IAG Limited - 2011 INVESTOR BRIEFING...2011/06/14 · IAG’S BUSINESS TODAY GEOGRAPHICAL PRESENCE...

14 June 2011

2011 INVESTOR BRIEFING

ABN 60 090 739 923

TODAY’S AGENDAA GROUP AND DIVISIONAL VIEW

1 GROUP OVERVIEW MIKE WILKINS8.30am

2 CAPITAL

NICK HAWKINS8:50am

3 AUSTRALIADIRECTANDY CORNISH9:20am

4 CGU

PETER HARMER9:50am

5 NEW ZEALANDJACKI JOHNSON10:40am

10:20 am Break

6 UNITED KINGDOMIAN FOY11:10am

7 ASIA

JUSTIN BREHENY11:40am

8 IAG OF THE FUTURELEONA MURPHY12:10pm

p.62 p.3 p.30

p.15

p.22 p.54

p.45 p.75

9 SUMMARY

MIKE WILKINS12:40-1:00pm p.82

2

1GROUP OVERVIEW

MIKE WILKINS

MANAGING DIRECTOR & CHIEF EXECUTIVE OFFICER

3

4

IAG’S BUSINESS TODAY GEOGRAPHICAL PRESENCE

4

1

2

3

1. 49% ownership of AmG Insurance, trading under the AmAssurance brand2. 98% voting rights in Safety Insurance, based in Thailand3. 26% ownership of SBI General Insurance Company, a joint venture with the State Bank of India4. RACV is via a distribution relationship and underwriting joint venture with RACV Limited5. RACV has a 30% interest in The Buzz

5

GROUPOVERVIEW

A portfolio of general insurance businesses: • Leading and established

brands in Australia and New Zealand

• Growing presence in Asia• Specialist motor underwriter

in the UK

REGIONAL MIX CHANNEL MIX

IAG’S BUSINESS TODAY DIVERSIFIED GWP MIX – PRODUCT, GEOGRAPHY AND CHANNEL

PRODUCT MIX

GROUPOVERVIEW

5

Approximately$8bn of gross

written premium

Motor

Home

Short tail commercial

CTP / motor liability

Liability

Other short tail

Workers' compensation

Australia

New Zealand

UK

Asia

Direct

Broker / agent

Affinity

CORPORATE STRATEGY – SET JULY 2008CREATING A SOLID PLATFORM GROUP

OVERVIEW

6

OUR TARGETS

OUR STRATEGY

OUR STRATEGIC PRIORITIES

• ROE 1.5x WACC

• Top quartile TSR

•Deliver superior performance by actively managing our portfolio and driving operational performance and accountability

• Improve our performance in Australia and New Zealand

•Pursue selective international growth options – Asia and other narrow specialist opportunities

•Move to a devolved model with the Corporate Office as portfolio manager

•Drive operational performance and execution

ACHIEVEMENTS AGAINST STRATEGIC PRIORITIESCREATING A SOLID PLATFORM GROUP

OVERVIEW

Improve our performance in Australia and New Zealand

STRATEGIC PRIORITES Significantly improved collective insurance margin in Australia and New Zealand Delivered strong Australia Direct performance Returned CGU to profitability – now delivering top and bottom line growth Achieved significant improvement in New Zealand

Pursue selective international growth options – Asia and other narrow specialist opportunities

Launched SBI General in India Increased ownership of AmG in Malaysia Launched new online business, The Buzz, in Australia

ACHIEVEMENTS

Move to a devolved model with the Corporate Office as portfolio manager

Devolved operating model implemented in 1H09 Embedded return on risk based capital as portfolio management measure

Drive operational performance and execution

Delivered $130m in annualised pre-tax cost savings Invested in internal leadership, succession and capability programmes

7

CLEAR OPERATIONAL IMPROVEMENT DELIVERED GROUP INSURANCE MARGIN – 1H09 TO 1H11 GROUP

OVERVIEW

Significant improvement in

Group underwriting performance

227

470

23

42

2

172

9

100

120

140

160

180

200

220

240

260

280

300

320

340

360

380

400

420

440

460

480

500

1H09 Reserve releases Natural perils DAC / LAT Underwriting result

Yield 1H11

6.2%

12.7%

8

GROUP INSURANCE PROFIT ($M) / MARGIN (%)

9

HOME MARKETS DRIVING IMPROVEMENT DIVISIONAL INSURANCE PROFIT – 1H09 TO 1H11 GROUP

OVERVIEW

Australia and New Zealand driving the

Group’s financial improvement

GROUP INSURANCE PROFIT ($M) / MARGIN (%)

227

470

156

161

107

19812 29

020406080

100120140160180200220240260280300320340360380400420440460480500520540560580600620640660680700

1H09 Australia Direct

Australia Intermediated

New Zealand United Kingdom (retained)

Asia Corporate, divested &

other

1H11

6.2%

12.7%

12.7%

DELIVERING STRONG RESULTS IN HOME MARKETS MARKED IMPROVEMENT SINCE JULY 2008 GROUP

OVERVIEW

10

Clear trend of top line growth and improved profitability in Australia and New Zealand

AUSTRALIA AND NEW ZEALAND GROSS WRITTEN PREMIUM ($M)

170 251

461 378

594 5.5%

8.1%

14.4%

11.9%

17.8%

-

2.0%

4.0%

6.0%

8.0%

10.0%

12.0%

14.0%

16.0%

18.0%

-

100

200

300

400

500

600

700

1H09 2H09 1H10 2H10 1H11

$m

Insurance prof it ($m) Insurance margin (%)

AUSTRALIA AND NEW ZEALAND INSURANCE PROFIT AND MARGIN

3,291 3,410 3,368

3,510 3,568

2,800

2,900

3,000

3,100

3,200

3,300

3,400

3,500

3,600

1H09 2H09 1H10 2H10 1H11

$m

REALISING OUR POTENTIAL

REMEDIATING TO CREATE A SOLID

PLATFORM

11

RESETTING OUR CORPORATE STRATEGY A PLATFORM FOR DELIVERY GROUP

OVERVIEW

2008 2011 2011 2016


Long term financial targets:

