Insurance Australia : FY21 ASX release (368.66 KB)

IAG announces FY21 results

11 August 2021

Financial indicators

	FY20	FY21	Change
GWP ($m)	12,135	12,602	3.8%
Insurance profit1 ($m)	741	1,007	35.9%
Underlying insurance margin2 (%)	16.0%	14.7%	130bps
Reported insurance margin (%)	10.1%	13.5%	340bps
Net profit/(loss) after tax ($m)	435	(427)	nm
Cash earnings ($m)	279	747	nm
Diluted cash EPS (cps)	12.12	28.51	nm
Dividend (cps)	10.0	20.0	nm
Cash ROE (%)	4.5%	12.0%	nm
CET1 multiple	1.23	1.06	17pts

Financial performance

We are pleased with the underlying financial results we are delivering today. Our FY21 business performance is sound and reflects the strength of our core insurance business and its market- leading brands.

The underlying margin of 14.7% (FY20: 16.0%) is within expectations and we've reinstated guidance for FY22, reflecting the confidence we have in our business and economic outlook.

Our Australian and New Zealand direct businesses have generated solid growth, and we've enhanced our focus on our intermediated business in Australia to resolve the challenges we've seen with some of its portfolios, and to drive greater profitability.

Our gross written premium (GWP) growth of 3.8%, was mainly rate driven, but we also saw promising new business growth and stronger customer retention. Our reported insurance profit of $1,007 million increased significantly over the year (FY20: $741 million) due mainly to lower natural perils costs, positive credit spreads and a first half COVID-19 benefit mainly from lower motor claims in Australia. This translated to an improved reported insurance margin of 13.5% (FY20: 10.1%).

Significant one-off corporate expenses mainly relating to business interruption, customer refunds and payroll remediation impacted our overall result, which was a net loss of $427 million (FY20: $435 million profit). These are historical issues we've identified, provisioned for and are fixing - and we are making investments to

continue to lift our risk management and operational capabilities.

Our cash earnings, which exclude one-off items, increased to $747 million for the year (FY20: $279 million) - and we're pleased to announce a final dividend of 13 cents per share which takes our payout ratio to 66% based on full year cash earnings.

Strategy momentum

Since becoming CEO in November, I have put in place a new, more customer aligned operating model, reset our strategy for growth, and appointed a leadership team with deep insurance and customer expertise, and clear accountability for success. We are already seeing results from these changes and have momentum behind our strategy.

This includes growing with our customers and during the year we increased customer numbers in our Australia and New Zealand direct insurance businesses, and we are expanding our premium NRMA Insurance brand across Australia.

Our strategic focus to build better businesses is underpinned by the work we are doing to set up our intermediated business to achieve double- digit insurance margins over the next three to five years, to deliver an insurance profit of at least $250 million per year3. We're focused on upgrading the risk management and underwriting disciplines in that business and strengthening our relationships with broker partners to improve its profitability.

We're creating value through digital by scaling up artificial intelligence and automation in motor claims to deliver better outcomes for customers.

And we've developed a predictive loss technology for cars written off in an accident that is reducing the claims time for customers from weeks to days.

Actively managing risk is an ongoing priority, and our $100 million, multi-year risk management improvement program is significantly progressed and has strengthened risk controls across IAG.

Natural perils and COVID-19

A high number of extreme weather events has once again impacted our customers and their communities this year, and we were proud to be there for them in the moments that matter.

COVID-19 continues to affect us all, and we were pleased to continue customer support measures we introduced in 2020. More than 68,000 policyholders have taken up these measures which include premium reductions and deferrals.

Stronger, more resilient IAG

I'm confident that the strong leadership team I've established, the new organisational structure we have in place and the strategy we're executing will deliver business and customer growth.

IAG is a company guided by a clear purpose 'to make your world a safer place' that makes a real difference to our customers and communities.

I'm focused on IAG's long-term future, and together with my leadership team and our people, we will build a stronger, more resilient company.

