Partnership

Jun 15, 2015

Slides

Good morning, everyone, and thank you for joining us today at such short notice. We really appreciate you doing that. For those of you who aren't able to join us in the room in Sydney, Nick Hawkins, our Chief Financial Officer has also joined me today for our presentation. Today, we're delighted to be announcing a landmark strategic partnership between IAG and Berkshire Hathaway. As people know, Berkshire Hathaway is one of the world's largest and most successful companies. We see this partnership as a significant endorsement of IAG's Strong Franchises, our market positions and our long term strategy. I will expand on the details in a moment, but the key elements are threefold. Firstly, an exclusive business partnership across our respective Australian and New Zealand operations, a 10 year 20% whole of account quota share agreement and an immediate $500,000,000 equity placement to Berkshire. From IAG's perspective, the strategic rationale for this partnership is compelling. It leverages our complementary operating capabilities Australia and New Zealand. It serves to reduce volatility in our future earnings and it enhances our capital flexibility and diversification. This provides us with significant scope to pursue future growth opportunities and to consider potential capital management. In terms of the overall financial impact, all of this aligns with our delivery of our target through the cycle 15% return on equity. In short, we believe that this is a win win situation for both partners, but it does significantly strengthen the long term outlook for IAG and for its shareholders. Berkshire Hathaway probably needs little in the way of introduction to you being one of the 10 largest Companies in the World. What's perhaps a little less appreciated is the length of the existing relationship between IAG and Berkshire. IAG has had a reinsurance relationship with Berkshire since the year 2000. That relationship has developed and it's deepened over the years with a growing presence on our catastrophe program accompanied by assistance at key junctures in IAG's recent past. We view today's announcement as a step change in our relationship with Berkshire and a logical next development in that relationship. I think Berkshire views it very similarly. And let's now hear from Warren Buffett on his perspective of today's announcement. Hi. I'm Warren Buffett, CEO of Berkshire Hathaway. And as many of you know, Berkshire is a large, a very diversified company here in the United States. But despite the fact that we're in a great many businesses, our first love, our long time love, our future love has always been the insurance business. Very shortly after I took over as CEO In 1965, 2 years later in 1967, we entered the property casualty insurance business with a commitment of about $8,000,000 And now we have an insurance operation that has a net worth of far in excess of $100,000,000,000 So our Board of Directors, our managers, our shareholders, all love the insurance business. And in the course of that business, 15 years ago or so, we entered our first commercial transaction with IAG. And as the years have passed And we've gotten to know them better and they've got to know us better. We both found a great deal with Bayer in each other's organizations. So Very recently, we decided to cast aside a commercial relationship and establish a very important and enduring partnership arrangement. IAG is a terrifically strong company with great strengths in many areas. Berkshire has got some strengths, and We believe by bringing these 2 companies closer together as partners that each company will benefit in a very substantial way. And Even though this contract runs for 10 years, I expect for decades decades decades to come that Both companies will benefit in many ways that we can't even perhaps visualize right now. So I'm looking forward to it. Our managers are looking forward to it. Our shareholders are looking forward to this partnership and can't tell you how delighted I am to be with it. And I should add one small footnote. In fact, it's sort of a confession. I'm 84 years old, and this is my first investment in an Australian company. I mean, I've been very derelict, but It's been worth waiting for. We've now picked the best, and we've entered into an area of the world where we've done some business before, but Now we're coming in with an ownership position and better late than ever and better the best than ever. So here we are in Australia, and I'm delighted to be there. As you heard from Warren, I think both of us believe that this is a win win partnership for our respective organizations. Now if we look at the strategic relationship, firstly, how that relationship will apply to our Australian and New Zealand operations. As part of our partnership, Berkshire Hathaway will transfer to IAG Any Personal and SME exposures and business opportunities in Australia and New Zealand. In return, IAG will transfer its existing large corporate property and liability exposures to Berkshire on renewal. The overall effect is that we'll be able to draw on each other's strengths to better service our customers and to deliver superior business outcomes. This is a long term arrangement for an initial term of 10 years, but as you heard Warren say, our expectation is that this will be an enduring partnership. I'll now ask Nick to walk you through the quota share and the capital aspects of our partnership. Thanks, Mike, and good morning to everyone. As we said, we're very