NEWS RELEASE 10 July 2012
IAG ON TRACK TO REALISE SIGNIFICANT GROWTH IN ASIA
PAGE 1 OF 2
Insurance Australia Group Limited (IAG) today provided an update on its Asian operations and the substantial growth opportunities from its regional footprint. Speaking at a market briefing in Sydney, IAG Managing Director and Chief Executive Officer Mr Mike Wilkins, said there was a significant growth opportunity in Asia with middle class consumption (ex Japan) expected to increase by nearly 200%, to around US$12 trillion, by 2020. He said IAG is well positioned to benefit from the accompanying trend of increased asset ownership in markets where insurance penetration is currently low, resulting in long term profitable growth close to home. “The Asian opportunity is here and now. Over the past couple of years we’ve quietly gone about our Asian strategy and are now getting real traction. We are entering an exciting phase of our Asian ambitions as we shift from a market entry focus to one of driving operational performance from our enlarged regional presence,” Mr Wilkins said. After completion of the Kurnia acquisition in Malaysia, which is expected to close in the second half of calendar 2012, IAG will have approximately $720 million invested in five Asian countries. Around $500 million will be invested in established businesses in Thailand (Safety Insurance) and Malaysia (AmG and Kurnia) that are already delivering strong double digit returns, rising to an ROE of more than 15% by FY17. IAG has invested a further $220 million in the emerging markets of India (SBI General), China (Bohai Insurance) and Vietnam (AAA Assurance). While these businesses are currently in the development phase, they are expected to generate an ROE of more than 15% by FY17. The ROE expectations are before allocation of regional development costs which are expected to peak at approximately $25 million (pre-tax) in FY13. IAG’s CEO of Asia, Mr Justin Breheny, said IAG’s local business model was fundamental to its success in Asia. He identified three key elements to this model: effective market entry, local partnering and capability transfer. “We have a proven business model in Asia,” Mr Breheny said. “Our extremely disciplined approach to market entry has resulted in an attractive portfolio of businesses, with differing stages of market development and associated growth and return profiles, but all with a clear ability to create value for the Group. “We have attracted extremely high quality partners in Asia, such as AmBank in Malaysia and State Bank of India, who possess the right brand and distribution profile, and share the same long term objectives as us. This partnering approach allows us to build our credibility with the benefit of operating with trusted local brands. “IAG adds value through its specialised insurance expertise. Our well-established capability transfer programme has already delivered considerable operational improvement in our established markets of Thailand and Malaysia, and we fully expect this to be repeated as it is applied across our developing markets of India, China and Vietnam,” he said.
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INVESTOR BRIEFING IAG will be hosting an investor briefing at 10:00am (Sydney time) today. The briefing will be webcast live on www.iag.com.au and a teleconference facility is available for analysts and media. To call within Australia: 1 800 558 698 To call from elsewhere outside Australia: +61 2 9007 3187 Please quote conference ID 726373 A copy of the presentation can also be downloaded from www.iag.com.au About Insurance Australia Group Insurance Australia Group (IAG) is the parent company of an international general insurance group, with operations in Australia, New Zealand, the United Kingdom and Asia. Its current businesses underwrite over $8billion of premium per annum, selling insurance under many leading brands including NRMA Insurance, CGU, SGIO, SGIC and Swann (Australia); NZI, AMI and State (NZ); Equity Red Star (UK); and Safety and NZI (Thailand). For further information please visit www.iag.com.au.
Corporate Affairs Steve Pratt T 02 9292 8286 M 0411 010 057 E [email protected]
Investor RelationsSimon Phibbs T 02 9292 8796 M 0411 011 899 E [email protected]
Insurance Australia Group Limited ABN 60 090 739 923 388 George Street Sydney NSW 2000 Australia T 02 9292 9222 www.iag.com.au
10 July 2012 ABN 60 090 739 923
ASIAN STRATEGY INVESTOR BRIEFING
2
This presentation contains general information in summary form which is current as at 10 July 2012. It presents financial information on both a statutory basis (which has been prepared in accordance with the Australian accounting standards, which comply with International Financial Reporting Standards (IFRS)) and non-IFRS basis. This presentation is not a recommendation or advice in relation to Insurance Australia Group Limited (“IAG”) or any product or service offered by IAG’s subsidiaries. It is not intended to be relied upon as advice to investors or potential investors, and does not contain all information relevant or necessary for an investment decision. It should be read in conjunction with IAG’s other periodic and continuous disclosure announcements filed with the Australian Securities Exchange which are also available at www.iag.com.au. No representation or warranty, express or implied, is made as to the accuracy, adequacy or reliability of any statements, estimates or opinions or other information contained in this presentation. To the maximum extent permitted by law, IAG, its subsidiaries and their respective directors, officers, employees and agents disclaim all liability and responsibility for any direct or indirect loss or damage which may be suffered by any recipient through use of or reliance on anything contained in or omitted from this presentation. No recommendation is made as to how investors should make an investment decision. Investors must rely on their own examination of IAG, including the merits and risks involved. Investors should consult with their own professional advisors in connection with any acquisition of securities. The information in this presentation is for general information only. To the extent that certain statements contained in this presentation may constitute “forward-looking statements” or statements about “future matters”, the information reflects IAG’s intent, belief or expectations at the date of this presentation. IAG gives no undertaking to update this information over time (subject to legal or regulatory requirements). Any forward-looking statements, including projections, guidance on future revenues, earnings and estimates, are provided as a general guide only and should not be relied upon as an indication or guarantee of future performance. Forward-looking statements involve known and unknown risks, uncertainties and other factors that may cause IAG’s actual results, performance or achievements to differ materially from any future results, performance or achievements expressed or implied by these forward-looking statements. Any forward-looking statements, opinions and estimates in this presentation are based on assumptions and contingencies which are subject to change without notice, as are statements about market and industry trends, which are based on interpretations of current market conditions. Neither IAG, nor any other person, gives any representation, assurance or guarantee that the occurrence of the events expressed or implied in any forward-looking statements in this presentation will actually occur. In addition, please note that past performance is no guarantee or indication of future performance. This presentation does not constitute an offer to issue or sell securities or other financial products in any jurisdiction. The distribution of this presentation outside Australia may be restricted by law. Any recipient of this presentation outside Australia must seek advice on and observe any such restrictions. This presentation may not be reproduced or published, in whole or in part, for any purpose without the prior written permission of IAG. Local currencies have been used where possible. Prevailing current exchange rates have been used to convert local currency amounts into Australian dollars, where appropriate. All US dollar figures have been extracted from public sources and have been replicated without further adjustment. All references starting with “1H” refer to the six months ended 31 December, being the first half of IAG’s financial year. For example, “1H12” refers to the six months ended 31 December 2011. All references starting with “2H” refer to the six months ended 30 June, being the second half of IAG’s financial year. For example, “2H12” refers to the six months ended 30 June 2012. All references starting with “FY” refer to the financial year ended 30 June. For example, “FY12” refers to the year ended 30 June 2012. All references to individual business profitability are before allocation of regional support and development costs.
