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Our approach


Our approach to customers, community, the environment and our people provides the foundation for financial performance.
 

Our performance


For FY10, IAG has announced:
  • An insurance profit of $493m;
  • Underlying gross written premium growth (GWP) of 3.8%; and
  • An insurance margin of 7%.
 

Case studies


In the case studies below we share some of our economic initiatives and challenges.

Partnerships to help us grow
Strengthening UK claims reserves
IAG’s approach to investment management

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Our approach

Our approach to customers, community, the environment and our people provides the foundation for financial performance.

Equally, we can only continue to meet our obligations to our stakeholders and deliver value to our shareholders if we continue to drive financial performance. Central to this is maintaining a strong capital and investment position, and using our risk expertise to appropriately identify and respond to risk.

Our performance is guided by our three year corporate strategy, outlined under Introducing our approach.

In terms of our economic performance, we’ve identified two financial targets which we aim to deliver on. These are:

  • Top quartile total shareholder return (TSR) as measured against the ASX Top 50 Industrials; and
  • Return on Equity (ROE) greater than 1.5 times the weighted average cost of capital (WACC) on a through the cycle basis. Return is defined as Net Profit After Tax (NPAT) plus amortisation and adjusted for unusual items (cash ROE).

IAG also aspires to maintain a secure position within it chosen industry and classes. This target is reflective of IAG’s aim to be a sustainable organisation over the longer term, and we assess the relative strength of our position through the following:

  • Measures to assess defendable market shares of each of IAG's Business divisions
  • The maintenance of strong customer franchises, IAG will continue to evaluate this through a combination of measures including customer advocacy, satisfaction and retention
  • Solid financial performance indicators, including profitability and insurance margin
  • Efficiency in delivering our products and services.

More detailed information and commentary about our financial performance is included in the 2010 Annual Review, 2010 Financial Statements and the FY2010 Investor report.

Our performance

For FY10, IAG has announced:

  • An insurance profit of $493m;
  • Underlying gross written premium growth (GWP) of 3.8%; and
  • An insurance margin of 7%.

GWP

Central to our economic performance over the past year has been our strategic focus on our core businesses in Australia and New Zealand, which make up nearly 90 per cent of IAG’s total gross written premium. These businesses have made encouraging improvement in their collective underlying performance.

Together, these businesses delivered an insurance margin of 13.2%, up from 6.8% last year, reflecting a focus on underwriting discipline, risk selection, cost control and the customer experience.

Insurance margin

The result was affected by the impact of the unprecedented Melbourne and Perth storms in March 2010, which generated almost 75,000 claims and a net cost of $210 million, as well as the one-off $367 million charge recognised in our UK business, following an increase in bodily injury motor claims in that market.

Unfortunately in FY2010 we have not achieved our top quarter shareholder return (TSR) or Return on Equity targets however, these are long term, through the cycle targets, not one year targets

For more details of our financial performance, refer to our 2010 Annual Review and Annual Report or 2010 Investor Report.

Case studies

In the case studies below we share some of our economic initiatives and challenges. Given that significant discussion of our financial performance is included within our 2010 Annual Review, 2010 Annual Report and 2010 Investor Report we have focused on three key topics.

Partnerships to help us grow
Strengthening UK claims reserves
IAG’s approach to investment management

Partnerships to help us grow

One of IAG’s strategic priorities is pursuing selective growth opportunities, and our Asia division remains vital to achieving this goal. The challenge for our Asia division is to continue to get the balance right between maximising operational efficiency in our established businesses, building up our Indian joint venture, and pursuing appropriate new market entry opportunities.

Each market that a company operates in comes with its own individual characteristics, opportunities and challenges. We have therefore given a great deal of thought to how we pursue these growth opportunities in a sustainable way.

Strengthening UK claims reserves

In 2010, IAG strengthened its UK claims reserves in response to a UK industry trend which has seen an increase in bodily injury claims.

Like other insurers operating in the UK, IAG company Equity Red Star experienced an increase in claims for bodily injury. This included a rise in the number of injured parties per accident, primarily driven by the rapid growth in ‘claim farming’ activities of accident lawyers, with ‘no win, no fee’ services to claimants. 

IAG’s approach to investment management

As an insurer, IAG generates returns for investors both through income from premiums, and from our own investment program.

The income from our investment program is critical to the sustainability of IAG since these funds back our technical (money received from premium payments) and shareholder (balance sheet value of shareholders’ interests in IAG) reserves, which total over $11bn. In FY10, the investment returns on technical reserves were lower than FY09, reflecting the residual effect of the sharp drop in interest rates incurred in FY09. Conversely, investment returns on shareholders’ funds have shown considerable improvement, reflecting the recovery in equity markets relative to FY09.