excited about this strategic partnership that we've announced today and the impact that's going to have on IAG going forward. The second leg to the strategic partnership is the quota share, which commences 1 July 2015 and applies to 20% of all IAG consolidated business. It's for an initial 10 year term and serves to increase our financial flexibility and our capital diversification. The quota share is expected to result in a reduction of our capital needs of approximately $700,000,000 over the next 4 to 5 years, with approximately $400,000,000 of that Captured in the 2016 financial year. It also results in significantly lower requirement for catastrophe reinsurance cover and it reduces the group's earnings volatility. This is achieved through the increased commission income component to our earnings and our lower exposure to potentially volatile global reinsurance rates. The impact on our financials is to reduce our net earned premium by around 20% and it increases our insurance margin by roughly 200 basis points. The quota share and the changes to our earnings mix through the higher commission element also increase our confidence in delivering our through the cycle 15% ROE target. Our capital position has also been strengthened through the equity placement to Berkshire. This cements the strategic and long term nature of the relationship that we have established with them. The placement of $500,000,000 is equivalent to is approximately 3.7% of our expanded equity base and is issued at yesterday's closing price of 5.57 As part of the partnership agreement, we also have a 24 month option to place up to an additional 5% of our expanded issued capital to Berkshire. This is equivalent to over 120,000,000 shares and will be priced on a 5 day VWAP size out option subject to a cap at $6.50 per share. The subscription agreement with Berkshire also includes another other elements, including a standstill clause, which limits Berkshire's overall ownership to 14.9 percent of IAG. The requirement that Berkshire must at least maintain its initial stake in IAG for the duration of the quota share and Berkshire's commitment to vote in accordance with the recommendations of the IAG Board, while retaining freedom to vote As It Sees Fit on the remuneration report and director appointments. As you can see, all of this has been structured in a way that is aligned to our strategic partnership. The combination of the quota share and the equity placement materially increases the group's capital position. The equity placement sees us comfortably above our targeted benchmarks and that effect will be immediate. The impact of the quota share is over a more extended time frame. But as I mentioned earlier, over half of that will be in effect half of this will affect the 2016 financial year. We acknowledge the modest dilutionary effect that the new share issue will have on earnings per share in the short term. Over the longer term, however, we expect our partnership with Berkshire to be earnings accretive for us as we fully realize the capital and the operational benefits that are available. It remains IAG's intent to manage its capital in a disciplined and efficient manner, And we reconfirm our long term target ratios of 1.4 to 1.6 of our prescribed capital amount at 0.9 to 1.1 of our Common Equity Tier 1. Our materially strengthened capital position gives us considerable flexibility to pursue both growth opportunities and consider capital management options at the appropriate time. It is not our intention to be above our capital targets over the medium term. I'll now hand you back to Mike to address our strategy and the Group's outlook. Thanks, Nick. IAG's strategy and our strategic priorities are essentially unchanged. It's this strategy that Berkshire Hathaway is supporting as it enters into the strategic partnership with us. Our strong businesses in Australia and New Zealand represent the majority of the group and we don't see that changing. These markets continue to contain growth opportunities for us. However, we also see continuing opportunities in our target markets in Asia. Now For all of you, our ambitions in Asia are nothing new and we continue to see enormous potential in the region. Some of the opportunities should be well aware of such as the dial up of our interest in India, which we're actively pursuing at the moment and which we expect to be finalized by the end of this calendar year. Also, we recently announced an investment in our 6th target market, Indonesia. This small first step saw us acquire a business with an insurance license, which is a precursor to entering into an agreement with a local distribution partner. We also see a number of further opportunities now emerging in Asia. These include participation in any potential industry consolidation in Thailand and further opportunities to expand our presence in Malaysia via our highly successful joint venture Amgenral. And as a result of recent regulatory changes, We're exploring further opportunities in China and specifically those that give us a pan China exposure. Asia continues to represent an important plank of IAG strategy given the relatively low penetration of insurance in our target markets. This allied with the rising affluence and consumption of the emerging middle classes presents an opportunity which we believe all forward thinking Australian companies Should Be Pursuing. And now to our outlook. Our guidance for the 2015 financial year is unchanged from that which we presented at the end of April. On that