Insurance Australia Group Ltd · ASX:IAG
Insurance Australia — H1 FY2008 Earnings Presentation
30 slides from Insurance Australia's earnings presentation, Feb 29, 2008
Slide 1: Financial results Half-year ended 31 December 2007
Financial results Half-year ended 31 December 2007 Michael Hawker, Chief Executive Officer Michael Wilkins, Chief Operating Officer George Venardos, Group Chief Financial Officer 29 February 2008
Slide 2: Agenda
AGENDA • Group results Michael Hawker • Segment analysis Michael Wilkins • Investments, reinsurance & capital George Venardos • Group outlook Michael Hawker • Questions PAGE 2 1H08 Financial Results Presentation
Slide 3: Group results
Michael Hawker Group results
Slide 4: Financial results overview
FINANCIAL RESULTS OVERVIEW • Net earned premium up 17.6% to $3,709m (1H07: $3,155m) – GWP up 15.9% to $3,851m (1H07: $3,324m) • Insurance profit of $217m (1H07: $420m) – Insurance margin of 5.9% (1H07: 13.3%) – Unusually high claims from severe events of $326m (reduced margin by 4.8%) – Increased cr
Slide 5: Key drivers of GWP and claims
KEY DRIVERS OF GWP AND CLAIMS • GWP up 15.9% to $3,851m (1H07: GWP growth by business vs 1H07 Direct PI $3,324m) 60 (short-tail) – UK contributed $502m 40 • Growing specialist lines & Business Growth ($m) 4.8% NZ ($NZ) 20 Partnerships contracting private motor 3.5% 2.9% – All other businesses growin
Slide 6: Financial results/ratios
FINANCIAL RESULTS OVERVIEW FINANCIAL RESULTS/RATIOS 1H07 2H07 1H08 Financial Overview Profit attributable to holders of ordinary shares (A$m) $345 $207 $110 Reported ROE % (Avg Equity) to holders of ordinary equity pa 19.5% 9.2% 4.7% Normalised Cash ROE % (Avg Equity) to holders of ordinary equity p
Slide 7: Key insurance ratios
KEY INSURANCE RATIOS Expense ratio Loss ratio 27.8% 28.9% 30.0% 27.4% 72.0% 2.7% 80.0% 65.4% 69.4% 3.3% 25.0% 3.3% 70.0% 8.9% 60.0% 20.0% 8.2% 8.5% 50.0% 71.3% 68.0% 15.0% 64.4% 40.0% 10.0% 30.0% 16.3% 15.6% 17.2% 20.0% 5.0% 10.0% 0.0% 0.0% 1H07 2H07 1H08 1H07 2H07 1H08 Administration ratio Commissi
Slide 8: Results by segment
SEGMENT RESULTS 1H08 1H08 RESULTS BY SEGMENT 1H07 2H07 1H08 vs vs 1H07 2H07 A$m A$m A$m % % Australia 412 324 287 (30.3%) (11.4%) New Zealand 39 47 (21) (153.8%) (144.7%) Asia 6 5 1 (83.3%) (80.0%) Asia RI (9) (20) (38) 322.2% 90.0% United Kingdom 2 44 17 750.0% (61.4%) Contribution from businesses
Slide 9: Portfolio continues to diversify
PORTFOLIO CONTINUES TO DIVERSIFY 1H07 Portfolio - $3.32bn 1H08 Portfolio - $3.85bn GWP by geography Asia Asia UK 3% UK 3% 2% New 15% Zealand 14% New Zealand 12% Australia 70% Australia GWP by product 81% Other Short- Other Short- tail tail Liability 4% Liability 3% 6% 5% CTP CTP 10% 11% Motor 36% Wo
Slide 10: Segment analysis
Michael Wilkins Segment analysis
Slide 11: Australia: key points on results
AUSTRALIA Key points on results AUSTRALIA 1H07 2H07 1H08 Key points/variances to 1H07 A$m A$m A$m • GWP up 1.3% (excluding LTCS): Gross written premium 2,689 2,800 2,683 Gross earned premium 2,750 2,698 2,757 – Growth in Direct Personal Reinsurance expense (154) (168) (149) Insurance 4.6% Net premiu
Slide 12: Direct Personal Insurance
DIRECT PERSONAL INSURANCE Risks in force continue to grow DIRECT PERSONAL INSURANCE 1H07 2H07 1H08 Key observations A$m A$m A$m • Advertising & price position has Gross written premium 1,419 1,470 1,440 increased short-tail GWP by 4.8% Gross earned premium 1,455 1,433 1,457 Reinsurance expense (49)
Slide 13: CGU Insurance
CGU INSURANCE Profitability supported by reserve releases CGU INSURANCE 1H07 2H07 1H08 Key observations A$m A$m A$m • Challenging environment - rates Gross written premium 925 982 888 remain soft Gross earned premium 958 928 949 Reinsurance expense (86) (89) (75) • Executing planned rate rises Net p
Slide 14: Business Partnerships
BUSINESS PARTNERSHIPS Managing portfolio to profitability BUSINESS PARTNERSHIPS 1H07 2H07 1H08 Key observations A$m A$m A$m • Pricing adequacy improved but Gross written premium 345 349 355 more rate increases to come Gross earned premium 336 338 351 Reinsurance expense (19) (27) (20) • Improving st
Slide 15: International businesses
INTERNATIONAL BUSINESSES Key points on results INTERNATIONAL 1H07 2H07 1H08 Key points / variances to 1H07 A$m A$m A$m • International now represents 30% Gross written premium 635 1,257 1,168 of Group GWP (1H07:19%) Gross earned premium 619 1,140 1,166 Reinsurance expense (60) (82) (65) • GWP increa
