Insurance Australia Group Ltd · ASX:IAG
Insurance Australia — NRMA Insurance Group — AILA Conference October 2001
24 slides from Insurance Australia's conference presentation, October 2001
Slide 1: Key Issues for the Insurance Industry
Key Issues for the Insurance Industry NRMA Insurance Group George Venardos - Chief Financial Officer & Head of IT NRMA Insurance Group October 2001 1
Slide 2: Agenda
Agenda ⊥ Financial ⊥ Regulatory ⊥ Social & Environmental AILA Conference NRMA Insurance Group October 2001 Key Issues for Insurance Industry 2
Slide 3: Financial
Financial NRMA Insurance Group 3
Slide 4: Pressure on Returns
Pressure on Returns • Low investment outlook • Increasing reinsurance costs • Increasing taxation burden • Greater regulation & associated costs • Increasing capital requirements v Offset to some degree by pricing & consolidation v Yet shareholder expectations rightly remain high AILA Conference NRM
Slide 5: Industry Combined Ratio History
Industry Combined Ratio History 140.0% 120.0% 100.0% 80.0% 60.0% 40.0% 20.0% 0.0% Jun- Sep- Dec- Mar- Jun- Sep- Dec- Mar- Jun- Sep- Dec- Mar- Jun- Sep- Dec- Mar- Jun- Sep- Dec- Mar- Jun- Sep- Dec- Mar- 95 95 95 96 96 96 96 97 97 97 97 98 98 98 98 99 99 99 99 00 00 00 00 01 Combined Ratio Rolling 12
Slide 6: Combined Ratio v 10 Yr Bond Rate
Combined Ratio v 10 Yr Bond Rate 140.0% 10.0% 9.0% 120.0% 8.0% 100.0% 7.0% 6.0% 80.0% 5.0% 60.0% 4.0% 3.0% 40.0% 2.0% 20.0% 1.0% 0.0% 0.0% Jun- Sep- Dec- Mar- Jun- Sep- Dec- Mar- Jun- Sep- Dec- Mar- Jun- Sep- Dec- Mar- Jun- Sep- Dec- Mar- Jun- Sep- Dec- Mar- 95 95 95 96 96 96 96 97 97 97 97 98 98 98
Slide 7: Combined Ratio v Equity Returns
Combined Ratio v Equity Returns 140.0% 80.0% 70.0% 120.0% 60.0% 100.0% 50.0% 80.0% 40.0% 60.0% 30.0% 40.0% 20.0% 20.0% 10.0% 0.0% 0.0% Jun- Sep- Dec- Mar- Jun- Sep- Dec- Mar- Jun- Sep- Dec- Mar- Jun- Sep- Dec- Mar- Jun- Sep- Dec- Mar- Jun- Sep- Dec- Mar- 95 95 95 96 96 96 96 97 97 97 97 98 98 98 98
Slide 8: WTC Reinsurance Impacts
WTC Reinsurance Impacts • Increased Reinsurance Costs • Restrictions on terms & conditions • Reduced Capacity • Increased Counterparty risks • Catastrophic risks seen as totally independent may no longer be independent • Alternative risk transfer AILA Conference NRMA Insurance Group October 2001 Key
Slide 9: Insurance Taxation
Insurance Taxation • Taxes on Insurance nationally totalled $2,138m in 1999/2000 up 6.4% from 1998/99 (ABS data) • Victorian Review of State Business Taxes highlighted the “Invidious situation of taxes being charged on other taxes” • NIGL Research (July 2001) found that 47% of businesses were underi
Slide 10: Home Insurance Taxation
Home Insurance Taxation Taxes increase basic premium by 44% 200 150 100 50 0 NSW VIC QLD WA SA TAS ACT NT Basic Premium Fire Levy GST Stamp Duty ICA Data August 2001 AILA Conference NRMA Insurance Group October 2001 Key Issues for Insurance Industry 10
Slide 11: Regulatory
Regulatory NRMA Insurance Group 11
Slide 12: Time of unprecedented change
Time of unprecedented change • Privacy • Financial Services Reform • APRA Prudential Reform • On the horizon – outcomes from the HIH Royal Commission AILA Conference NRMA Insurance Group October 2001 Key Issues for Insurance Industry 12
Slide 13: Privacy Legislation
Privacy Legislation Effective from 21 December 2001 & will require • System changes • Process changes • Documentation • Training • Increased costs AILA Conference NRMA Insurance Group October 2001 Key Issues for Insurance Industry 13
Slide 14: National Privacy Principles
10 National Privacy Principles • Collection • Use and Disclosure • Data Quality • Data Security • Openness • Access and Correction • Identifiers • Anonymity • Transborder Data Flows • Sensitive Information AILA Conference NRMA Insurance Group October 2001 Key Issues for Insurance Industry 14
Slide 15: Financial Sector Reform Act
Financial Sector Reform Act • Uniform Licensing Regime across all financial services providers • Uniform Sales Disclosure • Uniform Product Disclosure “People who carry on a financial services business must hold an Australian Financial Services Licence ” AILA Conference NRMA Insurance Group October
Slide 16: FSR Act Implications
FSR Act Implications • Three new documents “FSG” – Financial Services Guide “SoA” – Statement of Advice “PDS” – Product Disclosure Statement • Changes to distribution processes (esp call centres) • Increased compliance costs (both one-off & ongoing) • Impact on corporate structures AILA Conference N
Slide 17: APRA Prudential Reform
APRA Prudential Reform • APRA final prudential standards expected to be released late October 2001 • New reporting requirements from 1 July 2002 • Involve all insurance companies needing to re-apply for licenses • Appointments of the Approved Auditor & Approved Actuary. • May involve the approval of
Slide 18: APRA Reform Implications
APRA Reform Implications • Need to ensure directors & senior management meet new standards of fitness and propriety • Need to meet new, risk based capital requirements • New valuation of liabilities requirements • Provide business plans/financial projections to APRA • Need to develop risk management
Slide 19: Social & Environmental Issues
Social & Environmental Issues NRMA Insurance Group 19
Slide 20: Flood Protection
Flood Protection • Remains an issue for the community • Insurance industry would like to work closely with governments (local & federal), consumer groups, & key stakeholders to develop a comprehensive solution. • Insurance is not the solution but only one potential mechanism for spreading the cost.
Slide 21: Other Issues
Other Issues • Continued consolidation • Privatisation & the State schemes • Globalisation - Australia a branch economy or a Financial Services centre? • Under insurance • Technology AILA Conference NRMA Insurance Group October 2001 Key Issues for Insurance Industry 21
Slide 22: Conclusions
Conclusions NRMA Insurance Group 22
Slide 23: In Conclusion
In Conclusion Focus on Ø Disciplined underwriting performance; Ø Integrated processes & approaches to regulatory changes; Ø Greater education of & communication with policyholders; and Ø Forge even closer links with governments & consumer groups on the social issues. AILA Conference NRMA Insurance G
Slide 24: Questions
Questions NRMA Insurance Group 24