Aust. General Insurance

Transcription

1 AUSTRALIA June mth rolling market results Personal Commercial Market Average Rate Growth % -3.3% GWP Growth 1.8% -0.8% 0.9% Volume Growth 2.8% 0.8% 2.1% Est. Exposure Value Growth Source: APRA, Macquarie Research, Aug 16 Commercial Lines: Avg Rate on Line Rates 2% 1% -1% -2% -3% -4% Source: APRA, Macquarie Research, Aug 16 Personal Lines: Avg Rate on Line Rates % % % % March June Sept Dec March June Sept Dec March June Rolling 3 months March June Sept Dec March June Sept Dec March June Rolling 3 months Source: APRA, Macquarie Research, Aug August 2016 Macquarie Securities (Australia) Limited Hard to turn the ship around Event APRA GI statistics. Bad news: GWP growth dwarfed by volume growth, implying Personal and Commercial premium rates continue to step lower. Good news: Expense Ratios beat six-year seasonal averages by 190bps. Impact GWP growth rate results a mirage: June-quarter data from APRA signals exceptional GWP growth for Personal lines and strong for Commercial lines. When paired with volume growth, the market can be seen in a very different light. Personal lines GWP growth: +1.8% for 12 mths to June 2016 and +7.2% for the quarter vs. pcp. Volumes for the quarter, however, were +10.9% vs. pcp, implying net rate compression. Commercial lines GWP growth: -0.8% for the 12 mths to June 2016 and -2.3% for the quarter vs. pcp. As with Personal lines, volumes for the quarter towered over GWP growth at +3.2% vs. pcp, implying even stronger net rate compression prior to recognising asset value appreciation or adjustments to terms and conditions for retention. Net Rate on Line sharply lower for Personal lines. Personal lines rates: Implied average rates for Personal lines were down 3. for the June 2016 quarter vs. -0.8% in March Commercial lines rates compound on prior poor performance: Average Rates on Line for Commercial lines were down 3.6% in the June 2016 qtr and down 4.8% for the rolling 12 months to June Claims hit profitability: Combined ratio of 92.4% in the June quarter, whilst below 10, was materially above the 87. six-year average for the June quarter, while the Expense Ratio beat 6-year averages by 190bps. o The reverse problem was experienced in the March 16 qtr, with Expense Ratios 70bps above the 6-year March-qtr average in the absence of material natural catastrophes. APRA data indicates strong Personal lines volume growth. This is a relatively new APRA data series and may indicate data capture issues. Exposure (risk) growth of ~2% on average remains behind national property price appreciation, motor vehicles sales growth and CPI. This structural underinsurance is a characteristic of insurance in Australia. Outlook Recent results from SUN and QBE confirm that the Australian market continues to tighten. We expect industry data to continue to worsen for the coming quarters as green shoots take time to be representative of the market at large. We rank #1 Suncorp (Outperform) as the most attractive from a relative valuation view, QBE (Outperform), IAG (Neutral). Please refer to page 7 for important disclosures and analyst certification, or on our website

2 What part of the market is this insight addressing? Premiums Claims Costs Capital GWP trajectory the big story in June 16 On a June 2016 quarterly basis (rather than 12-month rolling presented above) the data shows: Personal lines GWP grew 7.2% for the June 16 quarter (+1.6% pcp) vs. 3.4% for the March 16 quarter. This supports industry commentary that price rises are being processed to combat claims cost inflation. However, on the whole volumes are rising and price competition abounds as Challenger brands and Banks continue to take market share. Commercial lines GWP contracted 2.3% for the June 16 quarter (-4.5% in the March 16 quarter and +0.8% in the Dec 15 quarter). The charts below show the rebound on a quarterly vs. rolling 12 months basis. For Personal lines, as the quarterly growth pushes through the 12 months rolling, this suggests to us that the bottom of the market has passed. The reverse