NEWS RELEASE 21 FEBRUARY 2014 IAG REPORTS STRONG 1H14 Insurance Australia Group Limited (IAG) today announced a strong operating performance for the half-year ended 31 December 2013, recording an improved underlying margin 1 of 13.7% (1H13: 12.1%) which builds on the progress evident in prior periods. IAG has delivered a first half insurance profit of $758 million (1H13: $815 million), which equates to a reported insurance margin of 17.5% (1H13: 19.9%). This was assisted by higher than originally expected prior period reserve releases equivalent to 4.3% of net earned premium (NEP), and was achieved on the back of a 4.2% increase in gross written premium (GWP) to $4,786 million. Managing Director and Chief Executive Officer, Mr Mike Wilkins, said: This is a strong result that comprises improved operating performances from each of the businesses in Australia and New Zealand, as well as an increased profit contribution from the Group s interests in Asia. We are pleased with the continued improvement in the Group s performance, which reflects the benefits of our pursuit of a strategy that focuses on clear priorities. Our underlying margin has more than doubled since the 2009 financial year, as we have improved our underwriting and claims disciplines and realised significant cost efficiencies, Mr Wilkins said. GWP growth in the half was lower than that of immediately preceding periods, reflecting a combination of factors including reduced need to recover higher input costs via rate increases in property classes. Reported GWP has also been influenced positively by the translation effect from a stronger New Zealand dollar, and negatively by the cessation of the Fire Services Levy (FSL) in Victoria from 1 July 2013. On an ex-victorian FSL basis, GWP growth was 6.0%. The Group s reported insurance margin of 17.5% includes the effect of: Net natural peril claim costs of $335 million, which slightly exceeded the period s allowance and were over $200 million higher than those incurred in the particularly benign 1H13 period. Significant events in the half were the New South Wales bushfires in October, as well as rain and hail storm activity in New South Wales and Queensland in November; Higher prior period reserve releases of $187 million (1H13: $90 million), which substantially exceeded expectations and were driven by benign inflationary conditions in long tail classes in Australia; and A reduced favourable effect of $39 million from the narrowing of credit spreads, which was over $50 million lower than the prior corresponding half. Shareholders funds income of $233 million (1H13: $201 million) reflected strong equity market returns in the period. Net profit after tax was $642 million. This compares to $461 million in 1H13, which included a loss of $182 million in respect of the discontinued UK business. 1 IAG defines its underlying insurance margin as the reported insurance margin adjusted for: Net natural peril claim costs less related allowance for the period; Reserve releases in excess of 1% of NEP; and Credit spread movements. PAGE 1 OF 3
The Board has determined to pay a fully franked interim dividend of 13 cents per share (cps), an increase of 18.2% (1H13: 11 cps). The interim dividend will be paid on 2 April 2014 to shareholders registered on 5 March 2014. DIVISIONAL RESULTS Australia Direct, our largest business, continues to perform well and has maintained the improved trend in its underlying profitability evident in the second half of the 2013 financial year. An easing of pressures in New South Wales compulsory third party (CTP) contributed to a higher underlying margin of 15.1%, compared with 13.1% in 1H13. GWP grew by 0.7%, to $2,279 million, or 2.3% after the exclusion of Victorian FSL effects. This was derived from a mixture of rate increases, notably in home and New South Wales CTP, and volume gains, particularly in motor, Mr Wilkins said. CGU, our Australian intermediated business, has sustained the double digit underlying margin it reached in FY13, as benefits continue to be realised as planned from past portfolio remediation activity and the implementation of CGU s new operating model. GWP growth was 1.8%, or 4.8% on an ex-victorian FSL basis. Reported GWP of $1,459 million comprised growth from most areas of the business and was sourced from a mixture of rate and volume. Our New Zealand business has maintained the strong underlying performance evident in prior periods, as the integration of AMI nears conclusion and targeted synergies are on track to be realised. GWP growth was a solid 4.7% in local currency terms, with rate increases in the domestic home owners portfolio a feature across all distribution channels. Reported GWP growth, of 