Insurance Australia : FY22 Investor report (1.06 MB)

Investor Report FY22

Insurance Australia Group Limited

This release has been authorised by the Board of Insurance Australia Group Limited 12 August 2022

ABN 60 090 739 923

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IMPORTANT INFORMATION

This report contains general information current as at 12 August 2022 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. This includes statements regarding IAG's targets, goals, ambitions, intent, belief, objectives and current expectations regarding IAG's business, results, financial condition, capital adequacy, risk management practices and market conditions.

Forward-looking statements may generally be identified by the use of words such as "should", "would", "could", "will", "may", "expect", "intend", "plan", "forecast", "aim", "anticipate", "believe", "outlook", "estimate", "project", "target", "goal", "ambition", "continue", "guidance", "aspiration" or other similar words. While IAG believes the forward-looking statements to be reasonable, such statements involve risks (both known and unknown) and assumptions, many of which are beyond IAG's control (including the impact of climate change and disruptions stemming from outbreaks of COVID-19 and global economic uncertainties-). This may cause actual results, outcomes, conditions or circumstances to differ from those expressed, anticipated or implied in such statements.

In addition, there are particular risks and uncertainties associated with implementation of IAG's strategy and related targets, ambitions and goals. As the targets, ambitions and goals span a number of years, they are subject to assumptions and dependencies which have greater levels of uncertainty than guidance given for FY23. IAG's ability to execute its strategy and realise its targets, ambitions and goals will depend upon its ability to respond and adjust its business plans (as and when developed) to any changes in such assumptions and dependencies, including disruptions or events that are beyond IAG's control.

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 undue reliance should not be placed upon such statements. IAG assumes no obligation to update such information (except as required by law). Past performance is no guarantee or indication of future performance.

To the maximum extent permitted by law, IAG and its subsidiaries and each of its 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.

Further information, including IAG's business structure, portfolio and partnerships is available on IAG's website at https://www.iag.com.au/about-us/what-we-do

IAG FY22 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.............................................................................................................................................	34
7.	Reinsurance..............................................................................................................................................	40
8.	Investments ..............................................................................................................................................	44
9.	Balance Sheet & Capital ...........................................................................................................................	48
10. Climate change and ESG........................................................................................................................	54
11. Glossary .................................................................................................................................................	58
Directory .......................................................................................................................................................	63

IAG FY22 INVESTOR REPORT

FY22 RESULTS

KEY RESULTS	FY21	1H22	2H22	FY22	FY22 vs FY21
A$m	A$m	A$m	A$m	Mvt
Gross written premium (GWP)	12,602	6,570	6,747	13,317	+5.7%
Net earned premium (NEP)	7,473	3,963	3,946	7,909	+5.8%
Insurance Profit¹	1,007	282	304	586	-41.8%
Net profit/(loss) after tax	(427)	173	174	347	nm
Cash earnings	747	176	37	213	-71.5%
Reported insurance margin	13.5%	7.1%	7.7%	7.4%	-610bps
Underlying Insurance Margin²	14.7%	15.1%	14.1%	14.6%	-10bps
Diluted EPS (cents per share)	(17.82)	6.64	6.69	13.33	nm
Cash EPS (cents per share)	31.16	7.15	1.50	8.65	-72.2%
Diluted cash EPS (cents per share)	28.51	6.77	1.50	8.49	-70.2%
Cash return on equity (ROE)	12.0%	5.7%	1.2%	3.4%	-860bps
Dividend (cents per share)	20.0	6.0	5.0	11.0	-45%
Common Equity Tier 1 Capital (CET1) multiple	1.06	1.02	0.97	0.97	-9pts

GWP GROWTH

		6.2%
			5.2%		5.7%
3.8%	3.9%			3.8%
				12,602	13,317
6,188	6,414	6,570	6,747
1H21	2H21	1H22	2H22	FY21	FY22
		GWP (A$m)		GWP Growth (%)

