commonwealth bank

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Commonwealth Bank

Investments & Insurance Services

29 July 2003

www.commbank.com.au

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The material that follows is a presentation of general background information about the Bank’s activities current at the date of the presentation, 29 July 2003. It is information given in summary form and does not purport to be complete. It is not intended to be relied upon as advice to investors or potential investors and does not take into account the investment objectives, financial situation or needs of any particular investor. These should be considered, with or without professional advice when deciding if an investment is appropriate.

Disclaimer

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Speaker’s Notes

Speaker’s notes for this presentation are attached below each slide.

To access them, you may need to save the slides in PowerPoint and view/print in “notes view.”

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Stuart Grimshaw IIS Strategy and Business Group Executive, OverviewInvestments and Insurance Services

Peter Beck CommInsure Strategy Managing Director, and Business Overview CommInsure

John Pearce CFSI Strategy and Chief Executive Officer, Business Overview Colonial First State Investments

Stuart Grimshaw ConclusionGroup Executive, Investments and Insurance Services

Questions and Answers

Discussion Outline

5

IIS organisational structure

Investment and Insurance Services

(Stuart Grimshaw)

Financial Planning & Advice Services

(Acting - Jerome Bleijie)

Finance

(Michael Cant)

Business Development

(Robert DeLuca)

Risk Management & Compliance

(Jim Evans)

Human Resources

(Sue Mather)

Colonial First State Property

(Geoff McWilliam)

Colonial First State

Investments

(John Pearce)

First State International

(Tom Waring)

Commonwealth & Colonial Products

(Grahame Petersen)

CommInsure

(Peter Beck)

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Key Messages

There is significant value in having an end to end value chain presence

We are building on our leading competitive position in investments and insurance manufacturing

We are leveraging and extending our distribution strengths

We are growing our platform capabilities

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We have strengths across the value chain and benefit from an end to end presence

IIS Products and Services by Value Chain Element

Business Model Strengths

We are one of the market leaders in:

• Asset management• Life insurance• Platform inflows in

FirstChoice• Breadth and scale

of banking network and 3rd party distribution

Strengths of our model:• Flexibility in pricing • Capture all margins• Serve broad range

of customer needs

Aligned

IBS

External IIS CBA Group

Dealer group

services

• Research

• Compliance

DistributionSupport

• Saleseffectiveness

• Advisertraining anddevelopment

Direct

External

• IFA’s

• Brokers/Agents

• SME/Corporates

• Platforms

• Institutionals

RBS

PFS

IFS

Fu

nd

Man

ager

s / B

DM

s

DistributionAdministration

Platforms

Master Trust

•FirstChoice

Wrap

•Avanteos

Property

DistributionSupport/Services

ManagedFunds

LifeInsurance

GeneralInsurance

ProductManufacturing

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There are a number of notable recent achievements across IIS

Integration of Commonwealth Investment Management and First State Investments

Good progress on legacy product and systems rationalisation

Achieved leading market share position in Life Insurance

Significant growth in Property Funds Under Management over last 12 months

Successful launch and strong growth of FirstChoice

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• Continue to develop a range of tools to meet the broad needs of our planners

• Rationalisation of products and systems

Short Medium Long

Our broad strategic agenda will deliver benefits over short to long term time horizons

Expected Timing of Pay-off

• Capture the investment and insurance needs of more of our banking customers

• Planner and adviser development program

• Product and platform innovation

• Prudent growth options

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Significant margin is captured through our manufacturing capability

DistributionAdministrationManufacturing

Greater leverage of front-end success through capture of manufacturing margin

Flexible offering - can be bundled or offered separately

Illustration: M anaged Investm ent Revenue M argins

(bps)

50-80

170-275

60-9560-100

110-175110-180

120-195

End to End M odel

Asset M anager

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We are extending and leveraging our strengths in distribution

Established one distribution support services team focused on CBA channels

Well positioned to drive sales through CBA channels:

Large internal managed funds and insurance sales growth opportunity

Good progress to date

IIS Internal Distribution Model

= Number of planners as at May 2003[ ]

IBS

FinancialPlanning

andAdvice

Services

Products DistributionDistribution

Support/Services

PFS

RBS

External

CommInsure

CFS[614]

[52]

[63]

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Rationalising products and systems will allow us to realise further efficiencies

Established one team to manage investments legacy products and systems:

Product rationalisation

Client migration

Systems decommissioning

Key drivers of success:

Client retention and service

Realise cost efficiencies

Reduced operational risk

“Legacy” products reduced from 255 to 124 by 2005

Source: Internal Projections. Systems rationalisation by calender year end

2002 2005

L eg acy S ys tem s R a tio n a lisa tio n

(2002 - 2005 )

14

10

5

1 7

2003 2004

13






Discussion Outline

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The insurance industry outlook has changed

A maturing industry:

• Favourable long term growth

• Commoditised products

• Lower investment returns

• Competitive and consolidating

• Increased regulatory focus

• A time of ‘surprises’: Sept 11, Canberra, Bali, HIH

• Low penetration

• Scale is critical

• Rising re-insurance premiums

• Industry & legislative shake up

• Return to rational pricing

• Requires cost focus as well as revenue

• Importance of broad based distribution

• Commoditisation - difficult to differentiate

• Uncertainty - increasing importance of good corporate governance and security

Winner will be larger players, who maintain profitability by:

• Leveraging scale

• Driving out efficiencies

• Building revenues through:

Cross sell / bundling

Multi-channel distribution

Brand and reputation

Whilst maintaining a service culture built around:

• Service focus

• Innovation

• Simplicity

• Platforms

Industry Outlook Implications The “Winners”

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Progress against stated strategies

Customers

Brand

Product

Distribution

Integrated service

Total insurance & financial solutions

Promoted CommInsure brand Packaging & loyalty programs Rebranding products

Rationalisation

Competitive pricing

Product upgrades

Improved efficiency

Increase cross-sell and retention

Service

Price

People

Technology

Integrated call centre & Ops

Combine life and general insurance

Packaging & loyalty programs

Scale & efficiency in service

Small business culture

Insurance focus

Functional specialist

Rationalise systems

Efficient processes

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We have achieved significant scale and efficiency in our life business

Achieved through:

Leveraging multiple distribution channels

Selective repricing

Product innovation

Improving efficiencies

Building our direct sales capability

CBA channel sales force capacity and productivity improvements

Source: Plan for Life December 2002

CommInsure Life Insurance New Business

(Dec 00 to Dec 02)

5 5

1

5 53 4

22

0

2 0

4 0

6 0

8 0

1 0 0

1 2 0

1 4 0

1 6 0

D e c -0 0 M a r-0 1 J u n -0 1 Se p -0 1 D e c -0 1 M a r-0 2 J u n -0 2 Se p -0 2 D e c -0 2

Ne

w B

us

ine

ss

Pre

miu

m (

$m

)

0 %

2 %

4 %

6 %

8 %

1 0 %

1 2 %

1 4 %

1 6 %

1 8 %

2 0 %

Ne

w B

us

ine

ss

Ma

rke

t S

ha

reT e rm L ife D is a b il i ty G ro u p R is k M a rk e t Sh a re

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Our distribution channel strengths underpin our performance

Continued focus on critical third party channel

Strong recent growth in CBA direct and branch channel sales

Leverage “natural” cross-sell points in CBA channel

Source: CBA Internal Data - June 2003

L i f e In s u r a n c e n e w s a le s & r e - r a t e s b y c h a n n e l( 0 0 /0 1 t o 0 2 /0 3 )

4 %3 % 1 8 %

2 4 %

2 4 %1 8 %

7 9 %7 2 %

5 8 %

0 0 /0 1 0 1 /0 2 0 2 /0 3

D i r e c t N e t w o r k T h i r d P a r t y

1 0 0 % = $ 5 8 .4 M 1 0 0 % = $ 5 4 .1 M 1 0 0 % = $ 8 1 .1 M

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We have also achieved solid growth across our broad range of protection products

Growth over past 12 months:

Group Risk 16.7%,

Disability 9.8%,

Lump Sum 8.1%

Home & Contents 7.8%

Motor Insurance 130% (distribution only)

Offered under the CommInsure brand

Source: Plan for Life Dec 2002, H&C data - Internal CBA analysis and APRA data as at June 2002

5 . 2 %

2 0 . 3 %

1 4 . 1 %

1 1 . 9 %

1 1 . 3 %

H o m e &C o n t e n t s

D is a b i l i t yIn c o m e

A n n u i t i e s

L u m p S u m

G r o u p R is k

# 4

P r o d u c t C a t e g o r y M a r k e t S h a r e / R a n k in g s

# 6

# 1

# 1

# 5

R a n k

M o t o rIn s u r a n c e

O t h e rC o v e r

- D is t r ib u t io n o n ly

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Further opportunities exist to enhance the efficiency and scale of our Insurance business

Build scale and grow the business:

Competitive, rational pricing

Optimised, multi-channel distribution

Meet insurance needs of more of our banking customers

Customising products for customer needs/channels

Build direct sales capabilities

Drive efficiencies:

Process improvements

Integrated technology solutions

High performing teams

Build capabilities:

Platform for simple, convenient interactions with advisers & customers

Product enhancements

Customer service culture

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Discussion Outline

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A tough new era for funds management

A maturing industry:

• Slowing, but favourable, long term growth

• Lower investment returns

• Concentration of power

• Growth of platforms

• Institutionalisation of distribution

• Increased regulatory focus

• Industry shake up

• Scale is critical

• Picking investment management winners difficult

• Potential for margin squeeze

• Requires cost focus as well as revenue

• Importance of broad based distribution

• Commoditisation – difficult to differentiate

• Greater activism among consumers / investors / ‘others’

Larger players, particularly those with distribution networks, who maintain profitability by:

• Leveraging scale to drive down costs

Maintaining revenues through:

Offering compelling customer propositions that leverage their portfolios of businesses; and

Differentiating themselves based on brand, service and performance

High performing specialised / niche manufacturers will also thrive.

