The Group is exposed to multiple risks relating to the conduct of its general insurance business. The following risks noted below are
not meant to represent an exhaustive list, but the risks faced by the Group that have been identified by the RMS process:
strategic risk: the risk of not achieving corporate or strategic goals;
insurance risk: the risk that the Group is exposed to financial loss, as a result of inadequate or inappropriate underwriting,
inadequate or inappropriate product pricing, unforeseen, unknown or unintended liabilities that may eventuate, inadequate or
inappropriate claims management including reserving or insurance concentration risk (i.e. by locality, segment factor or
distribution);
reinsurance risk: the risk of insufficient or inappropriate reinsurance coverage, inadequate underwriting and pricing of
reinsurance exposures retained by IAG’s reinsurance captives, inadequate or inappropriate reinsurance recovery management,
reinsurance arrangements not legally binding and reinsurance concentration risk;
financial risk: the risk of inadequate liquidity, adverse movements in market prices (equities, derivatives, interest rates, foreign
exchange, etc) or inappropriate concentration within investment funds, a counterparty failing to meet its obligations and/or
inappropriate capital management; and
operational risk: the risk of loss from inadequate or failed internal processes, people, systems and/or external events.
A disciplined approach to risk management has been adopted and IAG believes this approach provides the greatest long term
likelihood of being able to meet the objectives of all stakeholders, including policyholders, lenders, regulators and shareholders.
Detail of the Group's overall risk management framework, which is outlined in the RMS, is set out in the risk management note within
the Financial Statements and in the Corporate Governance Statement, which is available on the IAG website.
CORPORATE GOVERNANCE
IAG is committed to attaining the highest level of corporate governance to ensure the future sustainability of the organisation and to
create long term value for its shareholders. To achieve this, IAG promotes a culture that rewards performance, integrity, respect and a
considered sense of urgency.
IAG's Corporate Governance Statement has been approved by the Board. For the financial year ended 30 June 2015, IAG has
complied with the Australian Securities Exchange Corporate Governance Council Principles and Recommendations (3
rd
edition) and is
compliant as at 21 August 2015. Further details on IAG's corporate governance practices and Corporate Governance Statement are
available at
OUTLOOK
The outlook for the financial year ending 30 June 2016 is one of relatively flat GWP, as the Group maintains its underwriting discipline
in the face of what is expected to remain a low growth environment, characterised by relatively challenging market conditions and
subdued inflationary pressures.
2016 financial year GWP expectations have been updated since the initial 2016 financial year guidance, of 0-3% growth, as provided
on 16 June 2015. This minor revision accommodates the reported 2015 financial year outcome and recent foreign exchange
movements.
Underlying profitability is expected to remain strong, as further benefits from the integration of the former Wesfarmers business and
the move to the new operating model are realised, cushioning the effect of competitive pressures. In addition, implementation of the
quota share agreement with Berkshire Hathaway from 1 July 2015 is expected to reduce earnings volatility applicable to 20% of the
Group’s business.
The Group’s reported insurance margin guidance for the 2016 financial year remains at 14-16%. This includes an at least 200 basis
points favourable effect from the implementation of the quota share.
Underlying assumptions behind the reported margin guidance are:
net losses from natural perils in line with an allowance of $600 million;
prior period reserve releases of at least 1% of NEP; and
no material movement in foreign exchange rates or investment markets.
The 2016 financial year is also expected to see Asia report a stronger underlying performance, alongside progress in expanding the
Group’s regional footprint, including the dial-up of ownership in India to 49%.
DIVIDENDS
Details of dividends paid or determined to be paid by the Company and the dividend policy employed by the Group are set out in the
dividends note within the Financial Statements.
Cash earnings are used for the purposes of targeted ROE and dividend payout policy and are defined as:
net profit after tax attributable to IAG shareholders;
plus amortisation and impairment of acquired identifiable intangibles (post-tax); and
excluding any unusual items (non-recurring in nature, for example the expenses associated with restructuring) after tax.
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