occasion, we lowered our reported insurance margin expectation to a range of 10.5% to 12.5% following the extreme weather events that we'd experienced earlier in the year. Our underlying assumptions are also unchanged. However, they do remain subject to the finalization of our year end processes and valuations. Our GWP growth guidance remains at the lower end of our 17% to 20% range as updated in February. And today, We're also providing a first look at our expectations for the 2016 financial year. For that year, GWP growth is expected to be relatively modest, reflecting the competitive conditions that we're seeing in the main markets in which we operate and the continuing relative absence of claims inflation pressures. Our reported insurance margin expectations for 2016 are in the range 14% to 16%. This includes further realization of the benefits from the integration of the former Wesfarmers businesses as well as those arising from the move to our new operating model in Australia. It also captures the reported margin benefit from the quota share arrangement, which is of the order of 200 basis points. Whichever way you look at it, our underlying profitability in 2016 is expected to again be strong. So in summarizing today's announcement, We believe the strategic partnership that we've announced today is a significant and it's a very exciting development for IAG. It closely aligns us with a long standing business partner, while also providing clear benefits from all perspectives of the customer offering, Strategic and Capital Flexibility and Reduced Earnings Volatility. Today's announcement places IAG in a very strong position and it allows us to face the future with considerable confidence. With those comments, Nick and I are now happy to take any questions that you might have. As normal, we'll start with the questions in the room here in Sydney and then we'll go to those who've joined us on the phones. Kieran? Thanks. Kieran Chigi, Deutsche Bank. Mike, just interested in the 10 year agreement here. What certainty have you got around pricing through that time period? Is it just a sort of set amount they're paying you for that business through that time period or does it get renegotiated at various points going forward? It's a set arrangement. It's a traditional quota share with a slight kicker in that we see 20% of our premiums to Berkshire. They pay 20% of the claims. They pay 20% of our costs, plus there is an agreed fee over and above that, which is one of the reasons why we were talking about it. It takes some volatility out of our results because we're replacing uncertain insurance margin income with more certain fee type income. Okay. I think unless we materially change our business mix, it's unlikely that we would have been negotiating anything different on that transaction over 10 years. Okay. And just a second quick question. What's the net impact on GWP? I gather it's pretty small from these portfolio transfers? Yes. So I think that the portfolio that we will be transferring is probably something a little less than $50,000,000 and it will be less than that coming considerably less than that coming the other way, so negligible impact. All right. Thank you. Nigel Pilloway here from Citi. Just maybe if we can take the insurance margin guidance for 'fifteen that it was Pre order large losses and the midpoint there was about 14.5%. And then look at what you're guiding to 2016 where the midpoint is 15%, but there's a 2% benefit at So basically, we've got a drop there from 14.5% to 13% despite obviously there being significant West Pharma Synergies coming through in that year. So can you just explain sort of the major reasons behind that drop? I think one of the key regions, Nigel, as we talked about our reserve releases and we still stand by this for the 2015 the year being of the order of 200 basis points or 2% on the margin. What we're talking about in the 16 year is 1%. So there's the most of the movement. Plus, we have called out that it's a tougher commercial market environment, so we're not hiding from that. But we still think that it's a very strong outcome when you look at the overall conditions in the market and the ROE profile that we're still delivering. Okay. And then if we do focus on this 2% benefit, is that Pretty much all due to the ceding commission, the 200 basis points improvement. It certainly is a considerable component To it, there's a few other bits and pieces that come with it as well, including our need not to now take reinsurance on 20% of the book. Right. Okay. And so the drop in NEP is still 20% even though you're taking Lower reinsurance from the in the cat cover. Yes. That's right, Nigel. But what's happening is For 20% of our book, we're paying the GWP and reinsurance expense on that part of the book are the same number. And so therefore, that affects then the NEP. So overall, the group's NEP will come down driven by that. So part of the 200 basis points will be the maths of that as well. So an element is a commission, an element is just a shrinking NEP number due to the way that quota share will be reflected through our financials. Okay. And then can you just comment on how you think this will affect your relationship with the other reinsurers in the market. Is there any impact on that? Yes. When we have existing relationships with Berkshire and many others, obviously. And so our expectations is that it won't affect them at all. And that actually going forward, we'll continue to enjoy. Obviously, we have a partnership agreement