Industry Outlook Implications The “Winners”

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Our business model

CBA SUPPORT

1. PRODUCT

• depth & breadth acrossinvestment mgmt

• leading masterfund

2. DISTRIBUTION

• strong IFA relationship

• CBA distribution

3. SERVICE &ADMINISTRATION

• service culture

• service reputation

EXECUTION CAPABILITY• Speed to market

• Efficiency focus

BRAND• High brand awareness

• Preferred brand for investors andadvisers

TECHNOLOGY• In-house capability• Single unit registry (FMS)

PEOPLE• Strong culture

• Employer of choice

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Colonial First State has a broad, well positioned product suite

CBA Internal Analysis and Market Forecasts

CFS Internal Product View

HighGrowth

Potential

LowGrowth

Potential

LowMargin

HighMargin

PropertySecurities

IndexFunds

AustralianEquities

(core)

CreditFunds

InfrastructureFunds

AustralianEquities (GDP

Plus)PrivateEquity

GlobalEquities

FirstChoice(3rd partyproduct)

FirstChoice(house

product)

HedgeFunds

Firstchoice(corporate

super)

AustralianEquities

(452Capital)

Incomefunds

Fixedinterest

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CFS has a distribution network with breadth and scale

Continuing importance of the IFA channel

Sales through bank channel growing strongly

Source: Internal Data

01 ,0 0 02 ,0 0 0

3 ,0 0 04 ,0 0 05 ,0 0 06 ,0 0 0

7 ,0 0 08 ,0 0 09 ,0 0 0

Jun-

99

Sep

-99

Dec

-99

Mar

-00

Jun-

00

Sep

-00

Dec

-00

Mar

-01

Jun-

01

Sep

-01

Dec

-01

Mar

-02

Jun-

02

Sep

-02

Dec

-02

Mar

-03

w ith o u t C B A w ith C B A

C F S Q u a r te r ly S a le s ($ M )

(1 9 9 9 to 2 0 0 3 )

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Our brand and customer service ratings continue to be strong

Recognised in the market for customer service

Leading brand - and deliver on proposition

Source: Newspoll data - June 2003

0

5

1 0

1 5

2 0

2 5

3 0

3 5

4 0

4 5

5 0

D e c -9 9 J u n -0 0 D e c -0 0 J u n -0 1 D e c -0 1 J u n -0 2 D e c -0 2 J u n -0 3

M e rc / IN G C o l F irs t S ta te A X A A M P B T P e rp e tu a l

N e w s p o ll S u rv e y - F u n d M a n a g e r P re fe re n c e s(J u n e 2 0 0 3 )

Q : W o u ld y o u in v e s t w ith u s ?

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FirstChoice has been a “killer application” in the market

FirstChoice:

Leverages existing scale Innovative mandate structure Simple, low pricing Late to market but topping industry flows

Avanteos:

Leading technology

Wholesale market exposure

Creates “wrap options” for CFS

Source: Assirt March 2003 data

Platform s M arket Australia

(Septem ber 2002 to M arch 2003)

= $15bn FUA

M arke t S h are

Infl

ow

s (

$m

)

2 5%20%15%10%5%0%

1,200

900

600

300

0

-300

Natio n a l/M L C

AM P

AX A

B T / Westp ac

Asg ard

C B A

Nav ig a to r

M acq u ar ie

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The FirstChoice mandate structure has a number of benefits over a traditional masterfund

• Unique Straight Through Processing between CFS and managers through centralised custodian

• CFS remains legal owner / administrator of the fund. Ease of manager change with minimal CGT and stamp duty. Delivers pricing power.

• CFS controls unit pricing, distributions, annual statements and tax. Superior retail-style service levels.

Custody

Investment Management

Administration

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We have favourable platform economics due to our end to end presence

Typical FirstChoice Revenue Split

Allows CFS/CBA to capture greater share of available margin

Adviser/customer still provided choice - of distribution channel (IFA, branch, tied), and manager (CFS, non-CFS)

AssetManagement

Administration

60 bps60bps 60bps

Percentageof Flows

RevenueMargin

CFS Internal

Asset ManagerSelection

External

Source of Flows

Tied IFA’s

61% 100% 36% 26% 38%

Distribution

39%

Administered

Internal

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We are building our platform capabilities to further drive market advantage

• Launched First Choice

simple offering

competitive pricing

investments, super, pension

• Integrated, end to end platform offering:

increased functionality

front and back end integration

adviser transactional access

practice management interface to desktop

planning interface with

CommSec

“Day One”

“Day Two”

“Day Three”

“Day Four”

• FirstChoice Product

enhancements (functionality)

Increase range Corporate super

• Avanteos leading web-based

technology platform

wholesale market exposure

creates wrap “options” for CBA

• Next Generation platform enhancements:

expanded client review functionality

portal-based encompasses investments,

equities, insurance & banking offering

consolidated and customised reporting

integrated, leading front-end tools

Current Focus

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Discussion Outline

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Key Messages

There is significant value in having an end to end value chain presence

We are building on our leading competitive position in investments and insurance manufacturing

We are leveraging and extending our distribution strengths

We are growing our platform capabilities

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Discussion Outline

33

Commonwealth Bank

Investments & Insurance Services

29 July 2003

www.commbank.com.au

commonwealth bank

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