Insurance Australia Group Ltd · ASX:IAG
Insurance Australia — Conference Presentation (May 2005)
15 slides from Insurance Australia's conference presentation, May 6, 2005
Slide 1: ASX cover letter: presentation by Head of Reinsurance
Insurance Australia Group Limited ABN 60 090 739 923 388 George Street Sydney NSW 2000 Telephone 02 9292 9222 iag.com.au 6 May 2005 Manager, Company Announcements Office Australian Stock Exchange Limited Level 4, Exchange Centre 20 Bridge Street SYDNEY NSW 2000 Dear Sir/Madam INSURANCE AUSTRALIA GRO
Slide 2: Reinsurance @ IAG
Reinsurance @ IAG Jan van der Schalk, Head of Reinsurance Insurance Australia Group Limited 6 May 2005 Insurance Australia Group Limited ABN 60 090 739 923
Slide 3: Reinsurance @ IAG
Reinsurance @ IAG y Reinsurance as capital y IAG Re – why & how y Modelling catastrophies y Counterparty credit valuation Insurance Australia Group Limited ABN 60 090 739 923 2
Slide 4: Reinsurance within IAG
Reinsurance within IAG y Provision of capital – Purchase protection against extreme, severe events (> 1:100 probability) – Core risk management tool y Earnings volatility mitigation – Smooth unexpected deviations from budgeted loss ratios (max retained loss from single event = 2% of net earned premi
Slide 5: IAG Re: how it works
IAG Re: how it works IAG commercial Aus commercial MAIN LAWNMOWER: surplus CAT: Various covers IMA giving both $3.4bn xs vertical and PLI -- IAG & CGU $100m sideways protection Marine IAG Re Commercial motor Various NZ commercial NZI surplus y Individual entities retain risk based on their capital a
Slide 6: IAG Re governance
IAG Re governance y Domiciled in Ireland, separate Board with 3 external Directors y APRA regulated y Direct report to Deputy-CEO y Strategy and execution approved by IAG’s ALCo (executives) and RMCC (IAG non-executive directors) Insurance Australia Group Limited ABN 60 090 739 923 5
Slide 7: IAG Re & Canberra bushfires
IAG Re & Canberra bushfires How does it operate? With Canberra IAG loss @ $110m Business Captive External Unit/Entities IAG Re Entities CGU Pays IMA $55m & Gross: $20m SGIO/SGIC $2m =$57m No ri recovery Combines IAG Re loss of IMA $57m with Gross: $85m REINSURERS After ri: $30m BU nets CGU $20m + IM
Slide 8: Reinsurance process
Reinsurance process Risk Assessment and Determination of reinsurance requirement of business units Rating and Pricing of these covers Determine parameters of DFA Analyse underwriting result for the risks taken Minimum APRA Guidelines Determine the level of risk retention in Reinsurance Market condit
Slide 9: Catastrophe modelling
Catastrophe modelling IAG/CGU -- Australia and NZ combined Layer Limit Excess Fitted Expected Loss Costs B. Cost Other Aus Cyclone AUS eq Other NZ NZ eq Sum Reinst Adj 4 500 500 1.92% 1.68% 0.46% 1.93% 0.21% 0.88% 5.16% 5.16% AUSTRALIA Layer IAG Re RMS AIR IF Eqecat HailAUS Other Cyclone EQ Wind EQ
Slide 10: Catastrophe: Programme diagram
Catastrophe: Programme diagram 1st event 2nd event 3rd event 4th event $3,500m EQ only Australia $2,500m 1st event layers split: y APRA requires catastrophe EQ only NZ All perils: ex NZ EQ a) 70% NZ EQ, no cover to be purchased to reinstatement b) All perils, ex NZ EQ, 1 cover single event risk to (
Slide 11: Counterparty credit – S&P rating trend
Counterparty credit – S&P rating trend 2001 – 2003 Gross premiums: Top 20 reinsurers worldwide 45 40 IAG Re 35 catastrophe 30 2001: 69% >AA 2002: 68% >AA USD bn 25 2003: 46% >AA 20 2004: 64% >AA 15 2005: 70% >AA 10 5 0 AAA AA+ AA AA- A+ A A- BBB+ BBB BBB- NR 2001 2002 2003 Insurance Australia Group
Slide 12: Counterparty credit – a method for valuing reinsurance
Counterparty credit – a method for valuing reinsurance Event Adjusted Cover Event probability band Limit ($ m's) probability Severity factor CPR limit Modelling Systemic Total Catastrophe >20% 6 100% 0.10 9.12 10%-20% 52 15.0% 0.67 20.41 5%-10% 84 7.0% 1.43 21.04 1%-5% 153 3.0% 3.33 27.92 <1% 0 1.0%
Slide 13: Counterparty credit – IAG Re model output
Counterparty credit – IAG Re model output Default Rating: Level Outlook probability S&P AA Negative 0.89% Bests A+ Stable 0.60% Moody's Aa2 Stable 0.81% Weighted default probability 0.77% CPR status Actual y This is the form of output that XOL Recoveries -- short 1.9 XOL Recoveries -- long 71.5 the
Slide 14: Conclusion
Conclusion y Reinsurance is an integral part of IAG’s capital and risk management y Value add potential and sophistication have increased and continue to evolve Insurance Australia Group Limited ABN 60 090 739 923 13
Slide 15: Questions
Questions Insurance Australia Group Limited ABN 60 090 739 923
Insurance Australia Group — Conference Presentation (May 2005) on 6ix