• ROE 1.5xWACC


Deliver superior performance by

actively managing our portfolio and

driving operational

performance and accountability

Accelerate growth in Australia and New Zealand

Restore profitability in UK

Boost Asian footprint – 10% of Group GWP by 2016

RESETTING OUR STRATEGIC PRIORITIES A CLEAR FOCUS ON AUSTRALIA, NEW ZEALAND AND ASIA

unchanged reset

GROUPOVERVIEW

TARGETSSTRATEGY PRIORITIES

unchanged

To be the world’s most respected group of general

insurance companies

AMBITION

unchanged

12

SHAPING OUR OPERATING ENVIRONMENT INFLUENCING OUR INDUSTRY’S FUTURE GROUP

OVERVIEW

13

Active involvement in policy and regulatory consultation

Addressing flood insurance issues in Australia • Stricter and more transparent planning and zoning decisions• Accurate and accessible digital elevation mapping• Investment in adequate mitigation infrastructure• Strengthened building standards• Community education on understanding risk and the importance of taking responsibility

Other areas of focus • Reducing the burden of inequitable insurance taxes • New Zealand recovery post-Christchurch earthquakes

14

FY11 GUIDANCEUPDATE

• Too early to assess impact of Christchurch earthquakes on 13 June 2011

• Prior to 13 June 2011, on track to deliver insurance margin within 8–10% guidance range:

– Ongoing strong underlying performance from the Australian and New Zealand businesses

– Lower second half loss from the UK operation (vs. 1H11), in line with expectations

– Natural peril losses slightly higher than $540m– 2H11 reinsurance expense of c.$400m (FY11:

c.$630m) – Assumes reserve releases no greater than FY10

($228m)• Scope for higher reserve releases from long tail

classes• Underlying GWP growth guidance reaffirmed

GROUPOVERVIEW

Insurance margin*

FY11 GUIDANCE*

8–10%

Underlying GWP growth 3–5%

* Prior to Christchurch earthquakes on 13 June 2011

NICK HAWKINSCHIEF FINANCIAL OFFICER

2CAPITAL

15

16

CAPITAL POSITION STRONG BALANCE SHEET MAINTAINED

Long term target range 1.45–1.5 times MCR • At 31 December 2010:

– Capital requirement was $2.3bn– Group capital base of $4.2bn – Equated to MCR of 1.81 times

Dividend policy to pay 50–70% of cash earnings• Provides sufficient capital to allow growth and pursue bolt-on acquisitions

Capital mix remains within targeted range • 60–70% ordinary equity : 30–40% debt and hybrids• At 31 December 2010, debt to total tangible capitalisation of 33%

Capital management initiatives • Continuing to consider options • A number of factors at play

CAPITAL

17

REINSURANCEKEY ELEMENT OF CAPITAL MANAGEMENT CAPITAL

Resilient long term source of capital • Longstanding relationships – some for over 50 years• Diversified panel of 30+ reinsurers with strong counter-party credit profile• Continuing availability of reinsurance capital

Upwards pricing pressure• Sequence of recent peril events in Australia and New Zealand• Other global events – e.g. Japan earthquake and tsunami, US tornadoes • Quantum of reinsurance rate increases uncertain

– Main programme renews 1 January 2012

Primary rate increases being implemented• Price increases across all major businesses • Modest adverse timing impact on margin in FY12

18

REINSURANCERELATIVE SIGNIFICANCE CAPITAL

• Consistent reinsurance expense in recent years (as % of GWP)

• Uptick in FY10 mainly due to cost of ADC in UK

• Group reinsurance expense of c.$500m (ex ADC) vs. GWP pool of nearly A$8bn in FY10

• Large proportion of reinsurance expense relates to catastrophe cover

• Expected FY11 reinsurance expense of c.$630m*, or c.8% of GWP, including:– 2010 UK ADC cost– Main programme reinstatement costs

• Further increase in FY12 reinsurance expense expected

402 417 405 464 470 485

556 630

6.3% 6.2% 6.3% 6.3% 6.0% 6.2% 7.1%

8.0%

(0.5%)

0.5%

1.5%

2.5%

3.5%

4.5%

5.5%

6.5%

7.5%

8.5%

-

100

200

300

400

500

600

700

FY04 FY05 FY06 FY07 FY08 FY09 FY10 FY11E

Reinsurance expense ($m) Reinsurance expense (%GWP)

GROUP REINSURANCE EXPENSE

* Prior to Christchurch earthquakes on 13 June 2011

*

19

REINSURANCEPROGRAMME STRUCTURE AND PERILS UPDATE CAPITAL

Two main aspects to catastrophe cover • Capital preservation – main programme up to $4.1bn• Reduced earnings volatility – lower level and subsequent event covers, including aggregate

Potential changes to 2012 programme – renewed at 1 January 2012• Work with reinsurance partners to review options over next six months

FY11 natural perils update (prior to Christchurch earthquakes on 13 June 2011) • Net natural peril costs slightly higher than $540m• Approximately half of $150m aggregate cover utilised • Next event MER $95m

INVESTMENT PORTFOLIO CONSERVATIVE MIX AND HIGH CREDIT QUALITY CAPITAL

TOTAL INVESTMENT PORTFOLIO – $11.8BN

• Two distinct pools with different investment strategies:–Technical reserves – backing

insurance liabilities–Shareholders’ funds

20 All figures as at 31 December 2010

• Almost 100% fixed interest and cash

• Expect to maintain 100bps of return above risk free rate over medium term

• 40% growth assets – intention to move to around 50%

• Over 15% of growth assets currently in alternatives, including global convertible bonds

