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Insurance Australia Group Limited ABN 60 090 739 923
388 George Street Sydney NSW 2000 Australia
T +61 (0)2 9292 9222 www.iag.com.au
24 November 2008 Manager, Company Announcements Office ASX Limited Level 4, Exchange Centre 20 Bridge Street SYDNEY NSW 2000 Dear Sir/Madam,
INSURANCE AUSTRALIA GROUP LIMITED (‘IAG’)
IAG AND STATE BANK OF INDIA AGREE TO FORM GENERAL INSURANCE JOINT VENTURE
Please find attached a media release and slide presentation with information relating to the general insurance joint venture signed today between IAG and the State Bank of India.
IAG management will present the slides via a teleconference at 17:00 AEST today.
To participate from within Australia, dial 1800 148 258.
To participate from outside Australia, dial +61 2 8524 6650.
Please quote conference ID: 74716222.
Yours sincerely,
Glenn Revell Group Company Secretary
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MEDIA RELEASE 24 NOVEMBER 2008 IAG and State Bank of India agree to form general insurance joint venture Insurance Australia Group Limited (IAG) and State Bank of India (SBI) announced today they had signed a joint venture agreement to establish a general insurance company in India, expected to commence trading in 2009. This follows IAG’s announcement on 13 May 2008 that it had been selected by SBI as its preferred partner to enter exclusive joint venture negotiations. IAG Managing Director and Chief Executive Officer Mr Michael Wilkins said forming the joint venture was a significant step in IAG’s strategy to pursue select international general insurance opportunities. “We are delighted to be partnering with India’s premier financial services organisation, SBI. This provides us with an exciting opportunity to be a key participant in India’s rapidly growing general insurance market, by leveraging the combined strengths of our two organisations. “Entering the Indian general insurance market has been a priority for IAG for some time, to support our longer term growth and profitability. India has a large and expanding economy, with a general insurance market predicted to grow 15%–20% per annum over the next ten years. “SBI is India’s largest and most recognised financial services organisation, with more than 100 million customers, and considerable distribution reach through a network of more than 11,000 branches, and access to an additional 46 million customers and 4,500 branches through its associate banks. “SBI has successfully built joint venture relationships with other foreign partners, including a life insurance business, and has a track record in general insurance distribution. IAG brings to the partnership proven capabilities in the areas of underwriting, pricing and actuarial, and risk and claims management,” Mr Wilkins said. SBI Chairman Mr OP Bhatt said the joint venture is part of SBI's strategic initiatives to retain its position as the pre-eminent financial services group in India. “Insurance penetration in India is very low and the general insurance industry is expected to grow at a brisk rate of 15%–20% p.a. over a period of the next 10 years. SBI with its unparalleled brand equity and extensive distribution network will be able to provide protection to people even in the remote rural and semi urban areas throughout the country and help deepen the market. I am sure that this venture, like our Life Insurance venture SBI Life, will also emerge as a leader within a short span of time. This initiative will further diversify SBI's portfolio of financial services offered to its customers. We look forward to developing a successful business with IAG.”
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The joint venture will have exclusive access to SBI’s distribution network and brand, and will aim to build scale in the corporate, SME and retail segments, where SBI has particularly strong customer relationships. IAG will initially hold 26% of the joint venture, the maximum allowable under India’s current foreign investment rules, and has an option to increase its stake to 49% in future, subject to regulatory and other conditions. Under the joint venture arrangements, IAG will have board representation, the right to appoint certain key management personnel and affirmative voting rights over key business matters. Mr Wilkins said IAG’s investment in the joint venture will be INR 5421 million (approximately AUD$170 million), which will be funded from IAG’s internal resources. “Importantly, our total investment will be made directly into the joint venture, of which we will own 26%, and current business plans suggest that no further capital will be required for at least four years. “Our investment reflects the attractiveness of this unique opportunity, which we believe will contribute to building value for our shareholders in the medium to long term,” Mr Wilkins said. The joint venture remains subject to Insurance Regulatory and Development Authority and other applicable approvals. Once approvals are granted, the joint venture is expected to commence writing business in late 2009, at which time IAG’s investment will be made.