is true for Commercial lines, although the durations do seem to be converging in the June 16 quarter. Fig 1 GWP Growth Personal Lines Fig 2 GWP Growth Commercial Lines GWP Growth 8% 7% 6% 5% 4% 3% 2% 1% March June Sept Dec March June Sept Dec March June Rolling 12 months pcp GWP Growth 2% 1% -1% -2% -3% -4% -5% -6% March June Sept Dec March June Sept Dec March June Rolling 12 months pcp Source: APRA, Macquarie Research, August 2016 Source: APRA, Macquarie Research, August 2016 Volumes Overall, volumes were up 8.3% pcp for the June 16 quarter (-0.9% for the March 16 quarter). On a rolling 12 months basis this was up 1.1% (-1. for the 12 months to March 16). Given this is still a relatively new metric captured by APRA, we believe the 12-month rolling approach overcomes data inconsistencies and reclassifications on a quarter-to-quarter basis. We also note that historical data seems to change at every update but should be moving in the right direction. Both Home and Personal Motor volumes underperformed, achieving below-average pcp growth vs. 12-month rolling numbers. In the June 16 qtr Home and Personal Motor were +1.3% and +4.4%, respectively. On a rolling 12 month basis, these were +2. and +4.8%, respectively. Volumes for Commercial Property were respectable at +2.3% for the June 16 quarter. It should be noted that Other remains the driving force behind Commercial volumes and is expected to be mostly business pack, so once reclassified this would fall into the Commercial Property figure. Net 12 month rolling growth for Other and Commercial Property was +1.3% for the rolling 12 months through June 16, vs. -0.7% rolling 12 months in March 16. Commercial Motor volumes grew on a rolling 12 months to June 16 at +10.1% from +7.3% in the 12 months to March August

3 Sep-10 Dec-10 Mar-11 Jun-11 Sep-11 Dec-11 Mar-12 Jun-12 Sep-12 Dec-12 Mar-13 Jun-13 Sep-13 Dec-13 Mar-14 Jun-14 Sep-14 Dec-14 Mar-15 Jun-15 Sep-15 Dec-15 Mar-16 Jun % 83.9% 86.4% 121.7% % 90.6% 96.1% 87.2% 81.9% % 86.8% 84.5% 90.4% 85.8% 88.2% 85.9% 106.8% % 87.5% 94.9% 92.4% Macquarie Wealth Management Fig 3 Personal lines Volume Growth rolling 12 months Fig 4 Commercial lines Volume Growth rolling 12 months Volume Growth - Personal Lines 6% 5% 4% 3% 2% 1% -1% -2% Volume Growth - Commercial Lines 12% 9% 6% 3% -3% -6% -9% -3% -12% Dec-14 Mar-15 Jun-15 Sep-15 Dec-15 Mar-16 Jun-16 Dec-14 Mar-15 Jun-15 Sep-15 Dec-15 Mar-16 Jun-16 Home Pers. Motor Com. Property Com. Motor Casualty Average Source: APRA, Macquarie Research, Aug 16 Source: APRA, Macquarie Research, Aug 16 Profitability boosted by benign claims environment in June quarter June-qtr 2016 combined ratio underperformed long-term cyclical performance, with some respite from strong Expense Ratios: Loss Ratio underperformed on a seasonality basis, 68.7% in the June 16 qtr vs. 61.5% average June Loss Ratio over last 6 years. Expense Ratio 23.6% June 16 vs. 25.5% average June Expense Ratio over last 6 years. Combined Ratio 92.4% June 16 vs. 87. average June Combined Ratio over last 6 years. Fig 5 Quarterly combined ratio Expense Ratio Loss Ratio Source: APRA, Macquarie Research, August 2016 Stocks mentioned Insurance Australia Group (IAG AU, A$6.04, Neutral, TP: A$5.60) Suncorp (SUN AU, A$13.12, Outperform, TP: A$13.49) QBE Insurance (QBE AU, A$10.24, Outperform, TP: A$11.25) 18 August

4 Insurance Australia Group Price: 5.85 Year ending June 30 Underwriting Accounts ($m) 1H15A 2H15A 1H16A 2H16E FY14A FY15A FY16E FY17E FY18E Gross Written Premium 5,603 5,837 5,543 5,776 9,779 11,440 11,319 11,320 11,434 Movement in Unearned Premium 202 (117) 191 (143) (58) (32) (65) Gross Earned Premium 5,805 5,720 5,734 5,633 9,721 11,525 11,367 11,288 11,368 Outwards Reinsurance Expense (651) (545) (1,632) (1,542) (1,077) (1,196) (3,174) (3,071) (3,088) Net Earned Premium 5,154 5,175 4,102 4,091 8,644 10,329 8,193 8,217 8,280 Immunised Net Claims (3,287) (3,471) (2,569) (2,550) (5,151) (6,758) (5,120) (5,132) (5,153) Discount rate adjustment (194) 11 (20) (134) (50) (183) (154) Net Claims Incurred (3,481) (3,460) (2,589) (2,684) (5,201) (6,941) (5,273) (5,107) (5,114) Underwriting Expenses (1,407) (1,440) (1,077) (1,055) (2,303) (2,847) (2,132) (2,130) (2,142) Underwriting Result , ,024 Investment income on technical reserves Insurance Trading Result ,579 1,103 1,239 1,200 1,184 Fee Income Associates Net corporate expenses (44) (111) (14) (10) (68) (155) (24) - - Borrowing costs (52) (55) (51) (52) (98) (107) (103) (103) (103) Pre-tax business profit , ,143 1,124 1,112 Normalised investment income on SHF's Investment income market adjustment 31 (15) (60) (93) (153) Profit Before Tax ,823 1,099 1,184 1,338 1,322 Income tax expense (68) (51) (67) (174) (472) (119) (241) (397) (393) Amortisation, impairment & discontinued items (43) (107) (28) (28) (21) (150) (56) (56) (56) Minority interest (63) (39) (40) (42) (97) (102) (82) (83) (80) Reported profit , Adjusted profit , Cash profit , Insurance Ratios (%) 1H15A 2H15A 1H16A 2H16E FY14A FY15A FY16E FY17E FY18E GWP Growth (1.1) (1.1) (1.1) Unearned Premium / GWP 3.6 (2.0) 3.4 (2.5) (0.6) (0.3) (0.6) Reinsurance Ceded NEP Growth (20.4) (21.0) (20.7) Net Claims Ratio Underwriting Expense Ratio Combined Ratio Reported Insurance Margin Underlying Insurance Margin Insurance ROE Cash ROE Normalised Investment Return PCA (x) CET1 (x) Gearing (%) Investment Fundamentals 1H15A 2H15A 1H16A 2H16E FY14A FY15A FY16E FY17E FY18E EPS (Reported, Diluted) EPS (Adjusted, Diluted) EPS (Cash, Diluted) EPS growth (Adjusted) (14.2) (57.8) (23.8) (33.7) (5.8) (0.4) (1.0) PER (Adjusted) PER (Normalised) DPS Dividend yield Payout ratio (on cash earnings) Franking (%) Effective tax rate (%) EFPOWA 2,458 2,494 2,565 2,575 2,344 2,476 2,575 2,575 2,575 NAB ps NTA ps NTA (+PM's) ROA - normalised ROE - normalised Balance Sheet ($m) FY14A FY15A FY16E FY17E Valuation Summary Assets Cash PV of distributable cash profit (DCP) 9,178 Investments 15,949 16,096 14,202 14,210 Terminal value 5,130 Other Assets 6,490 7,726 7,521 7,293 Total DCP DCF valuation 14,308 Intangibles 3,540 3,561 3,562 3,506 Shares on issue 2,575 Total Assets 26,426 27,689 25,590 25,315 Value per share $ 5.48 Liabilities Unearned Premiums 5,147 5,062 5,014 5,046 Net Outstanding Claims 8,756 9,207 7,974 7,692 Share price target $ 5.60 Corporate Debt 1,752 1,762 1,783 1,785 % upside/downside -4.3% Other Liabilities 3,977 4,641 3,649 3,451 1yr fwd Dividend yield 5. Total Liabilities 19,632 20,671 18,419 17,974 TSR 0.7% Net Assets 6,794 7,018 7,171 7,340 Outside Equity Interest Shareholder's Equity 6,568 6,817 6,954 7,113 Recommendation Neutral Source: Company data, Macquarie Research, August August

5 Suncorp (SUN AU) Price: $ General Insurance FY13A 1H14A 2H14A FY14A FY15A 1H16A 2H16A FY16A 1H17E 2H17E FY17E FY18E Gross Written Premium 8,589 4,380 4,490 8,870 8,872 4,417 4,614 9,031 4,524 4,729 9,253 9,402 Movement in Unearned Premium Gross Earned Premium 8,324 4,398 4,388 8,786 8,875 4,468 4,440 8,908 4,567 4,514 9,082 9,229 Reinsurance Expense -1, ,060-1, Net Earned Premium 7,298 3,865 3,861 7,726 7,865 3,992 3,946 7,938 4,076 4,029 8,105 8,237 Net Claims Incurred -4,919-2,608-2,632-5,240-5,587-2,822-2,839-5,661-2,800-2,877-5,677-5,629 Underwriting Expenses -1, ,776-1, , ,753-1,784 Underwriting Result Investment income on technical reserves Insurance Trading Profit , Normalised investment income on SHF's Investment income market adjustment Interest expense Other and JV Income Pre-Tax Result 1, ,434 1, ,079 1,072 Income Tax Expense General Insurance NPAT , Bank FY13A 1H14A 2H14A FY14A FY15A 1H16A 2H16A FY16A 1H17E 2H17E FY17E FY18E Net Interest Income ,011 1, , ,155 1,189 Non Interest Income Total Income 1, ,087 1, , ,235 1,273 Operating Expenses Bad Debt Charge Tax Expense Core Bank NPAT Life FY13A 1H14A 2H14A FY14A FY15A 1H16A 2H16A FY16A 1H17E 2H17E FY17E FY18E Planned Margin Experience Life risk Funds management Underlying Investment income on SHF Market Adjustments Life NPAT Group FY13A 1H14A 2H14A FY14A FY15A 1H16A 2H16A FY16A 1H17E 2H17E FY17E FY18E NPAT from business lines ,330 1, , ,289 1,276 Other NPAT NCI Adjusted NPAT ,304 1, , ,228 1,215 Amortisation Other non-recurring items Tax on Amortisation and non-recurring items Reported NPAT , , ,178 1,165 Ratios (%) FY13A 1H14A 2H14A FY14A FY15A 1H16A 2H16A FY16A 1H17E 2H17E FY17E FY18E Group EPS - Reported Diluted EPS - Adjusted Diluted EFPOWA 1, , , , , , , , , , , ,321.7 EPS growth nmf Ordinary DPS Special DPS Total DPS Payout Ratio Dividend Yield PER Adjusted Diluted P/NTA ROA ROE NTA per share General Insurance GWP Growth Reinsurance Outwards NEP Growth Net Claims Ratio Underwriting Expense Ratio Combined Ratio Reported Insurance Margin Underlying Insurance Margin Profit growth ROA ROE PCA Core Bank NIM Cost to income Gross Loans (A$bn) Growth of Gross Loans (%) Impairments / GLAA (bps) Profit growth Group Balance Sheet ($m) FY14A FY15A FY16A FY17E FY18E Valuation summary Investments, cash and liquids 29,704 29,389 27,355 27,990 28,415 General Insurance (DCF) 10,262 Intangibles 5,720 5,783 5,878 5,807 5,735 Bank (DCF) 4,851 Other Assets 59,005 60,479 62,515 62,042 61,920 Life Insurance 1,695 Total Assets 94,429 95,651 95,748 95,839 96,070 Consolidated value 16,808 Unearned Premiums 4,659 4,697 4,864 4,817 4,990 Shares 1,275 Net Outstanding Claims 9,514 9,735 9,425 9,311 9,194 Value per share Other Liabilities 66,457 67,701 67,889 67,889 67,889 Share price target $13.49 Total Liabilities 80,630 82,133 82,178 82,017 82,074 Capital return 4.4% Dividend yield 5.3% Net Assets 13,799 13,518 13,570 13,822 13,997 Total return 9.7% Net Tangible Assets 8,079 7,735 7,692 8,015 8,261 Recommendation Outperform Source: Company data, Macquarie Research, August August

6 QBE Insurance Group Year ended: 31 December Underwriting Accounts 1H15A 2H15A 1H16A 2H16E 1H17E 2H17E FY14A FY15A FY16E FY17E FY18E Gross Written Premium US$m 8,692 6,400 8,107 5,882 8,257 5,867 16,332 15,092 13,989 14,123 14,345 Movement in Unearned Premium US$m (1,399) 1,229 (1,231) 1,308 (1,303) 1, (170) Gross Earned Premium US$m 7,293 7,629 6,876 7,190 6,954 7,172 16,521 14,922 14,066 14,126 14,347 Reinsurance Expense US$m (1,064) (1,544) (1,261) (1,255) (993) (1,128) (2,437) (2,608) (2,516) (2,121) (2,150) Net Earned Premium US$m 6,229 6,085 5,615 5,936 5,961 6,043 14,084 12,314 11,551 12,004 12,198 Net Claims Incurred US$m (3,727) (3,707) (3,637) (3,690) (3,695) (3,769) (8,900) (7,434) (7,327) (7,464) (7,625) Commission Expenses US$m (1,073) (1,041) (993) (1,008) (999) (1,004) (2,363) (2,114) (1,995) (2,003) (2,029) Other Underwriting Expenses US$m (1,134) (1,003) (931) (944) (914) (955) (2,274) (2,137) (1,841) (1,869) (1,883) Underwriting Result US$m Investment income on technical reserves US$m Insurance Trading Result US$m , ,056 1,079 Normalised investment income on SHF's US$m Investment income market adjustment US$m (6) (4) (4) (5) (12) 57 (11) (9) (9) Interest expense US$m (127) (117) (125) (125) (125) (125) (297) (244) (250) (250) (250) Amortisation and impairment US$m (25) (70) (19) (20) (20) (20) (117) (95) (39) (40) (40) Sale of business US$m 150 (152) (2) - - Operating Profit Before Tax US$m ,026 1,070 Income Tax Expense US$m (189) (71) (80) (99) (120) (116) (182) (260) (179) (236) (246) Minority Interest US$m (2) (4) (2) (5) (3) (6) (7) (6) (7) (9) (11) Net Profit After Tax US$m Reported Earnings US$m Adjusted Earnings US$m Cash Earnings US$m Insurance Ratios 1H15A 2H15A 1H16A 2H16E 1H17E 2H17E FY14A FY15A FY16E FY17E FY18E GWP Growth % Reinsurance Outwards % NEP Growth % Net Claims Ratio % Expense Ratio % Combined Ratio % Reported Margin % Underlying Margin % Investment Fundamentals 1H15A 2H15A 1H16A 2H16E 1H17E 2H17E FY14A FY15A FY16E FY17E FY18E EPS (Reported, Diluted) ps EPS (Adjusted, Diluted) ps EPS (QBE Cash basis, Diluted) ps PER (Reported) x PER (Adjusted) x PER (QBE Cash basis) x DPS A ps Dividend yield % % 4.8% 5.4% % % 5.7% 5.9% Franking % % 3 3 Payout Ratio (QBE Cash earnings) % 45% 8 78% 72% 65% 75% 44% 63% 75% 7 7 Effective tax rate % 28% 3 23% 23% 23% 23% 2 28% 22% 23% 23% Average AUD:USD x EFPOWA m 1,375 1,380 1,379 1,380 1,377 1,377 1,365 1,380 1,377 1,377 1,377 NTA x NTA (+ Prudential