IMPORTANT INFORMATION
ASIAN STRATEGY – 10 JULY 2012
3
AGENDA 3
Our strategy in Asia Justin Breheny
Update on our Asian businesses Duncan Brain, Justin Breheny
Our partners’ views Tan Sri Dato’ Azman Hashim, Chairman, AMMB Holdings (AmBank) Mr Pratip Chaudhuri, Chairman, State Bank of India
Q&A session
1
2
3
4
ASIAN STRATEGY – 10 JULY 2012
4
IAG’S STRATEGIC PRIORITIES A CLEAR FOCUS ON AUSTRALIA, NEW ZEALAND AND ASIA
ASIAN STRATEGY – 10 JULY 2012
5
Source: OECD NON-LIFE GWP² US$424 billion 122%
THE SIZE OF THE ASIAN OPPORTUNITY PROFITABLE GROWTH, CLOSE TO HOME
MIDDLE CLASS CONSUMPTION¹
ASSET OWNERSHIP¹
BY THE YEAR 2020
US$12 trillion 185%
US$97.5 trillion 203%
¹ Asia, ex-Japan ² Emerging Asia (China, India, Indonesia, Malaysia, Philippines, Thailand, Vietnam) Sources: McKinsey; OECD; Swiss Re
ASIAN STRATEGY – 10 JULY 2012
6
IAG’S EXPANDING ASIAN PRESENCE PORTFOLIO OF ESTABLISHED AND DEVELOPING BUSINESSES
THAILAND MALAYSIA INDIA CHINA VIETNAM
98.6% 49%
26% (option to 49%²)
20% (option to 25%²)
30% (option to 49%²)
¹
ESTABLISHED
DEVELOPING
¹ Completion expected second half calendar 2012 ² Subject to foreign investment regulations
ASIAN STRATEGY – 10 JULY 2012
7
ASIA INVESTOR BRIEFING KEY TAKEOUTS 7
IAG has a portfolio of quality businesses to capitalise on the substantial growth in Asia
Competitive advantage comes from a robust and disciplined approach to market entry, partner selection and capability transfer
Significant value creation expected over the medium to longer term
1
2
3
ASIAN STRATEGY – 10 JULY 2012
IAG’S ASIAN STRATEGY
Justin Breheny Chief Executive Officer, Asia
9
STRATEGIC FOCUS SHIFTING FROM M&A TO OPERATIONAL PERFORMANCE 9
Established presence in Malaysia
Moved to control in Thailand
Developed partnership model
Focus on M&A and growing market share in existing markets
Developing businesses in India, China and Vietnam
Strong performance from enlarged Malaysian JV
Investigating opportunities in Indonesia
Continued improvement in returns, from:
– Active management of businesses
– Ongoing capability transfer
– Driving operational efficiency and performance
Appointed directors to Safety in Thailand
Teams on ground in China and Singapore
Personnel part of current Asia senior leadership, ensuring continuity and experience
Increasing operational focus
Decreasing M&A focus
PRE 2005 HORIZON 1 2005-2010
HORIZON 2 2010-2015
HORIZON 3 BEYOND 2015
ASIAN STRATEGY – 10 JULY 2012
DISCIPLINED EXECUTION BUSINESS MODEL DELIVERS COMPETITIVE ADVANTAGE
10
Effective market entry
Disciplined and structured approach, in high growth and regionally significant markets
Local partnering Aligned to IAG’s aspirations with strong brand, customer base and distribution footprint
Capability transfer
Value added through capability transfer across the insurance chain
1 2 3
ASIAN STRATEGY – 10 JULY 2012
11
EFFECTIVE MARKET ENTRY SIX PRIORITY MARKETS - HIGH GROWTH, REGIONALLY SIGNIFICANT
Sources: BMI; World Bank; Swiss Re; IAG analysis Note: Growth rates are CAGR 2011-2015
EMERGING GLOBAL GIANTS
CHINA US$ 7,298bn 9% 1.3bn GDP GDP ↑
15% GWP ↑ POP.
INDIA US$1,676bn 8% 1.2bn GDP GDP ↑
16% GWP ↑ POP.
VIETNAM US$123bn 8% 89m GDP GDP ↑
20% GWP ↑ POP.
INDONESIA US$846bn 6% 241m GDP GDP ↑
15% GWP ↑ POP.
DEVELOPING
THAILAND US$346bn 5% 64m GDP GDP ↑
7% GWP ↑
ESTABLISHED
MALAYSIA US$248bn 4% 28m GDP GDP ↑
7% GWP ↑
POP.
POP.