17.7%, includes a favourable foreign exchange translation effect. In Asia our combined operations continue to develop in line with our expectations. The division contributed an improved profit of $7 million, which was driven by strong performances from our established businesses in Thailand and Malaysia. Combined operating losses from our developing businesses, in India, China and Vietnam, were small and in line with plan. In the latest half, Asia contributed 7.1% of the Group s GWP on a proportional basis. Our Asian business now participates in a gross regional annualised GWP pool in excess of $1.4 billion, Mr Wilkins said. CAPITAL POSITION The Group s capital position at 31 December 2013 was very strong and reflected the inclusion of funds from the $1.2 billion institutional placement completed in December. This has resulted in a regulatory capital position of 2.31 times the Prescribed Capital Amount (PCA) and a Common Equity Tier 1 (CET1) ratio of 1.71. On a pro forma basis, incorporating the expected impact of the acquisition of the Wesfarmers insurance underwriting businesses and related funding initiatives, the equivalent figures are a PCA multiple of 1.68 and a CET1 ratio of 1.05. These are broadly consistent with the Group s long term benchmarks. Since 31 December 2013, the Group has completed a share purchase plan offering to retail investors which has raised over $236 million of equity capital. The Group has also indicated it intends to raise approximately $300 million of new Tier 2 subordinated debt. This is expected to occur in the second half of the current financial year. ACQUISITION OF WESFARMERS INSURANCE UNDERWRITING BUSINESSES On 16 December 2013, the Group announced that it had agreed to purchase the insurance underwriting businesses of Wesfarmers Limited for $1.845 billion. It remains the Group s expectation that the acquisition will be completed in the second quarter of calendar 2014, subject to regulatory approvals. The acquisition comprises Wesfarmers underwriting companies trading under the WFI and Lumley Insurance brands, and supports the Group s strategic priorities of accelerating profitable growth in Australia and sustaining its market leading position in New Zealand. The proposed transaction also includes a 10-year distribution agreement with Coles. PAGE 2 OF 3
OUTLOOK Mr Wilkins said the Group continues to expect a strong full year performance in FY14. Our first half results have built on the momentum of prior periods and place the Group in a strong position to deliver attractive returns over the longer term. Critical to our improved performance has been our adherence to a focused strategy, which has materially lifted the underlying margin of the Group over an extended period, Mr Wilkins said. We continue to place great emphasis on the development of products and services that meet our customers needs, while maintaining the appropriate balance between pricing for risk and keeping insurance affordable and accessible. This will underpin the sustainability of our organisation. We also continue to take an industry leadership role in protecting customers and making communities safer, which includes our work with the Australian Business Roundtable for Disaster Resilience & Safer Communities. We are encouraged by the Australian Government s reception of the recommendations made by the Roundtable, and its announcement of a Productivity Commission Inquiry into Natural Disaster Funding, said Mr Wilkins. The Group has reiterated the updated guidance for FY14 provided on 23 January 2014, of GWP growth of between 3-5% and a reported insurance margin in the range of 14.5-16.5%. The reported insurance margin guidance includes the following assumptions: Net losses from natural perils in line with budgeted full year allowance of $640 million; Prior period reserve releases equivalent to around 3% of NEP; and No material movement in foreign exchange rates or investment markets in 2H14. No contribution from the proposed acquisition of the Wesfarmers insurance underwriting businesses is included in the outlook for FY14. About Insurance Australia Group Insurance Australia Group Limited (IAG) is the parent company of a general insurance group with controlled operations in Australia, New Zealand, Thailand and Vietnam, employing around 13,500 people. Its current businesses underwrite approaching $10 billion of premium per annum, selling insurance under many leading brands including NRMA Insurance, CGU, SGIO, SGIC and Swann (Australia); NZI, State and AMI (New Zealand); Safety and NZI (Thailand); and AAA Assurance (Vietnam). IAG also has interests in general insurance joint ventures in Malaysia, India and China. For further information please visit www.iag.com.au. Investor Relations Simon Phibbs T +61 (0)2 9292 8796 M +61 (0)411 011 899 E simon.phibbs@iag.com.au Media Paul Marriage T +61 (0)2 9292 9557 M +61 (0)401 751 860 E paul.marriage@iag.com.au Insurance Australia Group Limited ABN 60 090 739 923 388 George Street Sydney NSW 2000 Australia T +61 (0)2 9292 9222 www.iag.com.au PAGE 3 OF 3