TECHNICAL RESERVES SHAREHOLDERS’ FUNDS

$3.7bn

$8.1bn

Shareholders' funds

Technical reserves

19.8%

5.0%

15.4%59.8%

Australian equities

International equities

Alternatives

Fixed interest and cash

0.2%

99.8%

Alternatives

Fixed interest and cash

21

QUESTIONSMike Wilkins and Nick Hawkins

ANDY CORNISHCHIEF EXECUTIVE OFFICER

3 AUSTRALIA DIRECT

22

Accelerating growth in home markets

BUSINESS OVERVIEWAUSTRALIA’S LEADING DIRECT INSURER

23

AUSTRALIA DIRECT

* RACV is via a distribution relationship and underwriting joint venture with RACV Ltd^ Australia Direct does not manage RACV distribution# Excludes Victoria

*

Australia’s leading direct insurer

• State based brands, leading market positions in NSW and Victoria

• One distribution system^, pricing engine, claims system• GWP over $3.6bn • Over 3.5m customers#; over 4,000 employees• Multi-product insurer • Multi-channel model

– 7 call centres, taking 7 million phone calls annually– Face to face network: >230 branches– Website

• Around 500,000 short tail claims finalised annually

CURRENT MARKET ENVIRONMENTINCREASED COMPETITION

• New players pursuing different business models with limited traction

• Mainstream brands not using aggregators• Competitors’ advertising spend remains high• Reinsurance cost changes affecting pricing • Consumers remain price conscious, but value

and brand are still important• A number of regulatory issues

Competitive dynamicsAUSTRALIA DIRECT

System growthMotor Asset Base

Home Asset BaseSource: CARS database/AAI

Source: ABS / HIA & internal analysis

-0.5%

0.0%

0.5%

1.0%

1.5%

2.0%

2.5%

3.0%

0.0%

0.5%

1.0%

1.5%

2.0%

24

OUR ACHIEVEMENTSPROGRESS AGAINST THE PRIORITIES WE SET IN 2009

• Enhanced expense control discipline and processes

• Improved procurement, HR, operational practices

• Optimised contact centre network

• Established an efficient change management framework

• Refined and improved project management capabilities

Products, services delivered at appropriate cost• Balanced scorecards embedded

• Structured talent management & succession programmes

• Leadership pathway programmes

• New sales and services performance & reward framework

• Performance to Reward strategy drives high performance

Customer-focused and commercial culture

• Further refined technical risk analysis

• Granular pricing at an individual risk address level

• Enhanced optimisation models incorporating competitor insights

• Pricing activities aligned with strategy and market conditions

Industry-leading risk selection and pricing

• Customer insights framework, segmentation

• Identified and addressed customer irritants and inconsistent delivery

• Informed product development/enhancements, claims processing, marketing

• Embedded into prioritisation of strategic initiatives

Customer insights and delivery

25

AUSTRALIA DIRECT

OUR ACHIEVEMENTS REAL RESULTS DELIVERED

Market data sources: AAIR, RTA, ABS/HIA, MAA, MAIC & internal analysis (CTP data includes ½ and ¼ yearly policies)

26

Tighter expense management

Business now achieving profitable, above market, growth

FY09 FY10 FY11

New business cost down 24%

Marketing spend stable, effectiveness up

Internet sales trebled since July 2009

2.2% 2.6%2.1%1.8% 1.7%

3.5%

FY05-09 est. FY10 FY11(f)

System growth RIF growth

FY09 FY10 FY11(f)

~13% reduction

AUSTRALIA DIRECT

(f)

FOCUS FOR THE FUTURESTRATEGIC DRIVERS OF SUSTAINABLE, PROFITABLE GROWTH AUSTRALIA DIRECT

Customer led insurance that is easy to have and use, is delivered consistently, and is reasonably priced

Commercialised risk selection and pricing

Insurance that’s easy to have and use

Industrialised low cost delivery

CUSTOMER INSIGHTS THE RIGHT PRICE

CONSISTENT EXECUTION

27

FOCUS FOR THE FUTURETO OUT-COMPETE AND GROW

Maximising the value of the existing customer base

−Cross-selling and up-selling products

Attracting new customers−Fully capitalising on existing brands

Product and service innovation−New products or product enhancements

−Remove customer irritants−Service innovation

• Further improve marketing effectiveness

• Maximise multi-distribution model

• Further enhance risk selection and pricing

• Skilfully manage reinsurance costs

• Embed and use customer insights

• Roll out a flood product in Queensland and Victoria

• Continue to refine supply chain

• Continue cultural realignment

Immediate focus Organic growth opportunities

AUSTRALIA DIRECT

28

OUTLOOKMAINTAIN PROFITABLE GROWTH

29

• Maintain profitable growth momentum

• Reinsurance rates may place pressure on margin

• Continued focus on development of strategic drivers to support above system growth

Short term

• Recovery of reinsurance expenses

• Continue to leverage strategic drivers to fuel profitable growth momentum

Long term

AUSTRALIA DIRECT

PETER HARMERCHIEF EXECUTIVE OFFICER

4AUSTRALIA INTERMEDIATED (CGU)

30


CGU

• Large SME portfolio• Australia's largest regional and rural insurer• Growing capability in the corporate market• Major provider of workers' compensation services

BUSINESS OVERVIEWDIVERSE PORTFOLIO MIX

31

Commercial short tail

Personal lines

Commercial long tail

Workers' compensation

Other

SME

Consumer

Corporate

CUSTOMER SEGMENTSPRODUCTS

BUSINESS OVERVIEWDIVERSE DISTRIBUTION FOOTPRINT CGU

~8% of total Australian general insurance market

~14% of Australian intermediated general insurance market

BRANCH NETWORK GEOGRAPHIC SPLITDISTRIBUTION CHANNELS

32

VICNSW/ACTQLDWASATASNT

Brokers & authorised representatives

Financial institutions & affinity

Motor dealers

CURRENT MARKET ENVIRONMENT PRICING REMAINS PATCHY CGU

Personal lines SME Corporate Workers’ Compensation*

Rate movements

Key driversCatastrophe costs

Claims inflation

Solid capacity

Increasing competition

Recent catastrophe

events

Increasing claim numbers

Average claim costs growing

faster than wages

* Risk states only

33

CURRENT MARKET ENVIRONMENTA CHANGING LANDSCAPE CGU

34

Natural perils

Reinsurance costs

Regulation & legislation

Electronic platforms

• Frequency and scale of events has increased

• Increasing claim costs

• Reinsurance costs expected to rise

• Rate increases necessary

• Higher level of public and political scrutiny• Review and Inquiry following the floods• Commitment to launch a flood product