1
ASIAN STRATEGY – 10 JULY 2012
EFFECTIVE MARKET ENTRY DISCIPLINED AND STRUCTURED PROCESS APPLIED
Scoping Relationship Building Deal Making Operations
Integrate & consolidate
further acquisitions
Build local capability
Identify priorities and
develop plan to add value
Buy into a local company as
opportunities emerge
Build relationships with owners
and regulators
Develop market entry/
acquisition plan
Understand the market
Identify priority markets
2006 in-market investigation – 2012
India
China
Thailand
Malaysia
Indonesia
2009-2012
2012
Watching brief
Kurnia 2012
Vietnam In progress
2006-2012
20% investment 1999, consolidated 2006
30% investment 2006, dial-up to 49% 2008
1999-2012
2006 in-market representation – 26% investment 2009
2004 in-market representation – 20% investment 2012
2006 in-market investigation – 30% investment 2012
c.80 opportunities examined 26 due diligences conducted 5 deals concluded
12
1
Investigating
ASIAN STRATEGY – 10 JULY 2012
LOCAL PARTNERING STRICT CRITERIA, MUTUAL ASPIRATIONS AND APPRECIATION
Major, high growth player
Significant available influence
High product and channel compatibility
Strong business quality
Available and highly motivated
Strong sense of urgency
Strong stakeholder support
Low barriers to capability transfer
THEY BRING: Brand Customer base Distribution footprint Stakeholder support (eg regulators, government) Local knowledge WE BRING: Leading insurance expertise Access to economies of scale WE SHARE: Common aspirations and goals for the business Mutual respect Drive and urgency to deliver results Appreciation of what the other brings
2
13 ASIAN STRATEGY – 10 JULY 2012
14
LOCAL PARTNERING BRAND, CUSTOMERS, DISTRIBUTION, PARTNER SUPPORT
Fifth largest bank branch network in Malaysia
India’s largest bank – 160 million customers and over 19,000 branches (including associated banks)
Bohai Insurance’s major ultimate shareholder, a large state-owned enterprise
Established 2005 – grown to sixth largest motor insurer in Vietnam
VIETNAM CHINA INDIA MALAYSIA
2
ALIGNMENT OF PURPOSE MUTUAL TRUST AND RESPECT
ASIAN STRATEGY – 10 JULY 2012
15
LOCAL PARTNERING MULTI-TIER TOUCHPOINTS BUILD TRUST AND CREDIBILITY 15 2
Appointment of IAG directors in all JVs This right embedded in JV agreements Board seats proportional to shareholding IAG appointees include Group CEO, Asia CEO, Asia
division senior executives
Regular engagement with country regulator - position IAG as industry advisor Partner management a priority – multi-level
relationships developed through regular contact Regular monitoring of partnership strength
IAG appointees to key management positions This right embedded in JV agreements Deputy CEO plus key areas such as underwriting and
claims in early years Positions will vary between JVs – depending on need
Functional links developed between JV departments and their IAG counterparts Strong personal relationships developed through
capability transfer process Enables IAG to exert strong influence at working
levels
BOARD MANAGEMENT
STAKEHOLDER MANAGEMENT FUNCTIONAL LINKS
ASIAN STRATEGY – 10 JULY 2012
16
16 CAPABILITY TRANSFER DELIVERING IMMEDIATE AND SUSTAINED IMPACT 3
UNDERWRITING CLAIMS MANAGEMENT PRODUCT DEVELOPMENT
DISTRIBUTION RISK RATING & PRICING CAPITAL MANAGEMENT
GOVERNANCE RISK MANAGEMENT INVESTMENT MANAGEMENT
SUPPLY CHAIN MANAGEMENT REINSURANCE RESERVING
ASIAN STRATEGY – 10 JULY 2012
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Kurnia integration synergies delivered, maintain #1 position in motor
Top 3 position overall, #2 in motor
Dial up ownership to 49%¹, profitability achieved by FY15, GWP A$1bn² by 2016
Bohai capability transfer plan complete, profitability achieved by FY15, GWP A$900m² by 2017
Investment increased to 49%¹, top 3 motor insurer
BUSINESS GOALS – HORIZON 3, BEYOND 2015 BOOSTING FOOTPRINT AND SECURING SCALE POSITIONS
MALAYSIA
THAILAND
INDIA
CHINA
VIETNAM
Market entry achieved, capability transfer model implemented INDONESIA
¹ Subject to foreign ownership regulations ² Subject to FX movements
ASIAN STRATEGY – 10 JULY 2012
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FINANCIAL GOALS DELIVERING PROFITABLE GROWTH IN THE MEDIUM TERM
ESTABLISHED (c.$500M) DEVELOPING (c.$250M)
INVESTMENT OF c.$720M (POST-KURNIA)
Strong returns (ROE c.10-15%) Initial start-up / development losses
ESTABLISHED (c.$500M)
Malaysia Thailand
DEVELOPING (c.$220M)
India China Vietnam
Regional development costs – peak of approx. $25m per annum FY13
FY13
FY17
* ROE assumes funding mix of 70% equity and 30% debt, and is before regional development costs
Strong returns – pre development costs (ROE 15%+)
ASIAN STRATEGY – 10 JULY 2012
ESTABLISHED BUSINESSES MALAYSIA AND THAILAND
Duncan Brain Chief Executive Officer - AmG Insurance Berhad Head of South East Asia
20
MALAYSIA – BUSINESS OVERVIEW AmG – A HIGH PERFORMING BUSINESS
390
638
FY05 FY12
96.6%
91.4%
FY05 FY12
CURRENT PROFILE 49% owned (51% AmBank)
Annual GWP of c.RM650m (c.A$200m)
Predominantly motor (c.80% GWP)
Strong double digit insurance margin and ROE
Industry-leading expense management ratio
4th largest motor insurer – 8% market share*
8th largest general insurer – 5% market share*
Diversified distribution base – 3,000 agents, AmBank bancassurance channel
Approximately 1 million policyholders
Kurnia transaction will deliver market leading positions
AmG INSURANCE - COR (%)
AmG INSURANCE - GWP (RMm)
Note: All figures based on AmG’s financial year end 31 March * As at 31 December 2011
ASIAN STRATEGY – 10 JULY 2012
21
11.0 11.5 11.3 12.0 13.0 14.0
2006 2007 2008 2009 2010 2011
MALAYSIA - MARKET ENVIRONMENT SOUND GROWTH OUTLOOK IN CONSOLIDATING MARKET
MALAYSIA GENERAL INSURANCE GWP (RMbn) Economic growth of 5% in 2011, 4-5% forecast for
