IAG INVESTS IN CHINA S BOHAI PROPERTY INSURANCE Mike Wilkins Managing Director & Chief Executive Officer Justin Breheny CEO, Asia 15 August 2011 Insurance Australia Group Limited ABN 60 090 739 923
AGENDA 1. TRANSACTION HIGHLIGHTS 2. STRATEGIC RATIONALE 3. CHINA S INSURANCE MARKET 4. BOHAI PROPERTY INSURANCE THE RIGHT PARTNER 5. STRUCTURED TO DELIVER VALUE 6. SUMMARY Page 2
TRANSACTION HIGHLIGHTS STRATEGIC HOLDING TO PROVIDE IAG ATTRACTIVE MARKET ENTRY TO CHINA IAG has agreed to acquire a 20% equity stake in Bohai Property Insurance Pty Ltd Provides a platform for growth with a carefully selected partner, in China s fast growing general insurance market Structure designed to maximise value creation for both partners: Bohai Insurance s distribution network, brand and systems IAG s technical expertise, particularly in underwriting, claims and actuarial IAG Board and management appointments, including position of Deputy General Manager Purchase price is RMB687.5m (c. A$100m 1 ) to be funded using internal resources Represents an important step in the Group s strategy to boost its Asian footprint Supports target of Asia contributing 10% of IAG s GWP by 2016 1 Based on foreign exchange rate: A$1 = RMB7.05289 Page 3
STRATEGIC RATIONALE CHINA STRONG GDP GROWTH; THE WORLD S MOST POPULOUS COUNTRY CHINA GDP (US$ BN) STRONG MACRO-ECONOMIC INDICATORS 7,000 16% 14.2% 6,009 6,000 14% 12.7% 4,993 12% Strong economic fundamentals: 5,000 4,595 10.0% 10.1% 10% 4,000 9.9% 3,639 10.3% 2010 GDP grew in excess of 10.3% 8.0% 8.3% 9.1% 9.6% 9.2% 8% 3,000 2,770 2,259 6% 2,000 1,932 1,641 1,325 1,454 1,080 4% 1,000 2% 0 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 0% c.9% GDP growth forecast for at least next 2 years Household wealth increasing rapidly, underpinning demand for insurance: Largest new vehicle market in the world, GDP (US$ billion) Growth eclipsing i the US CHINA NEW VEHICLE SALES ( 000 UNITS) 3,248 4,391 5071 5,071 5,758 7,216 8,792 9,381 13,645 18,060 2002 2003 2004 2005 2006 2007 2008 2009 2010 0 High levels of consumer confidence, driving domestic consumption Growing per capita GDP, at US$4,382 in 2010 Pipeline of infrastructure projects and growth in policy-driven agricultural and liability insurance, driving insurance growth Economy continuing to attract high foreign investment Page 4 Source: China Statistics Bureau, China Association of Automobile Manufacturers, IMF, IAG analysis
CHINA S INSURANCE MARKET CONTINUED STRONG GROWTH CHINA P&C GWP (US$ MN) 60,804 POSITIVE TRENDS CONTINUE 43,831 35,792 28,557 20,238 15,875 13,587 8315 9,404 10,504 7,370 8,315 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 CHINA P&C MARKET SHARE 14% 19% 23% 27% 28% 29% 29% 86% 81% 77% 73% 72% 71% 71% 2004 2005 2006 2007 2008 2009 2010 Top 4 general insurers Others Page 5 General insurance market: 7 th largest in the world, growing 33% from 2009 Forecast to grow 10 15% p.a. over next 10 years Improving regulatory environment Increasing transparency and disclosure requirements Increasing regulatory enforcement Non-life profitability combined ratio of 97.3% in 2010, and 95% YTD Eroding market share for top 4 general insurers Foreign investment capped at 20% for individual foreign entities, with an overall cap of 25% Source: Swiss Re World Insurance in 2010 No. 2/2011, CIRC, and IAG analysis
BOHAI PROPERTY INSURANCE AN ATTRACTIVE PARTNER STRONG STRATEGIC FIT BOHAI PROPERTY INSURANCE PRODUCT MIX (% GWP) Licenced in 2005 Annualised GWP currently in excess of A$200m On track to operating profit by FY2014 Strongly gycapitalised Motor focus (c. 90% total book) Broad distribution network: Direct selling via 265 provincial and subbranches and national telesales centre accounts for close to half of revenue DISTRIBUTION CHANNELS (% GWP) Agency workforce accounts for balance Majority owned by TEDA (Tianjin Economic- Technological Development Area) companies: Strong government support ~3,000 employees National licence, with strategic focus on the important pan-bohai region Page 6 Source: Bohai P&C company 2010 Annual Report; IAG analysis