• Brokers investing in technology to drive efficiencies

Evolving landscapeTraditional landscape

DISTRIBUTIONTECHNOLOGY EVOLVING TO DRIVE EFFICIENCIES

Insurer 2’s system

Insurer 2


Insurer 1


Insurer 3

Intermediary 1’s system

Intermediary 1


Insurer 2


Insurer 1


Insurer 3

Marketplace Interface


Intermediary 1


Intermediary 2

• Marketplace hubs – lack of automated contestable quoting has led to limited efficiency benefits• Major brokers now developing their own contestable quoting platforms to drive internal efficiencies• Underlying sales process has not changed• CGU selectively participating where differentiated offering can be achieved

Difficult to automate multiple quotes

Quoting automation driving internal efficiencies

35

CGU

OUR ACHIEVEMENTSIMPROVED PERFORMANCE DEMONSTRATES UNDERLYING TURNAROUND CGU

133

1

-7

55112

27

154

19

-59

-23

10

5135

61

1H08 2H08 1H09 2H09 1H10 2H10 1H11

Reported Insurance Result Underlying Performance

Underlying Performance: excludes reserve releases, actual natural peril costs and credit spreads, but includes budgeted natural peril costs

36

OUR ACHIEVEMENTS STRATEGIC DRIVERS BEHIND THE TURNAROUND CGU

37

Underwriting management

Claims management

Customer & brand

Business efficiency

People strategy

• Pricing discipline and risk selection

• Reducing indemnity and claims handling costs

• Focused customer value propositions and building brand awareness

• Transformation of business processes and supporting technology

• Developing capability and driving results

FOCUS FOR THE FUTURELEADER IN INTERMEDIATED INSURANCE CGU

38

STRATEGIC THEMESCHANNEL MANAGEMENT

Technology & tools

CLIENT-CENTRIC CULTURE

GROWTH

CGU Channel Management Framework © 2011

CGU

Channel sales strategy & planning

Channel sales management

Channel sales processes People & skills

Market/intermediary segmentation

Intermediary value proposition

Intermediary service level

Channel economics

Portfolio management

Sales methodology

Pipeline management

Sales forecasting

Performance management

Key account management

Sales channel operations

Manage relationships

Understanding intermediary needs

Account management • Account planning • Opportunity

identification • Opportunity qualification • Solution development • Winning/delivery

Intermediary care and servicing

Organisational, structure, roles

Talent optimisation

Recruitment and selection

Competency management

Incentives and reward

CRM solutions

MIS

39

STRATEGIC THEMESCUSTOMER AND MARKET INSIGHTS

Refine value drivers and customer

segments

Refine Customer Value Propositions

Customer and market

insights

• Intermediaries• End customers• Competitors

Design & deliver customer

experiences

Apply CVP to:• Product design• Pricing• Processes & systems• Distribution• Communications• People

Monitor

Continuous feedback loop

40

CGU

Customer-centric perspective Further differentiate offering

STRATEGIC THEMESUNDERWRITING EXPERTISE CGU

Portfolio strategy& planning

Underwritingframework

Underwritingcompetence

Reinsurancestrategy

UNDERWRITING EXPERTISE

Portfolio performancemanagement

Underwriting rigour& risk selectionPricing disciplineManaging latent &

emerging risksStrategic portfolio

management

41

FOCUS FOR THE FUTURECLEAR PRIORITIES

42

CGU

Expense basemanagement

Profitability supported by expense base reductions:

• Administration expenses

• Claims handling expenses

• Indemnity costs

Focus on profitable growth

Sales led relationship-based account management

Customer and market insights

Active portfolio management

Continue to monitor the pipeline of opportunities

Commitment to core strategy

Three years into five-year strategy

Solid platform to build on

Greater clarity around future areas of focus and required execution

Double digit insurance margin

43

OUTLOOKFURTHER IMPROVEMENT EXPECTED CGU

• Impacted by significant catastrophe costs

• Clarity still emerging around impact of catastrophe environment on premium trends

• Further progress in underlying performance

Short term

• Continued execution of core strategy to drive improved underlying performance

• Focus on profitable growth

Long term

BREAKThe presentation will resume shortly

44

JACKI JOHNSONCHIEF EXECUTIVE OFFICER

5NEW ZEALAND

45


BUSINESS OVERVIEW NEW ZEALAND’S LARGEST GENERAL INSURER NEW ZEALAND

• GWP NZ$1.2bn• More than 2,000 full time equivalent employees• Market share of approximately 33%• More than 1m customers and 2.6m items written

The largest general insurer in New Zealand,

with a broad base across three major channels

NZI

State

Business Partners

DISTRIBUTION

46

Personal motor vehicle

Material damage & business interruption

Home contents

Home owners

Commercial motor vehicle

Liability

Other personal

Other commercial

PRODUCT PORTFOLIO

CURRENT MARKET ENVIRONMENTA CHANGING LANDSCAPE NEW ZEALAND

47

Political• Introduction of Prudential Supervision Act • Opening of ACC workers’ account

Customers and Businesses• Changing consumer demographics• SMEs still dominate the landscape with

c.90% of businesses employing five or less• Financial caution amongst consumers and

businesses, mixed with low optimism about the future

CURRENT MARKET ENVIRONMENTCHRISTCHURCH EARTHQUAKE IMPACTS

Impact of Christchurch earthquakes (September 2010 and February 2011) • Combined estimated cost to insurance industry of

over NZ$19bn• Australasia natural perils significantly increasing

the cost of reinsurance• Financially distressed competitors

NEW ZEALAND

48

4 September 2010 7.1 magnitude

earthquake

22 February 2011 6.3 magnitude

earthquake

Christchurch

13 June 2011 5.5 & 6.0 magnitude

earthquakes

OUR ACHIEVEMENTS DELIVERED ON OUR 2009 STRATEGIC PRIORITIES

49

NEW ZEALAND

Return on Risk Based Capital

• Established return on risk based capital as key driver for pricing decisions• Exited under performing partnerships and products

