Insurance Australia : 1H22 Investor report (1.38 MB)

Investor report 1H22

11 February 2022

Insurance Australia Group Limited ABN 60 090 739 923 This release has been authorised by the IAG Board

IMPORTANT INFORMATION

This report contains general information current as at 11 February 2022 (unless otherwise stated) and is not a recommendation or advice in relation to any product or service offered by Insurance Australia Group Limited (IAG) or its subsidiaries. It presents financial information on both a statutory basis (prepared in accordance with Australian Accounting Standards which comply with International Financial Reporting Standards (IFRS)) and non-IFRS basis. This report is not an invitation, solicitation, recommendation or offer to buy, issue or sell securities or other financial products in any jurisdiction.

The report should not be relied upon as advice as it does not take into account the financial situation, investment objectives or particular needs of any person. The report should be read in conjunction with IAG's other periodic and continuous disclosure announcements filed with the Australian Securities Exchange (available at www.iag.com.au) and investors should consult with their own professional advisers.

No representation or warranty, express or implied, is made as to the accuracy, adequacy, completeness or reliability of any statements (including forward-looking statements or forecasts), estimates or opinions, or the accuracy or reliability of the assumptions on which they are based.

Any forward-looking statements, opinions and estimates in this report are based on assumptions and contingencies which are subject to change without notice, as are statements about market and industry trends, which are based on interpretations of current market conditions. Neither IAG, nor any other person, gives any representation, assurance or guarantee that the occurrence of the events expressed or implied in any forward-looking statements in this report will actually occur and IAG assumes no obligation to update such information. In addition, past performance is no guarantee or indication of future performance.

To the maximum extent permitted by law, IAG, its subsidiaries and their respective directors, officers, employees, agents and advisers disclaim all liability and responsibility for any direct or indirect loss, costs or damage which may be suffered by any recipient through use of or reliance on anything contained in, implied by or omitted from this report.

References to currency are to Australian dollars, unless otherwise specified. Prevailing exchange rates have been used to convert local currency amounts into Australian dollars, where appropriate.

IAG 1H22 INVESTOR REPORT

CONTENTS

1.	Executive Summary..........................................................................................................................................	1
2.	Strategy ............................................................................................................................................................	2
3.	Group Results ...................................................................................................................................................	4
4.	Direct Insurance Australia...............................................................................................................................	21
5.	Intermediated Insurance Australia ..................................................................................................................	28
6.	New Zealand...................................................................................................................................................	33
7.	Reinsurance....................................................................................................................................................	38
8.	Investments ....................................................................................................................................................	41
9.	Balance Sheet & Capital.................................................................................................................................	45
10. ESG, Climate Change and Safer Communities ...........................................................................................	49
11. Glossary........................................................................................................................................................	52
Directory..............................................................................................................................................................	57

IAG 1H22 INVESTOR REPORT

1H22 RESULTS

KEY RESULTS			1H21	2H21	1H22	1H22 vs 1H21
		A$m	A$m	A$m	Mvt
Gross written premium (GWP)	6,188	6,414	6,570	+6.2%
Net earned premium (NEP)	3,723	3,750	3,963	+6.4%
Insurance profit1	667	340	282	-57.7%
Net profit/(loss) after tax	(460)	33	173	nm
Cash earnings	462	285	176	-61.9%
Reported insurance margin	17.9%	9.1%	7.1%	-1080bps
Underlying insurance margin2	15.9%	13.5%	15.1%	-80bps
Diluted EPS (cents per share)	(19.73)	1.34	6.64	nm
Diluted cash EPS (cents per share)	17.88	10.80	6.77	-62.1%
Cash return on equity (ROE)	15.5%	9.0%	5.7%	-980bps
Dividend (cents per share)	7.0	13.0	6.0	-14.3%
Prescribed Capital Amount (PCA) multiple	2.04	1.86	1.82	-22pts
Common Equity Tier 1 Capital (CET1) multiple	1.19	1.06	1.02	-17pts

GWP GROWTH

6,188	6,414	6,570
	6.2%

3.8%	3.9%

1H21		2H21	1H22
		GWP (A$m)	GWP Growth (%)

INSURANCE PROFIT & MARGIN

17.9%

15.9%		13.5%		15.1%
				9.1%	600
667	592					7.1%
					503
				340				282
		1H21		2H21			1H22
		Reported Insurance Profit¹ (A$m)			Underlying Insurance Profit (A$m)
		Underlying Margin² (%)				Reported Margin (%)

NET PROFIT/(LOSS) AFTER TAX (A$M)

33173

(460)

1H21

2H21

1H22

DILUTED CASH EPS & DPS

17.9

13.0

		10.8
		7.0	6.8	6.0
	1H21			2H21		1H22
				Diluted Cash EPS (cents)		DPS (cents)

CASH ROE					REGULATORY CAPITAL (MULTIPLE)
									2H21
15.5%								1H22	1.86	1.82
		9.0%			1.06	1.02
			5.7%
										CET1	PCA
	1H21	2H21	1H22
										Target benchmark range

¹The 1H22 reported insurance profit in this document is presented on a management reported (non-IFRS) basis which is not directly comparable to the equivalent statutory (IFRS) figure in IAG's 1H22 Financial Report (Appendix 4D). A reconciliation between the two is provided on page 6 of this document and on page 3 of the Financial Report to comply with the Australian Securities and Investments Commission's Regulatory Guide 230. IAG's 1H22 net profit after tax is the same in this document and in the Financial Report.

