Insurance Australia Group Limited (IAG) Earnings Call Transcript & Summary

Well, good morning, everyone. Welcome to the 2023 Annual General meeting of Insurance Australia Group. It is good to welcome those of you who are here in person and also those of you who are joining us online via the webcast and listening on the phone. My name is Tom Pockett, I'm Chair of IAG. I am looking forward to engaging with you during the course of today's AGM. We have chosen to hold today's AGM as a hybrid meeting, as we feel this gives you, our shareholders, the most flexibility and opportunity to engage with your Board in this important forum. The group company secretary has informed me that a quorum is present, so I declare our 2023 AGM open. A notice of the meeting has been published on the ASX and sent to shareholders, and I'll take the notice as read. In keeping with our commitments that we made in our stretch reconciliation action plan, we are delighted to welcome Aunty Donna Ingram to officially welcome us to her land, the Gadigal country. Donna is currently on the Board of the Wyanga Aboriginal Elders program in Redfern and has served as a Board member of the New South Wales aboriginal housing office. I am very pleased to welcome Aunty Donna.

Thank you. [foreign language] Good morning, everyone. I hope you are all well this morning. Thank you very much for that introduction. I am [indiscernible] as we just talked about from a little town called [ Kara ]. It's a big town now. That's right. On the [ Lockton river] or the gauley river. And I was born and raised on the aboriginal reserve area, youngest of 11 children. Unfortunately, there are only two of us left there, my sister and I. But we carry the tradition of our ancestors, of our elders through. My parents were fighters. My parents were fighting for aboriginal citizenships in 1938. I'm the descendant of a warrior called Windradyne. So we have been fighting for rights for our people for a long, long time. And we will continue to do that fight. My mother moved down to Redfern, when I was young. So I've lived on Gadigal country for most of my life but I am a [Redre] and I want to acknowledge that we're on the traditional land of the Gadigal people of the Eora nation, the Eora nation is founded by three rivers, the Hawkesbury River to the north, the [Nepean] River, this side of the Blue Mountains and the Georges River. And within those boundaries, there are 29 small plan groups. The Gadigal were here, watching those tour ships coming from England. They are -- Sunrise, that's really important to us. They are Sunrise people, salt water and the tottem is the [indiscernible] or the whale. And it is an absolute pleasure for me to be here today to be able to welcome to country. So what we do, we use our clap sticks. And these are mine and they've got on Magna, which is my [indiscernible]. So what will happen when we want to go into somebody else's country. So there are 200 -- over 200 different aboriginal or countries or or language groups right across this country. So we just don't walk into somebody else's country. We ask them for permission using the clap sticks. And when we go in, we have to have a reason or a purpose to be able to do that. So we have a message stick. And we'll have something written on that message to say, can we please have permission to come on to your country? And these are the reasons why. So this tradition has been practiced for over 65,000 years. We continue to do that. And I'm so proud as an aboriginal elder and our elders are respectfully referred to as aunt and uncle in our aboriginal cultural tradition. And when I say hello to you, I say Yama. So this is really, really important because we have a lot of people out there where perhaps they're on the straight [path], perhaps they're home alone, and perhaps they just have not had anybody to say hello to them and acknowledge them. So I'd like you to look at the person, next to you, behind you, or somewhere else, and acknowledge them. I say Yama. That's my aboriginal [redre] word to say, I see you, you are special, you are important. So when we do as average adults, we do welcome to country. Where we do welcome to country, I welcome you to mother earth, most certainly, but I also welcome you to my culture. I welcome you to my people to our heart as soul and as spirit. So as an average elder that does open me up and make me somewhat vulnerable. So I have to trust that you will mayube not believe it, as much as I do, but that you will respect and acknowledge that we have a culture that's gone here for over 65,000 years. At the moment, my friends, we are 3% of the Australian population. So that means it's 97% of all other Australians, other people have come here to call this land theirs. And so we -- I certainly -- I want to walk with Australian people, with all of us Australians, I want to walk with you because we can't do it alone with our 3%. But I'm telling you, my friend, you can't do it without us, the first nation's people, who've been here for 65,000 years, who have the culture, who have the knowledge, who have the spirit that we are so generously sharing with the rest of the Australian public. So our elders, I absolutely have to acknowledge our elders, but also acknowledge elders from other cultures as well. I think we are so special in that we carry the knowledge, we carry the experience. I have so many people in my community that say Aunty Donna, what do you think about this? Aunty Donna, can you help us with this? And we are so ready there to work with our younger generation, to work with our communities to pass on any lived experience information knowledge that we have held at our lifetime, that's been passed by our elders and passed on by our spiritual ancestors. And I know my spiritual ancestors are here with me. And that's what welcome to country is all about. It's about making sure that you are protected on your family on this ancient, ancient land. I just want to acknowledge that you're doing your AGM this morning. I know that you all do really, really hard work. I know what you do is really important to so many people right across the country that you do because people need to be. People must be protected. So this is what you do. And so make good decisions, have really good pure thoughts about the decision when you make those decisions because it is for other people, not just for ourselves that you make these decisions. Make good decisions and good luck. Have a great day in your AGM. So thank everybody. Welcome to Gadigal country. Thank you.