- ends - About State Bank of India State Bank of India is the largest commercial bank in India. It has over 100 million customers and 11,000 branches across the country, and access to an additional 46 million customers and 4,500 branches when including its associate banks. It has one of the most trusted brands in India, and a heritage dating back over 200 years. SBI has successfully built joint venture relationships with other foreign partners, including a life insurance business which now has a profitable number three market position in terms of new business income. For further information please visit www.statebankofindia.com About Insurance Australia Group Insurance Australia Group Limited (IAG) is a general insurance group with operations in Australia, New Zealand, the United Kingdom and Asia. Its current businesses underwrite around $7.5 billion of premium per annum. It employs around 15,000 people. It sells insurance under many leading brands including NRMA Insurance, CGU, SGIO, SGIC and Swann (Australia); NZI and State (NZ); Equity Red Star (UK); and NZI and Safety (Thailand). For further information please visit www.iag.com.au
MEDIA RELATIONS Emma Foster T +61 2 9292 8929 M +61 411 013 170 E [email protected]
INVESTOR RELATIONS Carolyn McCann T +61 2 9292 9557 M +61 411 014 126 E [email protected] Simon Phibbs T +61 2 9292 8796 M +61 411 011 899 E [email protected]
Insurance Australia Group Limited ABN 60 090 739 923 388 George Street Sydney NSW 2000 Australia T +61 (0)2 9292 9222 www.iag.com.au
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IAG AND STATE BANK OF INDIA GENERAL INSURANCE JOINT VENTURE
Michael Wilkins Managing Director & Chief Executive Officer24 November 2008
Insurance Australia Group Limited ABN 60 090 739 923
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AGENDA
TRANSACTION HIGHLIGHTS
STRATEGIC RATIONALE
STATE BANK OF INDIA – A PREMIUM PARTNER
JOINT VENTURE – A PLATFORM TO BE A KEY PARTICIPANT
SUMMARY
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Thank you for participating in this teleconference today. The timing of this call is at quite short notice and a bit later than you would usually expect, however it’s been necessary due to the time zone differences with us based here in Mumbai, so we appreciate you making the time to dial in. Today’s presentation is about our announcement that we have signed an agreement with India’s largest bank, the State Bank of India, to form a general insurance joint venture. I plan to provide you an update on some of the key terms of the agreement, give you background on SBI and the general insurance market in India, and provide an opportunity for questions.
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TRANSACTION HIGHLIGHTS
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A UNIQUE OPPORTUNITY TO GROW SHAREHOLDER VALUE
• Agreement signed with State Bank of India (SBI) to form a general insurance joint venture in India
• IAG selected ahead of a number of major international insurers
• SBI is the largest bank in India
• India is a large and high growth economy with low insurance penetration
• Joint venture combines IAG’s proven technical and underwriting experience with SBI’s local knowledge and unrivalled distribution network
• A significant step forward in IAG’s Asian expansion strategy
Today we announced that we have signed an agreement with the State Bank of India (SBI) to form a general insurance joint venture business in India. This follows our announcement in May that we had entered exclusive negotiations with SBI, after 18 months of discussions. We are pleased that those discussions have culminated in today’s announcement and look forward to working with SBI on the joint venture which we expect will commence trading in 2009. This provides us with an exciting opportunity to participate in India’s rapidly growing general insurance market, which has been a priority for IAG for some time to support our medium to long term growth and profitability. India has a large and expanding economy, with a general insurance market predicted to grow 15%–20% per annum over the next ten years. The partnership enables us to combine IAG’s technical and underwriting experience with SBI’slocal knowledge, exclusive access to SBI’s brand and the unrivalled distribution network of India’s largest bank. While we continue to focus on improving our businesses in our home markets of Australia and New Zealand, this Indian joint venture is an important step forward in our strategy of selectively expanding throughout Asia. We believe it will generate shareholder value over the medium to long term.
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STRATEGIC RATIONALE
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I’ll now give you some of the background behind our decision to enter India’s general insurance market.
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• India has the world’s second largest population:
– Around 1.15 billion people (July 2008)
– Population growth of 1.6% per annum
• India’s economy is growing:
– In 2007 GDP was in excess of US$1 trillion
– In the 5 years since 2003, India’s real GDP has increased by an average of 8.6%
– Ten-year estimates through to 2013 indicate that India’s GDP will continue to grow by an average of around 8%
Source: AXCO; IMF (October 2008)
INDIA – A LARGE, FAST GROWING ECONOMY
There has been much written about the size and growth of India’s expanding economy and the benefits of trading in that market. We’ve highlighted here only a few key statistics to demonstrate this growth. India has the world’s second largest population, with around 1.15 billion people, and this population is growing at around 1.6% per annum. Similarly, the economy is growing. Last year India’s GDP was in excess of US$1 trillion. According to the IMF, in the five years since 2003, India’s real GDP has increased by an average of 8.6% and ten-year estimates through to 2013 indicate that India’s GDP will continue to grow by an average of around 8%. This combination of such a large population with growing per capita income, coupled with greater accessibility to insurance for end customers, creates an ideal platform for strong potential general insurance market growth.
