Qbe Insurance Group Limited · ASX:QBE
Qbe Insurance — H1 2010 Earnings Presentation
39 slides from Qbe Insurance's earnings presentation, Aug 19, 2010
Slide 1: 2010 half year results announcement
QBE INSURANCE GROUP 2010 half year results announcement Presented by: Frank O’Halloran, CEO QBE Insurance Group Ltd 19 August 2010
Slide 2: Presentation roadmap
Presentation roadmap 1. Group financial results - key messages 2. QBE growth strategy 3. Insurance results 4. Investments 5. Divisional results 6. Capital and borrowings 7. Outlook and closing remarks 8. Appendices 2 1H 2010 results presentation
Slide 3: Financial results
Financial results 2010 FY 2010 1H Target Actual Insurance profit margin 16% to 18% × 15.7% Combined operating ratio Less than 89% × 89.7% GWP and NEP increase 20% in US$ 20% Reinsurance expense ratio (to GEP) Less than 13.5% × 14.2% Combined commission & expense ratio Less than 30.0% 29.8% Tax rate
Slide 4: Key messages: strong premium growth and technical result
Key messages: strong premium growth and technical result Change to US$ presentation currency Despite competitive markets, premium rates on renewed business up 3% on average GWP up 20% to US$6,861M and strong premium growth in local currencies - Australia up 26% to A$2,046M - Asia Pacific up 15% to U
Slide 5: Key messages: strong balance sheet and continuing growth from acquisition activity
Key messages: strong balance sheet and continuing growth from acquisition activity Operating cash flow continues to be strong at US$647M (2009: US$564M) Capital adequacy at regulated entity and Group level strong – Group MCR multiple of 1.6x PoA of total insurance liabilities 94.6% (2009 2H: 95.5%)
Slide 6: Key messages: insurance profit impacted by lower investment yields and risk-free discount rates
Key messages: insurance profit impacted by lower investment yields and risk-free discount rates Insurance profit up 8% to US$822M Insurance profit margin 15.7% (2009: 17.5%) impacted by: - investment yields on policyholders’ funds down by 0.5% - risk-free interest rates on claims provisions lower by
Slide 7: Reported profit adversely impacted by a number of significant items
Reported profit adversely impacted by a number of significant items Net profit after tax down 39% to US$440M entirely due to difficult equity and fixed interest markets and no one-off gains as in 2009 2010 1H 2009 1H US$M US$M Reported net profit before tax 528 893 Significant items (pre tax) includ
Slide 8: QBE continues to outperform majority of peers in difficult market conditions
QBE continues to outperform majority of peers in difficult market conditions Sample of 20 major global insurers who have reported to date: 30 Jun 31 Dec 30 Jun 31 Dec Company 2010 2009 Company 2010 2009 COR% COR% COR% COR% ACE 90.7 87.4 Munich Re 105.3 96.3 Allianz AG 99.3 98.3 Partner Re 139.4 81.4
Slide 9: Successful growth strategy has built product and geographic diversification
Successful growth strategy has built product and geographic diversification and increased profitability Insurance profit EPS on 42 acquisitions between GWP NEP COR ins. profit 2005 and 2009 including: US$M US$M % % US$M US cents - Americas: Colombia, 2005 FY 7,171 5,630 89.1 17.4 982 128 National Fa
Slide 10: Acquisitions and profit enhancing initiatives to date in 2010
Acquisitions and profit enhancing initiatives to date in 2010 Cost GWP NPAT US$M US$M US$M NAU Country Insurance Company – US multi peril crop insurer 565 900 100 CNA Argentina – workers’ compensation insurer 65 135 15 Seguros Colonial (1) – largest non-life insurer in Ecuador 35 65 10 Secura NV (1)
Slide 11: 2010 1H accident year central estimate claims ratio
2010 1H accident year central estimate claims ratio: lower attritional claims ratio Analysis of net central estimate claims ratio 2010 1H 2009 1H 2009 FY 2008 FY (accident year) (1) Net earned premium US$M 5,240 4,379 9,446 9,293 Attritional (2) % 49.0 50.8 51.4 50.7 Large and catastrophe (3) % 9.3
Slide 12: 2010 1H accident year results: continued improvement in central estimate COR
2010 1H accident year results: continued improvement in central estimate COR 2010 1H 2009 1H 2009 FY 2008 FY Net central estimate claims ratio (pre risk margins) % 57.7 59.5 59.5 59.6 Commissions % 15.3 17.0 16.2 17.2 Expenses % 14.5 11.5 13.1 13.7 Central estimate COR % 87.5 88.0 88.8 90.5 Contribu
Slide 13: 2010 1H financial year results: insurance profit impacted by lower risk-free discount rates