Thank you, Aunty Donna. Those were wonderful words. Thank you very much. I would now like to introduce the IAG Board of Directors to you. On the stage with me from my far left are George Sartorel; Simon Allen; Helen Nugent; and George Savvides. Closest to me is Peter Horton, the Group Company Secretary and General Counsel. And on my right, standing closest to me is Nick Hawkins, our group CEO and Managing Director; David Armstrong, Chair of the Audit Committee; Wendy Thorpe; Jon Nicholson; and Michelle Tredenick, who chairs our Risk Committee; and Scott Pickering. You will hear from each of Simon, Jon and Wendy later in the meetings. As they are standing for reelection today. Also in attendance are Mr. Brendan Twining, who is the lead audit partner from KPMG, personnel from our share registry, Computershare, our external legal advisers, Herbert Smith Freehills. And representatives of IAG's leadership team. We also have with us at the lectin on my far left, our group Company Secretary, Jane Bowd, who will run us through the process matters for today's hybrid meeting and who will also read the questions submitted by shareholders online during the meeting. I now declare the poll open on all resolutions. And I now ask Jane to briefly address matters of process for the meeting. So Jane, over to you.

Thank you, Tom. Before I talk through how we will manage voting questions during the meeting, I'd like to highlight some safety and housekeeping matters for those in the room. In case of an emergency, you'll hear a beep, beep, beep alert alarm. Please await instructions and be ready to evacuate the building. If we do need to evacuate, you'll hear a whoop, whoop, whoop evacuate alarm please leave through the fire exit at the back or on either side of the stage. We will have fire wardens guiding us should this occur. Could I please ask you now to switch off your mobile phones to silent, if you have not already done so. And I also remind you that recording or photography are not permitted during this meeting. A full video webcast will be available on IAG's website shortly after the meeting. The amenities, should you need them, are located outside this room to the left of the foyer. For those of you in the room, you should have registered with Computershare when you arrived, which will enable you to vote and ask questions. If you have not registered, please just step outside to the registration desk now. In terms of the voting today, all items are being voted on by poll. Once the poll has closed and votes are compiled, a report on the final AGM results will be announced to the ASX and made available on IAG's website. That said, the Chair has received the results of the direct and proxy voting instructions for each item of business and he's accepted the recommended results. These results will be displayed on the screen as we deal with each resolution. For those shareholders who have joined us online, and there are many of you, when you first log into the online platform, you'll see the live stream appears in the center of the screen. In the top right-hand corner, you'll see four icons. You can toggle between these at any time during the meeting. When you select the Vote, Q&A or Documents icon, the relevant content will appear on the right side of your screen and the live stream and slides move to the left. If at any time, you have difficulties with the online platform, including vetting or asking questions, please contact Computershare on +613-9415-4024. All shareholders in the room and online can now cast their votes on the resolution included in the notice of meeting and can do so until the polls are closed. For those in the room, vote on your mobile device or Computershare iPad by scanning the QR code on your attendance card. To cast your votes, like one of the options beside each resolution. A green tick will show above each resolution you have voted on. There is no need to hit a submit or enter a button. You can change your vote at any time until the poll is closed. If you have any issues voting during the meeting, please just raise your hand and one of our Computershare attendees will come to you. For those online, when you select the vote icon at the top, you'll see what is on the screen in front of you now. You'll see each of the resolutions that you can cast a vote on. To cast your vote, simply for, against or abstain. Again, there is no need for you to hit a submit or enter button as the vote is automatically recorded. And you'll see, again, a green tick on your screen beside each resolution you have voted on. You can change your vote until the polls are closed. Shareholders who have joined us by phone are not able to vote in the meeting. However, all shareholders did have the opportunity to direct vote in advance. All shareholders present in the room, online, or by phone will have the opportunity to ask questions in respect to the items of business for this meeting. Questions will be addressed in the following sequence throughout the whole meeting. Firstly, questions we received in advance. Then follow-back questions are from the floor. And again, questions online. And then finally, any questions by the phone. Where we have received a similar or overlapping questions online, the same topic, the broadest one will be put forward for actual response. In terms of the questions we received in advance of today, thank you to those shareholders who submitted them. Our management team have already responded to some of you, and we have otherwise sought to address a more commonly asked question in the chair and CEO speeches. If there are any that have not been addressed in these ways, we will during the course of the meeting today, address them at the relevant item of business. [Operator Instructions] With that, I now hand back to you, Tom.

Thank you, Jane. Excellent job. And about this time last year, I think we had a fire alarm, so we have our fingers crossed that we won't get one this year for those who were here last year.

We did. We heard the beep, beep, beep, Tom.