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• India’s general insurance market (public plus private sectors) has grown at a compound annual growth rate of 16% over the past four years
• The private sector has grown 60.7% between FY03 and FY07, and at the end of February 2008, private companies had around 40% market share
• Increasing penetration off a low base, with continued strong economic growth, is expected to result in 15%−20% GWP compound annual growth rate over the next ten years
Source: IRDA Journals, Ernst & Young India, Moody’s, Swiss Re and IMA Asia
WITH SIGNIFICANT GENERAL INSURANCE GROWTH POTENTIAL
Historical and Projected Market size and GDP (USD bn)
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5
10
15
20
25
FY02 FY03 FY04 FY05 FY06 FY07 FY08 FY09 FY10 FY11 FY12 FY130
500
1000
1500
2000
2500
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Mkt GWP USD BnGDP USD Bn
Actual Forecast
India’s insurance sector has been on an upward growth curve. India’s general insurance market has grown at a compound annual growth rate of 16% over the past four years. The private sector has grown around 60% between FY03 and FY07, and at the end of February 2008, private players had around 40% market share. The penetration of insurance still remains comparatively low, leaving significant room for further growth. Most analysts predict that India’s general insurance sector will grow 15%–20% per annum over the next ten years.Motor insurance, where IAG has particularly strong expertise, accounts for more than 40% of the general insurance market, and has demonstrated the highest level of GWP growth across all classes. Based on data presented by India’s Insurance Regulatory and Development Agency, motor GWP has experienced a compound average growth rate of almost 21% since 2003, recording just over USD$2.4b in GWP in 2007. The trend of GWP growth in motor insurance is expected to continue. These are just some of the statistics which make India such an attractive proposition for us.
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STATE BANK OF INDIA: A PREMIUM PARTNER
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We are delighted to have been selected by SBI, ahead of a number of other international insurance organisations, to partner in the establishment of this joint venture. We believe this joint venture places us in a strong position to become a key participant in the Indian market.
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• The largest bank in India by a significant margin, with 16% market share (both deposits and advances)
• More than 100 million customers
− strong corporate relationships - over 80% of large corporates and 50% of mid-corporates in India
− more than 1.3 million SME customers
• Unrivalled distribution network: around 11,000 branches
• Additional 4,500 branches and 46 million customers when including SBI’s six associate banks
• Ranked one of India’s most recognised and trusted brands (AC Nielsen):
− # 1 - ‘Most trusted with money’ across all income groups
− # 2 - brand equity out of 275 brands
• The only Indian bank included in Fortune's Global 500 – 380th place, up from 495th in 2007
• Strongly capitalised
• 59% owned by Government of India
STATE BANK OF INDIA: A PREMIUM PARTNER
SBI is India’s largest and most recognised financial services organisation, with more than 100 million customers and a 16% market share in both deposits and advances. It has a particularly strong corporate customer base, having relationships with over 80% of the large corporates and 50% of mid-corporates in India, as well as more than 1.3 million SME customers, approximately 95 million retail customers and over 5 million rural customers. SBI has one of India’s most recognised brands, ranking number two in terms of brand equity and number one as ‘most trusted with money’ across all income groups according to research by AC Nielsen. SBI is strongly capitalised, and in May, SBI announced it had increased net profit by more than 48% at 31 March 2008, compared with the previous year, and in late October, announced a 28% increase in net profit for the opening half of FY09. SBI’s ratings from international ratings agency Standard & Poor’s rank it equal to the country rating for India demonstrating SBI’s financial strength. It is also included in Fortune's Global 500 and is the only Indian bank to feature in the Top 60 World Commercial and Savings Banks within that ranking.
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West Bengal (815)West Bengal (815)
Delhi (247)Delhi (247)
Kerala, Lakshwadeep (303)Kerala, Lakshwadeep (303)
Punjab (278)Punjab (278)
North East (500)North East (500)
Chhattisgarh (248)Chhattisgarh (248)
Haryana (198)Chandigarh (30)Haryana (198)Chandigarh (30)
Andaman & Nicobar (18)Andaman & Nicobar (18)
Total Offices – 10942October 2008
555
242
1694
164
133
957
944
397
676
948
553
590
Jharkhand (386)Jharkhand (386)
Goa (66)Goa (66)
UNRIVALLED DISTRIBUTION NETWORK
State Bank of India branch network: around 11,000 branches
Importantly, SBI has considerable distribution reach. It has a network of around 11,000 branches and, when including its six associate banks, it has access to an additional 4,500 branches. This network significantly outnumbers other financial services organisations in India. Having access to SBI’s wide and diversified business and geographic presence presents the joint venture company with a substantial potential customer base.