Margins) x NAB x ROA (Adjusted) % 2.3% 0.8% 1.3% 1.7% % 1.7% 1.6% 1.7% 2.1% 2.1% ROE (Cash Earnings) % 8.6% 7.9% 5.3% 6.6% 7.8% 7.4% 7.7% 8.3% 6.3% 7.6% 7.8% Balance Sheets (US$m) FY13A FY14A FY15A FY16E FY17E FY18E Valuation Summary (A$) Assets Cash US$m 1, PV of distributable cash profit 9,396 Investments US$m 29,464 28,847 26,079 24,920 25,562 26,129 Terminal value 5,232 Other Assets US$m 8,628 8,006 8,627 7,366 7,626 7,882 Total NPAT DCF valuation 14,629 Intangibles US$m 4,480 3,831 3,604 3,572 3,532 3,492 Shares on issue 1,367 Total Assets US$m 43,810 41,536 38,972 36,618 37,501 38,303 Value per share (A$) $ Liabilities Share price target (A$) $ Unearned Premiums US$m 8,184 7,366 7,006 6,766 6,764 6,762 Net Outstanding Claims US$m 18,208 16,948 15,379 15,328 15,403 15,479 % upside/downside 12.3% Borrowings US$m 4,571 3,581 3,529 3,482 3,482 3,482 Total shareholder returns 16.7% Other Liabilities US$m 2,444 2,559 2, ,061 1,551 Total Liabilities US$m 33,407 30,454 28,412 26,088 26,709 27,273 Recommendation Outperform Net Assets US$m 10,403 11,082 10,560 10,530 10,793 11,030 Minority Interests US$m Shareholders' Funds US$m 10,356 11,030 10,505 10,468 10,724 10,954 Source: Company data, Macquarie Research, August 2016 Price: AU$ August

7 Important disclosures: Recommendation definitions Macquarie - Australia/New Zealand Outperform return >3% in excess of benchmark return Neutral return within 3% of benchmark return Underperform return >3% below benchmark return Benchmark return is determined by long term nominal GDP growth plus 12 month forward market dividend yield Macquarie Asia/Europe Outperform expected return >+1 Neutral expected return from -1 to +1 Underperform expected return <-1 Macquarie South Africa Outperform expected return >+1 Neutral expected return from -1 to +1 Underperform expected return <-1 Macquarie - Canada Outperform return >5% in excess of benchmark return Neutral return within 5% of benchmark return Underperform return >5% below benchmark return Macquarie - USA Outperform (Buy) return >5% in excess of Russell 3000 index return Neutral (Hold) return within 5% of Russell 3000 index return Underperform (Sell) return >5% below Russell 3000 index return Volatility index definition* This is calculated from the volatility of historical price movements. Very high highest risk Stock should be expected to move up or down in a year investors should be aware this stock is highly speculative. High stock should be expected to move up or down at least 40 6 in a year investors should be aware this stock could be speculative. Medium stock should be expected to move up or down at least 30 4 in a year. Low medium stock should be expected to move up or down at least 25 3 in a year. Low stock should be expected to move up or down at least 15 25% in a year. * Applicable to Asia/Australian/NZ/Canada stocks only Recommendations 12 months Note: Quant recommendations may differ from Fundamental Analyst recommendations Financial definitions All "Adjusted" data items have had the following adjustments made: Added back: goodwill amortisation, provision for catastrophe reserves, IFRS derivatives & hedging, IFRS impairments & IFRS interest expense Excluded: non recurring items, asset revals, property revals, appraisal value uplift, preference dividends & minority interests EPS = adjusted net profit / efpowa* ROA = adjusted ebit / average total assets ROA Banks/Insurance = adjusted net profit /average total assets ROE = adjusted net profit / average shareholders funds Gross cashflow = adjusted net profit + depreciation *equivalent fully paid ordinary weighted average number of shares All Reported numbers for Australian/NZ listed stocks are modelled under IFRS (International Financial Reporting Standards). Recommendation proportions For quarter ending 30 June 2016 AU/NZ Asia RSA USA CA EUR Outperform 45.17% % 43.16% 63.39% 45.91% (for global coverage by Macquarie, 6.27% of stocks followed are investment banking clients) Neutral 36.21% 28.59% 40.26% 50.38% 29.46% 36.96% (for global coverage by Macquarie, 6.33% of