Portfolio Pricing • Tactical pricing reviews for State, NZI and Business Partners• Active removal of portfolio cross subsidisation

Segmentation• Introduction of risk based pricing in State• Enhanced commercial lines risk segmentation• Introduction of more granular geographic rating

Process & Decisions

• Re-underwriting the commercial lines portfolio• Independent review of claims leakage to identify process improvements• Underwriting training academy extended to all portfolios• Strengthening compliance culture across the organisation

Our people

OUR ACHIEVEMENTS IMPROVED OUTCOMES EVIDENT IN 2011

50

NEW ZEALAND

(17)

17

68 63

90

1H09 2H09 1H10 2H10 1H11

23

14 14

28

35

30

State NZI Business Partners

FY09

FY11

84

81

88

83

Engagement Risk culture

FY09

FY11

Source: Towers Watson survey

Source: IAG and IBANZ surveys

Insurance result (A$m) Customer advocacy

BUSINESS UNIT STRATEGIC ALIGNMENT

KEY STRATEGIC INITIATIVES

DASHBOARD 20155.5/10

Businesses & households

+1 policy per customerCustomer advocacy

score of 50%$26.5/$100 efficiency

rating

Customer led systems + processes

Differentiated capability + culture

Evolution of e-business strategy

Alignment of operating structure to deliver clarity

and accountability

PURPOSE 2015“To be NZ’s insurer of choice by being the easiest to interact with”

Pro

fitab

le

Gro

wth

FOCUS FOR THE FUTURESTRATEGY NEW ZEALAND

Ret

urn

on R

isk

Base

d C

apita

lLe

adin

g R

isk

Man

agem

ent

Business Partners

51

Customer led systems + processes

FOCUS FOR THE FUTUREKEY STRATEGIC INITIATIVES NEW ZEALAND

Differentiated capability + culture

Evolution of e-business strategy

Alignment of operating structure to deliver clarity

and accountability

52

OUTLOOKPOSITIVE MOMENTUM

53

• Strong underlying financial performance:

– GWP growth will be driven by passing through increased reinsurance costs

– Ongoing focus on underwriting discipline, claims management and costs

• Enhanced ease of interaction– Align service delivery to customer needs and

behaviours

Short term

• Continued financial performance:– Sustainable profitable growth– Leading risk management

• Delivering ease of interaction:– Increasing the number of customers and

policies – Improving our efficiency– Driving higher levels of customer advocacy

Long term

NEW ZEALAND

IAN FOYCHIEF EXECUTIVE OFFICER

6 UNITED KINGDOM

54

Restoring profitability

BUSINESS OVERVIEWLARGEST LLOYD’S MOTOR SYNDICATE UNITED KINGDOM

EQUITY RED STAR (ERS)

EQUITY DIRECT BROKING LIMITED (EDBL) INDEPENDENT COMMERCIAL BROKERS

• Largest Lloyd’s personal lines syndicate

• Diverse and broad based book ranging from fleets to classic cars

• Distributes through selected 3rd party brokers who deliver over 80% of ERS volume

• Remaining volume delivered through owned distribution

Affinity partnering withhousehold names: Top 30

commercial broker

55

BUSINESS OVERVIEWDIVERSIFIED GWP MIX UNITED KINGDOM

GWP PRODUCT MIX

56

Fleet

Private car broker

Private car direct (affinity motor)

Commercial motor

Household

Motorcycle

Agricultural

Breakdown

Classic car

Personal accident

• Reduction in overall GWP as a result of remedial action

• Significant reduction in external broker-sourced standard private car and household business

• Increase in higher quality private car business sourced through EDBL in line with hardening market

• Underwriting structure aligned to support desired product mix going forward

Remediation driving changed mix

70.0%

80.0%

90.0%

100.0%

110.0%

120.0%

130.0%

Net

OR

%UK Motor Market

Historical Net Operating Ratios

1981 2009Financial Year

2009 - biggest deterioration on record2010 - continuation of poor performance

UNITED KINGDOM

CURRENT MARKET ENVIRONMENT THE ROAD TRAVELLED

2010

• Aggregators continue to present a pricing challenge• Aggregators account for c.55% of new private motor business• Private motor has become more commoditised

Competition• Increased prevalence of fraud• Decline in investment returns

Economic

• Positive trends in road accident & vehicle theft frequency, but: – Unprecedented high levels of claims inflation– Compensation culture– Fraud rendering some parts of the UK almost uninsurable

Social• Increased bodily injury claims driven by claim farming• Dramatic increase in the number of personal injury claims

management companies• Increasing cost of credit hire vehicle provision

Claims inflation

57

70.0%

80.0%

90.0%

100.0%

110.0%

120.0%

130.0%

Net

OR

%UK Motor Market

Historical Net Operating Ratios

1981 2009Financial Year

UNITED KINGDOM

CURRENT MARKET ENVIRONMENT THE ROAD AHEAD

2010

Bottom of cycle

• The need for market recovery will drive further rate increases• The UK market will grow by both volume and premium• Aggregators will still dominate private motor

Competition• Interest rates are likely to rise• Economic recovery may reduce recession driven fraud• Customers will look beyond price to find value• From 2011, sustained growth in the new car market

Economic

• Simplicity and certainty will drive consumer product selections• Reduced road traffic accidents to lower claims frequency• Reduced exposure as a result of rising fuel costs

Social• Positive steps towards tort reform• Reduction in levels of uninsured driving• Fewer uninsured drivers could reduce cross subsidy from

insured drivers

Claims inflation

58

OUR ACHIEVEMENTS BUILDING THE FUNDAMENTALS UNITED KINGDOM

Immediate rate increases

Exited unprofitable relationships

Ceased writing non targeted external aggregators (non-bike)

