Qbe Insurance Group Limited · ASX:QBE
Qbe Insurance — H1 2012 Earnings Presentation
39 slides from Qbe Insurance's earnings presentation, Aug 17, 2012
Slide 1: ASX cover letter: QBE results presentation for half year ended 30 June 2012
QBE Insurance Group Limited ABN 28 008 485 014 Head Office 82 Pitt Street SYDNEY NSW 2000 For personal use only Australia Postal Address Box 82 GPO SYDNEY 2001 17 August 2012 Telephone: +61 (2) 9375 4444 Facsimile: +61 (2) 9231 6104 DX 10171, Sydney Stock Exchange The Manager Company Announcements A
Slide 2: QBE Insurance Group 2012 half year results announcement
For personal use only QBE INSURANCE GROUP 2012 half year results announcement Presented by: John Neal, Group CEO and Neil Drabsch, Group CFO 17 August 2012 All figures in US$ unless otherwise stated
Slide 3: Strong 1H12 results
Strong 1H12 results For personal use only Profitability - return to a more normal level after a difficult 2011: – NPAT up 13% to $760M – NPBT and amortisation up 25% to $1,042M – insurance profit up 26% to $958M with a margin of 13.0% (1H11 11.2%) – return on average shareholders’ funds of 13.9% (
Slide 4: Solid underwriting performance
Solid underwriting performance For personal use only Underwriting profit – up 79% to $522M with a COR of 92.9% (1H11 95.7%) Attritional claims ratio – excellent at 48.5% (1H11 49.3%) reflecting portfolio improvement initiatives and minor benefit from rate increases to date Large risk and catas
Slide 5: Other items
Other items For personal use only Expense ratio – variance of 1.9% includes 0.9% seasonality (principally US crop), lower NEP (principally US crop and LPI), and higher business transformation and integration costs and some non-recurring items Amortisation – increased to $128M (1H11 $60M) primari
Slide 6: Financial performance summary
Financial performance summary For personal use only For the half year ended 30 June 1H12 1H11 % change GWP US$M 9,223 8,942 3 NEP US$M 7,359 6,778 9 Underwriting profit US$M 522 291 79 COR % 92.9 95.7 - Investment income on p/holders’ funds US$M 436 471 (7) Insurance profit US$M 958 762 26 Insurance
Slide 7: 1H12 insurance margin analysis: non-recurring and seasonal impacts
1H12 insurance margin analysis: non-recurring and seasonal impacts For personal use only 20.0 19.0 Reported margin adj. for: 18.0 (1) PY development 17.0 primarily 2011 cats 16.0 1.4 (2) Fall in risk-free rates 15.0 (2.3) 14.0 1.6 (3) Investment margin 13.0 above 3.6% FY12 target (2.5) (3.0% yield x
Slide 8: 2012 accident year claims incurred: significant improvement on 1H11
2012 accident year claims incurred: significant improvement on 1H11 For personal use only 80 70 64.2% Fewer catastrophes compared with 1H11 coupled with proactive 57.7% 60 56.4% 15.9 reduction of exposures in some 8.0 9.3 cat prone areas 50 Large risk losses tracking in line 40 with expectations
Slide 9: Catastrophe claims: normalised after severe frequency and severity in 2011
Catastrophe claims: “normalised” after severe frequency and severity in 2011 For personal use only 1H12 1H11 2012 accident year events and losses (central estimate) Net cost US$M Net cost US$M Total catastrophe claims (incl specific IBNR) 161 822 Large individual risk claims (incl specific IBNR) 166
Slide 10: Overview of 1H12 divisional results
Overview of 1H12 divisional results For personal use only 1H12 Group North Latin European Australia Asia Pacific Equator America America operations New Zealand GWP (US$M) 9,223 3,228 512 2,748 2,470 265 (2)2,093 GEP (US$M) 8,404 3,053 493 2,267 2,348 243 (2)1,682 NEP (US$M) 7,359 1,609 422 1,557 2,0
Slide 11: 1H12 divisional results commentary
1H12 divisional results commentary For personal use only North America – COR of 94.3% (1H11 88.3%) impacted by: – US crop COR of 99% on $177M NEP (including $30M crop general IBNR provision strengthening) – $50M additional provision for underperforming portfolios – crop and LPI market conditions r
Slide 12: Capital, investments and borrowings: shareholders' funds up 11%
Capital, investments and borrowings: shareholders’ funds up 11% For personal use only Shareholders’ funds increased due to: Summary balance sheet 30 Jun 12 31 Dec 11 – A$450M institutional placement As at US$M US$M – A$150M retail placement Investments and cash 28,851 28,024 – profits generated du
Slide 13: Intangibles