2012
General insurance market grew by 8% in 2011
– Forecast average growth of ~7% per annum until 2016
Comprehensive motor is profitable, subsidising unprofitable tariffed third party bodily injury (TPBI)
TPBI subject to positive regulatory reforms
Consolidating market – AmG an active participant via Kurnia
Detariffication leading up to 2016
– Will impact competitive environment
– Scale players will possess distinct advantage
95% 98%
111% 102%
98% 97%
2006 2007 2008 2009 2010 2011
MALAYSIA MOTOR PROFITABILITY - COR (%)
Source: PIAM
Source: PIAM
ASIAN STRATEGY – 10 JULY 2012
22
CAPABILITY TRANSFER DELIVERING IMMEDIATE AND SUSTAINED IMPACT
UNDERWRITING CLAIMS MANAGEMENT PRODUCT DEVELOPMENT
DISTRIBUTION RISK RATING & PRICING CAPITAL MANAGEMENT
GOVERNANCE RISK MANAGEMENT INVESTMENT MANAGEMENT
SUPPLY CHAIN MANAGEMENT REINSURANCE RESERVING
ASIAN STRATEGY – 10 JULY 2012
23
ADDING VALUE THROUGH CAPABILITY TRANSFER CLAIMS RE-ENGINEERING – SIGNIFICANT SAVINGS
Significant re-engineering and process improvement – Centralisation of claims operations – Robust repairer management practices – Supply chain selection and management – Strong focus on fraud detection and prevention – Changes in authorities and duties
Strengthened bodily injury claims process – Stringent lawyer selection and management – Probabilistic approach to claim settlements – Improved staff capability and competency – Proactive approach to claims management – Improving claims performance contrasts with
industry trend – Stable ultimate loss ratio (ULR) for last 2 years –
now reducing
AVERAGE COMPREHENSIVE CLAIMS COST (RM)
AVERAGE FINALISED TPBI NET CLAIMS COST (RM)
31,488
26,187
FY09 FY12
4,800
5,000
5,200
5,400
Mar '10 Jun '10 Sep '10 Dec '10 Mar '11 Jun '11 Sep '11 Dec '11 Mar '12
Re-engineering of Claims Operations
ASIAN STRATEGY – 10 JULY 2012
24
ADDING VALUE THROUGH CAPABILITY TRANSFER INCREASED REVENUE VIA PRODUCT DEVELOPMENT
PRODUCT DEVELOPMENT Product wordings, pricing, underwriting, sales &
underwriting process, claims, regulatory approvals
Range of product initiatives, retail and commercial
Extended warranty product introduced – most successful
– High penetration into banking customer base – achieved a peak of 69% of all used car loans
– Generated 10% top line growth for AmG
Recently launched new ‘contract warranty’ product early 2012
EXTENDED WARRANTY GWP (RM) – LAUNCHED 2007
Year 1 Year 2 Year 3 Year 4
1.1 m
12.8 m
43.6 m
50.1 m
ASIAN STRATEGY – 10 JULY 2012
25
PRICING MODELS DEVELOPED Data extraction techniques Risk segmentation analysis Price modelling
– Preparation for detariffication Opportunistic marketing
– ‘Working the tariff’ Kurnia integration to positively influence UNDERWRITING / RISK ACCEPTANCE Development of new business rules Analysis of underwriting outcomes Distribution and core systems development
ADDING VALUE THROUGH CAPABILITY TRANSFER UNDERWRITING AND PRICING
LOSS RATIO BY SEGMENT LOSS RATIO BY SEGMENT
0%
10%
20%
30%
40%
50%
60%
70%
80%
90%
100%
Marketing to attract
Motor risk segments
ASIAN STRATEGY – 10 JULY 2012
Loss ratio benchmark
Marketing to de-emphasise
26
170
220
270
320
370
420
470
520
0%
50%
100%
150%
200%
250%
Sep09 Dec09 Mar10 Jun10 Sep10 Dec10 Mar11 Jun11 Sep11 Dec11 Mar12
RM' milCAR (%)
Total Capital Available (TCA) Total Capital Required (TCR) CAR CAR Minimum Tolerance (130%)
ADDING VALUE THROUGH CAPABILITY TRANSFER IMPROVED CAPITAL AND ASSET MANAGEMENT
CAPITAL ADEQUACY RATIO BALANCE SHEET MANAGEMENT Strengthening CAR due to higher
earnings, investment de-risking, and claims process improvement – New investment policies – De-risking investments – optimise for
RBC – Established sensitivity tools to optimise
allocation through the cycle – Duration matching investments vs
claims liabilities – More effective cash management – Impacting average outstanding claims
provisions by reducing claim costs and turnaround times
ASIAN STRATEGY – 10 JULY 2012
27
KURNIA ACQUISITION* DELIVERS MARKET LEADING POSITION
REDEVELOPED AmG 5 YEAR STRATEGY (2009) Clear strategy developed for AmG
– Achieve number 1 position in motor - leverage scale – Lead in niche commercial lines – Lead in select personal lines
KURNIA: CLEAR STRATEGIC ALIGNMENT Creates scale position in motor, leveraging supply chain,
risk selection, claims and customer management Leading market position - 22% in motor,13.5% overall Creates the largest motor insurer in Malaysia
– GWP of RM1.7bn (A$530m) – 4 million customers, 7,000 agents – RM50m of expected synergies over 2 years
CLEAR MARKET LEADER IN MOTOR – 22% COMBINED SHARE
8% 12%
8% 7% 7% 6% 5% 5% 4% 4%
20%
AmG Allianz MSIG P&O Tokio Zurich / MAA
AXA Uni.Asia Berjaya Etiqa Others
Kur
nia
22%
Source: PIAM (as at 31 December 2011)
* Completion expected second half calendar 2012
ASIAN STRATEGY – 10 JULY 2012
28
Kurn
ia
AmG
Com
petit
or 1
Com
petit
or 2
Com
petit
or 3
Com
petit
or 4
Com
petit
or 5
Com
petit
or 6
Com
petit
or 7
Com
petit
or 8
Com
petit
or 9
Com
petit
or 1
0
Com
petit
or 1
1
Com
petit
or 1
2
Com
petit
or 1
3
Com
petit
or 1
4
Com
petit
or 1
5
Com
petit
or 1
6
Com
petit
or 1
7
Com
petit
or 1
8
Com
petit
or 1
9
Com
petit
or 2
0
Total unaided recall Top-of-mind
KURNIA AND AmG STRONGEST BRANDS IN MOTOR INSURANCE
Source: ACORN research conducted for AmG
Kurnia and AmAssurance are the top two motor insurance brands in Malaysia While consumers have relatively solid unaided recall of most brands, Kurnia and AmAssurance enjoy substantially
greater top-of-mind (TOM) awareness
ASIAN STRATEGY – 10 JULY 2012
29
MALAYSIA FOCUS FOR THE FUTURE
NOW
EXPECTED OUTCOMES: Sustainable #1 position in motor Maintain two of the strongest general insurance brands in the industry Deliver synergy targets and improved profitability