Deep-dive review of all major classes of business

Implementation of underwriting improvements

New pricing function

There are signs of recovery however change takes time:

• Earned premium patterns improving

• Superimposed claims inflation continuing

• Re-establishment of key relationships on financially mutual basis

• Harsh UK winter conditions experienced

Underwriting

Claims

New management team

New reserving philosophy

Sophisticated technology solutions deployed

Extensive programme of efficiency savings underway

Supply chain review

Fraud infrastructure review

Governance

New leadership team complete

Strengthened actuarial team and new external actuary

Phase 1 MI system upgrade delivered (underwriting & claims)

Strengthened local Board

ADC reinsurance arrangement

59

Horizon 3: Sustainable PositionBeyond

Horizon 2: Re-focus CY2012

Horizon 1: Accelerated Remediation CY2011• Redoubled our efforts• Aggressive re-pricing across the portfolio

• Further exit of unprofitable business• Continued development of key capabilities

• Alignment of cost base• Organisational restructure

• Accelerated claims programme• Reinsurance protection

FOCUS FOR THE FUTUREDRIVING FORWARD UNITED KINGDOM

• A return to our core strengths• Deliver our re-focused business model

• Drive an open, transparent and accountable culture

• Superior returns• Strong internal capability

Affinity distribution,

direct and selected

independent brokers

Specialist brokers

and distributors

SpecialistClassic Car

Agricultural

Minibus / Coach

Specialist Vehicles i.e. Imports / Kit Cars

FocusedFleet

Bike

Haulage

RetailPrivate Car

Van

Household

Motor Breakdown

Pricing

Commercial and

specialist brokers

including owned brokers

Distribution & Relationship Management

Fully aligned Claims capability and service proposition

Bespoke Specialist Highly Sophisticated

• Passionate about motor• Key insurance & management

competencies• Deeper broker relationships

60

OUTLOOKRETURN TO FUNDAMENTALS UNITED KINGDOM

61

• Strengthened senior leadership team• Capable and passionate employees

dedicated to restoring performance and profitability

• 2010 and prior year accounts are protected• Smaller 2H11 insurance loss (vs 1H11) after

inclusion of ADC cost• Remediation process to improve performance

in FY12 towards breakeven

Short term

• Improving market environment• Positive contribution to Group performance

Long term

JUSTIN BREHENYCHIEF EXECUTIVE OFFICER

7ASIA

62


BUSINESS OVERVIEWA PORTFOLIO OF HIGH GROWTH BUSINESSES

1 GWP presented on 100% ownership basis and in respect of FY11E (annualised from 9 months to 31 March 2011)2 GWP growth represents two year CAGR to FY11E (annualised per previous note), in local currency terms

ASIA

63

INDIA

COUNTRY INDIA

BUSINESS

DESCRIPTION

OWNERSHIP

GWP1

GWP GROWTH2

• JV with India’s largest bank, the State Bank of

India

26% with option to increase to 49%

$15m

N/A

THAILAND

• Personal lines insurer • 3rd largest motor

insurer

98.5%

$150m

8.8%

• Commercial insurer • Operating since 1985

100%

$40m

0.1%

MALAYSIA

• JV with AmBank• 3rd largest motor

insurer

49%

$224m

7.8%

Safety Insurance

OUR ACHIEVEMENTS OPERATIONAL IMPROVEMENT AND FOCUSED BUSINESS DEVELOPMENT

ASIA

Further improvement in performance of existing businesses

Malaysian and Thai businesses performing in line with expectations IAG executive appointed AmG CEO, has delivered significant change to improve

underwriting performance

SBI joint venture in India to open first half calendar 2010

Soft launch in March 2010 followed by gradual product and systems roll-out from October 2010

Increase market share of AmG through acquisition of MAA

MAA opportunity discontinued in late 2010 – actively considering other acquisition options

OBJECTIVES ACHIEVEMENTS

Restructure NZI; pursue further synergies with Safety Insurance

Safety / NZI merger approved by OIC in January 2011 and NZI operational turnaround completed

Pursue JV in China In discussions with potential partner

Identify and prioritise key markets for the next phase of development

Completion of market entry work for Indonesia – assessing opportunities Senior resource in Vietnam from January 2011; now gearing up for market entry

64

STRATEGIC JOURNEYFOCUS HAS EVOLVED FROM INITIAL ENTRY TO BUILDING SCALE

ASIA

• Targeted entry into four markets –Malaysia, Thailand, China, India

• Build capability transfer model• Develop partnership model• M&A dominates

• NZI acquisition• Safety uplift to 98%• 30% Malaysian JV; sell life, uplift to

49% of general (AmG)• 26% SBI General investment• Safety / NZI legal merger

• Market entry – China, Indonesia, Vietnam

• In-market acquisitions to consolidate positions in Malaysia and Thailand

• M&A continues to dominate, both in-market and new countries

• Relocate Asia HQ to Singapore• Improve operational performance in

existing businesses via capability transfer

• Actively manage portfolio• Pursue selective in-market consolidation • Monitor emerging market opportunities• Consider opportunistic plays to

supplement portfolio

• Optimise capital and operating efficiency • Strong operational focus on improving

returns from the portfolio• Ongoing capability transfer

HORIZON 1Since 2005

Initial market entry

HORIZON 22010-2015

Enter new markets; build platform

HORIZON 3Beyond 2015

Mature end state

Stra

tegi

cO

pera

tiona

lH

oriz

on

Increasing operational focus

65

Decreasing M&A focus

ASIA

STRATEGIC DIRECTIONTO BE 10% OF GROUP’S GWP BY 2016 (PROPORTIONAL BASIS)

• Create a high growth, high value portfolio of general insurance businesses in AsiaVision

• To be 10% of the Group’s GWP by 2016 (proportional basis)• Achieve ROE no less than WACC within 3-5 years for each new market entry

Goal

• Acquire and add value to a portfolio of profitable, and predominantly personal lines businesses, in selected high growth Asian markets

• Compete through a well executed model combining effective market entry, capability transfer and local partnering