Beep, beep, beep, yes. Remember those. Before we move to the business of this year's meeting, I would like to take a few minutes to reflect on some events that have shaped the year for IAG. The last 2 years have seen a very challenging environment for Australia and New Zealand and of course, our company. This period included the highest level of peril events in Australia and New Zealand since the New Zealand earthquakes in 2010 and 2011. The company dealt with over 377,000 claims related to these events over this period. This, combined with the inflationary effects of the world coming out of COVID, which has increased our cost of servicing claims. Together with higher reinsurance costs, this has led to a very challenging period for IAG and insurance companies globally. As you will all recall, the financial year began with severe weather and floods across New South Wales, leading to a higher number of claims, mostly for storm damage to homes, property and vehicles. Then New Zealand suffered the devastating impacts of the North Ireland floods and the cyclone, Gabriel, all within the space of 3 weeks in early 2023. These New Zealand events are the second and third largest events to ever incur in New Zealand and resulted in 50,000 claims. We pride ourselves on our ability to support our customers at their time of need. And this was the case in these extreme events as well also for the many other everyday events, the everyday claims we get. The Board and I are sincerely thankful to our teams, especially our frontline teams who manage through this complexity and who continue to serve IAG customers. Our financial performance over the year was solid, given these challenges. Gross written premium increased by 10.6% to $14.7 billion. Net profit after tax was up almost 140% to $832 million. The higher net profit reflected an increase in insurance profit, improved returns on shareholders' funds, investment portfolio and the benefit of the post-tax $392 million reduction in the business interruption provision this year. Over the year, the company's total shareholder return, which comprises share price growth and dividends, was 33%. IAG's capital position remains strong, which enabled the Board to increase the final dividend to $0.09 per share franked to 30%, and this resulted in a full year dividend of $0.15 per share, up 36% from FY '22 and a payout ratio of 83% of net profit after tax. This was slightly above the maximum of IAG's stated dividend policy. The company's performance for FY '23 reflects the focus that Nick and his leadership team continue to apply to our strategy to create a stronger and more resilient IAG. Nick will talk to the outcomes achieved for our stakeholders shortly. As a Board, we regularly review IAG's progress against our strategic priorities to grow with our customers, build better businesses and create value through digital and manage our risks. I am pleased to report that despite the operating complexity, IAG made good progress towards achieving its strategy this year. We have a company-wide approach to sustainability, which connects our people to our purpose and keeps pace with the evolving expectations of our customers, communities and stakeholders. We focus on climate and disaster resilience because the increased frequency and severity of extreme weather events has a direct impact on our business and our customers as we have seen recently. One of the most important roles we can play is sharing our data and expertise to help governments invest in mitigation measures that will help reduce the impact of these events. We manage our climate-related risks and opportunities through IAG's climate and disaster resilience action plan, which sets out the target of achieving Net Zero emissions by 2050. In October 22, we revised our science-based targets for Scope 1 and Scope 2 emissions and set out a transition plan to support our work to achieve our Net Zero commitment. The plan sets out steps to reduce Scope 1 and Scope 2 emissions as well as the work required to understand and measure Scope 3 emissions in our supply chain underwriting and investments. As well as protecting our customers and the community, our ESG focus extends to diversity employment targets for our people and the way we manage our supply chain. We have targets to have women constitute 50% of our senior management roles and indigenous employees to be 3% of our Australian workforce. This year's results were 45% and 1.2%, respectively. We published our third modern slavery statement in December '22 and launched modern slavery training modules to support its application across our business. Management of ESG issues is governed by a Board approved social and environmental framework which was updated this year to strengthen ESG governance. To improve the measurement and visibility of ESG, we have introduced a 5% sustainability metric in the FY '24 Group balance scorecard. This year, the Board approved a refresh of our responsible investment policy. We now aim to remove from our investment portfolio companies that derive more than 10% of their revenue from fossil fuel production or extraction. These expanded fossil fuel prohibitions were fully implemented by 30 June 23. We also have commitments around responsible underwriting to reduce our exposure to entities predominantly in the business of fossil fuel production or ore extraction. As at 30 June, these entities have contributed only $250,000 in gross written premium, and we remain committed to phasing out these by 30 June '24. You'll have seen in the annual report that we further strengthened our Board in July this year with the appointment of Wendy Thorpe as Non-Executive Director. Wendy provides us with additional skills in insurance and other financial services, technology and transformation change. You'll have the opportunity to hear from Wendy soon when she speaks to the resolution on her election. Similarly, our Director, Simon Allen and Jon Nicholson, will also address the meeting after retiring by normal rotation in accordance with our constitution and offering themselves for reelection. In regard to Board diversity, this year, we uplifted our gender diversity target to have a 40% to 60% of the Board -- either gender on the Board. Our previous target was to have no less than 30% of each gender. The percentage of women on our Board currently sits at 27%, up from last year's 20%. And while this is good, we remain actively focused on recruiting more female directors as we work to achieve our revised gender diversity target. I also flagged that there is a separate item on today's agenda to consider the remuneration report. And I will talk in more detail about our remuneration practices and approach when we reach resolution 4. In closing, I thank you, our investors, for your ongoing support. Your company continues to demonstrate a solid performance as management simplifies the business, focuses on strategy and successfully addresses external challenges. Ladies and gentlemen, thank you for your attention. I will now invite Nick to address the meeting, our CEO. Thank you, Nick.

