STRATEGY
IAG has a clearly articulated strategy to build on its financial strength and past successes to achieve consistent top quartile returns for its shareholders.
IAG's strategy is to diversify risks and double the size of the business between 2006 and 2012 while maintaining a rating of AA for the Group and a normalised ROE of at least 1.5x WACC. IAG plans to maintain its 80:20 mix of short-tail: long-tail premiums.
The Group's long term strategic goals include:
- Deliver top quartile total shareholder returns (TSR).
- Earn a return on equity (ROE) of at least 1.5 times our weighted average cost of capital (WACC) on a normalised basis.
- Continue to build an international platform.
- Maintain an 80:20 mix of short tail: long tail premiums.
- Maintain 'AA' category insurer financial strength rating for wholly owned subsidiaries.
Deliver top quartile total shareholder returns (TSR).
The Group aims to achieve total shareholder returns at levels within the top 25% of companies within the S&P/ASX 100 over the long term. Since listing on 8 August 2000 to 30 June 2007, IAG has delivered a total shareholder return of 176%. While this does not rank us in the top quartile of companies in the S&P/ASX 100 during the period, IAG remains committed to this long-term goal.
Earn a return on equity (ROE) of at least 1.5 times our weighted average cost of capital (WACC) on a normalised basis.
The Group aims to achieve a return for ordinary shareholders that is a multiple of at least 1.5 times the Group's weighted average cost of capital ('WACC') on a normalised basis. Return on equity is the simple measure of the earnings the Group is achieving on the capital provided by its shareholders (equity). The return on the shareholders' funds portfolio are normalised when measuring performance against this goal. As at 30 June 2007, the Group reported return on equity of 13.5% (or 12.9% on a normalised basis).
Continue to build an international platform.
IAG is committed to cementing its leadership position in Australia and New Zealand while continuing to grow and diversify earnings across both emerging and mature markets.
In the growing Asian markets, IAG has a regional office in Singapore with businesses in Thailand, Malaysia and China. In 2006 IAG acquired an underwriting agency, Alba Pte Limited and a new Lloyd's syndicate dedicated to Asian business.
IAG entered the United Kingdom market in 2006 with the acquisition of both the Hastings and Equity brands in the United Kingdom.
With these acquisitions, IAG now has three international divisions, with NZ representing 14% of gross written premium, the UK 10% and Asia 2%.
Maintain an 80:20 mix of short tail: long tail premiums.
Maintaining an 80:20 mix of short-tail: long-tail premiums ensures the Group is not overexposed to the long-tail classes of insurance, which carry higher risk and volatility. For the 2007 financial year, the Group's mix of short-tail and long-tail premiums was 80:20.
Maintain 'AA' category insurer financial strength rating for wholly owned subsidiaries.
The Group's key insurance operations hold 'AA' insurer financial strength ratings (with 'Stable' outlook) from Standard & Poor's. The Group continues to consider that the conservative levels of capital dictated by targeting 'AA' category ratings are an appropriate reflection of the Group's current risk appetite.