Nick Hawkins

IAG Managing Director and

Chief Executive Officer

1. The FY21 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 the IAG FY21 Financial Report (Appendix 4E). A reconciliation between the two is provided on page 6 of the IAG FY21 Investor Report and on page 8 of the Financial Report to comply with the Australian Securities and Investments Commission Regulatory Guide 230. IAG's FY21 net loss after tax is the same in this document and in the Financial Report.
2. IAG defines its underlying insurance margin as the reported margin adjusted for net natural peril claim costs less the related allowance; reserve releases or strengthening and credit spread movements. Prior to FY21, the definition adjusted for reserve releases in excess of 1% of net earned premium. Comparative periods have not been restated to incorporate the definition from FY21.
3. Refer to page four of this release.

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THIS RELEASE HAS BEEN AUTHORISED BY THE IAG BOARD

IAG FY21 results

IAG announces FY21 results

11 August 2021

FY21 highlights

Sound performance, guidance reintroduced

Improving GWP growth, resilient underlying business performance

• 3.8% GWP growth, largely rate driven
• Lower underlying margin of 14.7% vs 16.0% in FY20
• Steady 2H21 underlying margin trends against 1H21 across each division, excluding COVID-19 impacts, one-off costs and different large loss experience in New Zealand

Reported margin recovered to 13.5%

• Further net reserve strengthening
• Perils above allowance but down on FY20
• Positive credit spread impact

Net loss after tax of ($427m) reflects impact of unusual items

• Business interruption pre-tax charge of $1.15bn unchanged from 1H21

Insurance margin

16.0%

	14.7%
10.1%	13.5%
FY20	FY21
Reported margin	Underlying margin

FY21 GWP growth

• Additional $238m pre-tax charge for customer refunds, increasing the component for uncertainty in the provision to $100m
• $51m pre-tax charge for prior year payroll compliance matters
• Proposed sale of AmGeneral triggered impairment of ~$90m, with expected ~$150m improvement in regulatory capital position expected on completion

Cash earnings of $747m and cash ROE of 12.0%

• Excludes unusual items
• FY21 dividend of 20cps (2H21: 13cps)

Reintroduction of guidance for FY22

• Forecast 'low single-digit' GWP growth
• Forecast reported insurance margin 13.5-15.5%

		5.6%
3.8%	4.3%
			0.9%
Group	Direct	Intermediated	New Zealand
	Insurance	Insurance
	Australia	Australia

GWP growth

Solid momentum continued

Growth of around 4% across FY21

• Achieving strong rate increases where required

Recent trends

• ~$50m adverse COVID-19 impact in 1H21 with no material COVID-19 impact experienced in 2H21
• Direct Insurance Australia growth driven by volume and higher rates across short-tail personal lines
• Average rate increases ~8% with stable retention in Intermediated Insurance Australia
• Ongoing rate increases, strong retention and sound new business in New Zealand
• Application of price increases to counter claims inflation, underperforming portfolios and medium-term trend of higher perils allowance

GWP growth

	0.8%		0.4%
0.7%	3.8%	3.9%	3.8%
1.1%
FY20	1H21	2H21	FY21

Estimated COVID-19 impact

Page 2 of 7

THIS RELEASE HAS BEEN AUTHORISED BY THE IAG BOARD

IAG FY21 results

IAG announces FY21 results

11 August 2021

Divisional highlights

Direct Insurance Australia (DIA)

GWP growth of 4.3%

DIA - GWP growth

• Included volume growth of over 1%
• Rate increases in line with claims inflation and underlying perils allowance increase

Strong underlying margin of 21.4%

• ~2% lower than FY20 on normalised basis following increase in costs and lower investment yield

			6.8%
	5.7%
				4.3%
3.6%
		2.3%
Motor	Home	CTP	Commercial	Total GWP

Intermediated Insurance Australia (IIA)