Clear integration plans developed Value retention and attainment Full integration by 2014
Leverage / optimise scale Operational excellence –
systems, processes and controls Developing network focus
Pursue greater innovation in product and marketing
Grow high-margin lines Cross-sell into significant
customer base
ASIAN STRATEGY – 10 JULY 2012
INTEGRATE KURNIA CONSOLIDATE LEADING POSITION
CONTINUED PROFITABLE GROWTH
30
THAILAND – BUSINESS OVERVIEW SAFETY INSURANCE – A LEADING MOTOR INSURER
One entity comprising:
– Safety Insurance (c.80% of GWP) – predominantly motor
– NZI Thailand (c.20% of GWP) – predominantly commercial
Annual GWP c.THB6bn (c.A$190m) – approximately 1 million policyholders
Long term insurance margin 6-8% generating strong ROE
Portfolio adjusted, consistently outperformed the market
6th largest general insurer – 4.3% total market share*
3rd largest motor insurer – 5.4% motor market share*
46 branches and service centres nationwide
Historically strong in Bangkok and southern regions – recent diversification
*As at 31 March 2012 (Source: OIC)
SAFETY BRANCH NETWORK
West (4)
North (5) North East (9)
East (3)
South (16)
Central (9)
ASIAN STRATEGY – 10 JULY 2012
31
95 101 106 110 124
140
2006 2007 2008 2009 2010 2011
THAILAND GENERAL INSURANCE GWP (THBbn)
THAILAND - MARKET ENVIRONMENT HARDENING MARKET POST FLOODS
Source: OIC/ BMI
98% 100% 95% 97% 98%
201%
2006 2007 2008 2009 2010 2011
THAILAND PROFITABILITY - COR (%)
Sound general insurance market growth
– Forecast average growth of over 7% per annum until 2016
– Significant rate increases, post-floods
Market remains fragmented and competitive ~ 70 players
Industry profitable pre-2011 floods – lower insurance margins but on lower capital base
Transition to full risk-based capital (RBC) regime underway
Expect industry restructuring to occur
– Post-flood constrained capital positions
– Increased regulatory action, including RBC enforcement
– Lead to further opportunities
Economic post-flood rebound – driven by public spending and recovery in industrial activity
ASIAN STRATEGY – 10 JULY 2012
32
ADDING VALUE THROUGH CAPABILITY TRANSFER STRONG PERFORMANCE RELATIVE TO INDUSTRY
OUTPERFORMED INDUSTRY - ONE OF LEAST IMPACTED BY 2011 FLOODS Safety COR at or below market – portfolio adjusted
Significantly less flood exposure – Geographic diversification strategy – Product diversification – lower exposure on more risky lines – Restructuring of reinsurance in 12 months prior to floods
LEADS INDUSTRY ON EFFICIENCY Low cost operating model
– Administration ratio approximately 10.5% – Significantly lower than industry, and leading motor insurer
Efficient business processes, good use of technology – Claims process is market leading
96% 95%
98%
201%
2010 2011
Safety
Market
47%
IAG Re flood loss
COMBINED RATIO
Source: OIC
ASIAN STRATEGY – 10 JULY 2012
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ADDING VALUE THROUGH CAPABILITY TRANSFER LOW COST - ADVANCED CLAIMS MONITORING AND ASSESSMENT
LEVERAGING TECHNOLOGY TO DELIVER SUPERIOR CLAIMS MANAGEMENT
CLAIMS MANAGEMENT EFFICIENCY ALIGNS WITH STRONG CUSTOMER FOCUS
Claims control centre – real time GPS tracking of accidents Motor-bike enabled assessors – dispatched to scene of
accidents, all activity is monitored
Accident scene data captured on the spot Facts and evidence reduce fraud Accident repairs are directed and controlled Customers get instant quality service
ASIAN STRATEGY – 10 JULY 2012
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STRATEGIC ORGANIC EXPANSION Bangkok – competitive motor insurance territory
Established target regions for branch expansion
– Under serviced / targeting specific competitors
Measured approach
– 2 to 4 branches per year only
– New branches sustain loss in first 1 to 2 years
– Training staff “Safety Way” critical
6 – 8% lower loss ratio in non-Bangkok branch network
ADDING VALUE THROUGH CAPABILITY TRANSFER STRATEGIC GEOGRAPHICAL EXPANSION
SAFETY GWP - % NON-BANGKOK
ASIAN STRATEGY – 10 JULY 2012
26% 26% 25% 27%
31% 35%
38%
43%
48% 51%
2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 YTD
Pricing/underwriting – Data management –
collection, extraction, analysis, rating analysis and selection
– Product and underwriting Controlled organic growth Product development initiatives
35
ADDING VALUE THROUGH CAPABILITY TRANSFER SUSTAINED IMPROVEMENT IN SAFETY INSURANCE
3.5
4.9
FY07 FY11
100.4%
95.0%
FY07 FY11
COR (%) GWP (THBbn)
Low cost operating model – Sustainable advantage in cost
leadership
Innovative claims management – Repairer management initiatives – Paperless processes – Technology leveraged GPS system – Comprehensive claims cost
(excluding flood) fell by 8%, real terms closer to 20%
AVERAGE FINALISED CLAIMS COST COMPREHENSIVE (THB)
20,170 18,629
FY07 FY11
ASIAN STRATEGY – 10 JULY 2012
36
THAILAND FOCUS FOR THE FUTURE
EXPECTED OUTCOMES: Build on low cost leadership position Continue to leverage competitive level of customer service and claims management Achieve a top 2 position in motor while actively managing (and growing) the non-motor business
Increase Safety’s national presence – Further increase in branches
over the next 2-3 years – Emphasis on under-
represented North, North East and East regions
Leverage Safety’s low cost operating model – Sustaining margins in a price
competitive environment – Continued rating and risk
selection to optimise business mix
– Sophisticated claims management processes
Growth opportunities may arise as a result of: – Increased regulatory
enforcement of capital requirements
– Capital strain on incumbents following floods
– Capitalisation on structural changes
ASIAN STRATEGY – 10 JULY 2012
OPERATIONAL EXCELLENCE ORGANIC NETWORK EXPANSION INDUSTRY STRUCTURAL CHANGES: OPPORTUNITIES?