2010 1H financial year results: insurance profit impacted by lower risk-free discount rates Ins. 2010 Profit Ins. 2009 Profit Ins. 2009 Profit 1H Margin 1H Margin FY Margin US$M % US$M % US$M % Central estimate accident year underwriting profit 655 12.5 525 12.0 1,060 11.2 Savings on prior year cent
Slide 14: Volatile risk-free interest rates impact COR, insurance margin and PoA
Volatile risk-free interest rates impact COR, insurance margin and PoA Risk-free rate variations 16 June 15 Apr 31 Dec Sensitivity (3) 2010 1H 2010 2010 (2) 2009 Weighted average risk-free rates % 3.75 2.75 3.19 3.40 3.20 Impact on key half year ratios (1): - COR % 87.8 89.7 89.2 88.1 88.4 - Insuran
Slide 15: Volatile investment markets during half year impacted net profit
Volatile investment markets during half year impacted net profit Sensitivities 15 April 16 June Movement in equities and discount affecting 2010 1H 2010 2010 profit before tax US$M US$M US$M Realised and unrealised gain/(loss) on equities (228) 68 (100) Risk-free rates used to discount claims (67) 1
Slide 16: High quality and low risk investment portfolio
High quality and low risk investment portfolio Equities Total investments and cash US$22.3BN 7% (2009: US$22.5BN) Cash Fixed interest Over 80% of cash and fixed interest 11% securities investments rated Aa3 or better 49% Around 99% of investments are highly liquid Average duration of cash and fixed
Slide 17: Low risk, short duration investment strategy
Low risk, short duration investment strategy considered appropriate given global economic conditions QBE’s strategy to manage interest rate volatility at P&L and balance sheet level: - Low risk strategy in relation to credit - Short duration policy Major short term risk is credit spread volatility –
Slide 18: Lower investment yields due to fall in equity markets and credit spread volatility
Lower investment yields due to fall in equity markets and credit spread volatility 2010 1H 2009 1H US$M US$M Equity income (1) (206) (81) Income – fixed interest securities, ST money and cash 245 383 Operational foreign exchange gains 101 26 Property and other income 3 10 Gross investment income 143
Slide 19: Lower US$ and sterling yields and credit spread volatility limiting overall yields
Lower US$ and sterling yields and credit spread volatility limiting overall yields on cash and fixed interest portfolios Currency mix – 30 Jun 31 Dec market value of total 2010 2009 investments and cash (2) Current AAA cash rate – weighted average % % 30 Jun 31 Dec yield as at: 2010 2009 Australian
Slide 20: The Americas: continues to significantly outperform market
the Americas: continues to significantly outperform market despite increase in catastrophes Premium rate increases on renewal 2010 1H 2009 1H business just over 1% Customer retention ratio strong and in Gross written premium US$M 2,342 2,065 excess of 85% Gross earned premium US$M 2,073 1,901 GWP up
Slide 21: European operations: improved technical results
European operations: improved technical results despite challenging market conditions 2010 1H 2009 1H GWP up 6% from casualty portfolio initiatives and favourable cross- Gross written premium £M 1,574 1,490 currency rates Average premium rate increases Gross earned premium £M 1,262 1,205 slightly ab
Slide 22: Australia: strong COR and insurance profit margin well above peers
Australia: strong COR and insurance profit margin well above peers 2010 1H 2009 1H GWP growth of 26% assisted by Elders acquisitions in 2H 2009 Gross written premium A$M 2,046 1,630 Average premium rate increases of Gross earned premium A$M 2,053 1,542 6% Net earned premium A$M 1,705 1,288 Customer
Slide 23: Asia Pacific: strong insurance profit margin in competitive market
Asia Pacific: strong insurance profit margin in competitive market 2010 1H 2009 1H GWP up 15% mainly reflecting changes in FX rates and good Gross written premium US$M 295 257 growth in most countries Gross earned premium US$M 284 245 Flat overall premium rate movements on renewal business Net earne
Slide 24: Equator Re: claims ratio benefits from lower large risk claims
Equator Re: claims ratio benefits from lower large risk claims 2010 1H 2009 1H Equator Re assists in managing Group retentions and optimising Gross written premium US$M 1,359 1,216 regulatory capital Gross earned premium US$M 1,032 893 Premium growth due to increased internal excess of Net earned pr
Slide 25: Capital adequacy: significant excess capital over MCR
