why i like iag and bought today.
I helped put the floor under this today at $5.41. Anyone incapable of research should only have to read the following carefully and stand by. It must make a move into Asia where it will be get growth:
Rest assured it's survival of the biggest Glenda Korporaal August 29, 2005 MICHAEL Hawker is a firm believer in the consolidation of the financial services industry.
"For Australian companies to remain competitive internationally they have to continue to grow in scale, otherwise (they) will become a branch office for foreign companies," says the chief executive of Insurance Australia Group. "Australian companies can grow internationally, but they need to have the ability to be able to grow domestically at the same time."
Illustrating just that point, IAG shares were marked down despite a 14 per cent increase in profit to $760 million for the year to June 30 on concerns about the lack of growth potential in the Australian general insurance market.
The former Wallaby vice-captain has run the insurer since 2001, following a successful career as a banker at Citibank and Westpac. He rejected offers this year to be considered to succeed Commonwealth Bank chief David Murray.
Hawker, 45, predicts major changes in the financial services industry.
"The financial services landscape will dramatically change again in the next three years," he says. Slowing growth rates in financial services companies' domestic businesses will force them to look beyond their traditional markets.
A merger between a major bank and an insurance company could work, Hawker suggests. "There are enough examples of bankassurance (a finance house taking in a bank and an insurance company) globally to say it works," he says.
"Look at Europe. In Britain there is the Royal Bank of Scotland and some of the Dutch banks. ING. You have Suncorp Metway in Australia."
Australian banks were already facing increasing competition from foreign finance houses such as HSBC, Citibank, British-based HBOS and General Electric. Hawker says banks and insurers are under pressure to protect their businesses.
"The main issue is making sure that (if there was a merger) customers would continue to get the most efficient delivery services," he says.
"If you can ensure that those delivery services remain efficient, I am a great supporter of further consolidation."
Hawker joined Citibank in 1990, working with the bank in Sydney and London before joining Westpac in 1995. He was group executive of business and consumer banking at Westpac before leaving to take the top job at IAG in 2001.
When he joined the insurer the industry was at a low point. Its profits were eroded by years of cut-price premiums led by FAI and HIH Insurance, which collapsed that year. Since then, Hawker has been able to report ever-increasing profits at IAG, thanks to a turnaround in the insurance market, government reforms of the industry, internal restructuring and a series of takeovers and divestments which have seen the company focus more sharply on the general insurance business.
In his four years at the helm of IAG (formerly known as NRMA Insurance), Hawker has pushed to expand the company outside its traditional base in NSW and focus its attention on the general insurance business. The company took over the Perth-based SGIO and the Adelaide-based SCIC before his arrival and bought CGU and NZI insurance groups in 2003. It has also sold off its health insurance business, its building society and last year its ClearView retirement planning business to MBF.
"We have done a lot in changing the nature of the company," he says. "Our insurance profit has moved from $210 million in the year ended June 30, 2001, to $1 billion year ended June 30, 2005."
But releasing the company's results earlier this month, Hawker warned there would be little growth in premiums in the Australian market in the coming year. That "came as a little bit of a surprise for the marketplace", he says.
At the same time as the Australian market is treading water, the world general insurance market is growing at about 16 per cent a year in premium income, according to Hawker. That means that Australian insurers are shrinking in scale compared with some of the world's major players.
Hawker's shareholders are still awaiting news of his plans to buy into insurance groups in Asia, a strategy announced two years ago. The company has said it is looking at ventures primarily in China, Thailand, Malaysia and India as well as to a lesser extent Hong Kong and Singapore.
Hawker also expects insurance growth to outpace the heady economic growth generated by those booming Asian economies.
"Some of those countries are building a critical mass of middle class who are buying assets and now looking to insure them," he says, explaining: "You are not only getting good economic growth in these countries but you are seeing the higher take-up of insurance on top of the growth."
The company confirmed this year that it had been having discussions with China Pacific Insurance Company but said it had spoken to many general insurers in Asia as part of its research into potential acquisitions in the region.
Any Asian investment will focus on IAG's traditional strengths in motor vehicle and home insurance, Hawker stresses, noting that foreign ownership restrictions in Asia will also mean IAG could only buy a stake in an Asian insurer rather than acquire a company outright.
"A lot of players are looking for international counterparts to provide them with the intellectual property to help manage the de-tariffing and to be able to compete with foreign competition," Hawker says, highlighting the fact that there were still good opportunities in Asia.
Hawker has said the company is looking at spending about half a year's earnings on its Asian investment strategy, around $400 million to $500 million.
But he told analysts this month that the company would be prepared to return the money in capital to shareholders if it did not find suitable offshore investments.
Hawker admits that even if IAG does find suitable investment opportunities in Asia it will take some time before they contribute materially to earnings.
"Ideally, in five years' time, it would be great to have nearly half our earnings coming from offshore, but whether we achieve that is a different matter," he says, explaining that IAG has a plan to make incremental building block acquisitions that would form the base for more successful acquisitions later on. "In Australia, we started with smaller acquisitions. Then, over a four-to-five-year period, we did CGU/NZI, which was massive. That is what we are trying to do in an offshore market this time."
Despite having rejected overtures about the Commonwealth Bank job, Hawker is still considered by analysts to be on the list of people who may be considered for the top job at Westpac when David Morgan retires.
Hawker insists, however, that he has no plans to jump ship, despite all the indications that IAG will face increasing pressure in trying to replicate the strong performances of the past few years.
"I have found my home. I love the insurance business," he says. "I love this company and feel a strong sense of loyalty to this company. I am really keen to try and grow this company - to expand offshore and be a good, solid Australian company. I feel quite passionate about it."
IAG Price at posting:
0.0¢ Sentiment: LT Buy Disclosure: Held
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