FACT SHEET 21 February 2014 IAG REPORTS STRONG 1H14 GROUP For the six months to 31 December 2013, Insurance Australia Group Limited (IAG) has announced: Strong underlying business performance across all divisions; Further improvement in underlying margin, to 13.7% (1H13: 12.1%), derived from: prior period rating actions to recover increased input costs; strict underwriting and claims disciplines; and cost efficiencies through implementation of improvement programmes; Insurance margin of 17.5% (1H13: 19.9%), including: higher reserve releases of $187 million (1H13: $90 million); significantly higher net natural peril claim costs of $335 million (1H13: $133 million); and a lower benefit from credit spreads of $39 million (1H13: $90 million); Sound gross written premium (GWP) growth of 4.2% (6.0% ex-victorian Fire Services Levy), to $4.8 billion (1H13: $4.6 billion); Net profit after tax increased to $642 million (1H13: $461 million, which included a $182 million loss in respect of the discontinued UK business); and 18.2% increase in interim dividend to 13 cents per share (cps) (1H13: 11cps) on an expanded capital base. GROUP KEY INDICATORS GROSS WRITTEN PREMIUM (GWP) GROUP INSURANCE MARGIN REPORTED VS. UNDERLYING (Ex UK) 16.0% 13.5% 10.2% 14.0% 12.0% 10.0% 11.4% 10.9% 12.0% 12.5% 13.7% 4.2% 8.0% 6.0% 6.3% 6.4% 4.0% 4,593 4,905 4,786 2.0% 7.0% 6.7% 13.0% 12.6% 11.5% 17.2% 17.5% 1H13 2H13 1H14 GWP (A$m) GWP Growth (%) - FY08 FY09 FY10 FY11 FY12 FY13 1H14 Reported Margin Underlying Margin NET PROFIT AFTER TAX (A$m) DIVIDEND 9 8 71.5% 70.8% 67.1% 60.5% 64.7% 7 6 25.0 5 4 461 315 642 1H13 2H13 1H14 7.0 4.5 12.0 6.0 4.0 8.5 9.0 5.0 11.0 13.0 FY09 FY10 FY11 FY12 FY13 1H14 Interim Dividend Final Dividend Payout Ratio 3 2 1 0 PAGE 1 OF 2
DIVISIONAL HIGHLIGHTS DIVISIONAL GWP 1H13 INSURANCE MARGIN Reported Growth Reported Underlying Reported Growth Reported Underlying A$m % % % A$m % % % Australia Direct 2,264 8.8 21.9 13.1 2,279 0.7 20.1 15.1 Australia Intermediated 1,433 7.7 23.1 10.7 1,459 1.8 17.8 11.6 New Zealand 751 39.6 8.3 11.5 884 17.7 12.4 14.2 Asia 137 45.7 6.2 n/a 154 12.4 6.7 n/a Corporate & Other 8 n/a n/a n/a 10 n/a n/a n/a Total Group 4,593 13.5 19.9 12.1 4,786 4.2 17.5 13.7 GWP 1H14 INSURANCE MARGIN FY14 GUIDANCE The Group has reaffirmed the updated FY14 guidance issued on 23 January 2014, and expects to record a strong full year performance. The Group s guidance is: GWP growth of 3-5%; and A reported insurance margin in the range of 14.5-16.5%. The guidance assumes: Net losses from natural perils in line with budgeted full year allowance of $640m; Prior period reserve releases equivalent to around 3% of net earned premium; and No material movement in foreign exchange rates or investment markets in 2H14. OUR BUSINESSES 2 3 4 6 1 2 3 5 100% owned unless indicated. (1) RACV is via a distribution relationship and underwriting joint venture with RACV Limited; (2) IAG holds 98.6% voting rights in Safety Insurance, based in Thailand, which trades under the Safety and NZI brands. (3) IAG owns 49% of the general insurance arm of Malaysian-based AmBank Group, AmGeneral Holdings Berhad (AmGeneral), which trades under the AmAssurance and Kurnia brands. (4) IAG owns 26% of SBI General Insurance Company, a joint venture with State Bank of India. (5) IAG owns 20% of Bohai Property Insurance Company Ltd, based in China. (7) IAG owns 63.17% of AAA Assurance Corporation, based in Vietnam. About Insurance Australia Group Insurance Australia Group Limited (IAG) is the parent company of a general insurance group with controlled operations in Australia, New Zealand, Thailand and Vietnam, employing around 13,500 people. Its current businesses underwrite approaching $10 billion of premium per annum, selling insurance under many leading brands including NRMA Insurance, CGU, SGIO, SGIC and Swann (Australia); NZI, State and AMI (New Zealand); Safety and NZI (Thailand); and AAA Assurance (Vietnam). IAG also has interests in general insurance joint ventures in Malaysia, India and China. For further information please visit www.iag.com.au. Investor Relations Simon Phibbs T 02 9292 8796 M 0411 011 899 E simon.phibbs@iag.com.au Media Paul Marriage T 02 9292 9557 M 0401 751 860 E paul.marriage@iag.com.au Insurance Australia Group Limited ABN 60 090 739 923 388 George Street Sydney NSW 2000 Australia T +61 (0)2 9292 9222 www.iag.com.au PAGE 2 OF 2