DEVELOPING BUSINESSES INDIA, CHINA AND VIETNAM
Justin Breheny Chief Executive Officer, Asia
Retail 50%
Corporate 38%
SME 12%
INDIA – BUSINESS OVERVIEW SBI GENERAL RAPIDLY EXPANDING
38
26% interest in SBI General – greenfields joint venture with State Bank of India (SBI)
Option to dial up to 49%, subject to Indian foreign direct investment limit
Building a portfolio in the corporate, retail and SME markets
GWP and start up losses in line with expectations
‒ Over 45 products in market
‒ Over 1,000 staff across 25 branches around India
‒ Over 2,000 qualified SBI bank sales staff selling SBI General Insurance products
‒ 5 SBI associate bank tie-ups Motor 13%
Home 37%
Fire 28%
Short Tail Commercial
13%
Health/ PA 4%
Others 5%
PRODUCT MIX (% GWP)
CUSTOMER SEGMENTS (% GWP)
Source: SBI General year ended 31 March 2012
ASIAN STRATEGY – 10 JULY 2012
204
250 281
312
358
425
2006 2007 2008 2009 2010 2011
STRONG MARKET GROWTH Overall market growth of 23%+ in year to 31March 2012
‒ Private sector 25%, public sector nearly 22% Forecast growth of 16% per annum until 2020 INDUSTRY UNDERWRITING LOSSES Price competition since detariffication driven by new entrants Public sector companies seeking to regain share lost High commercial motor pool losses Expense growth as systems, employees and processes
have developed in an unplanned and inefficient way RATE HARDENING EXPECTED Government directives to public sector companies in May
and June 2012 to cease underwriting unprofitable business in fire, health and motor
Discontinuation of Commercial Third Party Pool in March 2012 – increased reserving by public sector companies
INDIA - MARKET ENVIRONMENT STRONG GROWTH, RATE HARDENING LIKELY
39
INDIA GENERAL INSURANCE GWP (`bn)
Source: IRDA
ASIAN STRATEGY – 10 JULY 2012
SBI GENERAL FOCUSED ON DELIVERING PROFITABLE GROWTH 40
Over 50% of business sourced from SBI at known commission rates Lower than industry average distribution expense delivers distinct cost
advantage DISTRIBUTION COST
ADVANTAGE
Upfront investment in scalable systems enables rapid expansion without equivalent increase in costs – will be the lowest cost provider in the market
Extensive deployment of capability from IAG SUPERIOR BUSINESS
MODEL
Access to all SBI corporate accounts and ability to selectively underwrite Disciplined approach to risk-based underwriting – price for risk, not to win the
business SCALE ENABLES
SELECTIVE UNDERWRITING
Profit (not top line) focused SBI track record of achieving profit in new ventures – eg SBI Life JV was first
private sector life company to break even SBI MINDSET AND TRACK
RECORD
40 ASIAN STRATEGY – 10 JULY 2012
INDIA FOCUS FOR THE FUTURE
EXPECTED OUTCOMES: Leveraging SBI’s brand and distribution strength to secure a sustainable, profitable, scalable position By 2016 – top 3 position in private sector with 5% market share, equates to A$1bn* GWP Profitability by FY15
41
Branches being rolled out rapidly to support top line growth targets
Technology and processes driving cost efficiencies
Full product range to be offered
Bancassurance is the priority, but develop all channels over time – bancassurance, broker, agent and online
SBI relationship and customer base leveraged for lead generation in broker, corporate and SME channels
Disciplined approach to risk based underwriting
Developing best in industry claims management processes
Extremely well placed to capture rate hardening
ASIAN STRATEGY – 10 JULY 2012
SYSTEMS, PRODUCT AND BRANCH ROLLOUT
CHANNEL AND SEGMENT DEVELOPMENT UNDERWRITING AND CLAIMS
* Subject to FX movements
42
CHINA – BUSINESS OVERVIEW BOHAI – REGIONAL FOCUS
42
Licensed in 2005 Annualised GWP in excess of A$200m Strongly capitalised Motor focus (c.85% of GWP) Broad distribution network
– c.50% sales from direct selling (265 provincial and sub-branches, and national telesales centre)
– c.50% sales from agency workforce Majority owned by TEDA companies
– Strong government support 3,000 employees National licence, with strategic focus on the important
pan-Bohai region (c.30% of China’s GDP)
Tianjin (Bohai HQ)
Pan-Bohai region – strategic focus
Other provinces with Bohai branches
BRANCH NETWORK
ASIAN STRATEGY – 10 JULY 2012
CHINA - MARKET ENVIRONMENT STRONG NON-LIFE INDUSTRY PROFITABILITY
-1000
0
1000
2000
3000
4000
2002 2003 2004 2005 2006 2007 2008 2009 2010 2011
NP
AT
(US
D M
)
66.3% 63.1% 61.2%
38.2% 34.2% 34.0%
0% 20% 40% 60% 80%
100% 120%
2009 2010 2011
Claims Ratio Expenses Ratio Source: CIRC / BMI
CHINA NON-LIFE COMBINED RATIOS 2009-2011
43
LOCAL OPERATORS DOMINATE THE INDUSTRY Domestic insurers are profitable, compared to foreign
players which remain small (1% share) and unprofitable Industry profitability driven by
– Increased regulatory focus (solvency, commission, pricing)
– Improved discipline from listed majors MARKET DEVELOPMENTS Listed majors were formed in 1990s – loss of market
share to newer entrants 27 new licences since 2004 – around two-thirds of all
domestic licences on issue For first 5 years, new entrants focused on building
networks and expertise with divergent results – Scale businesses built at expense of profitable growth – Niche players with targeted geographic, product or
service offerings (including Bohai)
CHINA NON-LIFE NPAT (US$M) 2002-2011
ASIAN STRATEGY – 10 JULY 2012
44
Bohai ceded business in 2010 and 2011 to rebalance its portfolio to profitable lines - now forecast to grow at 15-25% per annum over the next 3 years
IAG will capture this growth via its 20% strategic investment, with an in principle dial up right to 25%*
BOHAI FOCUSED ON DELIVERING PROFITABLE GROWTH
CAPTURE SYSTEM GROWTH
ACCESS DISTRIBUTION AND GOVERNMENT
SUPPORT
EXERT OPERATIONAL INFLUENCE
ACHIEVE PROFITABILITY TARGETS
National licence with 25 provincial branch licences and 240 sub-branches – value reinforced by regulator’s increased restriction of new branch approvals
TEDA has strong central and regional government support - ensures regulatory approvals and access to regional business in Bohai area