with Berkshire, but we also have key relationships with a number of other major providers, and we would expect those to continue on as they are. So there's nothing that they've done that stimulated you to do this or No. No. Okay. Thank you. James? James Cogill, UBS. Nick or Mike, just following on from that question about the 200 basis points, perhaps you can just give us a bit more color how the mechanics work down through the P and L because on the revised NEP number, it's a benefit of about 170,000,000 So I'm sure we can't be thinking about the net impact of the exchange commission and operating costs being shared. It looks like there's something Largely there that eventually drops down through the P and L. Could you just explain how investment income works? Firstly, and then secondly, how that natural The Natural Perils Alliance, the 600, how that works as well. Yes. So everything sort of proportionally Drops by 20%. It's kind of the theme here. However, what we are doing as part of this So, for example, the perils allowance sort of drops from what would have been, say, call it 750 down to we talk about 600 being effectively 20% reduction because it's a gross quota share, so everything is being passed to Berkshire Gross. So everything in our P and L is proportionally sort of 20% smaller. So claims are going to be 20% lower. The contribution to our admin expenses is 20% by Berkshire. But in addition to that, obviously, what's happening is we're giving Berkshire access to the profit pool of IAG on that 20% of our business. So the real trade here is the negotiation of that exchange commission over and above the proportional elements for IAG to be remunerated for effectively the profit stream that is now being passed over to Berkshire. And that's We obviously didn't want to provide all of the sort of commercial sensitivities around that transaction. So what we've done, we thought a better way to do that was in the context of guidance, Which is why really why we've given guidance today for 2016 is then provide how that quota share impacts the overall guidance, insurance margin guidance for 2016. I think you should be thinking everything is proportionally lower by 20%, but there's a kicker over and above that proportion which lifts our margin by that 200 basis points, which is effectively the fee that we are receiving over and above the proportion. And of course, There's a capital relief that is in addition to that. So that fee as a percentage of your capital base, that would be quite significant. It must be quite already accretive this year. Well, the fee, obviously, all of it for 20% of our business. Now we don't have underwriting risk on it as such. We don't have to have it's a fee based business basically, 20% of the group. So yes, I mean the metrics Different than obviously, because it's a fee based arrangement on our 20% of our group This is a capital load that would normally be required. And on that natural perils allowance, you mentioned the figure of 7.50 per the quota share. Yes. Should we thinking about that relative to it was the 700 plus the 150 aggregate In 15, is that the comparable number? So have you effectively lifted it by £50,000,000 Yes, there's probably and there's a little bit of protection that we're getting I think we might have lifted the number slightly more by the way. But the other element that in the 2016 year We have some protection in first half twenty sixteen, so second half of calendar twenty fifteen around the aggregate protection. That's on a calendar year basis. So probably we're getting some help in our perils allowance by the perils that we've had in the first half of this calendar year. We get some additional protection in second half of the year. So that number probably would have been slightly higher. So we incorporate in the elements of that plus the quota share, we've come up with this sort of net number of 600. Thank you. Ross? Hi, gents. It's Ross Curran from CBA. Can you just talk us through how the Is it a put option works that you have with them? And in what instances would it be favorable for existing shareholders for you to exercise that put option? So the mechanics are sort of relatively simple. We see it as IAG As the option at our call to issue up to roughly 125 percent of the expanded capital base, so it's 120 odd 1000000 shares. At any time based upon at any time over the next 2 years capped at 6.50 and priced at a 5 day VWAP. And the 5 day VWAP, we can choose that timing anywhere in that 2 year period. I mean, essentially, it's some what that does is create some flexibility with how we may need to access funding If that's so required. I mean, at this point, we're not thinking that we would be using that, but as part of the sort of partnership arrangement, That was sort of put on the table as one of the other options available to us. But given you are so, so far above your target range in capital, It doesn't feel like we're about to exercise that option next week. So I suppose that's the question. But what it does do I mean, it was part of the package. I think the important part of this transaction is everything is part of the package. There's lots of pieces to it. Every I mean, no, there's no sort of one piece that and we've obviously had a lot of this discussion internally around. One piece, would you just do that in isolation, that one piece? There's actually quite a lot in this. And it's sort of us trying to really get that whole of account package with Berkshire. This was just another element of it. And what