Summary of Performance

AUSTRALIAN OPERATIONS

PERSONAL INSURANCE

IAG’s largest division, Australian Personal Insurance, increased gross written premium in its core portfolios of home and motor insurance and regained CTP market share during the year.

A combination of increased volume of insurance policies sold, as well as higher average premium, including higher average value of assets insured in the home insurance portfolio, contributed strongly to top line revenue growth, particularly in the second half of the year.

The introduction of the NSW Government’s Lifetime Care & Support Scheme in October 2006 impacted our NSW CTP portfolio. Funded by a levy on all CTP policies, the scheme is designed to support children who are severely injured in motor accidents, regardless of who was at fault. It will be extended to adults from October 2007.

We regained CTP market share, increasing our share to 38% of registrations, in line with our target for the year.

Customer renewals in our NRMA Insurance, SGIO and SGIC direct personal lines portfolios remained over 90% and customer satisfaction improved by 3% to 83%.

These pleasing results were achieved against a background of significant consolidation in the Australian personal insurance industry and continuing competition across all personal insurance product lines.

The most significant claims event for our business during the year occurred when severe storms hit the Newcastle and Central Coast region of NSW in June 2007, causing hundreds of millions of dollars worth of damage to our customers’ property.

We are proud of the response of our people to the storms, who came together to help our affected customers get on with their lives as quickly as possible.

A major contributor to the growth in our personal insurance portfolio has been a renewed focus during the year on improving our customers’ insurance experience. We achieved this on a number of fronts.

Feedback from our employees indicated that the pace of change in our business was making it difficult for them to focus solely on delivering customer service. Addressing this concern contributed to a 7% improvement in employee engagement across the board, with scores as high as 85% among groups of our customer-facing staff, and this has translated into customer satisfaction improvements.

We also invested significantly in new marketing campaigns for our personal insurance brands to continue to differentiate their value propositions and products, including customer rewards and product features. At the same time, we continued our focus on customer segmentation and maintaining competitive pricing positions in each of our markets. This included tailored pricing for specific segments, for example small versus large cars.

Our aim to manage our business sustainably saw us continue to work closely with the community and our customers to help make roads and homes safer, reduce crime and minimise our environmental impact.

We invested more than $12 million in community-based initiatives, including grants to local community groups that aim to reduce risk, and continued support for our community partners, including the Salvation Army Emergency Services and NRMA Careflight.

We also introduced a new product feature to reward our customers for their efforts to reduce their own impact on the environment. Our NRMA Insurance Fuel Efficient Saving gives a saving of approximately 10% on premiums for comprehensive car insurance policies to owners of cars with a fuel economy of 5.5 litres per 100 kilometres or better.

LOOKING FORWARD

We aim to build on the momentum generated throughout the year, and further grow gross written premium in our major portfolios, while reducing expenses. We will achieve this by continually improving our customers’ experience by:

• creating a great working environment, and operating in the best employer range;
• working with the community to build a safe, sustainable world to live in; and
• building a strong business landscape in which we can forge mutually beneficial partnerships with our suppliers.

CGU INSURANCE

IAG’s Australian commercial insurance business, CGU, again delivered profitable returns this year, despite the continuing downward pressure on commercial insurance premiums.

Intense competition from local and international insurers continued, and was particularly strong in general liability, professional indemnity and workers’ compensation. Average commercial insurance premiums reduced across the market.

Our ability to generate a strong performance was supported by maintaining our disciplined approach to risk selection, rather than writing business at prices below the level we consider necessary to generate an adequate return. Renewal rates through the year remained high, particularly among small to medium sized businesses and rural customers.

Claims performance is one of the most important satisfaction drivers for our intermediaries and their customers. We continued to partner with intermediaries to improve this performance leading to the introduction of a number of initiatives designed to meet evolving needs.

These include the launch of iClaims – a monitoring tool enabling brokers to track their clients’ claims online; and FastTrack – a system to provide settlement within 48 hours for common claims, such as minor motor and property claims.

We also introduced risk management solutions, including CGU Right Cover, a new service designed to address the issue of underinsurance, particularly among small businesses, of which half are underinsured. Working in partnership with professional loss adjustors and our customers’ brokers, we visit businesses to ensure assets are correctly valued. In addition, we evolved our suite of Risk Radar products. These are online tools to help our customers identify and address safety risks.

Brokers continued to rank CGU highly, and JP Morgan Delloite’s latest insurance survey nominated CGU as one of the top three insurers overall.