Shareholders and management team highly receptive to IAG capability transfer, with IAG board and management appointments in key areas
Defined capability programme centres on four areas: underwriting, claims, branch performance, technical improvements (pricing and risk selection)
TEDA is only interested in profitable growth - aligned to IAG’s goal Profitability by FY15
* Subject to foreign investment regulations
ASIAN STRATEGY – 10 JULY 2012
45
CHINA FOCUS FOR THE FUTURE
EXPECTED OUTCOMES: Increased market share – GWP of A$900m* by 2017 Operational improvement Profitability by FY15
Implement more stringent and effective underwriting control and risk selection
Centralised underwriting model adopted
IAG actuaries assisting with analysis to enable more granular risk selection
IAG appointment to Head of Motor Underwriting
Improve claims management and customer service standard
Centralised claims model adopted, pilot test underway
IAG appointment to Head of Claims Department
Optimise branch performance to enable geographic focus on pan-Bohai area
Branch-by-branch review commenced
IAG appointment to Head of Customer Service
ASIAN STRATEGY – 10 JULY 2012
UNDERWRITING CLAIMS BRANCH PERFORMANCE
* Subject to FX movements
46
Individual agents 88%
Bank customers
7%
Institutional agents 4% Broker 1%
VIETNAM – BUSINESS OVERVIEW AAA RESPECTED BRAND
Established in 2006
– Extensive national branch network
– Over 700 personnel and 105 branches and processing centres
– Well known national brand positioning for quality service – peace of mind
– Headquartered in Ho Chi Minh City
Market share of AAA in 2011
– #6 for motor segment (5.5% by direct premium)
– #9 overall (2.2% by direct premium)
Motor 80%
Short Tail Commercial
11%
Health/ PA 5%
Liability 1%
Other 3%
PRODUCT MIX (% GWP 2011)
DISTRIBUTION CHANNELS (% GWP 2011) NATIONAL BRANCH NETWORK
VIETNAM
Hanoi
Ho Chi Minh City
ASIAN STRATEGY – 10 JULY 2012
47
7,000 8,350
10,855
13,644
17,052
20,628
2006 2007 2008 2009 2010 2011
VIETNAM - MARKET ENVIRONMENT STRONG GROWTH OUTLOOK
VIETNAM GENERAL INSURANCE GWP (VNDbn)
Source: AVI
Strong economic fundamentals – 2011 GDP grew 5.9% – Average annual GDP growth forecast of 7% until 2016
Large young urban middle class, household wealth increasing rapidly - underpins demand for insurance
General insurance market – Least volatile and most underpenetrated in SE Asia – Motor is under-represented (30% share of business lines
in 2011) relative to other SEA countries – Forecast to grow ~18-20% p.a. until 2020
Market share of top 4 (all state-owned enterprises) has shrunk from 86% in 2005 to 69% in 2011
Industry dominated by local operators and brands - wholly owned foreign entrants have failed to gain meaningful position
Pace of regulatory reform has increased, aimed at building a modern and professional insurance industry
ASIAN STRATEGY – 10 JULY 2012
48
AAA has exceeded system growth of 24% since establishment in 2006, and is forecast to grow at 20+% p.a. over the next 3 years
IAG will capture this growth via its 30% investment, with a dial up right to 49%*
AAA ASSURANCE FOCUSED ON DELIVERING PROFITABLE GROWTH
CAPTURE SYSTEM GROWTH
ACCESS DISTRIBUTION AND STRONG LOCAL
RELATIONSHIPS
EXERT OPERATIONAL INFLUENCE
ACHIEVE PROFITABILITY TARGETS
National distribution network and brand - 105 branches and processing centres, with strong agency franchise
Private company - Chair (majority shareholder) has strong local relationships
Shareholders and management team highly receptive to IAG capability transfer, with IAG board and management appointments in key areas
Defined capability programme centres on three areas: risk & controls, efficiency & profitability, and opportunities & growth
New business, still in investment stage - beginning to leverage scale, which will be enhanced via IAG capability transfer initiatives
Breakeven target FY15
* Subject to foreign investment regulations
ASIAN STRATEGY – 10 JULY 2012
49
VIETNAM FOCUS FOR THE FUTURE
EXPECTED OUTCOMES: Increased market share to top 3 motor insurer Operational improvement Breakeven by FY15
Catastrophic risk management - Insurance risk - Investment risk
Product exposure Operational controls Underwriting acceptance Governance Performance tracking
Claims programme Technology and work processes Pricing
Products Marketing New distribution opportunities
- Bancassurance - Call centre / direct marketing
ASIAN STRATEGY – 10 JULY 2012
RISK AND CONTROLS EFFICIENCY AND PROFITABILITY OPPORTUNITIES AND GROWTH
PANEL DISCUSSION
Mike Wilkins Managing Director & Chief Executive Officer, IAG
Tan Sri Azman Hashim Chairman, AMMB Holdings
Pratip Chaudhuri Chairman, State Bank of India
SUMMARY AND Q&A
Mike Wilkins Managing Director & Chief Executive Officer
Justin Breheny Chief Executive Officer, Asia
52
IAG’S EXPANDING ASIAN PRESENCE PORTFOLIO OF ESTABLISHED AND DEVELOPING BUSINESSES
THAILAND MALAYSIA INDIA CHINA VIETNAM
98.6% 49%
26% (option to 49%²)
20% (option to 25%²)
30% (option to 49%²)
¹
ESTABLISHED
DEVELOPING
ASIAN STRATEGY – 10 JULY 2012
¹ Completion expected second half calendar 2012 ² Subject to foreign investment regulations
53
ASIA INVESTOR BRIEFING KEY TAKEOUTS 53
IAG has a portfolio of quality businesses to capitalise on the substantial growth in Asia
Competitive advantage comes from a robust and disciplined approach to market entry, partner selection and capability transfer
Significant value creation expected over the medium to longer term
1
2
3
ASIAN STRATEGY – 10 JULY 2012
54
APPENDIX ASIA MANAGEMENT & OPERATING STRUCTURE
JUSTIN BREHENY Chief Executive Officer
Head of Strategy, M&A, Legal (Singapore)
Appointed in March 2006 – 20 years working and living in Asia Formerly with ANZ as GM Asia, managing strategic expansion of
ANZ’s Asia branch network in China, Hong Kong, Philippines, Taiwan, Vietnam, Indonesia, Singapore, Malaysia and Thailand
Other roles included Group Rep Malaysia, GM Shanghai; President China; MD China Partnerships; Executive Director Panin Bank (Indonesia)
DUNCAN BRAIN
CEO, AmG Head of SE Asia