Intangibles For personal use only 30 June 2012 31 December 2011 Identifiable Identifiable Intangibles Goodwill Total Intangibles Goodwill Total Opening balance 1,399 4,666 6,065 814 4,573 5,387 Acquisitions 19 159 178 693 128 821 Additions / reclassifications 111 14 125 29 (24) 5 Amortisation/impair
Slide 14: Investment income: yield materially exceeded target range
Investment income: yield materially exceeded target range For personal use only Portfolio repositioned with lower 1H12 1H11 1H10 probability of spread impact due to shift to lower beta credit Net investment income (ex FX) US$M 686 507 15 Higher weighting to Aussie bank multi-currency covered bon
Slide 15: Total investment portfolio: 33% in US$, 33% in A$, 16% in £ and 8% in €
Total investment portfolio: 33% in US$, 33% in A$, 16% in £ and 8% in € For personal use only Total investments & cash US$28,851M (2011: US$28,024M) (1) No permanent impairment Fixed interest book is short and Short term money 23.5% highly liquid with modified (25.5%) duration of 0.59 years and
Slide 16: Lower debt/equity ratio
Lower debt/equity ratio For personal use only Shareholders' funds - US$M Conservatively structured debt 14,000 portfolio of $4.3BN at 30 June 2012 12,000 Ratio of borrowings to shareholders’ 10,000 funds decreased to 37.1% (45.8% at 31 Dec 2011) 8,000 10,311 10,386 11,546 A$450M institutional
Slide 17: Capital requirements: minimal impact expected from LAGIC change in 2013
Capital requirements: minimal impact expected from LAGIC change in 2013 For personal use only Based on current APRA criteria Bar chart not to scale Total QBE regulatory capital US$M Minimum capital requirement ("MCR") US$M Excess capital US$M MCR Multiple 30 June 2012 6,262 (tier 1) 1,732 (tier 2) 5
Slide 18: Specialist lines - North America and Australia
Specialist lines - North America and Australia For personal use only US crop – NEP $1.2BN 2nd largest insurer, attractive industry fundamentals (average 10 year COR ~ 92%), QBE consistently outperforms (average QBE 10 year COR ~ 88%) with superior scale, geographical spread/diversification and ris
Slide 19: FY12 expectations
FY12 expectations For personal use only 1. GWP – growth from acquisitions and rate increases offset by lower premium income on US crop and LPI business and selective reduction in catastrophe prone risks 2. Claims ratio – conservative claims ratio targets; attritional ratio constant at 48.5% supporte
Slide 20: FY12 financial performance targets
FY12 financial performance targets subject to the usual caveats For personal use only GWP growth Low single digit NEP growth Low single digit Reinsurance expense ratio (to GEP) 12.5% Large individual risk and catastrophe claims ratio 10.5% Attritional claims ratio 48.5% Other – CSC, discount and pri
Slide 21: Closing remarks: well positioned to deliver industry leading returns to shareholders
Closing remarks: well positioned to deliver industry leading returns to shareholders For personal use only Underwriting account – in excellent shape as we move into 2H12 and 2013: – rate increases and underwriting remediation plans are being implemented – conservative claims ratio targets maintain
Slide 22: Important disclaimer
Important disclaimer For personal use only The information in this presentation provides an overview of the results for the half year ended 30 June 2012. This presentation should be read in conjunction with all information which QBE has lodged with the Australian Securities Exchange (“ASX”). Copies
Slide 23: QBE Insurance Group www.qbe.com
For personal use only QBE INSURANCE GROUP www.qbe.com 22 HY12 results presentation
Slide 24: Appendices
Appendices For personal use only 1. Divisional commentary 2. Accident year and claims ratio analysis 3. Weighted average discount rates 4. FY12 premium outlook 5. Investments – corporate bonds, fixed and floating rate 6. Investments – sovereign/supranational bonds 7. Dividend performance 8. Borrowin
Slide 25: North America
North America For personal use only Rate increases averaging 6% 1H12 1H11 overall and higher for non-specialty lines Gross written premium US$M 3,228 3,144 Higher reinsurance expense due to Gross earned premium US$M 3,053 2,770 increased cessions to Equator Re Net earned premium US$M 1,609 1,572
Slide 26: Latin America
Latin America For personal use only 1H12 1H11 GWP up 42% in local currency due to rate increases in line with high inflation Gross written premium US$M 512 380 particularly in Argentina, coupled with HSBC LBA and Optima acquisitions Gross earned premium US$M 493 384 NEP growth stronger due to re
Slide 27: European operations