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

					347
	33	173	174
(460)				(427)
1H21	2H21	1H22	2H22	FY21	FY22

INSURANCE PROFIT & MARGIN

17.9%
15.9%			15.1%	14.1%	14.7%	14.6%
		13.5%		13.5%
		9.1%				7.4%
				7.7%	1,007
			7.1%	1,157
				1,095
667	592	503	600	557	586
		340	282	304
1H21	2H21	1H22	2H22	FY21	FY22
		Reported Insurance Profit¹ (A$m)		Underlying Insurance Profit (A$m)
		Underlying Margin² (%)		Reported Margin (%)

DILUTED CASH EPS & DPS

							28.5
17.9							20.0
	10.8	13.0							11.0
								8.5
7.0			6.8	6.0	1.5	5.0
1H21	2H21	1H22	2H22	FY21	FY22
			Diluted Cash EPS (cents)		DPS (cents)

CASH ROE					REGULATORY CAPITAL (MULTIPLE)
							1H22
							FY22
15.5%							1.82	1.80
9.0%		12.0%		1.02	0.97
5.7%	1.2%	3.4%
								CET1	PCA
	1H21 2H21 1H22 2H22	FY21 FY22
								Target benchmark range

¹The FY22 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 FY22 Financial Report (Appendix 4E). A reconciliation between the two is provided on page 11 of this document and on page 8 of the Financial Report to comply with the Australian Securities and Investments Commission's Regulatory Guide 230. ²IAG defines its underlying insurance margin as the reported insurance margin adjusted for net natural peril claim costs less the related allowance; prior year reserve releases or strengthening and credit spread movements.

IAG FY22 INVESTOR REPORT

1. EXECUTIVE SUMMARY

GROUP HIGHLIGHTS

• Strong GWP growth and improved underlying business performance despite challenging external environment with unprecedented level of natural perils claims and volatile investment markets
• Progress in all four strategic priorities: customer growth, building better businesses, digital and risk
• NPAT $347 million (FY21: $427 million loss)

GROSS WRITTEN PREMIUM

• 5.7% GWP growth, consistent with the upgraded guidance of 'mid-single digits'
• Growth predominantly rate-drive across all segments
• ~1% unit growth in Australian direct home and motor with retention rates improving to over 95% and 90% respectively.

INSURANCE PROFITABILITY

• FY22 underlying insurance margin of 14.6% (FY21:14.7%) impacted by positive benefits from Covid impacts on motor frequency and negative timing impact from increasing risk-free interest rates
• Group expenses of $2,531 million in line with commitment to hold expenses around the $2.5 billion level, resulting in an improvement in expense ratios
• Reduction in reported margin to 7.4% due to natural perils above allowance ($354m), strengthening of prior year reserves ($172m) and credit spread negative impacts ($45m)

DIRECT INSURANCE AUSTRALIA (DIA) HIGHLIGHTS

• GWP growth of 4.6% (5.4% if the lower ESL impact is excluded)
• GWP growth accelerating during FY22 with second half growth of 5.8%
• Underlying margin remained strong at 20.5% (FY21: 21.4%)

INTERMEDIATED INSURANCE AUSTRALIA (IIA) HIGHLIGHTS

• 6.0% GWP growth, with at least high single-digit growth achieved across commercial lines
• Rate increases averaged around 9% during FY22, building on the 8% in FY21
• Underlying margin improved to 5.0% (FY21: 3.9%)

NEW ZEALAND HIGHLIGHTS

• NZ$ GWP growth of 7.0% (FY21: 2.8%) largely driven by rate increases across all key portfolios
• Strong retention across direct and commercial lines and volume growth in some commercial lines
• Improved underlying margin of 16.8% (FY21: 16.4%)

ADDITIONAL MATTERS

• Business interruption provision release of $200 million with $975 million retained at 30 June 2022
• Malaysian business sale completion in July 2022 providing an additional capital benefit of $150 million
• No change to no net insurance exposure to trade credit policies sold through BCC Trade Credit

CAPITAL & DIVIDENDS

• Final dividend of 5.0 cents per share, 70% franked (FY21:13 cents per share, 0% franked)
• Total FY22 dividends of 11.0 cents per share (FY21: 20 cents per share, 0% franked)
• Solid CET1 ratio at 0.97 with ~6pts improvement post-balance date from Malaysian sale

IAG FY22 INVESTOR REPORT 1