A key part of our approach to capital management is building and maintaining long-standing relationships in the core areas of reinsurance, debt and equity capital markets. These relationships have assisted us to purchase more reinsurance cover and fund growth opportunities over the last 12 months. We have also maintained our focus on a strong balance sheet.

BOLSTERING OUR REINSURANCE COVER

In January 2014, we renewed our annual catastrophe cover for the year. We have worked with our main reinsurance partners for over 30 years and these relationships, combined with a generally more favourable environment, enabled us to bolster key aspects of our catastrophe cover this year.

Our cover for the calendar year 2014 provides protection of up to $5.6 billion, compared to $5.0 billion in 2013. In addition, we purchased standalone protection of $1.35 billion for the Wesfarmers insurance underwriting business, and intend to roll this into the main Group cover from calendar year 2015.

The combination of all covers in place at 30 June 2014 gives us maximum first event retentions of $225 million for Australia, NZ$225 million for New Zealand, $25 million for Thailand and Malaysia, and less than $1 million for Vietnam. The overall credit quality of the programme remains high, with over 89% placed with entities rated A+ or better.

FUNDING FUTURE GROWTH

In December, the support of our equity capital providers enabled us to raise the capital we needed to purchase the Wesfarmers insurance underwriting business. Funding this transaction showed the benefits of having a broad and supportive shareholder base, as we raised $1.2 billion from institutional investors, and $236 million from our retail investors. A further $350 million from our debt investors completed the funding package.

ONGOING CAPITAL MANAGEMENT

We continued to actively manage our debt portfolio during the year. We have a philosophy of only having debt instruments that qualify with rating and regulatory agencies and, as a result of the changes that our regulator, the Australian Prudential Regulation Authority (APRA), put in place on 1 January 2013, we are restructuring some of our debt portfolio. In June 2014, this process saw us repurchase and cancel £157 million of debt held in a subordinated exchangeable term note.

The Group remains strongly capitalised under APRA’s Life and General Insurance Capital regime. At 30 June 2014, our Prescribed Capital Amount (PCA) multiple was 1.72, compared to the Group’s long term benchmark of 1.4 – 1.6 and our Common Equity Tier 1 (CET1) multiple was 1.14, in excess of our target range of 0.9 to 1.1 times the PCA.

SUPPORTING OUR SHAREHOLDERS, AND GROWTH

The full-year dividend of 39 cents per share declared by the Board represents a payout ratio of nearly 70% of our cash earnings, and continues our approach of sharing returns with our shareholders, while retaining appropriate funds for further investment in our businesses, and in growth opportunities.

Retail shareholders are important stakeholders in our organisation and we are pleased that this year we were able to give them an opportunity to be involved in the growth of the business through the Share Purchase Plan which assisted in the funding of the acquisition of the Wesfarmers insurance underwriting business. We look forward to continuing to share the benefits of this growth into the future.

NICK HAWKINS CHIEF FINANCIAL OFFICER