Qbe Insurance Group Limited · ASX:QBE
Qbe Insurance — FY2004 Earnings Presentation
26 slides from Qbe Insurance's earnings presentation, Feb 24, 2005
Slide 1: QBE Presentation on the 2004 Results
Insurance Group 24 February 2005 The Manager Company Announcements Australian Stock Exchange Limited Level 6 Exchange Centre 20 Bridge Street SYDNEY NSW 2000 Dear Sir/Madam, re: QBE Presentation on the 2004 Results Further to the Company’s release to the market today on its results for the year ende
Slide 2: Highlights
Highlights year ended 31 Decernber 2004 Net profit after tax up 43% to $820 million (2003: $572 million) Net profit before tax up 41% to $1,080 million (2003: $765 mition Insurance profit up 45% to $908 million (2003: $627 milion) or 13.4% of net earned premium (2003: 10.4%) The significant increase
Slide 3: Highlights
Highlights year ended 31 December 2004 + Gross written premium up 5% to $8,766 million and gross earned premium up 10% + Using 2003 rates of exchange gross written and gross earned premium growth would have been 11% and 16% respectively + Growth supported by improved retention of business and acquis
Slide 4: Market conditions
Market conditions Catastrophe losses Our conservative approach to risk management has worked for QBE as 2004 was one of the most expensive in history for property insurance catastrophe claims Total market insured losses US$ Billion 1992 {includes hurricane Andrew) 38 1999 (frequency of large storms
Slide 5: Highlights
Highlights year ended 31 December 2004 + Gross invesiment income up 19% to $640 million (2003: $537 million) + Gross investment yield before borrowing costs and expenses unchanged at 4.6% + Investment income includes realised and unrealised gains before tax of $91 million (2003: gains of $410 millio
Slide 6: Impact of stronger Australian dollar
Impact of stronger Australian dollar 2004 2004 at 2003 Exchange actual exchangerates rate impact $M $M %% Gross earned premium 8,571 9,080 & Net earned premium 6,781 7,135 § Net investment income 508 536 6 Profit after tax 820 878 7 Total Investments and cash 15,067 45,147 1 Total assets 25,102 25,5
Slide 7: Dividend performance
Dividend performance year ended 31 December 2004 Total $388M Firral G22GME Interim $1641 1994 1996 1998 2000 2002 2004 Worldwide operations HALF YEAR FULL YEAR Gross written prermiurn SM 4,763 4,093 8,766 8,386 Gross eamed premium $M 3,982 4.589 8,571 7,816 Net earned premium $M 3,114 3,667 6,781 6,
Slide 8: Worldwide operations
Worldwide operations year enced 31 December 2004 GWP Growth* COR Net profit after tax 2004 2004 2004 2003 2004 2003 $M % % % $M Ra Australia 2,102 12 88.4 92.8 258 180 Asia-Pacific 520 (43 85.4 90.0 568 38 the Americas 1,382 3 92.3 93.1 68 46 European companies 2,453 - 94.3 94.7 216 168 Lloyd's divi
Slide 9: Worldwide portfolio mix
Worldwide portfolio mix Gross earned premium ~ year ended 31 December 2004 Professionat + * Marine and indemnity aviation 9.5% (9.2%) 6.6% (8.4%) Workers* compensation 8.6% (9.2%) Financial and credit 2.4% (3.1%) Property 23.9% (30.7%) Liability 21.8% (47.9%) Accident and health B.1% (5.6%) Other 1.