(Malaysia)
Joined IAG in 1998 and appointed IAG’s Head of South East Asia in 2005 and CEO of AmG in 2010
Previously General Manager, Swann Insurance (in Australia)
More than 20 years experience in the insurance industry working in actuarial, product and underwriting, reinsurance and general management
54
DAVID SOUTHWELL
Head of Vietnam (Vietnam)
Joined IAG in 2003 Held senior roles including
CFO for IAG’s Asia division and Senior Manager, Group Finance
Previously worked with KPMG and several banks across Sydney, London, Thailand and Vietnam
MARC NOURSE
Joined IAG in 2002 Five years in China
where he led IAG’s strategic development in China and was CEO of IAG’s China-based roadside assistance business, CAA
Marc is also a lawyer, admitted in Australia and UK and was previously Deputy General Counsel for IAG
Chief Financial Officer (Singapore)
VINCENT TAN
Joined IAG in 2011 Previously regional
Financial Controller for CIGNA Asia and CFO for its Thailand start-up
More than15 years experience in insurance industry in both local and regional capacity
SHIRLEY LEE
Head of Human Resource (Singapore)
Joined IAG in 2011 Previously Head of
Operations and HR with AXA Life Insurance (Singapore) and AXA Wealth Management (Asia)
Over 20 years in the life insurance and financial services industry with AXA, Prudential and AIA
CHOO SEONG WOH
Head of China & Chief Risk Officer
(China)
Joined IAG in 1989 Previously IAG’s Group
Chief Underwriting Officer, Head of R&D and Head of Actuarial Services
25 years experience in IAG in various roles in Asia, Australasia and the UK
Currently Chief Advisor to CIRC and Visiting Professor of Renmin University, Beijing
ROB LOGIE
Head of India Deputy CEO SBI General
(India)
Joined IAG in 1998 and was appointed Head of India in 2008 and Deputy CEO for SBI General in 2009
Previously held senior management positions within IAG’s Australia Direct operations and led the demutualisation and listing of IAG on ASX
Over 16 years experience working in the GI sector in Australia and India
SUTEECHAI SANTIVARAKUM
CEO, Safety Insurance (Thailand)
Joined Safety Insurance in 1997 as the CFO and appointed CEO in 2007
Has nearly 30 years experience in financial services
Previously held senior positions within Jardine Fleming Thanakom Securities Limited and National Finance & Securities Plc, in Thailand
ASIAN STRATEGY – 10 JULY 2012
55
APPENDIX BIOGRAPHIES OF PANELLISTS
SHRI PRATIP CHAUDHURI
Shri Pratip Chaudhuri is the Chairman of State Bank of India (SBI), a 205 year old organisation and India’s largest Commercial Bank. With more than 19,000 branches and 27,000 ATMs, the State Bank Group includes besides SBI, 5 associate banks and 22 subsidiaries including 8 foreign subsidiaries to form a formidable financial powerhouse. SBI is often referred to as a Proxy for the Indian economy. SBI is the only Indian Bank to feature in the Fortune Global 500 list. Shri Pratip Chaudhuri assumed the Chairmanship of State Bank of India on 7 April 2011. In this role, he is not only the Chief Executive of India's largest commercial bank, but also the head of the entire State Bank Group. Born on 12 September 1953, Mr. Chaudhuri holds a post graduate degree in Business Administration with specialisation in Finance. Mr. Chaudhuri joined State Bank of India as a Probationary Officer in the year 1974. Immediately prior to taking over as Chairman, he was Deputy Managing Director in charge of the International Banking Group of the Bank. During his tenure of 37 years in State Bank of India, Mr. Chaudhuri has held a number of important positions, including those of Chief General Manager (Foreign Offices), Chief General Manager of Chennai Circle and General Manager (Mid Corporate Group). Shri Chaudhuri was also the Managing Director of State Bank of Saurashtra, and piloted its merger with State Bank of India. Chairman, State Bank of India
TAN SRI AZMAN HASHIM, AO
Non-Independent Non-Executive Chairman, AMMB Holdings Berhad
Tan Sri Azman Hashim was appointed to the Board of AMMB Holdings Berhad in August 1991 and has been the Chairman of the company since 1991. He is also the Chairman of the Board of several subsidiaries of the company. Tan Sri Azman is a Chartered Accountant (FCPA) Australia, a Fellow of the Institute of Chartered Accountants and a Fellow of the Institute of Chartered Secretaries and Administrators, Australia. He has been in the banking industry since 1960 when he joined Bank Negara Malaysia. Tan Sri Azman is the Executive Chairman of Amcorp Group Berhad and RCE Capital Berhad and Chairman of Malaysian South-South Corporation Berhad, MCM Technologies Berhad and the Institute of Bankers Malaysia. He serves as a member on the Board of Pembangunan MasMelayu Berhad and the Asian Institute of Finance Berhad and is also involved in several charitable organisations including as Chairman and Trustee of AmGroup Foundation. Tan Sri Azman is Chairman of Malaysian Investment Banking Association, Malaysia Productivity Corporation, the Asian Productivity Organisation, Chairman Emeritus of Pacific Basin Economic Council (PBEC) International; Co-Chairman of Malaysia – Singapore Roundtable and President of Malaysia South-South Association, Malaysia-Japan Economic Association, Malaysian Prison FRIENDS Club and Non-Aligned Movement’s (NAM) Business Council and Treasurer of Malaysia-Australia Foundation. He is also a Member of the APEC Business Advisory Council, the Trilateral Commission (Asia-Pacific Group), East Asia Business Council and the Malaysian-British and Malaysia-China Business Councils; Leader of the ASEAN-Japanese Business Meeting (Malaysia Committee, Keizai Doyukai) and on the Board of Advisors of AIM Centre for Corporate Social Responsibility. He is the Pro-Chancellor of Open University Malaysia and a member of the International Advisory Panel of Bank Negara Malaysia International Centre for Education in Islamic Finance (INCEIF). Tan Sri is also an Honorary Officer of the Order of Australia.
ASIAN STRATEGY – 10 JULY 2012