Financial results Full year ended 30 June 2018 Peter Harmer Nick Hawkins Managing Director and Chief Financial Officer Chief Executive Officer 15 August 2018
Overview FY18 financial results 15 August 2018 2
FY18 highlights GWP growth Improved underlying performance 8.9% FY18 underlying improvement in line Combined 12.5% quota share with expectations agreements commenced 2H18 4.3% 3.2% • Like-for-like GWP growth over 4%, • Reduced earnings volatility and 1.8% underlying margin of 14.1% regulatory capital requirement • Strong performance from Agreed sale of operations in Australia Consumer Thailand, Indonesia and Vietnam Reported Group Australia New Zealand • Modest improvement from • FY19 net profit >$200m, Australia Business Like-for-like bulk settled by 31 August 2018 • Continued strong performance from New Zealand Insurance margin Increased full year dividend of 34 cents (+3%), fully franked Reported margin of 18.3% 18.3% slightly higher than guidance Capital management initiative 15.5% • Favourable perils outcome, higher of 25 cents per share ($592m) than expected reserve releases 14.1% • Expected to comprise 19.5 cents capital 12.4% return, 5.5 cents special dividend – Optimisation program subject to shareholder approval at AGM progressing to plan • Neutral impact FY18, ~$100m FY19 guidance reflects further pre-tax benefit expected in FY19 improvement in underlying FY17 FY18 performance Reported margin Underlying margin FY18 financial results 15 August 2018 3
Strategy Three strategic priorities Optimise our core insurance business while creating future Eleven growth options capabilities FY18 financial results 15 August 2018 4
Operational FY18 activities FY19 priorities scorecard Customer • Applied customer segmentation model to inform brand • Apply customer behavioural analysis to prioritise strategy, marketing and customer journey design investment decisions that drive customer advocacy • Digitised key customer journeys including redesigning • Transition the data platform onto a scalable, flexible Range of activities the motor claims process and cost-efficient cloud capability that powers decision-making linked to three • Consolidated IAG’s data asset using open source technologies and received the Red Hat 2018 • Embed cognitive capabilities across the organisation, strategic priorities Innovation Award such as chat bots and computer visioning • Deployed world-class pricing capability using machine • Continue digital transformation through the learning and real-time pricing models, across core development of application programming interfaces personal line portfolios (APIs), scaling of digital infrastructure and use of cloud Simplification • Embedded single Australia Division operating structure • Continue consolidation of core technology platforms and decommissioning of redundant systems • Completed Australian personal motor and home lines claims component of systems consolidation • Complete transition of targeted activities to operational partners • Continued transition of targeted activities to operational partners • Progress review and delivery of optimised repair model • Embedded operational partnering excellence framework Agility • Deployed Leading@IAG program linking purpose and • Strengthen ways of working, leadership and people strategy to individual accountability and performance frameworks to create clarity, improve productivity and evolve skills to be successful in the future • Increased employee advocacy score by 18 points • Continue to develop partnerships, products and shared • Launched Future ME program, empowering employees value programs that drive safer communities and deliver to build their knowledge and preparedness to on IAG’s purpose: We make your world a safer place participate in the workforce of the future • Continued investments through Firemark Labs and partnerships to launch products and solutions that deliver on IAG’s purpose FY18 financial results 15 August 2018 5
