Insurance Sector Update

Observations provided by analyst UBS with regards to the insurance sector in Australia: Trends in motor and home are similar: IAG looks to have stemmed mkt share losses with a stabilisation in growth. PMN continues to outperform operationally. SUN's mkt share is steady, but top line momentum is slowing. In motor: IAG price led competition hurt premiums in the Dec half, though PMN looks to have fared relatively well. Price competition waned in final 3 months of 2006, but IAG pricing still relatively keen. In home: solid rate increases, in line with increased building costs. Commentary suggested that motor claims frequency remained benign, at or around historical levels. Unit claim costs in the motor business also remain under control. In home, storm and bushfires boosted claims frequency, though underlying claims are still under control. Building costs continue to pressure unit claims costs. The analyst prefers QBE & IAG (B2) over SUN/PMN, AXA & AMP (N2) and holds a sector Neutral view. Order of preference based on current operational views and valuation upside: QBE, IAG, SUN/PMN, AXA, AMP.