Slide 10: Net invested funds
Net invested funds 31 Dec 2004 31 Dec 2003 $M % $M % Cash 1,121 7.4 717 6.1 Short term money 5,482 36.4 3,499 29.5 Fixed interest securities and other 6,947 46.1 6,209 §2.5 Mortgages 10 0.1 7 0.4 Equities 1,390 9.2 4,272 10.8 Properties 117 0.8 419 1.0 Total investments and cash 15,067 100.0 11,823
Slide 11: Currency mix
Currency mix year ended 31 December 2004 Market value of total investments and cash 2004 $15,067 million (2003: $11,823 million} Market value of equities 2004 $1,390 million (2003: $1,272 million) Other 42.4% (13.3%) Australian dollar 28.0% (22.5%) Sterling 34.4% (30.6%) Other 2.8% (14.2%) Australia
Slide 12: Balance sheet December 2004
Balance sheet 341 December 2004 Borrowings* to shareholders’ funds 40.5% (2003: 40.3%) Borrowings increased to $1,789 million to fund acquisitions: ~ US$375 million of hybrid securities ~ £175 million of five year senior debt Issued US$220 million of contingent securities to replace majority of lett
Slide 13: Outstanding claims liabilities
Outstanding claims liabilities Reserve adequacy QBE’s record of claims development over the past five years (undiscounted) demonstrates our prudent management of claims 2004 2003 2002 2001 2060* Prior year release (net) ASM 140 44 12 162 15 Total net outstanding claims (discounted) ASM 9,371 7,595 7
Slide 14: Capital adequacy December 2004
Capital adequacy 341 December 2004 « The slight reduction in the capital adequacy multiple is mainly due to an increased capital charge from acquisitions and the stronger A$ + All subsidiaries maintain strong capital adequacy margins for local regulatory purposes + Main insurance subsidiaries rating
Slide 15: Australian general insurance
Australian general insurance year ended 31 December 2004 CTP, trade credit, professional liability, corporate property/liability, travel and Western QBE results all ahead of plan Workers’ compensation continues to exceed expectations in a difficult market. Claims management and stakeholder relations
Slide 16: Asia-Pacific general insurance
Asia-Pacific general insurance year ended 31 December 2004 « Improved underwriting result from focus on portfolio profitability and general improvement in premium rates and policy terms and conditions over the past three years + Claims ratio decreased from 50.0% to 48.3% - lower frequency of claims
Slide 17: the Americas
the Americas year ended 31 December 2004 + US based primary insurance business growth in line with our strategy of diversification, particularly for programme business + 84% of total reinsurance cost of $549 million is proportional reinsurance on programme business + Improved COR achieved in both th
Slide 18: European company operations
European company operations year ended 31 December 2004 * Combined operating ratio on general insurance operations improved to 89.8% from 90.6% due to higher premium rates and improved policy terms and conditions + Combined operating ratio from inward reinsurance operations deteriorated from 103.9%
Slide 19: Lloyd's division (Limit)
Lioyd’s division (Limit) year ended 31 December 2004 + Premium growth affected by weaker US$. Approximately 40% of current business in US dollars + Claims ratio slightly higher due to major catastrophes and prudent claims reserving for 2002, 2003 and 2004 underwriting years + All ongoing syndicates
Slide 20: Investment income
Investment income year ended 31 December 2004 + Fixed interest and equity returns well ahead of budget + Investment income on equities was affected by our overweight position in Alumina and Consolidated Rutile and underperformance of US equities in the first half + Short duration fixed interest stra
Slide 21: Recap on 2004
+ Record operating profit of $820 million for 2004 + Lowest COR in past 30 years - 91.2% Insurance profit margin — 13.4% (second half — 13.6%) Prudential margins increased to top of our internal range + Short duration cash and fixed interest investments $13.6 billion, poised to take advantage of exp
Slide 22: Major initiatives in 2004
Major initiatives in 2004 + Acquired three large and profitable agency businesses in Australia namely CHU, AIS and Concord (50%). These agencies currently produce $375 million of gross written premium for QBE + ING acquisition in Australia to deliver estimated savings from synergies of $40 million p
Slide 23: 2005 projected gross written premium
2005 projected gross written premium Limit £0.90 billion European commercial and retail £1.10 billion USA / Latin America US$1.20 billion Australia A$2.45 billion Pacific Asia Central Europe A$0.75 billion (23 countries) At A$ to US$ 0.79 and A$ to £0.41, equates to approximately A$9.6 billion gross
Slide 24: Business strategy and 2005 targets
Business strategy and 2005 targets Continue to further reduce risk profile of insurance business including maximum event retention Reinsurance costs to decrease to around 19% of gross eamed premium Maintain commission ratios Continue focus on expense management — expense ratio target 12.3% or less T
Slide 25: Growth and insurance margin
Growth and insurance margin Gross written Insurance Insurance premium COR profit profit ASM % % ASM 1995 1,336 400.4 8.0 88 1996 1,561 99.3 8.4 101 1997 2,054 99.5 7.2 116 1998 2,409 400.3 77 147 1999 2,877 103.9 2.5 56 2000 4,406 4102.5 5.4 186 2001 6,793 409.6 (2.6) (119) 2002 7,723 97.7 7.2 406 2
Slide 26: Historical share price performance
Historical share price performance An investment in OBE has outperformed the Australian All Ordinaries Index and inflation with a growth rate of 0.4% in 2004, and a compound average annual growth rate 21.6% over five years, 22.5% over 10 years and 23.7% over 20 years Price Performarce H crore chats