it does I see is effectively just give a bit of flexibility. As I said, right now, we're not the intention is not to exercise it to your point where We don't have the need for that capital. So I think just adding to what Nick was saying there, this really is a partnership that put option was actually offered by Berkshire. It wasn't something we asked for. They offered it as a demonstration of their ongoing Port for what we were trying to do as an organization and more particularly the strategy that we're following. So we thought that It was great as part of the overall package and certainly gives us some confidence to look to the future. But I also agree with Nick, we're not about to run out and exercise this next week because we The fairly cheap option from their point of view then, I guess. Well, yes, but it is there. It's a significant amount of money should we need to call on it, but we're not anticipating We'll need to do that. And the quota shares, is it Australia, New Zealand or is this including all your investments? It covers all the businesses that we consolidate. Australia, New Zealand and the majority owned operations throughout Asia. And if some others coming to be in a majority owned position and we'll cover those as well. We thought that was I mean, there's nothing special about that from Berkshire's point of view. We thought that was The easiest way to define it is what we from an accounting point of view, what we consolidate. And that's sort of the way the definition works. And forgive me if I sound flippant because I don't mean to be. But is Berkshire essentially getting 20% of IOG for 3.7% of the capital? I mean, I think that the so the answer is no. Because it's the key to the transaction and actually where loads of the negotiation has been held is what additional fee income or commission income or exchange commission. We're negotiating over and above the proportional share of claims and expenses to compensate IAG and IAG shareholders for the access to that profit stream. So that's where the deal is really that's been a major part of the negotiation just that So it's not just 3% of the equity, it's plus a fairly sizable exchange commission, which is really resulting in that 200 basis point increase in margin and the capital relief that comes from that as well. Daniel? Thanks. Daniel Tuohy from Morgan Stanley. Just interested how this relationship influences your aspirations in Asia? I don't think it changes our aspirations in Asia. We've been very clear about the fact that we see Asia as part of the long term future of IAG and I called it out during the presentation. We currently we're not looking beyond the Target Markets that we have in Asia and with the small investment that we made in Indonesia, we're now in those 6 markets. But what we are starting to see is more opportunities emerging within those 6, but we're not bereft of opportunities in Australia and New Zealand either. So really no change to the strategy. So doesn't you don't see it provides greater optionality to deploy capital in the region. And is there any sort of view on, I guess, the amount of capital you'd like to Yes, I think going back pre Wesfarm as you talked about a certain percentage of your business coming from Asia by 2017. Obviously, Things have changed. Any sort of view on quantifying? Well, we'd still like Asia to be meaningful. We had previously We talked about Asia representing about 10% of the group by 2017, but obviously with bringing Wesfarmers in just the math, so that means that it's now about 7. We still believe that Asia over the long term is the place to be and it will be a meaningful operation for the organization, but we're not setting any particular targets and more particularly the capital that we've got is not burning a hole in our pocket saying we've got to go and do something, particularly in Asia. As Nick said, we'll be very disciplined about the management of our capital as we've always been. Okay, thanks. Okay. We'd like to see whether we've got any questions on the phone and then we'll come back to those who've joined us here in the room in Sydney. Thank you. The first question from the phone comes from Sivith Palmaswaran from JPMorgan. Please go ahead. Hi, Mike, Nick. A question that I have is just around the need for this capital rate, I suppose, the raising that I mean, you're effectively saying that this deal will reduce your capital requirements by $700,000,000 That's very significant in the context of amount of capital requirements that you actually have, I'm just wondering what actually is triggering this? I mean, because you're flagging Utilities in Asia, but nothing has really changed from what you said before in the past. I mean, I think you said India, Indonesia, they're all quite Small in the scheme of things. I was just wondering if you could give us some color as to what this might mean. So what drove this and also just what this might mean for capital management opportunities going forward? What Same for your dividend payout ratio. What does this mean for capital management opportunities? Well, maybe I'll start and Nick can add to this. It wasn't a capital need that drove this. We've called it a partnership because it genuinely is a partnership and we see It's a long term relationship that we're entering into. It wasn't just driven by the capital piece, it was also about the business opportunities that were presented. And the fact that we are looking to develop our personal lines and SME business in Australia and New Zealand in