Insurance Australia : FY21 Investor report (906.24 KB)

FY21

Investor

Report

11 August 2021

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 August 2021 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 FY21 INVESTOR REPORT

CONTENTS

1.	Executive Summary..........................................................................................................................................	1
2.	Strategy ............................................................................................................................................................	2
3.	Group Results...................................................................................................................................................	4
4.	Direct Insurance Australia ..............................................................................................................................	24
5.	Intermediated Insurance Australia..................................................................................................................	31
6.	New Zealand...................................................................................................................................................	37
7.	Market Regulation and Legislative Reform ....................................................................................................	42
8.	Reinsurance....................................................................................................................................................	46
9.	Investments ....................................................................................................................................................	49
10.	Balance Sheet & Capital...............................................................................................................................	53
11.	Safer Communities .......................................................................................................................................	59
12.	Glossary........................................................................................................................................................	61
Directory .............................................................................................................................................................	66

Information previously included in Appendices A to D (Brand Portfolio, Business Snapshot, Key Relationships, Geographical & Product Diversification) is available in IAG's Corporate Profile and can be located at the following link at IAG's corporate website:

https://www.iag.com.au/about-us/what-we-do

IAG FY21 INVESTOR REPORT

FY21 RESULTS

KEY RESULTS	FY20	1H21	2H21	FY21	FY21 vs FY20
A$m	A$m	A$m	A$m	Mvt
Gross written premium (GWP)	12,135	6,188	6,414	12,602	+3.8%
Net earned premium (NEP)	7,363	3,723	3,750	7,473	+1.5%
Insurance Profit¹	741	667	340	1,007	+35.9%
Net profit/(loss) after tax	435	(460)	33	(427)	nm
Cash earnings	279	462	285	747	nm
Reported insurance margin	10.1%	17.9%	9.1%	13.5%	+340bps
Underlying Insurance Margin²	16.0%	15.9%	13.5%	14.7%	-130bps
Diluted EPS (cents per share)	18.49	(19.73)	1.34	(17.82)	nm
Cash EPS (cents per share)	12.12	19.82	11.56	31.16	nm
Diluted cash EPS (cents per share)	12.12	17.88	10.80	28.51	nm
Cash return on equity (ROE)	4.5%	15.5%	9.0%	12.0%	nm
Dividend (cents per share)	10.0	7.0	13.0	20.0	+100%
Common Equity Tier 1 Capital (CET1) multiple	1.23	1.19	1.06	1.06	-17pts

GWP GROWTH

3.8% 3.9%3.8%

1.4%	0.8%				1.1%	12,602
					12,135
5,962	6,173	6,188	6,414
1H20	2H20		1H21	2H21		FY20	FY21
			GWP (A$m)			GWP Growth (%)

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

435

283

15233

		(460)			(427)
1H20	2H20	1H21	2H21	FY20	FY21

CASH ROE

INSURANCE PROFIT & MARGIN
		17.9%
16.9%	15.1%				16.0%
				14.7%
13.5%				13.5%
	15.9%		13.5%
				9.1%	10.1%
	6.6%				1,172	1,007
				1,095
					741
625		667
547	592	503
501
	240			340
1H20	2H20	1H21	2H21	FY20	FY21
Reported Insurance Profit¹ (A$m)		Underlying Insurance Profit (A$m)
Underlying Margin² (%)			Reported Margin (%)

DILUTED CASH EPS & DPS

28.5

16.0			17.9					20.0
			13.0
			10.8	12.1
10.0		-	7.0	10.0
	(4.4)
1H20	2H20		1H21	2H21	FY20	FY21
			Diluted Cash EPS (cents)	DPS (cents)

REGULATORY CAPITAL (MULTIPLE)

1H21

FY21

		15.5%						2.04
12.1%					12.0%			1.86
		9.0%
				4.5%		1.19	1.06
	(3.3%)
1H20	2H20	1H21	2H21	FY20	FY21
	CET1		PCA

Target benchmark range

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

IAG FY21 INVESTOR REPORT

1. EXECUTIVE SUMMARY

GROUP HIGHLIGHTS

• Sound GWP growth and resilient underlying business performance vs FY20
• New operating model deployed to embed clear accountability and drive improved performance
• Demonstrated progress across all four strategy areas: customer growth, building better businesses, digital and risk
• Significant investment in risk management and capability to address unusual items that impacted FY21
• $427m net loss after tax, cash earnings excluding unusual items of $747m equates to 12% cash ROE
• Continued capital strength, with CET1 ratio in the upper end of targeted range

GROSS WRITTEN PREMIUM

• GWP growth of 3.8% over FY21, or 4.3% adjusting for foreign currency translation effects
• Momentum maintained in 2H21, with GWP growth of 3.9% after growth of 3.8% in 1H21
• Growth predominantly rate-driven, with ~1.2% direct customers growth in Australia, strong rate growth across commercial classes in Australia and solid rate increases in all key classes in New Zealand (NZ)

INSURANCE PROFITABILITY

• FY21 underlying insurance margin of 14.7%, lower than 16.0% in FY20 (15.0% in FY20 excluding 1% reserve release assumption, to align with the underlying margin definition from FY21)
• Adjusting FY21 for the midpoint of the estimated net $60-$70m benefit from COVID-19 (realised in 1H21), underlying margin of 13.8% compared to 15.0% in FY20, which had a neutral COVID-19 impact
• Lower 2H21 underlying margins of 13.5% vs 1H21 of 14.2% (ex-COVID-19) from the net effect of non- recurring expenses, lower reinsurance costs and reversal of the benign large loss experience in NZ
• Firm recovery in reported margins to 13.5% in FY21 from 10.1% in FY20
• Reported margins impacted by natural perils above allowance ($84m) and further strengthening of prior year reserves ($81m) partly offset by positive credit spread gains ($77m)

DIRECT INSURANCE AUSTRALIA (DIA) HIGHLIGHTS

• GWP grew 4.3% through rate and volume growth, with a stronger 2H21 performance from motor
• Customers served grew ~1.2% to ~4.8 million
• Excluding COVID-19 benefits, underlying margins remained strong at ~20% across FY21

INTERMEDIATED INSURANCE AUSTRALIA (IIA) HIGHLIGHTS

• 5.6% GWP growth, with high single-digit growth achieved across commercial lines
• Rate increases averaged around 8% over FY21; part of deliberate and ongoing portfolio management
• Excluding COVID-19 effects in the prior year, underlying margins improved to around 4% in FY21

NEW ZEALAND HIGHLIGHTS

• Local currency GWP growth of 2.8%, largely driven by rate increases across all key portfolios
• Volume growth in commercial property, private and commercial motor portfolios
• A lower FY21 underlying margin of 16.4% partly reflecting a return to pre-COVID-19 claims trends

ADDITIONAL MATTERS

• Business interruption provision of $1,236m as announced on 20 November 2020 unchanged
• Further pre-tax charge including allowance for uncertainty of $238m in FY21 for customer refunds
• Pre-taxcharge of $51m for remediation payments and costs relating to a payroll compliance review
• Announced proposed sale of Malaysian business, with ~$90m expected loss recorded as impairment
• Maintain no net insurance exposure to trade credit policies sold through BCC Trade Credit

CAPITAL & DIVIDENDS

• Final dividend of 13.0¢ per share, unfranked - taking FY21 payout ratio to 66.0% of cash earnings
• Strong CET1 ratio at 1.06 (0.93 after final dividend); ~6pts improvement expected from Malaysian sale

IAG FY21 INVESTOR REPORT 1