Thanks, Tom. And of course, good morning, ladies and gentlemen. And it's great to be here today to have an opportunity to talk about what our company has achieved over the last 12 months. To begin with, though, I would acknowledge the traditional owners of the land, which we meet, the Gadigal people of the Eora nation. And I also pay my respects to elders past, present and emerging. My discussion today is really going to be framed around our purpose and the way we create value for all of our stakeholders. And of course, all of you in the room are super important as our shareholders, one of those stakeholders. We continue to be guided by our purpose, which is all about how we make your world a safer place. And by our strategy of creating a stronger and a more resilient IAG. We want to make your world a safer place for the 30 million people that live in Australia and New Zealand, where we operate our business. We deliver on our strategy and our purpose through four strategic pillars. They are and growing with our customers, and we have an ambition to add 1 million additional customers to our business over the next couple of years. We want to make sure we're building out better businesses with ambitions to improve the way we run our business to make sure we really are leveraging our scale to support reducing our expenses as a portion of premium. We need to make sure we're creating value through digital, through delivery of technology to create better outcomes for all of our stakeholders. And of course, importantly, we need to manage our risks with our own risk maturity improving across our company. Financially, we have goals of delivering a 15% insurance margin and a 13% to 14% return on equity on a sort of through-the-cycle basis, and we're well set up against that. For the past 3 years, our focus has been all about simplifying and driving performance in our core insurance business. We continue to see progress against all 4 of the strategic pillars I just highlighted. And these are highlighted on the slide behind me. i want to call out a couple of things. We've added approximately 132,000 new customers to our company over the last 12 months. And that brings to around 210,000 additional customers, particularly within our direct business here in Australia that we've added to our company since we set this ambition of 1 million new customers. We have seen a material improvement in our intermediated Insurance Australia business after we set that up as a separate division with an experienced leadership team in place. And in last financial year, we delivered a profit of $209 million in that business, and we're well on the way to delivering at least a $250 million result out of that business in FY '24. We have been disciplined in controlling our own operating expenses, which, of course, is one way we can help limit premium increases that we're having to pass on to our customers. We are rolling out a common pricing and policy administration system for all of our personal lines businesses right across Australia and New Zealand. And what that does is moving us closer to fixing 25 years of complexity that we have within our business from our history of acquisitions. And finally, we made significant progress around how we manage our risks that we take on within our company. So closing out our value creation model, a critical component of how we create value is our approach to sustainability. What I'll do today is just demonstrate how we've created value for our five key groups of stakeholders. And what I'll do is just talk through each of those groups separately. So firstly, for customers, and Tom has mentioned this already, that we have received over 377,000 claims as a result of some of the extreme weather events that we've had across Australia and New Zealand in the last 2 years. Of course, our business exists to help people and businesses recover from the impact and cost of these unexpected events. I'm immensely proud of the way we show up for our customers when those customers need us most. Our priority at IAG is always about how we're ensuring our customers are safe and how our customers are supported. We offer temporary accommodation, emergency financial support, access to free and confidential counseling by a team of psychologists experience in providing post-support incident -- post-incident support, sorry. We have a 24/7 major event response team in place the whole time. We're in an all hands on deck approach to bring in additional people from right across our enterprise. And we also have an ability to quickly scale up our claims service, we're adding people when we require. I've seen firsthand our response in these big events. In the immediate aftermath of Southeast Queensland and Northern New South Wales floods in February and March last year, I visited Lismore and the Northern Rivers region in New South Wales. I've also spent time on the ground in New Zealand following the devastating cyclone Gabriel earlier this year. And then just last week, I went back to the Northern Rivers to see how that community is faring now compared to 15, 16 months ago because I was moved by the resilience that I saw up there, even though the road to recovery continues. And of course, there are many challenges that, that community has. Our claims systems and processes have been tested during these very large events that we've been managing. And of course, unfortunately, some of the more complex claims are still being finalized, but we're working to ensure that happens as soon as possible. We have a long-term focus on helping our customers and communities improve resilience and reduce risk. We want to make sure we're sharing our knowledge and expertise so that we can reduce the impact of extreme weather events and in turn, of course, the cost of insurance to those customers and communities. We're an active participant in conversations with government about mitigation solutions, including building codes, land planning and planned relocations. In that context, we welcome the Australian federal government's recent announcement of nearly $400 million in funding for key disaster preparedness projects. Of course, what these will do is will help to protect people and communities from the impact of severe weather and natural perils. We're also a member of the federal government's Hazard Insurance Partnership. And this organization is willing to identify opportunities for disaster risk reduction with an outcome of improved insurance affordability and availability for Australia. One result of this year's challenging operating environment has been significantly increased premiums. However, of course, we've been mindful of the flow on impacts that's having to our customers who are already experiencing tightening household budgets. To help counter some of the increased costs that affect premiums, we are working to improve our efficiency and increase the use of digital solutions within IAG. For example, we've simplified range of products we offer our customers, and increase the ways they can engage with us about their policies and when making a claim. We've expanded our motor serve and repair hub sites, which means we can get customers' cars back on the road quicker. And we're also progressing our artificial intelligence model total loss assessment process right across IAG. And what that does is reduce claims cycle times down from weeks to days. Despite the increase in premiums, we are heartened by ongoing high levels of customer retention and the growth that we're seeing within new customers. And of course, what this really is, is a tribute to the strength and stature of our brands and our customers' confidence in the value of what we do. Turning now to the value we've created for you, all of you, our shareholders. Australia and New Zealand -- as Tom mentioned, Australian and New Zealand economies have been pretty challenging for the last 12 months. As insurers within that, we've had to manage the sudden emergence of inflation, which has immediately impacted the cost of claims. We've had a significant rise in natural perils costs as climate change compounds the impact of the 3 years of La Nina weather cycle that we've just been through. And we've had a substantial and a sustained reduction in global reinsurance capacity. Remember, reinsurance is insurance for insurance companies, which has materially impacted pricing in the Australian and New Zealand insurance industry. In this environment, though, we have achieved pretty strong results. Our top line or gross written premium grew by 10.6% last year. We've had strong contributions of growth from all three of our business units. Our net profit after tax was $832 million and cash earnings increased by 112%. Both of these outcomes did, though, have the benefit from leases of some provisions. Our reported margins of 9.6% was impacted, as I mentioned, by the third year of La Nina weather cycle and the second and third largest events in New Zealand's history earlier this year. In the underlying margins, we've also been impacted by the unexpected inflation, which hit us particularly hard in the first half of the financial year. We did, though, achieve significant improvement in the second half as we started to realize premium increases that we applied in response to inflation and other costs, including reinsurance and increased estimates on perils. And then just lastly, our final dividend of $0.09 per share brought our total dividends for the year to $0.23, which -- sorry, to $0.15, which is a 36% increase on dividends we paid from last year. Just in relation to our people. Our people are key to the way we can help our customers. Our people worked tirelessly to support customers particularly after extreme weather events, but also during other experiences of accident or loss. To ensure that we can attract and retain the best people, we're investing in technical capability, leadership development and ensuring we offer the right experience for people that join our company. We continue to prioritize the safety and well-being of our people, including offering support when our people need it. We're building a culture that will help us stand out in today's competitive employment market. We assess our culture through annual surveys and in-depth leasing. And I'm proud that our overall employee engagement score is similar to last year's despite what's been a pretty tough 12 months operating environment. Moving to the community. Climate change continues to increase the frequency and severity of extreme weather. We see firsthand the impact this is having on our customers and the communities that we serve. Supporting communities to be more resilient to extreme weather does help reduce the impacts that physical climate risks have on them and, of course, and on our business. We share our claims data analysis and extreme weather insights through targeted research and initiatives such as our wild weather trackers in Australia and New Zealand. The track has helped people to understand their risk, suggests actions they can take to be better prepared and of course, provide access to tools and resources to help them take action. Of course, we cannot deliver this change alone. I like to acknowledge the deep community partnerships that we have established here at IAG. When it comes to the outcomes we've achieved for the environment, of course, our focus here is all about climate. That's because changes in climate affect our customers and our company so much. Even though our businesses have managed the uncertainty of climate for more than 100 years, climate change is driving an increase in severity and frequency of natural disasters. And this change is happening at a level that we just haven't seen before. In response, we continue to invest in improving our understanding of the change in climate and its impact on the communities. We have our own specialist in-house natural perils teams, including meteorologists as well as flood and cyclone experts and atmospheric scientists. We have an enterprise-wide climate and disaster resilience action plan, the response to material risks and opportunities. Within our businesses, we've also taken steps to manage our carbon footprints and have made a commitment to achieve Net Zero emissions across our value chain by 2050. Our confidence in the strength of our underlying business is reflected in our financial guidance that we've provided for FY '24. We expect to achieve low double-digit gross written premium growth, and our reported margin guidance is in the range of 13.5% to 15.5%. Looking at our results today. We are on track to deliver against this guidance. We have experienced a relatively benign start to FY '24 from a natural perils perspective. To the end of September, our natural perils costs have been around $120 million, which includes $47 million of additional claims from events from FY '23, primarily from the Hunter hail storm that occurred late May. We have, though, assumed in our full year forecast that our payrolls will be in line with our original expectations. Inflationary trends continue to be elevated across our business, particularly within our motor claims costs. This is expected to result in some prior period development in our first half result as we finalize settlement of short-tail claims for amount slightly more than we expected at 30th of June. Combined with the additional reinsurance reinstatement costs of around $70 million following the New Zealand events earlier this year, it is likely our first half underlying margins will be around the lower end of our guidance range. However, we do expect a stronger second half as we benefit from the earn-through of pricing flowing through to our results. So to close, we are seeing positive financial signals. We have improved our underlying performance. Retention rates across our business remain very strong, and we're growing customer numbers. And we've continued to invest in our business and importantly, and in our people. I'll now hand back to Tom for the formal business of the meeting.

