Iag Boss Promises Investor Targets

Sydney Morning Herald

Saturday May 31, 2008

Danny John

THE new chief executive of Insurance Australia Group, Mike Wilkins, is to outline a tough set of financial targets by which investors will be able to judge the battered insurer after the recent turmoil that cost the job of his predecessor, Michael Hawker.

With IAG's bottom line smashed by storms and an underperforming British division and then having to endure a failed takeover approach by the rival QBE, Mr Wilkins indicated yesterday that the company needed to restore shareholder confidence through a series of performance "milestones".

These will be one of the main results of the review being undertaken by Mr Wilkins and the board following the upheaval of the last 12 months, including at least two profit downgrades and a heavily falling share price.

Mr Hawker, during whose six-year reign IAG was transformed from a mutual organisation to the biggest stockmarket-listed domestic insurer, resigned on Monday after losing the confidence of key shareholders.

Mr Wilkins will unveil the results of the review in July, just after the owner of NRMA Insurance closes its year-end books. It recently announced a half-year profit of just $110 million, 66 per cent down on the previous corresponding period.

Investors have criticised the lack of information emerging from the group in the last two months, in particular its failure to outline in detail the reasons for rejecting QBE's $4.60-a-share overture. That compares to yesterday's closing price of $4.02.

While staunchly defending the board's argument that QBE's offer did not reflect the true price of IAG's "unique assets", Mr Wilkins indicated it was important to give shareholders markers against which they could check the company's longer-term performance. These will include targets for:

*Its dividend ambitions and what IAG could afford to pay in relation to the profits it earns.

*The margin the company makes on its insurance income.

*Its operating and management structure in terms of the way the business is run.

*The future of the company's underperforming British operations.

Mr Wilkins hinted that the board was unlikely to do a complete about-turn and sell a division that it has only built up since 2006.

He also wants to give investors earnings guidance for the 2009 financial year as a way of regaining their confidence after two successive years of profit falls and a result for this year, due to be released in August, that the market also expects to be severely depressed.

The targets will try to address shareholders' concerns about the possibility of a cut in the second-half dividend, which analysts say is looking increasingly likely because of IAG's recent fall in earnings.

Nonetheless, Mr Wilkins told the Herald he was very much looking to the future.

"We have a responsibility as a board of directors and senior management to run the company for the long term rather than being too concerned about the short term," said Mr Wilkins, who was formerly the chief executive of IAG's major rival, Promina, and who was appointed by Mr Hawker as his deputy last November.

© 2008 Sydney Morning Herald

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