Insurance Australia : Chairman's Review 2022 (114.66 KB)

CHAIRMAN'S REVIEW

Chairman's review

This year, our customers and the communities in which they live were affected by an extraordinary number of extreme weather events, from hailstorms, to thunderstorms, floods, East Coast lows and a tornado and earthquake.

The impact of these events has been devastating and our thoughts are with all those who were affected.

In their time of need our teams at IAG helped our customers and their communities begin to recover from their loss. I want to acknowledge the outstanding work of our people in helping our customers, from those who are first on the ground to assist after an event, to those who manage claims and guide those affected through the process of getting back on their feet.

FY22 results

In this year of extreme weather, your company performed well, growing gross written premium by 5.7% to $13,317 million.

Our net profit after tax was $347 million, compared to a $427 million loss in FY21, despite our having to strengthen prior period reserves, and respond to a high number of natural peril events, volatile investment markets, and a higher inflationary environment.

Our reported insurance margin was 7.4%, compared to 13.5% in FY21, after net natural peril costs of $1,119 million ($354 million above our original allowance); prior period reserve strengthening of $172 million; and negative credit spread impacts of $45 million. The underlying insurance margin1 of 14.6% better reflects the strength and performance of our business.

Dividend

The Board has determined to pay a final dividend of 5.0 cents per share, 70% franked. The final dividend will be paid on 22 September 2022 to shareholders registered at 5.00pm Australian Eastern Standard Time on 19 August 2022.

This brings the full year dividend to 11.0 cents per share, which equates to a payout ratio of ~78% of reported NPAT, in line with IAG's stated dividend policy to distribute 60-80% of cash earnings in any full financial year.

Management and strategy

Nick Hawkins, who was appointed as our Managing Director and Chief Executive Officer in November 2020 has wasted no time in setting a clear strategy to create a stronger and more resilient IAG. This strategy comprises four strategic pillars: to grow with our customers; build better businesses; create value through digital; and manage our risks. Nick then established the operating structure and assembled the skills needed in the leadership group to achieve this strategy. While some members of the team are relatively new to IAG, they are all to be commended for the speed and commitment with which they are working to deliver the strategy. As you would expect, the Board regularly reviews progress against the strategic priorities, and fully supports the ways in which management is pursuing the opportunities it has identified.

Board renewal

Your company has a skilled and experienced Board. Both attributes were further enhanced during the last 12 months with the appointment of three new directors: David Armstrong and George Sartorel in September last year, and Scott Pickering in November. All three Directors bring a wealth of insurance and financial services knowledge and skills.

Shareholders elected David and George to the Board at last year's Annual General Meeting (AGM) and will have the opportunity to learn more about Scott when he stands for election at the 2022 meeting, the first since his appointment.

Three other directors will retire by normal rotation in accordance with our Constitution and offer themselves for re-election at

the AGM; they are Helen Nugent, George Savvides, and myself.

Remuneration review

Shareholders at our AGM last year made it clear to us that our executive remuneration structure was not sufficiently aligned to shareholder outcomes. At that time, we had already commissioned a review of our remuneration framework, and this has now been completed. We also considered underlying structural issues and have made changes to ensure greater alignment between shareholder and executive remuneration outcomes, simplifying our approach to performance measurement and other aspects of remuneration and being more transparent around the process.

1 IAG defines its underlying insurance margin as the reported insurance margin adjusted for net natural peril claims costs less the related allowance; prior period reserve releases or strengthening; and credit spread movements

4	Annual Review and Sustainability Report 2022

"Climate remains the critical area of focus for us, because of the direct link between changes in climate and the impact on our customers, and our business."

Details of the changes are set out in the letter from the Chairman of our People and Remuneration Committee, on page 26 of this document, and in the Remuneration Report on pages 26 - 27 of the Annual Report 2022.

We will continue to work to achieve a balanced remuneration system that attracts, motivates and rewards executives, and is aligned to shareholder outcomes.

Creating sustainable value

We have a company-wide focus on sustainability, including the environment, social and governance (ESG) issues

that underpin our approach to looking after our customers, our suppliers, our employees, and the communities in which we operate. Our management of ESG issues is driven by a Board-approved Social and Environmental Framework.

Climate remains the critical area of focus for us, because of the direct link between changes in climate and the impact on our customers, and our business. IAG's response to climate change risks and opportunities is managed through the FY22 -24 Climate & Disaster Resilience Action Plan which was launched in November 2021. It has two high level targets that contribute to IAG's broader strategic priorities. The first is net zero emissions by 2050, with a 50% emissions reduction by 2030 and I am pleased that we are exceeding our science-based emission reduction targets across scope 1 and 2 on our roadmap to net zero.

We are also aiming for one million Australians and New Zealanders to have taken action to reduce their risk from natural hazards

by 2025. This will include leveraging our community partnerships, such as those with the Australian Resilience Corp and NSW and SA State Emergency Services, to drive awareness and preparedness action.

More information about the Action Plan and its focus areas is contained in the discussion of our material topics, on pages 18 - 21 of this report.

In May 2022, we also launched the NRMA Insurance Carbon Offset Program to enable motor customers to offset their yearly driving emissions, contributing to IAG's net zero target as we broaden the extent of our measured scope 3 emissions. More information about how we are progressing our emissions reduction initiatives is set out in the Environment outcomes on page 15 of this report. We are also working to help create opportunities for Aboriginal and Torres Strait Islander communities and Māori. We launched our fourth Reconciliation Action Plan in June 2022, and recently signed a partnership with the Aboriginal Carbon Foundation to support Aboriginal businesses and communities access the economic benefits of climate transition.

We published our second Modern Slavery Statement in December 2021, setting out actions taken to identify, assess and remediate modern slavery risks in our operations, supply chains and investments; we updated our Code of Ethics & Conduct to specifically reference modern slavery and human rights; we are implementing our Responsible Investment Policy, which covers climate, modern slavery, and human rights; and we are developing and deploying an antislavery training module.

Conclusion

The underlying performance of your company remains strong, and management continues to be focused on achieving significant improvements against clear strategic targets. Our confidence in the future is reflected in management's improved outlook for FY23.

This year's result - in the face of an extraordinary series of extreme weather events in Australia and New Zealand and market volatility - is a credit to the commitment and guidance provided by Nick Hawkins and his Group Leadership Team, and to the efforts of every person working at every level of the business.

I thank my fellow Directors for their guidance and insights, and on their behalf, I thank all our investors for their continued support.

Tom Pockett

Chairman and Independent

Non-Executive Director

Chairman's review

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