Thank you, Nick. We will now turn to the formal items of the business for this meeting. There are eight items of business before the company's AGM this morning, including 7 resolutions. They are set out in the notice of meeting. Resolutions 1 to five and resolution 7 are all supported by your Board. In terms of resolution 6, which relates to the proposal to increase the net fee pool cap, the Board has abstained from providing its recommendation, which we have done so in order to manage conflicts and given that this resolution ultimately is connected to director remuneration. The first item of business is to receive and consider the financial report and the reports of the directors and the external auditor for the financial year ended 30 June 2023. There is no vote on this item. These statements and reports are published in the 2023 annual report, which was lodged with ASX on the 21st of August 2023. The purpose of this item is to provide an opportunity for shareholders to ask questions and make comments about these reports. Shareholders will also have the opportunity to ask questions of our auditor, KPMG, relevant to the conduct of the audit and the auditor's report. All questions to the auditor should be, in the first instance, be addressed to me as Chair. And if appropriate, I will ask Brendan Twining to address the meeting. Please bear in mind that we have a separate item of business on the remuneration report as part of Resolution 4, and we'll be taking questions on remuneration matters when we come to that item. I now invite comments or questions on the financial statements and reports and the management of IAG. I will start with the four questions we received in advance about the company's operations. Jane?

Thank you, Chair. We received two similar questions about IAG's share price. We've selected the broadest question to respond to, namely Joel [indiscernible], who asks, what will you do to try and get the shares to a much higher price?

Thanks, Jane, and thanks, [ Joel ], for your question. We appreciate people that write in early, it's very good. The company does not control our share price. Unfortunately, it's influenced by a whole raft of factors. Nick has just spoken to us this morning about the work he and his team are doing to deliver on IAG's strategy and the success that they are already achieving. We believe that this work will support the company's performance and ultimately, the share price. It is pleasing to note that the IAG share price finished up almost 31% during the financial year, significantly outperforming the ASX 200 index, which was up around 10%, a pretty good outcome. Jane, question two.

Chair. The second question is from Vicki Mavremados, who asked, when will the dividend rate increase?

Thank you, Vicki. The company has got a very well clearly defined dividend policy. We pay 60% to 80% of net profit after tax, any adjusted for any business interruption release we make. And at this stage, there's no change to plan to change that policy because we believe it delivers a sound outcome for shareholders, and it balances our capital requirements and dividend distribution policy. Jane?

Chair. We received two similar questions about insurance premiums and affordability from Raymond Said and Richard Gold. Both shareholders are concerned about, firstly, the amount of increase applied by NRMA Insurance to premiums and the expense and affordability of premiums. And secondly, the pricing that is offered to new and renewing customers.

I thank for your comments, Richard and Raymond. Building on what Nick spoke to in his address, our premiums have increased as we've had to manage a few things. There's been the sudden emergence of inflation immediately impacting our claims costs. The significant increase in natural perils costs due to extreme weather events and a substantial increase in global reinsurance pricing, which has materially impacted not only us but the whole insurance industry. I know that Nick and his team are sensitive to the impact that increased premiums have on our customers and are taking steps such as managing our own cost to help produce these increases. In terms of the remainder of the question, I will ask Nick to comment on the last two matters.