stocks followed are investment banking clients) Underperform 18.62% 15.41% 23.38% 6.46% 7.14% 17.12% (for global coverage by Macquarie, 5.38% of stocks followed are investment banking clients) IAG AU vs ASX 100, & rec history SUN AU vs ASX 100, & rec history QBE AU vs ASX 100, & rec history (all figures in AUD currency unless noted) (all figures in AUD currency unless noted) (all figures in AUD currency unless noted) Note: Recommendation timeline if not a continuous line, then there was no Macquarie coverage at the time or there was an embargo period. Source: FactSet, Macquarie Research, August month target price methodology IAG AU: A$5.60 based on a DCF methodology SUN AU: A$13.49 based on a Sum of Parts methodology QBE AU: A$11.25 based on a DCF methodology Company-specific disclosures: IAG AU: The Macquarie Group together with its affiliates, beneficially owns 1% or more of a class of common equity securities of Insurance Australia Group (IAG.AX) MACQUARIE CAPITAL (NEW ZEALAND) LIMITED or one of its affiliates managed or co-managed a public offering of securities of Insurance Australia Group Ltd in the past 12 months, for which it received compensation. SUN AU: Macquarie and its affiliates collectively and beneficially own or control 1% or more of any class of Insurance Suncorp Group Limited's equity securities. QBE AU: Macquarie and its affiliates collectively and beneficially own or control 1% or more of any class of QBE Insurance Group Limited's equity securities. Important disclosure information regarding the subject companies covered in this report is available at Target price risk disclosures: IAG AU: Any inability to compete successfully in their markets may harm the business. This could be a result of many factors which may include geographic mix and introduction of improved products or service offerings by competitors. The results of operations may be materially affected by global economic conditions generally, including conditions in financial markets. The company is exposed to market risks, such as changes in interest rates, foreign exchange rates and input prices. From time to time, the company will enter into transactions, including transactions in derivative instruments, to manage certain of these exposures. SUN AU: Any inability to compete successfully in their markets may harm the business. This could be a result of many factors which may include geographic mix and introduction of improved products or service offerings by competitors. The results of operations may be materially affected by global economic conditions generally, including conditions in financial markets. The company is exposed to market risks, such as changes in interest rates, foreign exchange rates and input prices. From time to time, the company will enter into transactions, including transactions in derivative instruments, to manage certain of these exposures. QBE AU: Any inability to compete successfully in their markets may harm the business. This could be a result of many factors which may include geographic mix and introduction of improved products or service offerings by competitors. The results of operations may be materially affected by global economic conditions generally, including conditions in financial markets. The company is exposed to market risks, such as changes in interest rates, foreign exchange rates and input prices. From time to time, the company will enter into transactions, including transactions in derivative instruments, to manage certain of these exposures. Analyst certification: We hereby certify that all of the views expressed in this report accurately reflect our personal views about the subject company or companies and its or their securities. We also certify that no part of our compensation was, is or will be, directly or indirectly, related to the specific recommendations or views 18 August

