation of 33.7%, 2.00 33.0% 33.7% 36.0% in line with 30–40% target range 34.0% 1.80 32.0% • Ster
Slide 17: Reinsurance Expense
For personal use only REINSURANCE EXPENSE INCREASING COST, INCLUDING INCREMENTAL ITEMS • Increased reinsurance expense, owing to: GROUP REINSURANCE EXPENSE – Reinstatement and accelerated 700 8.0% 9.0% amortisation costs ($83m) 8.0% 600 7 1% 7.1% – Rate increase on catastrophe renewal 6.3% 6.2% 6.3%
Slide 18: Reserve Releases
For personal use only RESERVE RELEASES EXCEEDED EXPECTATIONS • FY11 releases of $328m exceeded 9% expectations 8% • Driven by favourable recent experience in following long tail 7% classes: 6% – NSW CTP (Australia Direct) 5% – Workers’ compensation and 4% professional risks (CGU) 3% • Majority sourc
Slide 19: Investment Portfolio
For personal use only INVESTMENT PORTFOLIO CONSERVATIVE MIX AND HIGH CREDIT QUALITY TOTAL INVESTMENT TECHNICAL RESERVES SHAREHOLDERS’ FUNDS PORTFOLIO – $11.9BN 1.0% 18.1% Australian equities $3.6bn Shareholders' Alternatives International funds 5.4% equities Technical Fixed interest and cash Alterna
Slide 20: Investment Returns
For personal use only INVESTMENT RETURNS SOUND PERFORMANCE MAINTAINED $m Technical reserve returns 600 • Higher 2H11 performance, reflecting 500 rallying bond markets 400 300 • Continue to target 100bps of return above 200 risk free rate 100 • Negligible credit spread impact 0 1H10 2H10 1H11 2H11 FY
Slide 21: Dividend
For personal use only DIVIDEND FULL YEAR DIVIDEND UP 23% Cents 7cps fully franked final dividend 18.0 16.0 • Brings full year dividend to 16cps, up 16.0 23% from previous year 13.0 14.0 • Payout ratio of 67% of cash earnings, in 7.0 12.0 line with 50-70% policy 10.0 4.5 10.0 • Cash earnings of $496m
Slide 22: Outlook
For personal use only 4 OUTLOOK Mike Wilkins Managing Director and Chief Executive Officer
Slide 23: Resetting Our Strategic Priorities
For personal use only RESETTING OUR STRATEGIC PRIORITIES A CLEAR FOCUS ON AUSTRALIA, NEW ZEALAND AND ASIA REALISING OUR POTENTIAL AMBITION STRATEGY TARGETS PRIORITIES Deliver superior Accelerate growth in Australia and To be the world’s Long term performance by New Zealand most respected g financial
Slide 24: FY12 Outlook
For personal use only FY12 OUTLOOK IMPROVED PERFORMANCE EXPECTED FY12 Insurance margin 10–12% GWP growth 6 9% 6–9% FY12 result expected to contain: • Further increase in reinsurance expense • Modest margin impact from delay in recouping higher reinsurance costs via premium rate increases • Improved
Slide 25: Business Model and Brands
For personal use only BUSINESS MODEL AND BRANDS DIRECT INTERMEDIATED DIRECT DIRECT INTERMEDIATED INSURANCE INSURANCE INSURANCE INSURANCE INSURANCE 3 4 KINGDOM EALAND RALIA 5 SIA 1 UNITED K AUSTR AS NEW ZE INTERMEDIATED INTERMEDIATED INSURANCE INSURANCE 2 ACTIVE PORTFOLIO MANAGEMENT & GOVERNANCE (COR
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