IAG’s gross written premium for 2005/06 is higher than the gross national income of more than 55 countries globally (source: World Bank). With this fact comes responsibility. Contributing 0.67% to Australia’s GDP, we aim to positively influence the economies of the communities in which we operate.

Delivering sustainable results

In 2006, we delivered a solid financial performance, recording a net profit after tax of $759 million, and our second-highest annual insurance margin and return on equity since listing. We declared our highest ever final dividend, bringing annual dividends paid to shareholders for the year to 29.5 cents per ordinary share, an 11.3% increase from the previous year. We also paid shareholders a special dividend of 12.5 cents per share in line our commitment to return $200 million in surplus capital to shareholders.

When measured since 1 January 2002, the Group's cumulative total shareholder return is 104.4%, which ranks the Group 25th of the companies in the S&P/ASX100 index that operated throughout the period.

Growth in international markets is essential for our long-term financial success. We have made progress on our plans to expand into Asia, having acquired interests in Malaysia, Thailand and Singapore during the year. We are also in final negotiations to purchase a stake in China's second largest general insurer, and we are continuing to investigate other potential acquisitions in general insurance markets in Asia and Europe. We will report on developments next year.

Minimising underinsurance

The economic implications of insurance – such as affordability and accessibility - are closely tied to social outcomes. Underinsurance is a critical case in point. Realising that your home or car is not comprehensively insured is highly stressful at the point of claim. Our customer service operators are trained to give information that helps our customers select the appropriate level of cover. We also provide free online insurance calculators that provide guidance for customers and the community in measuring their own risks.

In July 2005 we published a report called “What You Need to Know About Insurance: Would Have. Could Have. Should Have.”. The report details how an insurance premium is calculated as well as how to ensure customers have the appropriate level of cover. The report also provides tips on how customers can reduce their own risks and therefore influence the price of their own premiums.

In addition, the “Insure Your Stuff” campaign in New Zealand raises awareness of the risks of underinsurance in the university student community. University students are often unaware of the risks they face by not insuring their possessions, particularly as they are a frequently targeted group for burglary and crime. Representing the State brand, our sales team visits seven major universities during orientation week and provides information on how students can protect their “stuff”.

Taking a holistic approach to asset management

IAG Asset Management (IAGAM) is an integral part of our business. We invest some of the money we receive in the form of premiums to ensure there are adequate reserves in place to pay our customers’ claims, and we invest the capital back into our business. The investments held to pay future claims are largely invested in highly rated bonds while the Group’s capital is largely invested in equities.

We apply a rigorous set of criteria to our equity investment portfolio, with the ultimate goal of identifying investments that deliver long-term value. In our view, measures of long-term financial success- such as earnings growth and rising return on equity (ROE)- are linked to non-financial measures like the quality of relationships with employees and the community. We look at both types of measures when determining where we should invest.

As part of our research process, our IAGAM analysts meet with companies in which we may invest or are already invested. They directly assess whether these companies are taking into consideration economic, social and environmental factors that will impact on their long-term performance. Examples of such factors include:

• company behaviour towards employees, including issues such as employee turnover, share ownership, performance objectives, customer satisfaction and safety;
• assessing the cultural imperatives of the company;
• corporate governance, including a review of directors, accountability and compliance with generally accepted standards;
• community interaction such as how the organisation is viewed by the communities it operates in and how the company contributes to charities; and,
• environmental risk management of operations.

This approach gives us a more holistic view of a company’s potential long-term performance, and this, in turn, drives our investment decisions.

Investing in sustainable communities

Under the NRMA Insurance brand in NSW, we have partnered with police and local councils to reduce crime in Shellharbour, Dubbo and Redfern. In particular, we are seeking to decrease the levels of home burglary and car theft in these communities.

We used our claims data to identify Shellharbour, Dubbo and Redfern as pilot communities for the Social Capital Investment Program (SCIP), which includes the following initiatives:

• deploying the Crime Prevention Van, which allows a mobile security team to give advice to householders on home and car security;
• providing support and security advice to victims of burglary;
• BizSafe, a crime prevention program for small businesses; and
• Car park audits and car theft crime prevention.

SCIPs began in June 2004, and to date we have contributed data, staff expertise, time and funding. Results have been generally positive, and the response from the police and the community has been very encouraging.