conjunction with Berkshire and likewise that it's bringing its significant expertise in Corporate Property and Specialty Liability business to the benefit of our customers. We think when you look at the package, it's a sensible next development in the relationship that we have with Berkshire, but also I think that it's something that will service our customers our distribution partners in a better way as well. Maybe I'll let Nick talk about the what this means for our Capital Long Term, although we've tried to call out that we're going to be disciplined and we did say that we wouldn't hold excess capital over the medium to long term. Hi, Sid. I mean just sort of making comment on a few of the points you made. So in relation to dividend policy, we believe the policy of 50% to 70% of our cash earnings have served us well over the last 6 or 7 years. So the idea of returning to shareholders but continuing to invest back into our business, both New Zealand and Asia. We believe that's the right strategy for our organization. So we're not changing our dividend policy. But we are being clear when we get the point that we've given you some pro form As at 31 December showing impact of the quota share and the $500,000,000 placement that does Give us a fair bit more flexibility around our capital. And what we said is, over the medium term, we're not going to hang on to it. So we don't feel compelled to buy things And that we also get the ROE dilutive nature of holding surplus capital and investing at a 6% or 7% pretax in our shareholders' funds. And what we are saying is in the medium term, if we're above our targets, we'll conduct some sort of capital management initiatives. If I could just follow-up with one other question. I mean, effectively, this deal on my calculation, if I take the effect of the quota share Against the I mean, the boost to the insurance margin against the effect I mean, the loss in In net earned premium, I get about 3% dilution coming through on earnings in FY 'sixteen. And then there's also effectively an increase in your share count of 3.8%. So it seems like quite a dilutive deal. So to do this, I mean, Just for strategic relationships, it seems like quite an expensive deal. Yes. So I think the quota share is just in isolation is marginally EPS accretive. And then the equity raise and I flagged it when I was talking to that page, It's clearly dilutive because we're raising $500,000,000 and sort of back to the point of investing in our shareholders' funds at sort of pretax 6% or 7%. So I mean, I would say the quota share is not the way you articulated. The quota share, our view on that is It's marginally accretive to the group, but taking out volatility. So that's part of the play here as well, obviously. But we would agree that Obviously, when we add in the equity raise as well, that makes the whole trade in the short term marginally diluted, but that's sort of probably stating the obvious to you guys where that's just bolstering our capital reserves. Sorry, am I missing something? I mean, effectively, you're saying that there's a boost of 2 percentage points on the insurance margin from the quota share, but there's a loss of 20% of the premium. So I mean the margin, the underlying margin, I mean Surely, that's isn't that EPS dilutive? Yes. Well, there's a few more moving parts to all that. But our view would be versus the prospects of 2016 when I overlay the quota share That, that in isolation would be a marginally EPS accretive deal for IAG shareholders. Then when we add the equity bucket in as well, that's the bit we're saying. If you add that in, in addition to the quota share, that then brings us down to be modestly diluted, but only a little bit. I mean, the math is you guys can do that as well. So no, I don't agree with your comment that on the quota share. We would see that It's marginally accretive. But actually, the real trade here is, in our opinion, that actually we're trading volatility for more certainty. And you're trading insurance risk for fee based income. And as part of that, there's this opportunity, as we articulated, to release capital off the book to the tune of 700 over the next 4 or 5 years. Okay, great. Thanks. Thank you. The next question comes from Toby Langley from Merrill Lynch. Please go ahead. Hi, guys. Just a couple of questions. On the arrangement of Voxter, is there any kind of non compete in the lines of business that you do at Against 1 Another. As I said, Toby, during the presentation, at exclusive arrangement. So basically, Berkshire will be transferring to us It's Personal Lines and SME Business and Opportunities in Australia and New Zealand. So they won't be competing. And likewise, given the size of it and given the greater Skills and the Greater Appetite that Berkshire has for large Corporate Property and Liability Business. We won't be going into that business. So to that extent, yes, we're not competing. We're actually cooperating. And on your other reinsurance arrangements, what's the impact of this deal? Well, none really. I think it goes to the question that Nick was asked earlier. I don't know whether you want to add any more to that. I mean, we're obviously shrinking. We will be shrinking our reinsurance buying just as a sort of a global comment by 20% on everything because this is a gross quota share. So our buying in the market, everything else being equal is 20% lower. And so when we as an example, when we go to market, Assuming the same program, exactly the same program we currently have on the