BOHAI PROPERTY INSURANCE REGIONAL FOCUS STRATEGIC FOCUS ON INTERNATIONALLY SIGNIFICANT PAN-BOHAI REGION Bohai Insurance branch network strategic focus on faster development in pan-bohai region Xinjiang Tibet Gansu Qinghai STRONG REGIONAL ECONOMICS GDP By Province Comparison Province 2010 (B USD) Country 2010 (B USD) Shandong 595 Switzerland 524 Heilongjiang Hebei 305 Thailand 319 Jilin Liaoning 264 Malaysia 246 Beijing ej 208 Singapore 223 Liaoning Inner Mongolia 175 Phillipines 189 Inner Mongolia Beijing Tianjin 138 Hungary 134 Tianjin Hebei (Bohai Insurance Shanxi 137 Ukraine 132 Ningxia Shanxi Shandong headquarters) Russia 1,803 Total Region 1,823 India 1,526 Henan Jiangsu Shaanxi Anhui Shanghai GWP By Province Comparison Hubei Sichuan Chongqing Zhejiang 2010 2010 Jiangxi Province (M USD) Country (M USD) Guizhou Hunan Fujian Shandong 3,648 Malaysia 3,868 Yunnan Guangxi Guangdong Beijing 3,206 Indonesia 3,461 Hebei 2,913 Greece 2,922 Liaoning 1,790 Hungary 1,861 Hainan Inner Mongolia 1,454 Slovakia 1,361 Shanxi 1,403 Croatia 1,235 Tianjin 983 Vietnam 916 T t l R i 15 397 India 10,562 Thailand 5,285 Pan-Bohai region strategic focus Other provinces with Bohai branches Total Region 15,397 Page 7
TEDA MAJORITY SHAREHOLDER TRACK RECORD OF SUCCESSFUL ENTERPRISES Bohai Insurance is majority owned by group of Tianjin Economic-Technological Development Area (TEDA) companies, ultimately led by Tianjin TEDA International Holdings (Group) Co Ltd (TEDA International) TEDA companies (including TEDA International) represent the investment arm of the Tianjin Municipal Government, with ~RMB100bn (A$15bn) under investment Extensive experience with investments in financial services, publicly listed entities and Sino-foreign joint ventures including: Bohai Bank: Standard Chartered 19.9% and TEDA 25% HengAn Standard Life: Standard Life 50% and TEDA 50% ABN AMRO TEDA Fund Management: ABN AMRO 49% and TEDA 51% Manulife TEDA Fund Management: Manulife Financials 49% and TEDA 51% Scale and strength of TEDA and its related entities in the pan-bohai region provide significant business opportunities for Bohai Insurance Page 8
BOHAI PROPERTY INSURANCE A STRONG PARTNER MEETS IAG S INVESTMENT CRITERIA Growth potential ti Regional development strategy in profitable segments Financially attractive Conservative reserving Distribution Brand Improving profitability Aligned with IAG approach Multi channel distribution network Direct distribution via branch network dominates Strong regional brand Product 90% GWP motor Scope to add value Strategic alignment Complementary strengths Ability to influence Management positions, including Deputy GM Shared vision and commitment People, culture and risk Disciplined approach Strong corporate governance Tightly controlled and centralised underwriting and claims Page 9
BOHAI COMPLEMENTS IAG S PORTFOLIO OF ASIAN BUSINESSES SUPPORTS TARGET OF GENERATING 10% OF GROUP GWP FROM ASIA BY 2016 CHINA INDIA Ownership: 20%* GWP 1 : $204m GWP growth 2 : 21% * Once IAG s investment in Bohai Insurance is complete. MALAYSIA Ownership: 26%, with option to increase to 49% GWP 1 : $15m THAILAND Ownership: 49% Ownership: 100% 98.5% GWP 1 : $224m GWP 1 : $40m $150m GWP growth 2 : 78% 7.8% GWP growth 2 : 01% 0.1% 88% 8.8% 1 GWP presented on 100% ownership basis and in respect of FY11E (annualised from most recently available information) 2 GWP growth represents two year CAGR to FY11E (annualised per previous note) in local currency terms. Page 10
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