8 This publication was disseminated on 18 August 2016 at 12:28 UTC. Macquarie Wealth Management expressed in this report. The Analysts responsible for preparing this report receive compensation from Macquarie that is based upon various factors including Macquarie Group Limited (MGL) total revenues, a portion of which are generated by Macquarie Group s Investment Banking activities. General disclosure: This research has been issued by Macquarie Securities (Australia) Limited ABN , AFSL , a Participant of the ASX and Chi-X Australia Pty Limited. This research is distributed in Australia by Macquarie Wealth Management, a division of Macquarie Equities Limited ABN AFSL ("MEL"), a Participant of the ASX, and in New Zealand by Macquarie Equities New Zealand Limited ( MENZ ) an NZX Firm. Macquarie Private Wealth s services in New Zealand are provided by MENZ. Macquarie Bank Limited (ABN , AFSL No ) ( MBL ) is a company incorporated in Australia and authorised under the Banking Act 1959 (Australia) to conduct banking business in Australia. None of MBL, MGL or MENZ is registered as a bank in New Zealand by the Reserve Bank of New Zealand under the Reserve Bank of New Zealand Act Apart from Macquarie Bank Limited ABN (MBL), any MGL subsidiary noted in this research,, is not an authorised deposit-taking institution for the purposes of the Banking Act 1959 (Australia) and that subsidiary s obligations do not represent deposits or other liabilities of MBL. MBL does not guarantee or otherwise provide assurance in respect of the obligations of that subsidiary, unless noted otherwise. This research contains general advice and does not take account of your objectives, financial situation or needs. Before acting on this general advice, you should consider the appropriateness of the advice having regard to your situation. We recommend you obtain financial, legal and taxation advice before making any financial investment decision. This research has been prepared for the use of the clients of the Macquarie Group and must not be copied, either in whole or in part, or distributed to any other person. If you are not the intended recipient, you must not use or disclose this research in any way. If you received it in error, please tell us immediately by return and delete the document. We do not guarantee the integrity of any s or attached files and are not responsible for any changes made to them by any other person. Nothing in this research shall be construed as a solicitation to buy or sell any security or product, or to engage in or refrain from engaging in any transaction. This research is based on information obtained from sources believed to be reliable, but the Macquarie Group does not make any representation or warranty that it is accurate, complete or up to date. We accept no obligation to correct or update the information or opinions in it. Opinions expressed are subject to change without notice. The Macquarie Group accepts no liability whatsoever for any direct, indirect, consequential or other loss arising from any use of this research and/or further communication in relation to this research. The Macquarie Group produces a variety of research products, recommendations contained in one type of research product may differ from recommendations contained in other types of research. The Macquarie Group has established and implemented a conflicts policy at group level, which may be revised and updated from time to time, pursuant to regulatory requirements; which sets out how we must seek to identify and manage all material conflicts of interest. The Macquarie Group, its officers and employees may have conflicting roles in the financial products referred to in this research and, as such, may effect transactions which are not consistent with the recommendations (if any) in this research. The Macquarie Group may receive fees, brokerage or commissions for acting in those capacities and the reader should assume that this is the case. The Macquarie Group s employees or officers may provide oral or written opinions to its clients which are contrary to the opinions expressed in this research. Important disclosure information regarding the subject companies covered in this report is available at Macquarie Group 18 August