main cat tower, at the moment by just over $7,000,000,000 That number will shrink by 20% when we go to market. And then that's just the one we talk about a lot. This is across all of our reinsurance, both our liability and long tail classes as well as our Property and sort of catastrophe covers. Everything shrinks by 20%. Okay, great. And just lastly on You've called out previously on what you expect to inject into India. Are those numbers still the same? Yes. At this stage, as I said, we're going we're looking to go from 26% to 49%. We said that we thought that would be of the order of $150,000,000 that still stands. We are in the negotiation or going through the process actually because it's an agreed process. And we're confident that we'll have that completed by the end of this calendar year. Okay. Thank you. Thank you. The next question comes from Ingrid Growe from Goldman Sachs. Please go ahead. Sorry, it's not Ingrid, it's Ryan. Just a quick question or more a comment. I'm just running the math and unless we're missing something really significant, I completely agree with Sid's logic. So I'm just hoping given the significance that Nick, you can help us to reconcile here. I mean just to be really crude about it, If you take the NEP and you reduce it by 20% and you add 2% to your margin, you're going to get 9%, 8%, 9% less insurance profit in dollar terms. So before adjusting for the extra shares, the extra investment income and the capital, whatever, You're down about 8%, 9% on insurance profit. A bit of a reduction when you allow for shareholders' funds and presumably for the minorities will be reduced as well. It's very difficult to see how you're saying that that's accretive in its own right. Could you let us know which line item we're missing? I'm trying to think of the best way to go about that. I mean, the way to look at this, and maybe we'll spend A couple of minutes now and we can talk about it more after. It's probably easier rather than holding it all up for everyone. But what happens is obviously everything shrinks by 20%. We get this however, this big kicker in this fee based income, essentially over and above the proportional share of our claims and our expenses. So what that's obviously fee based income that doesn't have any capital behind it. The net impact of that moves our margins as we articulated by around 200 basis points. And then when I look at that as a package, What that does sort of in our view compared to where we were heading in 2016 around earnings per share is it's modestly accretive. There are some other benefits around just the quantum of reinsurance that we're buying. Obviously, it comes down. And there are some other benefits that are available to us as part of the way That Works. And we're pretty confident on that net effect as we've articulated ex the equity raise on that, on this transaction being modestly EPS accretive in the straightaway. But if I add in the extra equity, the extra 500,000,000 Brings it back a little bit. But why don't we talk I mean, we can talk through that line by line after this call, if you want, Ron. Okay. Thank you. Thank you. At this time, we're showing no further questions over the phone. Okay. Any more here in the room? James. Mike excuse me, James Cogill, UBS. Mike, just two more questions on governance. And again, like Ross, I'm not saying it is an issue that I'm just trying to get Some concepts clear in my own head. So the first question relates to the 14.9% that Berkshire can effectively get up to. I'm now effectively become an insider through this transaction and I'd have more insight than any other shareholder as to how IAG is performing. Can you just explain the mechanism other than the put option through which Berkshire can increase their stake further? They can buy on market. So I think that your initial statement that they have more information than the rest of the market is actually not accurate. This has been done on the basis of information that's available to all shareholders, and we see it as a strong affirmation from Berkshire about the organization and the strategy that it's putting forward. So the 14.9% is a standstill. We have the capacity obviously to put another 5%, but Berkshire also has the capacity to go into the market and buy. So They privy to no additional information that I say would be privy to. All information I have access to, Box It's probably a question for them. But certainly, the way we've conducted business in my opinion that they are not insiders. So that's the way they've conducted business with us actually. And the second issue is more a disclosure one around that exchange commission. Are you I'm in a position to disclose when the result comes out and what that is and how that mechanism works because it's clearly Quite significant to the way it drops through the P and L. And to quote your words, Nick, most of this transaction is effectively selling 20% of the Business Foreign Exchange Commission. Surely existing shareholders are entitled to understand exactly how that's been structured. Yes. I mean, we've got to balance I mean, I agree with your comment there, John. Just sort of around the confidentiality of the arrangements that we've put in place. I mean, what we've tried to do and the reason we've given guidance Today was to give some insight onto the financial effects of 2016. By the way, obviously, at June 2015 financials, this will have no effect. It's a go forward from 1 July. But we'll look at how we can in the constraints of what we've agreed is