Strategy

• Prioritise high growth and regionally significant markets – six priority markets of India, China, Malaysia, Thailand, Indonesia and Vietnam

• Acquire well and implement capability transfer effectively• Develop strong and functional local relationships

Priorities

66

STRATEGIC FOCUSMACRO INDICATORS – ATTRACTIONS OF OUR SIX PRIORITY MARKETS

8% 9%8%

6%5% 4%

26%

17%

15% 15%

8%

6%

0%

5%

10%

15%

20%

25%

30%

Vietnam China India Indonesia Thailand Malaysia

GDP Growth % GWP Growth %

1346

1198

230

88 68 28

1255

541

92

264199

0

200

400

600

800

1000

1200

1400

1600

1800

China India Indonesia Vietnam Thailand Malaysia

Population (m) GDP (USD bn)

4736

ASIA

POPULATION AND GDP

FIVE YEAR FORECAST GDP & GWP GROWTH 2011-2015

• Top 1 and 2 global populations • Highest forecast GDP growth in Asia• High GWP growth rates

China and India

• Forecast GWP above mature market rates • Our businesses producing strong margins

Thailand and Malaysia

• Most populous developing markets in Asia behind China and India

• Strong forecast GDP and GWP growth rates• Developing in right direction

Indonesia and Vietnam

67Sources: BMI; World Bank; Swiss Re; IAG Analysis

INDIA: MARKET ENVIRONMENTRAPID ECONOMIC AND GENERAL INSURANCE INDUSTRY DEVELOPMENT

Regulatory and Industry• Private companies continue to outgrow the public

sector, reaching 43% market share• Private companies continue to have better

combined ratios than the public sector

ASIA

68

1.21.31.41.51.61.71.81.92.02.1

07

1421283542495663

Mar

-09

May

-09

Jul-0

9

Sep-

09

Nov

-09

Jan-

10

Mar

-10

May

-10

Jul-1

0

Sep-

10

Nov

-10

Jan-

11

Mar

-11

Annual units, mn Growth, % YoY

Growth Units

INDIA: PASSENGER CAR SALES INDIA: GWP (A$BN)

Political and Economic• 5 year plan for 2012–17 targets GDP growth of 9–9.5%• Significant growth in passenger vehicle sales• Liberalisation of foreign direct investment, includes

planned increase in ownership limit from 26% to 49% in insurance sector

0

1

2

3

4

5

6

7

8

9

10

FY02 FY03 FY04 FY05 FY06 FY07 FY08 FY09 FY10 FY11Private Public

ASIA

INDIA: BUSINESS SNAPSHOTOPERATIONAL ROLLOUT IS ON TRACK

TARGET CHANNEL MIX

TARGET CUSTOMER MIX

Phased roll-out• JV agreement signed November 2008, A$126m contributed to JV November

2009, and general insurance licence received from IRDA in December 2009• Approvals for 29 products in place, 8 awaiting approval• Limited underwriting commenced March 2010 • IT systems live March 2011 with motor and long term home launched

People• Four IAG full time roles: Deputy CEO, underwriting, distribution and claims• 30 IAG people have been in project roles over past two years• Over 420 staff already in positions across 20 branch network• Two IAG Board positions

Distribution• JV initially focused on the retail segment via SBI bancassurance channel • Over 5,500 SBI bank employees qualified to sell general insurance products• Other channels being developed – over 1,600 licenced agents already in place • 17 of an initial planned 20 branches already in place, accessing leads from 200

SBI loan processing centres and over 13,000 SBI branches

69

Bancassurance

Agent

Broker

Direct

Retail

Corporate

SME

69

INDIA: FOCUS FOR THE FUTURETO ACHIEVE A$1BN IN GWP IN FIVE YEARS (2016)

ASIA

• This equates to A$1bn in GWP by 2016 (100% basis)• Make the most of SBI’s brand and distribution strength to secure a sustainable, profitable,

scaleable position

Top 5 position in private sector with 5% market share by

2016

• Disciplined approach to risk based underwriting• Focus is on the SBI bancassurance channel

Breakeven 2015 and underwriting profit

2016

• Plan to develop all channels over time – bancassurance, broker and agent• SBI relationship and customer base will be leveraged for lead generation in broker /

corporate / SME channels

Bancassurancepriority, but develop

all channels

• Branches being rolled out rapidly to support top line growth targets• Technology and processes driving cost efficiencies • Full product range to be offered – 29 product approvals already received

Complete systems, product and branch

rollout

70

THAILAND: FOCUS FOR THE FUTUREACHIEVE TOP 2 POSITION IN MOTOR

ASIA

• Continue momentum to grow to top 2 position in motor – from top 4 position in 2009, top 3 position in 2010

Top 2 position in motor

• Growth achieved through organic expansion – focus on scale• Maintain profitable growth by continuing current low cost manufacturer model and

leveraging strong links to motor industry

Maintain organic growth

momentum

• Strongly positioned for consolidation as and when RBC requirements strengthenedPosition for

M&A / consolidation

• Improved efficiency through NZI merger with highly efficient Safety businessOperating

efficiency in commercial

lines

Safe

ty In

sura

nce

NZI

71

ASIA

MALAYSIA: FOCUS FOR THE FUTUREOBTAINING A MARKET LEADERSHIP POSITION

• By organic growth (strategic initiatives focused on improved penetration and renewal retention) and through acquisitionNo. 1 in motor

• Strategic initiatives targeting specific industries with specialist product and innovative distribution solutions

Lead in niche commercial

• By leveraging motor scale and customer base and optimising use of the AmBank Group network

Lead in non-motor personal lines

• Continue to focus on building scale via in-country bolt-on acquisitions to the AmG businessIndustry M&A consolidation

72

MARKET ENTRY: CHINA, INDONESIA AND VIETNAMSIGNIFICANT PROGRESS IN TARGET MARKETS

ASIA

73

• Largest economy in SE Asia – growth outlook similar to India and China

• One of the most open economies in Asia for foreign investment –ownership up to 80%

• General insurance market growth rates expected to accelerate to 15% over next 3-5 years