Strong GWP growth of 5.6%

• Driven by average rate increases of ~8%

Underlying margin improvement to 3.9% in FY21

• Steady across both halves

Reported margin affected by perils experience and reserve strengthening

IIA - GWP growth / underlying margin

6.3%		5.7%	5.5%
		3.8%	3.9%
	~1%
1H20*	2H20 (ex- COVID	1H21	2H21
	19 impact)*
	GWP Growth	Underlying margin

*2H20 adjusted for approximate one-offCOVID-19 impact; no GWP comparisons avaiable for FY20 growth

New Zealand

Solid NZ$ rate-driven GWP growth of 2.8%

Normalised margins remain healthy

• Lower underlying margin in 2H21 of 14.3% reflects property consolidation costs and normalised large loss experience compared to benign 1H21

New Zealand - GWP growth / underlying margin

18.9%	18.3%	18.6%
6.3%					14.3%
4.2%
			2.8%	2.7%
		1.0% 0.8%	1.5%		0.3%
1H20	2H20	1H21	2H21
		A$ GWP growth			NZ$ GWP growth
		Underlying margin

Page 3 of 7

THIS RELEASE HAS BEEN AUTHORISED BY THE IAG BOARD

IAG FY21 results

IAG announces FY21 results

11 August 2021

Return to shareholders

Dividend

Cash earnings of $747m

• Excludes net corporate expense and amortisation & impairment
• Cash ROE of 12.0%

FY21 DPS of 20cps, unfranked

• Represents ~66% of cash earnings
• Committed to 60-80% payout ratio
• Limited capacity to frank eligible dividends over medium term

Capital position

Above mid-point of target benchmark

• At 30 June 2021 IAG's CET1 ratio was 1.06, and 0.93 after payment of final dividend

Dividend history - FY17 to FY21

78.9%	77.9%	79.4%	82.8%
		5.5	66.0%

20.020.020.0

							13.0
13.0	14.0	12.0	10.0	7.0
	FY17	FY18	FY19		FY20	FY21
		Interim Dividend (¢)			Final Dividend (¢)
		Special Dividend (¢)			Payout Ratio (excl. Special)

FY22 outlook

Improved underlying performance expected

IAG is forecasting low single-digit GWP growth and a reported insurance margin of between 13.5-15.5%. Assumptions are outlined in Appendix 1 (page seven of this release).

The FY22 guidance aligns to IAG's aspirational goal to achieve a 15-17% insurance margin over the medium term. This goal encompasses organic direct customer growth that at least matches the market in Direct Insurance Australia and New Zealand, an insurance profit of at least $250 million3 over the next three to five years for Intermediated Insurance Australia and delivering further simplification and efficiencies in the cost structure of the company over the next three years.

"We are optimistic about the outlook for IAG and are reintroducing guidance for FY22. The strength of our core business and its sound underlying performance in FY21, our new operating model with clear, embedded executive responsibilities, as well as greater certainty in the economic outlook, mean that we are confident that IAG's underlying performance will continue to improve," Mr Hawkins said.

3 IIA's goal is based on the combination of the flow through of operational efficiencies, lower loss ratios driven by a portfolio-led improvement plan and the earn through impact of targeted rate increases. The long-tail deterioration experienced in FY21 is expected to improve from FY22 onwards through rate and other initiatives.

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THIS RELEASE HAS BEEN AUTHORISED BY THE IAG BOARD

IAG FY21 results

IAG announces FY21 results

11 August 2021

Our strategy

Create a stronger, more resilient IAG

"IAG's long-term objective is to deliver top quartile Total Shareholder Returns with a s sustainable growth profile. We've reset our strategy to 'create a stronger, more resilient IAG' and to meet this objective we are focusing on four strategic pillars that inform IAG's new operating model and underpin our three-to-five-year strategy," Mr Hawkins said.

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THIS RELEASE HAS BEEN AUTHORISED BY THE IAG BOARD

IAG FY21 results