around How we can help investors get more clarity on exactly the mechanics of how that works, and we'll look to do that in August. Thank you. Nigel has got another question. Nigel Pidaway from Citi here again, sorry, just a real quickie. But I think correct me if I'm wrong, previously you said the reserve releases would run at 2% of NEP for longer than FY 'fifteen. So the fact that you're now saying 1% in 2016, is that telling us they're not going to run that far or you just want to be conservative? Nigel, I think if you look at the slide, it says at least at I mean, I think your point is that NEPs come down, so are we reducing from 1 down to a smaller number? I think we just left. We didn't try to be too scientific in that number. We thought about this point and we've just left at least 1%. There's nothing more to be read in that than that. Okay. Thank you. Slightly Carping Point. But surely, through their reinsurance relationship, Berkshire have more insight than most investors. Yes. And that's probably a question for them, Isn't it around whether or not that they believe because of that, that makes them an insider and restricts them from trading our shares. But Certainly, it's the way we've conducted business over this negotiation of the strategic partnership. I think that they have essentially dealt with publicly available information. But That's a question for them, really. Nothing else? Any more on the phones? One last take. Thank you. The next phone question comes from Andrew Adams from Credit Suisse. Please go ahead. Yes. Hi, guys. I just wanted a quick question to understand how the reinsurance works from 1 July. So you got a 250,000,000 attachment point at the moment For your main cat program, from 1 July, Berkshire comes in, takes 20%. Is your exposure just for the 80% still 250 Yes. So in the first in this sort of 1st 6 months of the I mean, we could have gone about restructuring our programs and reduced everything down by 20 10th. We think we're just going to leave it all as it is for the next 6 months, but then and then go about that process 1. And of course, it takes a little while to build this up as well. So but and then particularly put that new program in place 1 January 2016, fully aware of this. I mean, what we are actually doing on the we do renew some of the program 1 July, some of the long tailed classes and the way we cover that. So we are we were putting those programs in place with quota share aware of, but on the calendar year programs, we're essentially just going to leave them Leave them as they are. And you're not repurchasing the net perils allowance, I take it from those comments? We might. We might. You mean you're talking about what used to be the $150,000,000 excess $700,000,000 Yes, we might. Well, I guess for 6 months, it just looks like you've increased volatility because You used to attach a 2.5% of NEP. Now you're attaching a 3% of NEP. So it actually looks like I'm more exposed to weather. Probably, Andrew, the only other comment we'll make on this, and there's another twist to this, which is the protection we have under the aggregate. Actually, there's an argument that our MER at the moment is roughly $25,000,000 because of the fact that we're into our aggregate or on the cusp of it. And so actually, when we'll probably because the medium term view is still the 250 or I think you can probably assume you can proportionally reduce that down at 1 January 2016. But actually right now and hopefully for the remainder of calendar 2016, because of the way the aggregate plays into our protection. Actually, there's an argument that actually our MER is actually $25,000,000 right now. And assuming we don't have any more terrible events this year, that will be in place for the rest of the calendar year. So that came into our thinking as well. So I think net net, we haven't dialed up our volatility or risk in the next 6 months. I think it's actually at a practical level what we're doing makes sense. And because of other things playing in. We've got that reduced volatility anyway, and we'll get everything in order with the quota share from 1 January 2016. Okay, great. Thanks, Ross. Thank you. At this time, we're showing no further questions over the phone. Okay. Daniel, probably one last question. Yes, thanks. I think that Berkshire had a MGA set up with Steadfast to provide personal lines business. Will that in effect be you going forward or that continue to be Berkshire? That will Effectively, yes, that will be part of the business that will transfer over to IAG. And Steadfast, obviously, is already an important Partner of IAG. And we see that that will just strengthen the partnership even further. Okay. So just to be clear then also, so Berkshire Can't Write Personal Lines and SME Business in Australia. And New Zealand. And New Zealand. And New Zealand. So it's an exclusive arrangement both ways. Okay. Thank you. So with that, can I thank everyone for the time? Thank you for coming along today. As I said at the outset, we're really excited by this. We think that it is a great long term partnership, which we believe will show benefit and a win win situation to both partners. We're really pleased that we've been able to talk to you about it today. And as we proceed on and certainly as we get August. We'll be able to show more about what the effects of this are going to be on IAG. So thanks again for coming along today. We're excited by it. Hopefully, you've been informed by the presentation. Wish you a good rest of the day. Thank you.