European operations For personal use only GWP flat in local currency due to 1H12 1H11 competition in UK and European P&C markets offsetting positive trends in Gross written premium US$M 2,748 2,824 energy and catastrophe-affected lines Gross earned premium US$M 2,267 2,242 NEP up 5% in local cur
Slide 28: Australia & New Zealand
Australia & New Zealand For personal use only 1H12 1H11 In addition to deductible increases, premium rate rises averaged 8% in Gross written premium US$M 2,470 2,360 Australia and 15% in New Zealand NEP rose 12% in $A due to strong Gross earned premium US$M 2,348 2,214 premium rate increases and
Slide 29: Asia Pacific
Asia Pacific For personal use only 1H12 1H11 Gross written premium US$M 265 234 GWP up 14% in local currency driven by new business in HK and Philippines Gross earned premium US$M 243 224 and rate increases in Thailand NEP down 1% in local currency due to Net earned premium US$M 182 183 impact o
Slide 30: Equator Re
Equator Re For personal use only GWP up 4% driven by rate increases and 1H12 1H11 increased premium from North America offset by lower reinstatements Gross written premium US$M 2,093 2,021 NEP up 13% due to reduced outwards reinsurance expense Gross earned premium US$M 1,682 1,545 Claims ratio
Slide 31: 1H12 accident year central estimate claims ratio: attrition lower
1H12 accident year central estimate claims ratio: attrition lower For personal use only Analysis of net central estimate 1H12 1H11 HY10 FY11 FY10 FY09 claims ratio (accident year) (1) Net earned premium US$M 7,359 6,778 5,240 15,359 11,362 9,446 Attritional claims % 48.5 49.3 49.0 49.2 50.0 51.4 Lar
Slide 32: 1H12 accident year results: higher commission and expense ratio
1H12 accident year results: higher commission and expense ratio For personal use only Analysis of net central estimate 1H12 1H11 1H10 FY11 FY10 FY09 combined operating ratio (accident year) Net central estimate claims ratio % 56.4 64.2 57.7 65.3 58.6 59.5 (pre risk margins) Commissions % 16.8 15.8 1
Slide 33: 1H12 insurance profit: impacted by adverse development on 11 catastrophe claims
1H12 insurance profit: impacted by adverse development on 2011 catastrophe claims For personal use only 1H12 1H11 FY11 Ins. Ins. Ins. profit profit profit US$M margin US$M margin US$M margin % % % Central estimate accident year underwriting profit 904 12.3 409 6.0 937 6.1 Prior year (cost)/benefit o
Slide 34: Impact of movement in weighted average discount rates
Impact of movement in weighted average discount rates For personal use only Weighted average risk-free discount rates on outstanding claims % Currency 30 June 2011 31 Dec 2011 30 June 2012 Australian dollar 5.05 3.65 2.90 US dollar 1.65 0.95 0.85 Sterling 2.25 1.20 1.15 Euro 2.85 1.95 1.75 Argentine
Slide 35: FY12 premium outlook
FY12 premium outlook For personal use only Revised Revised Previous GWP – local GWP guidance GWP guidance currency BN US$BN (1) US$BN (2) North America US$6.6 6.6 7.0 Latin America US$1.2 1.2 1.2 Europe £3.2 5.0 5.0 Australia New Zealand A$4.9 5.0 4.7 (3) Asia Pacific US$0.6 0.6 0.8 (3) Equator Re U
Slide 36: Investments: corporate bonds, fixed & floating rate
Investments: corporate bonds, fixed & floating rate For personal use only COUNTRY 30 June 12 % 31 Dec 11 % US$M US$M Australia 6,582 48 5,346 36 USA 1,738 13 3,003 20 UK 1,746 13 2,556 17 Japan 217 2 119 1 Canada 287 2 485 3 ROW other 1,515 11 1,388 9 Germany 229 2 235 2 France 365 3 749 5 Netherlan
Slide 37: Investments: sovereign/supranational bonds
Investments: sovereign/supranational bonds For personal use only COUNTRY 30 June 12 % 31 Dec 11 % US$M US$M Australia 810 10 760 13 USA 2,503 30 2,078 37 UK 1,723 20 699 12 Japan - - - - Canada 668 8 559 10 ROW other 926 11 627 11 Germany 1,038 12 239 4 France 327 4 402 7 Netherlands 32 0 48 1 GIIPS
Slide 38: Dividend performance
Dividend performance For personal use only 1,600 140 126 128 128 122 Dividend per share A$ cents 1,400 120 1,200 95 100 87 Payout A$M 1,000 694 678 80 645 800 279 62 576 60 600 452 40 400 628 642 677 492 542 473 20 200 322 - - 2006 2007 2008 2009 2010 2011 2012 1H Interim Final Dividends per share
Slide 39: Borrowings summary
Borrowings summary For personal use only 30 June 2012 31 December 2011 Maturity date Call date Principal amount US$M US$M Bank loans 12 May 2013 12 May 2013 US$50 million 50 - 5 July 2013 5 July 2013 US$41 million - 41 50 41 Senior debt 28 September 2015 28 September 2015 £550 million 860 850 14 Mar