Slide 16: United Kingdom
UNITED KINGDOM Positioning for future value delivery UNITED KINGDOM 1H07 2H07 1H08 Key observations Gross written premium A$m 83 A$m 642 A$m 585 • Market challenging but improving Gross earned premium 65 560 576 – Paid private motor increases of 5 – Reinsurance expense (3) (30) (46) Net premium reve
Slide 17: New Zealand
NEW ZEALAND Performance adversely affected by weather Key observations NEW ZEALAND 1H07 2H07 1H08 • GWP increased 3.5% in NZ$ Gross written premium A$m 460 A$m 508 A$m 482 • Successful in leading the market in Gross earned premium 470 483 489 rate increases in commercial Reinsurance expense (42) (51
Slide 18: Asia
ASIA Investing for growth Key observations ASIA 1H07 2H07 1H08 • Thai market conditions remain Gross written premium A$m 79 A$m 89 A$m 89 challenging but IAG GWP up 6% Gross earned premium 80 87 88 in local currency terms Reinsurance expense (17) (20) (21) Net premium revenue 63 67 67 • AmAssurance
Slide 19: Asian Reinsurance
ASIAN REINSURANCE Impacted by UK floods ASIAN REINSURANCE 1H07 2H07 1H08 Key observations A$m A$m A$m • Adverse developments Gross written premium (3rd party premium income) 13 18 12 Gross earned premium Reinsurance expense (net of IAG Group premium income) 4 2 10 19 13 56 – Floods in UK cost this b
Slide 20: Investments, reinsurance, capital and dividends
George Venardos Investments Reinsurance Capital & dividends
Slide 21: Investments: group asset mix
INVESTMENTS Group asset mix 30 June 2007 31 December 2007 asset mix asset mix Hedge funds Hedge funds & Australian & Australian & 1% private equity international international 2% equities & LPTs equities & LPTs 10% 9% Fixed interest Fixed interest and cash and cash 88% 90% • Group asset mix has rema
Slide 22: Investments: cash and fixed interest asset quality
INVESTMENTS Cash and fixed interest asset quality Fixed interest asset quality as at 31 December 2007 for Australia & New Zealand Other AAA 6% C'wth Government Asset Backed 'AAA' 'AAA' 22% 10% Banks & FI 'AA' Semi Govt & 20% eligible for RBA Repo's 'AAA' / 'AA' 42% • High quality and high liquidity
Slide 23: Investments: performance
INVESTMENTS Performance PORTFOLIO INCOME (PRE-TAX) AND INCL. DERIVATIVES 1H07 2H07 1H08 A$m A$m A$m Technical reserves 176 184 224 Shareholders’ funds 166 135 76 Total investment income 342 319 300 • Impact of increased credit market spreads reduced the 1H08 insurance profit by $55m • Net profit bef
Slide 24: Reinsurance protections strengthened
REINSURANCE PROTECTIONS STRENGTHENED • Upper limit of the catastrophe programme increased to $4bn • Group has purchased covers which reduce the maximum event retention of the Group until 30 June 2008 to – Australia $93m; New Zealand $81m; and United Kingdom $79m – Second event MER for Australia of $
Slide 25: Regulatory capital position strengthened
REGULATORY CAPITAL POSITION STRENGTHENED COVERAGE OF REGULATORY CAPITAL IAG Consolidated REQUIREMENTS • MCR multiple increased to 1.87x A$m 1H07 2H07 1H08 (June 2007: 1.67x) due to: Tier 1 capital Paid-up ordinary shares 4,000 4,361 4,649 – Final FY07 dividend underwritten Treasury shares (40) (36)
Slide 26: Dividend position
DIVIDEND POSITION 50.0 60.0 Dividends per share 42.0 40.0 50.0 12.5 40.0 29.5 Cents 26.5 29.5 30.0 22.0 16.0 16.0 20.0 14.5 11.5 14.0 10.0 10.5 10.0 6.0 6.0 7.0 13.5 13.5 13.5 12.0 8.0 4.0 4.5 4.5 0.0 FY01 FY02 FY03 FY04 FY05 FY06 FY07 1H08 Interim dividend Final dividend Special dividend • Interim
Slide 27: Outlook
Michael Hawker Outlook OIAG ice Australia Group
Slide 28: Updated FY08 trading outlook
UPDATED FY08 TRADING OUTLOOK October 2007 briefing 1H08 results announcement FY08 guidance FY08 guidance GWP Insurance GWP Insurance growth margin growth margin Direct Personal Insurance 2 - 4% 17 - 20% 2 - 4% 12 - 14% Business Partnerships 4 - 6% 6 - 8% 4 - 6% 1 - 3% CGU Commercial Lines (4 - 2)% 1
Slide 29: In summary
IN SUMMARY • 1H08 was a very challenging period • Conservatively positioned balance sheet – MCR multiple of 1.87x – High quality, liquid investment portfolio – Increased reinsurance protections for calendar 2008 • Reduced net exposure to further major weather events • Interim dividend maintained at
Slide 30: Questions
Questions OIAG Insurance Australia Grou lia Group
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