There were no shocks at IAG’s annual general meeting on Friday, with CEO Peter Harmer saying he’s happy with the insurer’s recent performance, amid a myriad of challenges.
Addressing attendees gathered both in person and via webcast, Harmer said IAG had achieved a very pleasing result for the 2019 financial year and was making good progress against its three-year plan.
“As ever, this performance speaks to the strength of our brands and the incredible passion and commitment of our people, which has been tested at times in a year of reasonably high perils activity, particularly here in Sydney,” said Harmer.
Overall, GWP grew by just over 3% to $12 billion, largely from increased prices but also supplemented by a favourable foreign exchange translation effect in New Zealand.
Insurance profit fell 13% to $1.2 billion and cash earnings also fell 10% to $931 million – however, net profit after tax climbed 16.6%, reaching just over $1 billion, an achievement largely attributed to the $200 million sale of its Thailand operations.
While the firm’s reported margin fell, IAG’s underlying insurance margin continued the improvement recorded last year, increasing to 16.6%.
“At the reported margin level, that improvement in underlying performance was outweighed by claim costs from natural disasters, credit spread movements, and significantly lower prior period reserve releases,” said Harmer.
Touching on the outlook for this year, Harmer said IAG is guiding to a reported margin range of 16-18%, representing another step up in underlying profitability.
“In summary, we’ve had another very satisfactory year,” Harmer said. “We put a plan in place three years ago, and I’m very pleased with the progress we are making against that plan. Our focus has been on doing the simple things very well, and it is delivering results.”
Chairman Elizabeth Bryan also addressed a number of challenges faced by IAG and the wider insurance industry – including the impact of climate change on businesses, and potential changes to remuneration structures.
Bryan assured stakeholders that IAG is heavily invested in mitigating the effects of climate change, and confirmed the insurer had reduced its greenhouse gas emissions by 22.6% in the most recent financial year, exceeding its own target to reduce carbon emissions by 20% by 2020.
“Like many of the world’s leading organisations – and almost all of its governments – we have committed to play our part to deliver on the Paris Agreement, and to limit climate change to two degrees above pre-industrial levels,” she added.
Bryan also confirmed the insurer’s investment portfolio reflects its ethics, no longer backing companies which are predominantly engaged in mining thermal coal.
Discussing executive remuneration – a topic which Bryan said is “consistently a cornerstone of annual general meeting discussions” – Bryan said IAG would not be making changes to executive fixed pay levels or short-term incentives, for the 2020 financial year.
However, there were changes to the structure of long-term incentives, which currently has two hurdles: cash return on equity, and relative total shareholder return.
“As I foreshadowed at last year’s annual general meeting, this year we reviewed the cash return on equity hurdle,” she said. “We considered the impact of monetary policies on the global cost of capital, our changing capital base and the need to ensure the hurdle is sufficiently stretching.”
Bryan then confirmed IAG has increased the vesting range for this hurdle to 1.4 to 1.9 times the weighted average cost of capital for future awards.
“We are confident this change will embed an appropriate level of stretch,” she said.