Thanks, Tom, and thanks for the question, Raymond and Richard. Just within the NRMA Insurance brand and business, we do provide discounts for customers based on both relationship and time of that relationship with us as well as the number of policies that, that customer has with us, and we apply those discounts to customers based on the matrix. At this point, we do occasionally love it, though, in the new business when we're running campaigns, we do occasionally offer discounts. That's not a major theme of our business to new business and discounts are applied for new customers. Comparing them, though, and so it's hard to get like-for-like because really customers' circumstances are unique, and the risk profile around a customer and an asset or a business that we're insuring is unique to that particular fact pack. And so it's actually quite difficult to then make comparisons between different group customers. And we aim to reflect pricing for the risk that we're taking on.

Thanks, Nick. Jane, you have one more question?

Yes, Tom. So Chair, we were asked by several shareholders in advance to explain why IAG has supported the YES campaign for the voice referendum. And whether we provided any funding in support of these campaigns. And Chair, just flagging, this is the last question in advance. So any shareholder that has a question in the room, it might be a good time to make your way to one of the microphones. Over to you, Chair.

I thank shareholders for those questions. Look, IAG has a long-standing supporter -- has been a long-standing supporter of aboriginal Torres Strait Islanders recognition and reconciliation. We produced our first reconciling action plan called RAP about 10 years ago. We have publicly supported the early restatement from the heart since 2019 to give our First Nations people a voice on the decisions and actions that impact their communities. We have committed to further improving our representation of First Nations peoples in our employee and governance structures, and to innovate and drive indigenous procurement and social enterprise. We continue to strengthen our engagement with First Nations peoples working in partnership with our indigenous employees, business and communities with the aim to help advance opportunities for First Nations people. Therefore, ensuring a voice department in the constitution is something we support as a company. As you all know, changing Australia's constitution is a matter for all Australians to vote on. So we encourage people to seek out information on both the yes and the no cases. We advise also that IAG has not provided funding or donated to the yes or no campaigns. That ends the question in advance, I think, Jane, and I'll now move to questions in the room. Microphone 2.

Good morning, Chair. I would like to introduce Ms. Natasha Lee, a shareholder.

It's good to see you, Tom and thank you very much to you and the Board for your results this year. I had a few questions. I'll focus on your investment returns. The amount of investment is sort of roughly sort of $11 billion, but the amount that you've earned from that is it's roughly the same from year-to-year, which is a little bit disappointing. And similarly, with your equity investments, the returns on those weren't so good now. Now I understand that a lot of your investments are held in sort of cash and cash equivalents, which limits the opportunities. But given the interest rate rises, which we've had, I would have expected the returns to be a bit better. And also the small amount of equities you hold, the market has done very well recently. So...

No, that's a very -- we do hold to buckets of ones we can manage with equities and various other investments, and the other is held for capital purposes. So Nick, do you want to comment on shareholder hold fund returns?

thanks for the question. I mean probably the sort of themes are: one, we take a relatively conservative approach to investing our money and there's sort of a relationship between type of things we invest in and the capital we need to have to support that. So we come up with what we think makes sense. In relation to sort of customers' money that's sitting there as premiums or claims, we're very conservative. And as you pointed out, we invest in cash and fixed income government bonds. Within our shareholders' funds, we do have an element of equities and the like. I think what you'll see in relation to your question of rising interest rates and when we see the return from that, we saw a little bit of that in FY '23. We certainly expect, based upon the investment allocation we have, that we'll see a higher investment income and interest income in FY '24, really driven by the point you've raised around higher interest rates, delivering a higher return. So we should expect, everything else being equal, a higher investment return in '24 than '23. with equities, we've got a very mainstream approach to how we invest in equities, and that's essentially what's happened within the math.

Right. Okay. I suppose my second question in relation to the financial reports, the previous online questions will still have my thunder, is about setting off of premiums. Now from my knowledge of the insurance industry, it's sort of in broad terms predicated on the model that you have a number of good years and maybe have a bad year, a bit like the share market in general. But given the overused word of unprecedented disasters, which we've had, there's sort of been the compression we've had like 100-year flood events happening every year, in some instances, well a much shorter time frame, which must make the management of setting up the premiums extremely difficult. I suppose it's the risk of ever overshooting or undershooting on that. How are you managing that without an overly technical mathematical explanation?

No, don't worry. I won't give you one of those. Yes. Look, it's a very complex question. We had -- coming out of COVID, the level of inflation right across, which everyone is seeing going through all sorts of sectors. Then because of the large perils events, the insurance industry, the reinsurance industry repriced, how they were giving us reinsurance. So that went up. So these drivers have been pretty dramatic, and they happened very quickly. The rate of inflation came through after COVID, very quick labor, shortage of materials, you name it, it caused a problem. So the team has done a pretty good job in reacting in terms of pricing to that. We're very conscious of not overshooting the mark and getting -- making premiums too expensive. We are very conscious they've gone up. We've got to balance that with making sure that over time, we get reasonable returns for shareholders. And so it's that balance that we spend a lot of time trying to make sure that's right. Do you want to add anything to that?

Perfect.

Hope that answers your question, Natasha. Number 3.

We'll get the Chairman on the pricing team shortly.

No, too complex for me. Now number three.

I would like to introduce Mr. Gregory Simoni.

Observation and point, if I may throw you with. For the upcoming day, 469 years, 9 months and 9 days since the incorporation of the merchant Adventures of England and the sixth European age of the world. to IAG's profit numbers stated so comprehensively on Page 83 of the annual report, $925 million for 2023. And the point that Mr. Hawkins has made wasn't really willing to unpack the matrix. And in noting that matrix, the connection to the umbrella of companies that Insurance Australian habits to the annual reports. And as we began 20-odd years back, we used the word surplus. Now we use the word profit. And now the newer word, which presumably you will use the next meeting, net income of an umbrella -- of the umbrella of companies that would include Bank of America; American Express Company; Coca-Cola Company; Apple; Amazon; Kraft Heinz; McLean Company; Clayton Homes; BNSF Railways; John Mac Manville; General Re; and Dairy Queen, all in their multiples of billions. What are we seeing, hearing, touching, not quite tasting, [ ladies ] deposit company cubed?