Safer communities Framework to support safer, stronger, more confident communities Key recent actions Fifth report from Australian Business Roundtable for Disaster Resilience & Safer Communities • ‘Building resilience to natural disaster in our states and territories’ Co-organisation of United Nations Environment Programme Finance Initiative (UNEP FI) conference • ‘Financing a Resilient and Sustainable Economy’ Launch of Climate Action Plan Commitment to implementing Task Force on Climate- related Financial Disclosures (TCFD) recommendations FY18 financial results 15 August 2018 6
Financials FY18 financial results 15 August 2018 7
FY17 FY18 Change GWP ($m) 11,439 11,647 1.8% Insurance profit ($m) 1,270 1,407 10.8% Underlying margin (%) 12.4 14.1 170bps Financial Reported margin (%) 15.5 18.3 280bps summary Shareholders’ funds income ($m) 246 165 -32.9% Cash ROE of 15.6% Net profit after tax ($m) 929 923 -0.6% Cash earnings ($m) 990 1,034 4.5% Dividend (CPS) 33.0 34.0 3.0% Cash ROE (%) 15.2 15.6 40bps CET1 multiple 1.09 1.26 17bps FY18 financial results 15 August 2018 8
GWP growth Like-for-like >4%, largely rate-driven Sound underlying growth Reported growth of 1.8%, FY19 GWP growth in line with ‘low single guidance of 2-4% • Rate increases addressing digit’ guidance claims inflation in motor • Further rate increases across and home • After absorption of several personal and commercial one-off influences: lines anticipated • Higher commercial rates, • NSW CTP reform-related notably in New Zealand • Modest volume effect – pricing and refunds growth in motor, further (~$190m) • Relatively flat commercial remediation • Swann discontinued motor overall volumes dealer and motorcycle • Residual new NSW CTP • Advances in motor activities (>$40m) scheme drag of ~$80m (New Zealand) and CTP from lower rates • Adverse FX translation • Lower commercial – movement re New Zealand from new business, (>$60m) retention, remediation • Negligible ESL effect – adverse 1H18 effect reversed in 2H18 FY18 reported NSW Swann FX FY18 underlying GWP growth CTP GWP growth FY18 financial results 15 August 2018 9
Insurance margin Year-on-year improvement Higher FY18 underlying margin 2H18 consistent with 1H18 Margin trends – 1H17 – 2H18 of 14.1% (FY17: 12.4%) • ~250bps quota share impact in 2H18 • Reduced pressure on motor 18.9% • Absorption of ~$10m of Royal profitability as rates at least 17.9% Commission-related costs in 2H18 16.9% match inflation • Some earn-through of higher 14.1% 15.4% commercial rates FY18 reported margin of 18.3% (FY17: 15.5%) 13.0% 13.0% • Improved NSW CTP profitability • Slightly above updated guidance, 11.7% derived from initial reform measures which included ~50bps uplift from exclusion of discontinued • Degree of respite from large losses in Asian operations Australian commercial property, but still at elevated levels • Higher than expected reserve releases • Favourable net natural peril claim • Initial 12.5% quota share cost outcome impact (~125bps) 1H17 2H17 1H18 2H18 Reported margin Underlying margin FY18 financial results 15 August 2018 10
Natural perils FY19 stop loss cover extends from perils allowance Natural perils vs allowance FY18 net perils $84m below FY19 allowance of $608m allowance • Takes into account 12.5% • >$120m of reinsurance protection quota shares from calendar 2017 aggregate cover • Gross allowance (100%) increased $150m in 1H18 $130m from $850m to $900m • Five events, including Melbourne hailstorm, capped at $20m each • MER of $169m at 1 July 2018 $88m • 2H18 net perils broadly in line $101m • FY19-specific stop loss cover extends $541m with allowance directly from allowance • Relatively benign conditions $900m $184m • $20m of deductible erosion at 30 June in Australia $847m 2018 on calendar 2018 aggregate • Spate of storm events drove New $625m $608m cover – $200m left to erode (post- Zealand well above local allowance quota share) $357m • Considerably better outcome than FY17 ($138m overrun) Net perils Net Gross Net Gross FY19 FY18 Attritional events >$15m events Natural perils allowance Stop loss cover FY18 financial results 15 August 2018 11
Reserve releases $93m Higher than expected outcome (4% of NEP) $77m $456m $365m $305m Guiding to 2% $267m of NEP for FY19 -$2m -$39m FY17 FY17 FY18 FY18 Group Consumer Business New Zealand FY18 financial results 15 August 2018 12
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