• A number of stable, sustainably profitable players

• Strategic assessment complete• Investment discussions already held

with a number of parties• Focus is on partners with existing

distribution footprints and ability to grow a scale position

• Second fastest growing economy in the world with the least volatility over the last 20 years

• Foreign investment capped at 20-25% (with potential for more)

• General insurance market CAGR of 25% for 2004-2009 and growth expected at similarly high levels for the next 3-5 years

• Market entry strategic review underway

• Solid leads with potential partners being pursued

INDONESIA VIETNAM

• Regional focus • Good progress in discussions with

potential partner

CHINA

Prog

ress

• Strong economic fundamentals: 2010 GDP +10.3%; 9% in next 5 years

• Household wealth increasing rapidly –new car sales +32.4% to 18m in 2010

• General insurance market +34.6% in 2010 – forecast to grow 10–15% p.a. over next 10 years

• Improving regulatory environment • Overall industry (life and non-life) profit

of US$9.2bn in 2010• Foreign investment capped at 20%, but

24.9% possible with regulatory waiver

Rat

iona

le/O

utlo

ok

74

OUTLOOKBOOSTING THE GROUP’S ASIAN FOOTPRINT

ASIA

• India – Grow SBI General Insurance to top 5 position in private sector with 5% market share and A$1bn revenue by 2016

• Malaysia – Grow AmG to number 1 position in motor through organic growth initiatives and acquisitions, and rebalance portfolio to lead in niche commercial and non-motor personal lines

• Thailand – Grow Safety/NZI to top 2 position in motor, through organic branch expansion and acquisitions

• China – Commence a general insurance JV in short to medium term

• Indonesia and Vietnam – Pursue general insurance JVs

Contributing 10% of the Group’s GWP by 2016 (proportional basis)

LEONA MURPHYGROUP EXECUTIVE CORPORATE OFFICE

8IAG OF THE FUTURE

75

INFLUENCES ON OUR SUCCESS



• ROE 1.5xWACC




driving operational







insurance companies

AMBITION

76

IAG OF THE FUTURE

GROUP-WIDE TALENT MANAGEMENT TO ENABLE OUR AMBITION BUILDING THE WORKFORCE OF THE FUTURE

77

• Talent retention

• Multi-level succession management

• Cross-brand career opportunities

• Investment in leadership and culture development

BusinessPlan and

Drivers

Results

Identify

Talent differentiation approach

AssessDefining and measuring success

Gauging readiness for succession

GrowTargeted development options

Succeed

• Enhanced management and leadership capability and business performance

• Strong visible bench strength and robust succession planning for senior leadership roles

• Attraction, development and retention of key talent

IAG OF THE FUTURE

BENEFITS OF RISK EXPERTISE TANGIBLE, POSITIVE OUTCOMES

78

Detailed under-

standing of risk

More efficient

and equitable pricing

Share knowledge

with customers

and community

Broader risk

reduction and

mitigation

Lower cost and

likelihood of claims

More affordable insurance

and retention

Increased market

share and scale

benefits

IAG OF THE FUTURE

IAG’S VALUE-ADD AS RISK EXPERTSSHARING KNOWLEDGE TO HELP PREVENTION

79

IAG OF THE FUTURE

IAG’S VALUE-ADD AS RISK EXPERTSMAKING COMMUNITIES MORE RESILIENT

80

IAG OF THE FUTURE

EFFECTIVELY MANAGING RISK THREE PILLARS

Risk transfer should always be an option. Looking at the types of products offered and the affordability of those products

AREAS OF FOCUS

Identification of emerging risks, managing risks and bringing them into today’s decision making

When the risk can’t be avoided, use our risk management expertise to drive adaptation and resilience building

OBJECTIVES

Risk Prevention Adaptation and Resilience Insurance Reach

SCOPEEXAMPLES:• Fair operating practices / ethical behaviour• The environment e.g. carbon neutral

commitment• Labour practices, including human rights,

diversity• Responsible investment• Research• Encourage individuals to take more

responsibility and adapt to changing risks (e.g. weather risk)

EXAMPLES• Risk appropriate land-use planning, zoning

building standards, early warning systems• Contribute to development of resilience

perspective in building codes / standards

EXAMPLES• Tax reforms to make insurance more

affordable• Consider changing risk profiles and how

these impact on customers• Extend the suite of products & services• Consider products for the financially

excluded i.e. low income insurance• Educate stakeholders on insurance

81

IAG OF THE FUTURE

9SUMMARY

MIKE WILKINS

MANAGING DIRECTOR & CHIEF EXECUTIVE OFFICER

82

RESETTING OUR STRATEGIC PRIORITIES A CLEAR FOCUS ON AUSTRALIA, NEW ZEALAND AND ASIA SUMMARY

83



• ROE 1.5xWACC




driving operational







insurance companies

AMBITION

BUSINESS MODEL AND BRANDS

DIRECT INSURANCE

INTERMEDIATED INSURANCE

AUST

RAL

IADIRECT INSURANCE


DIRECT INSURANCE



1

NEW

ZEA

LAN

D

ASIA

UN

ITED

KIN

GD

OM

OTHER

ONLINEINSURANCE

ACTIVE PORTFOLIO MANAGEMENT & GOVERNANCE (CORPORATE OFFICE)

1. RACV is via a distribution relationship and underwriting joint venture with RACV Limited. 2. RACV has a 30% interest in The Buzz.3. 49% ownership of the general insurance arm of AmBank Group, AmG Insurance Berhad, trading under the AmAssurance brand.4. 98% voting rights in Safety Insurance, based in Thailand.5. 26% ownership of SBI General Insurance Company, a joint venture with the State Bank of India.

3

4

2

5

84

IAG Limited - 2011 INVESTOR BRIEFING...2011/06/14 · IAG’S BUSINESS TODAY GEOGRAPHICAL PRESENCE...

Documents

Transcript of IAG Limited - 2011 INVESTOR BRIEFING...2011/06/14 · IAG’S BUSINESS TODAY GEOGRAPHICAL PRESENCE...