Thank you, Gregory. I'm not too sure what to make that question. So -- but thank you for your input. I think it was about the complexity of insurance. Insurance is very complex. It will continue to be complex. It's a global business that has impacts -- global impacts impact us here in Australia. We don't have any of those companies you went through. I'm not too sure how they fitted into the mix, but thank you for your question. Any other questions on the floor? Number 4.

Chair, I would like to introduce Brian Gates.

Chairman, I've got two questions. First of all, on Page 104, you mentioned about the cybersecurity upgrades. Could you expand on the -- what you're doing and also to combat cyber attacks. And I'll ask a second question after this one.

Okay. Thank you. I think it was a technology upgrade you're referring to, I think, was it?

I think it is, yes.

Okay, yes. Cyber is a big risk that we have a significant focus on as you could well imagine. I would say over the last 4 to 5 years, we have made quite significant investments in our technology infrastructure, defending IAG's business. We have also added specialist people who manage the cyber risk force into our team. And as a Board, we have asked external experts to come in and we do regularly look at our cyber network and our cyber defenses. And we test them. We actually get people try and break into our system so that we can learn what are the types of things that we need to protect. So this will continue to be a problem. As everyone of you would understand, cyber risk is just a growing issue. But we spend a lot of time on it, and we attempt to minimize the risk as much as we can.

Okay. That's fine. And second question. Where are we? Page 46, the natural perils cost by events. I noticed there are no mention of the bushfires. Could you give me an update of how much your cost for the bushfires recoveries?

The bushfires were sort of over that period, November, December '19, January, February '20. So they're in sort of the previous financial years. I mean the gross costs of those bushfires to IAG would have been in excess of $1 billion. So very, very significant. We had reinsurance that protected us that reduced that exposure, but they were very significant events for us. But we've spent a lot of time working with our customers to recover against them.

Thank you. Number 2.

Chair, I would like to introduce to Mr. Nagy, a shareholder.

My question concerns accountability. And again, I may be on the wrong track here, but I just saw the first annual report of IAG this morning when I walked in. I tried to get an annual report back in August or wherever it was, and I don't know what happened, but I know it wasn't in Australia. I'm not sure if it was the Philippines, Malaysia or whatever. And every time I kept asking for an annual report, they kept telling me about the dividend rate. I tried to tell them kindly, and I mean kindly, I wasn't interested in that at the moment. That's the first point I want to ask, what happened there? And this has just been released since the 30th of [indiscernible] in August. Is that right?

That's correct.

Why couldn't I have got my annual report before? Last year, I did get one in the mail. Why not this year? That's my first question.

Okay. I apologize for you not getting one. I don't quite know what went wrong. But I will -- we will follow that up, Jane. And we'll just make sure that everything is right for you to get an annual report next year without all that hassle you had to go through. So apologies for that.

As you know, I am fair in my criticism of you and I admitted last year, the year before you've done well. And this year, I say the same thing, given the external events that have happened. I didn't look into all of this. But one of the things I did notice is in one of your pages, you have pictures of the executives. I looked at the details of them, and all of them are under 4 years, 4 years in IAG. So I'm asking you, what has happened for that to happen?

All right. No, that's not quite right. Nick's been with us for like 20 years. Other executives have been with us for significant amounts of time. With all executive teams, they get refreshed. I can't remember how long various executives have been with us, but they've been with us for quite a long time. The average would not be 4 years. It'd be a lot bigger. But we've got a very experienced team. The executives were brought in that would be newer, if you like, to the organization were brought in because of the skills that they bring and the knowledge that they bring to insurance. So all the executives that we've brought in have multiple years of experience. In fact, some of them have their whole life in insurance. So we were lucky to attract them into IAG.

Okay. My final comment concerns -- a note, rather, mentioned by Nick about share -- people being unhappy or happy, rather. I come from Lismore, Goonellabah and people are still unhappy. Now I'm not sure if that's insurance related or if that's the government related. I would like you to comment on that, if you could, please.

Yes, Lismore's a very complex situation. Nick, you were just up there. Do you want to comment on what you saw up in Lismore?

Yes. Thanks. I mean, there's been some tough environments and tough communities that have had difficult circumstance communities have been managing for a couple of years, both Australia and New Zealand. And yes, we know that industry in the whole and IAG in the whole has done a good job. But we know that there are some things that we need to do better, and we'll be working on that. So we're not -- we're certainly not saying that we've got everything perfect. What we're saying is that we've really committed the resources of our enterprise to look after our customers. And I think what we've done is a good job, but of course, we'll find some examples where that hasn't been perfect. And we definitely want to be better and make sure we learn from some of these events to improve the way we can look after our customers going forward. And I get in Lismore, that's an insurance comment. But of course, there are broader government, other issues as well. But we've got to own the insurance space, and we definitely want to learn a bit better about how we look after our customers.

Thanks, Nick. Thanks, Mr. [ Nye ]. Yes, number 2.

Chair, I would like to introduce Sue Howes from Australia's Shareholders Association.

Hi, Sue.

This morning, I'm representing 227 retail shareholders and proxies worth just under $6.8 million. My questions, Mr. Chairman, are inflationary pressures and natural peril claims have increased costs for general insurances. These have been passed on to consumers through significant premium increases. The reinsurance market has also restricted availability and increased pricing. Could the Board provide its views on the likely future direction of premiums and profitability in the industry for the next few years, please?