²IAG defines its underlying insurance margin as the reported insurance margin adjusted for net natural perils claims costs less the related allowance; reserve releases or strengthening and credit spread movements.

IAG 1H22 INVESTOR REPORT

1. EXECUTIVE SUMMARY

GROUP HIGHLIGHTS

• Strong GWP performance, predominantly rate driven with volume growth in key strategic portfolios
• Upgraded FY22 GWP guidance to 'mid single-digit' growth (previously 'low single-digit')
• Underlying margin stability, with 15.1% in 1H22 versus 14.7% in FY21
• Confidence in unchanged FY22 reported insurance margin guidance of 10-12%
• $173m net profit after tax, with no one-off adjustments to cash earnings of $176m (5.7% cash ROE)
• Continued capital strength, with CET1 ratio in the middle of targeted range and PCA ratio above
• Group strategy now in execution phase, with significant progress on growth initiatives

GROSS WRITTEN PREMIUM

• GWP growth of 6.2% versus 1H21, or 5.6% adjusting for foreign currency translation effects
• Growth momentum improved over the half, notwithstanding COVID-19 lockdown impacts (~0.6% drag)
• Substantial rate increases in Australia and momentum in NZ from higher rates and commercial growth
• Customer growth of >1% in direct personal short tail classes in Australia, with encouraging early contributions from strategic initiatives and lower than expected remediation in commercial classes
• Group customer numbers relatively flat overall, impacted by a small reduction in commercial business

INSURANCE PROFITABILITY

• Higher underlying insurance margin of 15.1% compared to 14.7% in FY21 (1H21: 15.9% 2H21: 13.5%)
• COVID-19net benefit of around $55-$65m similar to 1H21, reflecting low motor claims frequency offset by elevated claims costs, with risk margin held for uncertain operating environment in 2H22
• Excluding the COVID-19 net benefit, adjusted underlying margins of around 13.6% at a comparable level to 14.2% in 1H21 and 13.5% in 2H21, with no other material non-recurring features
• 7.1% reported insurance margin impacted by high natural perils costs (1H21: 17.9% 2H21: 9.1%)
• Gross operating costs +4.4%, with the underwriting expenses increase absorbed in insurance margins
• Natural perils costs above allowance by $299m, similar to disclosure on 2 November 2021
• Further strengthening of prior year reserves ($37m) partly offset by credit spread gains ($18m)

DIRECT INSURANCE AUSTRALIA (DIA) HIGHLIGHTS

• 3.3% GWP growth largely through rate increases, with volume growth of >1% across personal short tail classes and early contribution from roll-out of NRMA Insurance in Western Australia & South Australia
• Overall, served ~4.8 million customers holding ~8.4 million policies, broadly in line with 1H21
• Excluding COVID-19 net benefits, underlying margins remained healthy at ~18.5% (1H21: 19.3%)

INTERMEDIATED INSURANCE AUSTRALIA (IIA) HIGHLIGHTS

• 8.9% GWP growth dominated by rate increases that averaged over 9% for the period
• Underlying margins continued to recover, improving to 5.0% in 1H22 (1H21: 3.8%)
• Early progress towards IIA's >$250m insurance profit target by FY24

NEW ZEALAND HIGHLIGHTS

• GWP growth of 8.3%, with local currency growth of 5.9%
• Positive shift in growth momentum driven by rate increases across all key portfolios
• Looking through half on half volatility in FY21, the strong 1H22 underlying margin of 16.8% has improved on 16.4% in FY21

ADDITIONAL MATTERS

• No significant changes to the business interruption provision of $1,222m (FY21: $1,236m)
• Maintain no net insurance exposure to trade credit policies sold through BCC Trade Credit
• Exit from Asia now largely complete following the sale of IAG's business in Vietnam in December 2021

CAPITAL & DIVIDENDS

• Unfranked interim dividend of 6¢ per share, payout ratio of 84% of cash earnings
• Strong CET1 ratio at 1.02 (0.96 after interim dividend); ~6pts benefit still expected from Malaysian sale

IAG 1H22 INVESTOR REPORT 1