Insurance Australia Group(IAG)
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Added on 2020-02-24
Insurance Australia Group(IAG)
Added on 2020-02-24
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Running head: AUDITING AuditingName of the UniversityName of the StudentAuthors NoteCourse ID
AUDITING1Table of ContentsIntroduction:...............................................................................................................................2Part 1: Understanding the Nature of the Entity:.........................................................................2Business Operations:..................................................................................................................2Investment and investment activities:........................................................................................2Financing and Financing Activities:..........................................................................................3Financial reporting practices:.....................................................................................................3Part 2: Understanding the industry:............................................................................................3Industry size:..............................................................................................................................3Industry Growth:........................................................................................................................4Supply chain:..............................................................................................................................4Major Players:............................................................................................................................4Market Share of Industry Players:..............................................................................................5Critical success factors:..............................................................................................................6Major threats:.............................................................................................................................6Part 3: Understanding the Legal Environment...........................................................................6Part 4: Understanding the external environment factors:...........................................................7PEST Analysis...........................................................................................................................7Porters Five Forces Analysis:.....................................................................................................9SWOT Analysis:......................................................................................................................11Part 5: Understanding objectives, strategies and Assessing Business Risk:............................12
AUDITING2Industry Development:.............................................................................................................12New products and services:......................................................................................................12Expansion of business:.............................................................................................................12New accounting requirements:.................................................................................................13Regulatory Requirements:........................................................................................................13Current and prospective financing requirements:....................................................................13USE of IT.................................................................................................................................13Part 6: Performing Analytical Procedures to Understand Entity’s Performance.....................14Part 7: Understand Management and Governance...................................................................18Conclusion:..............................................................................................................................19Reference List:.........................................................................................................................20Appendix:.................................................................................................................................23Computations of Profitability Ratio:........................................................................................23Computations of Current Ratios:.............................................................................................23Computations of Stability Ratios:............................................................................................23
AUDITING3Introduction: Insurance Australia Group Limited which is informally known as IAG is amultinational insurance company having it’s headquarter in Sydney, Australia. The companywas formed by the demutualisation of the NRMA insurance business in the year 2000 with areturn of shares to the members of NRMA. As per the information stated from the website ofthe company NRMA insurance group ltd changed its name to Insurance Australia Group Ltdin the year 2000 (Iag.com.au, 2017). IAG is formally known as the listed company it isgenerally not a consumer facing brand, nevertheless it presents the Umbrella organizationthat holds several well established insurance brands. Part 1: Understanding the Nature of the Entity:Business Operations: IAG has business division in Australia that represents 26 per cent of the group GWP.The business operations of IAG produces fee income by acting in the form of agent underboth the segment of New South Wales and Victorian workers compensation scheme, which isunderwritten by respective governments of the state (Iag.com.au, 2017). Another secondarysource of business operations represents a fee income from the interest from the authorisedrepresentative brokers. The business operations of New Zealand represents 19% of the groupGWP. Its New Zealand operations continued its better performance by registering a robustunderlying margin of 16.9%. Investment and investment activities: Investment activities forms the important part of the insurance business. The fundsthat is received by IAG from the collection of premiums are invested in the form of keysource of return for the company in a comprehensive investment values. IAG starts investingthe insurance premium almost immediately when they are collected and continues to produce
AUDITING4returns until the claims and other expenditure are paid out. The outcomes from theunderwriting evaluates the profits or loss that is produced from the activities of underwritingfor a certain period (Iag.com.au, 2017). The Insurance outcomes that is the vital performancemetrics, adds the amount of net investment return to the outcome of underwriting in order toderive the overall pre-tax profit or loss from the operations of insurance. Financing and Financing Activities: The financing activities are comprises of the proceeds from the issue of shares alongwith the outlays for the purchase of treasury shares. The financing activities of IAG consistsof the proceeds from borrowing of $326 million with repayment of borrowings of 131 million(Iag.com.au, 2017). The financing activities includes dividends that were paid to theshareholders of 948 million and dividends to the non-controlling interest of 56 million. Financial reporting practices: The financial reporting practices of IAG insurances complies with the IFRS that isissued by the IASB. The company complies with the Corporation Act 2001, AASB adoptedby the AASB (Iag.com.au, 2017). The financial statements of IASB is prepared in accordancewith historical cost principles as reformed by certain exceptions that is noted in the financialreport. Part 2: Understanding the industry: Industry size: There are 115 licensed general insurers with as much as 18 of these companies in theindustry are in run-off. At the present date with 103 licensed insurers have accountedapproximately 90% of the industry’s $114.4 billion in overall assets (Geneva, 2014). Theacquisition of Insurance Australia Groups of Wesfarmers insurance business occurred in theyear 2014 that ultimately strengthened the market share that was held by the large insurance
AUDITING5groups in the personal and commercial industry lines. In spite of the expanding concentrationin both industries, there is healthy competition among the wide number insurance groups. Industry Growth: The industry reported a strong operating outcome for the year ended 30 June 2016with net profit after tax of $4.9 billion that was largely driven by the underwriting results ofthe insurers. The growth in the gross earned premium for the year ended 30 June 2016 wasprimarily recorded in the personal lines classes of business householders and domestic motoralong a high growth in premium that was reported in the compulsory third party(Khachaturian & Oliver, 2016). Property insures have continued to experience gain from thebenign weather conditions leading to low claim costs. In contrast with the current strongclaims performance in the short tail property classes of business the experience in the longtail classes namely, professional indemnity and public product liability have presented amixed result. Supply chain: The competitiveness of the insurance industry can be improved or reserved dependingupon the nature of the competition along the supply chain within which the insuranceindustry is nested. Some parts of the supply chain in the industry are highly concentratedwhile some are fragmented that can create an impact on the nature and efficiency of theoperations along the supply chain (Bodie, 2013). As evident from the variation in theinsurance industry whether the supply chain is competitive or not balanced and ineffectivecan be an important perspective. To some extent it can stated that industry determines thedegree of competition along the supply chain and produces counter balances so that it canequalize the market forces.
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