I thought you're going to ask me about the future of inflation, where that's going on. I wouldn't be able to answer that one. Yes. Look, we do manage our insurance business through the cycles, and we do have long-term return on equity targets, which we try and achieve, which is sort of within the 11% to 15% range of ROE. So when events like this happen, we have to readjust those financial structures, as we've talked about, to, over time, achieve a good return for shareholders. So that's what we're doing right now. Whether the structural shifts will remain, I don't know. But we are onto that, and we are ensuring that we don't increase prices too far but still get a return to shareholders. It's that balance.

My second question is, you've indicated in your discussions with us a renewal program for the Board. Could you outline the skill sets the Board is looking to bring on to the Board, the likely timing of Board changes and your views on Board diversity? You've already given us but your view is on Board size, please.

Yes, on size, we have a big Board. And probably over time, we'll probably reduce that number as normal people rotate off the board. In terms of skills, we're a complex company. So we have to have people on our board that have very good experience in a range of things. So if I put them into buckets, the first one is, we need people that have deep insurance experience and direct insurance experience is important. The pool of those people is quite small, but we're lucky to have some very talented executives from that area on -- executives on our Board. Then -- so that's the first pool and that's pretty important. So then we have the other skills that we need. And these are what I'd call broader commercial experience skills. So we need people who understand strategy, understand large corporations, have had experience in listed environments and understand what the obligations are. Managing complexity, managing large-scale chain systems, IT systems, that type of experience so that -- these always come up in big corporations so that the Board can be aware of how management is going in terms of the performance of those. So that would be the type of skill set. The real specialist one is insurance skills. Thank you, Sue. I don't think we have any more questions from the floor. So any questions online, Jane, or…

Chair, yes, we do. We've actually got 6 questions online currently starting with the first from Mr. Stephen Mayne. He asks, could the CEO or our resident executive [indiscernible] , if they are there, comment on our approach to flood mapping? Do we rely on councils, state governments and water authorities to accurately map potential flooding? Or do we do our own modeling work on pricing policies? Next part of the question. How important is the work of the Insurance Council of Australia in this regard? And which states are getting it right in terms of reforming Australia's flood mapping system as the climate changes?

Thanks, Jane. I think that's a question for you, Nick.

Thanks, Tom, and thank you for the question, Stephen. So to break that down. So we have our own view within IAG of flood risk across Australia. The process of us having a view is through a lot of discussion, engagement and knowledge sharing between us and local councils, state governments and other authorities. So to Stephen's question, it's a blend. But we end up, and so shareholders should know that we have a proprietary understanding, call it that, of flood risk across Australia that we have gained through our knowledge, our experience, together with working with local counsel, state governments, other industry bodies. So the answer to that is it's a blend. And so we're able to have an understanding and appropriately price for the risk that we're taking on. That's really important, I think, for the shareholders to understand in the running of IAG. The -- this is -- there's got to be a coalition of the willing here on this topic because the more our country can understand this, the more our country can understand how we can impact it, importantly, around things like mitigation and investing in things to change something or making sure we don't make more bad zoning decisions. We've already built cities, countries, towns, areas, communities in the areas where probably with hindsight shouldn't have. We know that. They're the ones that flood, so we don't want to make any more mistakes. We do want is strengthen what we've got so we can reduce the risk. And so that -- there's got to be a coalition of the willing. And Insurance Council of Australia, I think, plays a pretty important role of bringing industry together with other affected parties. And then just last part of the question was sort of who's doing that well. I mean, I see a lot of activity on this topic now, particularly up and down the East Coast of Australia, so Queensland, New South Wales, Victorian governments, I think, are working well and being coordinated nationally to really focus on this topic. Essentially, the themes got to be, how do we make sure we don't make any more mistakes as a country, because we have in the past. And then secondly, where we have got higher risk flood areas, how can we strengthen the resilience, and that's generally around mitigation and investment. And there's a real theme and a real focus by many parts of our government to improve that. Tom?

Thank you. And just for the shareholders, Nick spends quite a bit of time with industry bodies and government, giving them the knowledge and advice we've got from IAG to try and make resilience better. Jane?

Chair, the second question is also from Mr. Stephen Mayne. He says, for the past 24 years, IAG has managed a joint venture with the RACV in the New South Wales and Victorian markets called Insurance Manufacturers Australia IMA. We are the senior partner with a 70% stake. Given RACV as a mutual, more focused on building resorts, should we not just take them out of the general insurance market? Have we ever offered to do that? And what is the situation with preemptive rights? If someone makes a bid for IAG, does RACV have the right to buy out our 70% stake in IMA? And if so, how is the price of this preemptive entitlement calculated? Also, what is the book value of our 70% stake in IMA?

I might start, Nick, and then I'll hand to you.

Okay.

The RACV arrangements, I can't remember the year but now I put established, but it was when -- a long time ago. The RACV is a very good joint venture, and this is obviously the -- our [ lay ] of Victoria. We've got a very strong relationship with the RACV team and Board of Directors, and the Board works extremely well, and we find there are great advantages of leveraging the RACV business into our insurance business and vice versa. So this works well. So there's no intention to do anything with that business. In terms of the arrangements, so called preemptive rights. Here is a preemptive right that was disclosed to the market when we -- when entered those arrangements. The preempt right says that if someone takes over IG, RACV, can have -- has a right to make a counter offer effectively, but that would have to be at the same value that everyone made offers at publicly for IAG. So that does exist. I don't think there's much to add there. And the last part of that question was...

Book value.

Book value. I don't know that. I'll hand that it over to you, Nick.