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SBI HAS A PROVEN TRACK RECORD OF WORKING COLLABORATIVELY WITH FOREIGN PARTNERS
• commenced 1998• one of the top 3 cards issuers in India• over 530,000 cards issued in FY2008• total cards in use 3.2 million
• commenced 1992• USD 6.4 billion in Assets Under Management (AUM)• ranked #6 in funds management market by AUM• 5.17% market share
• commenced 2001, first full year 2002-03• first private life insurer to break even• 3rd largest private life insurer with 10.2% market share• 92% Y-on-Y growth in GWP in FY2008• selling in over 6,000 SBI branches• 102 own branches; 7 million customers
Performance HighlightsCompany JV Partner
SBI Life Insurance Co. Ltd Cardif SA
SBI Funds Management Pvt. Ltd.
SociétéGénérale
SBI Cards & Payment Services Pvt. Ltd.
GE Capital
I think it is worth noting that SBI has successfully built joint venture relationships with other foreign partners across three segments of the finance industry. The success of these relationships has been driven through close collaboration, with each partner recognising and leveraging their particular strengths. As an example, SBI Life Insurance (a partnership between SBI and Cardif) commenced operations in 2001 and was the first private life insurance company to become profitable. During FY08, the joint venture generated a profit of more than A$9 million, grew GWP by 92% (over four times that of the overall industry and 25% higher than other private companies) and its products are now sold in over 6,000 of SBI’s branches. This proven track record of working collaboratively with foreign partners to drive successful businesses gives us additional confidence about the prospects for our general insurance joint venture with SBI.
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GENERAL INSURANCE JOINT VENTURE – OPPORTUNITY TO BE A KEY PARTICIPANT
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I’ll turn now to some of the key terms of our general insurance joint venture.
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OPPORTUNITY TO BE A SIGNIFICANT INDUSTRY PARTICIPANT
• IAG-SBI general insurance joint venture will leverage the combined strengths of the two organisations: − Exclusive access to SBI’s brand and distribution network− Supported by IAG’s proven technical and underwriting experience
• Aim to build scale and profitability in segments in which SBI has existing strong customer relationships – corporate, SME and retail
• IAG will initially hold 26% of the joint venture, the maximum allowable under India’s current foreign investment rules, with an option to increase to 49%
• Under the joint venture arrangements, IAG will have board representation, the right to appoint certain key management personnel and affirmative voting rights over key business matters
• IAG will invest IRN 5421 million (approximately AUD$170 million):− Direct investment into the joint venture to support its development− No further funding expected to be required for at least four years
• Regulatory approvals are currently being sought and trading expected to commence late 2009
The joint venture will have exclusive access to SBI’s distribution network and brand, and will aim to build scale in the segments in which SBI has particularly strong customer relationships, namely the corporate, SME, and retail segments. IAG will initially hold 26% of the joint venture, the maximum allowable under India’s current foreign investment rules, and has an option to increase its stake to 49%, subject to regulatory and other conditions.Under the joint venture arrangements, IAG will have board representation, the right to appoint certain key management personnel, including the Deputy CEO, and affirmative voting rights over key business matters. IAG will invest around 5.4 billion Indian Rupees (which is approximately AUD$170 million), funded from our internal resources. Importantly, our total investment will be made directly into the joint venture, of which we will own 26%, and current business plans suggest that no further capital will be required for at least four years. The scale of our investment reflects the attractiveness of this unique opportunity, which we believe will contribute to building value for our shareholders over the medium to long term. The joint venture remains subject to Insurance Regulatory and Development Authority and other applicable approvals. Once these approvals are granted, the joint venture is expected to commence writing business in late 2009.
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SUMMARY
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SUMMARY
• A unique opportunity to partner with a premium company, with a leading brand and significant customer and distribution network
• A highly attractive market, with opportunity for growth and profitability
• Consistent with IAG’s Asian strategy
• Joint venture to generate value for IAG shareholders in the medium to long term
In summary, we believe this joint venture offers a unique opportunity to partner with a premium company, with a leading brand and significant customer and distribution network. India has a highly attractive general insurance market, with the potential to grow both in terms of premium volume and profitability. The joint venture is consistent with our strategy to selectively expand throughout targeted Asian general insurance markets. We believe the business has excellent prospects and will generate value for IAG shareholders in the medium to long term.
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QUESTIONS
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I’m now happy to open up the line for questions.