CGU was one of the first insurers on the ground supporting customers when the devastating storms hit the Newcastle and Central Coast region of NSW in June 2007, which ranked as the most significant claims events of the year.

As CGU is often dealing with specialised markets, including the small business, rural and corporate markets, our people need specialised training to enhance technical knowledge and skills.

We launched the CGU Academy in July 2006 to meet this need, and more than 7,000 training modules have already been completed. This training has contributed to strong levels of CGU employee engagement.

LOOKING FORWARD

We believe the industry needs to move to more rational, risk-based commercial pricing to ensure the long-term sustainability of the cover it provides to Australian businesses. This will avoid the need for significant increases in future years, making cover unaffordable or inaccessible for some customers.

CGU is taking a leadership position on this issue and will introduce targeted rate increases on under-performing portfolios in the coming year.

We are working closely with intermediaries to manage the impact of these increases on their clients and demonstrate the value of our superior underwriting and claims service. We are also adding value to our existing competitive rates by offering risk management solutions, such as Risk Radar and CGU Right Cover.

We remain committed to our business goals for CGU to become number one in small business, regional and brokered personal lines, and in the top three in other chosen markets.

Initiatives being implemented to achieve these goals include:

• establishing a best-in-class account management model;
• moving from national to region-based pricing;
• increasingly targeting the medium-sized business market, particularly in regard to professional risks; and
• building capability in construction/engineering, motor fleet and marine insurance.

A number of other focus areas crucial to CGU’s goals include:

• becoming the number one employer of choice;
• becoming the best in the business at claims; and
• claiming a leadership position in the provision of innovative solutions.

BUSINESS PARTNERSHIPS

IAG’s Business Partnerships division experienced a significant turnaround in its underlying performance during the year.

Improvements occurred in both the retention of our workers’ compensation customers and the management of our third party distribution relationships. We achieved strong sales results, particularly in our financial institutions and dealer channels, as we focused on improving our strategic approach to our relationships and a more disciplined approach to pricing and technology.

Our measures show satisfaction has improved among our financial institution and dealer business partners in our third party distribution business and workers’ compensation customers, particularly in NSW.

Initiatives undertaken to build on mutually beneficial partnerships with our business partners and improve employee retention and engagement contributed to these improved results.

Our businesses have been actively working on improving operational efficiency. One initiative was the launch of .Live, an electronic portal that cuts ‘red tape’ by allowing employers to lodge notifications of injury and obtain quotes and certificates of currency. This has enabled us to improve our response to injury management through earlier notification of injury by our business partners.

We worked with NSW WorkCover to secure a change in state legislation to allow details to be submitted electronically and, when the legislation was enacted in late 2006, .Live was launched. The results have been significant for our NSW business:

• more than 19,000 requests for cover notes have been received and, of these, 93% have been generated automatically;
• about 2,700 injury notifications have been received; and
• quotes provided to employers online for workers’ compensation have resulted in a 64% conversion to policies.

Activ8, a front end sales system developed by Swann Insurance, has seen similar success. More than 80% of motorcycle and motor dealer gross written premium was derived through the channel, reducing costs and improving service to our customers. We plan to deploy similar point of sale technology for the financial institution distribution channel.

While these initiatives have improved customer service, sustaining this progress means ensuring the ongoing commitment and development of our highly trained professionals and a focus on staff retention and engagement.

To meet this need, we are working with Deakin University, other insurers and workers’ compensation and motor accident authorities as part of the Personal Injury Education Foundation (PIEF). PIEF offers a Masters programme in Personal Injury, covering scheme design, leadership and injury management. Employees from across our personal injury business are participating in the programme.

In addition, in NSW and Victorian workers’ compensation, we have initiated new staff development programmes focusing on continual coaching and support. At our national Customer Care Centre we have also improved recruitment practices, including recruiting more mature age staff and reviving our induction programme. These programmes have led to lower staff turnover and increased engagement during the year.

LOOKING FORWARD

We believe that strengthening our partnerships and value proposition is key to our success. We will continue to develop strategic plans with our key business partners to ensure we design a mutually agreed strategy to drive value for both organisations and delivering improved service to the end customer.

The deployment of Salesforce.com, which began in early 2007, will strengthen our account management approach.

All businesses are exploring new opportunities with our current partners and focusing on new markets.

Harmonisation of workers’ compensation schemes across Australia will further cut ‘red tape’ for national employers and we will continue to work with governments across Australia toward this goal.

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