Capital adequacy: significant excess capital over MCR Applying APRA’s risk based criteria: MCR multiple 30 Jun 2010 US$3,869M US$2,272M 1.6x Minimum capital 31 Dec 2009 US$3,754M US$2,247M 1.6x requirement ("MCR") Excess capital 31 Dec 2008 US$3,244M US$2,317M 1.7x APRA’s recent statements on superv
Slide 26: Capital adequacy: tier 2 debt remains low
Capital adequacy: tier 2 debt remains low QBE’s regulatory capital includes allowance for tier 1 and tier 2 debt securities of: Tier 1 Tier 2 Total US$M US$M US$M 30 June 2010 177 768 945 31 December 2009 178 514 692 31 December 2008 268 565 833 Tier 2 headroom of $US4,605M (allowance up to 100% of
Slide 27: Lower borrowing costs due to refinancing
Lower borrowing costs due to refinancing – debt/equity ratio 36% at 19 August 2010 Repayment profile 30 Jun 31 Dec New issues in the half assuming settled at first call date 2010 2009 year to refinance borrowings and assist Less than 1 year US$M 839 772 growth: 1 – 5 years US$M 1,538 516 − US$850M h
Slide 28: 2010 premium outlook
2010 premium outlook Revised Revised Forecast GWP – local GWP NEP currency BN (1) US$BN US$BN Australia A$4.20 3.70 3.00 Asia Pacific US$0.65 0.65 0.45 Europe £2.60 3.90 2.60 The Americas US$5.15 5.15 3.35 Equator Re (2) 1.90 13.40 11.30 (1) Subject to FX movements, revised GWP in local currency exp
Slide 29: 2010 financial performance targets
2010 financial performance targets 2010 FY Insurance profit margin 16% to 18% Combined operating ratio Less than 89% GWP and NEP increase 19% and 20% Reinsurance expense ratio (to GEP) Less than 14% Combined commission & expense ratio Around 29.0% Tax rate Around 18% Gross investment yield on policy
Slide 30: Outlook and closing remarks
Outlook and closing remarks Initiatives announced to date expected to produce additional US$2.3BN GWP and annual profit after tax of US$400M by 2013 Capacity in tier 2 debt to fund an additional US$1.2BN of GWP through growth or acquisition Benefits of global initiatives to improve reinsurance costs
Slide 31: Disclaimer
Disclaimer The information in this presentation provides an overview of the results for the half year ended 30 June 2010. This presentation should be read in conjunction with all information which QBE has lodged with the Australian Securities Exchange (“ASX”). Copies of those lodgements are availabl
Slide 32: QBE INSURANCE GROUP www.qbe.com
QBE INSURANCE GROUP www.qbe.com 32 1H 2010 results presentation
Slide 33: Appendices
Appendices 1. Dividend performance 2. Risk-free interest rate impacts on COR, insurance margin and risk margins 3. PoA of total insurance liabilities 4. Analysis of movement in risk margins 5. Asset/liability matching example 6. Top 10 P&C insurers: competitor performance 33 1H 2010 results presenta
Slide 34: Dividend performance
Dividend performance 30 35 42 54 71 95 122 126 128 62 1400 140 1,306 2010 interim dividend 62.0 Australian cents, Dividend per share (A$cents) 1,187 1200 15% franked 120 1,068 – Ex div date 24 August 2010 Payout A$M 1000 100 678 – Record date 30 August 2010 774 645 800 – Payment date 22 September 20
Slide 35: Volatile risk-free interest rates impacted COR, insurance profit and risk margins
Volatile risk-free interest rates impacted COR, insurance profit and risk margins Movement on average sovereign bond yields matched to maturity of outstanding claims AUD% USD% GBP% Weighted Average % 31 December 2009 5.30 2.30 2.70 3.20 15 April 2010 5.60 2.35 2.65 3.40 16 June 2010 5.25 1.95 2.35 3
Slide 36: Probability of adequacy of total insurance liabilities at 94.6%
Probability of adequacy of total insurance liabilities at 94.6% 2010 1H 2009 FY 2008 FY 2007 FY US$M US$M US$M US$M Net outstanding claims 12,671 12,864 11,346 12,163 Unearned premium net of deferred insurance costs 4,320 4,374 3,608 3,521 Net total insurance liabilities 16,991 17,238 14,954 15,684
Slide 37: Analysis of movement in risk margins
Analysis of movement in risk margins 2010 1H 2009 FY US$M US$M At 1 January 1,017 842 Foreign exchange movement (49) 122 Acquisitions 12 24 Margin releases (29) (47) Movement in discount (60) 76 Risk margins at 30 June / 31 December 891 1,017 1% increase in risk-free interest rates reduces central e
Slide 38: Asset liability matching example
Asset liability matching example Assets Liabilities P&L effect Base 1,000 1,000 1. Cash flow match – assets and liabilities a) Interest and inflation rates rise by 1% 972 1,000 -28 b) Cash flow match and spreads increase by 0.5% 986 1,000 -14 2. Assets in cash – QBE a) Interest and inflation rates r
Slide 39: Top 10 P&C insurers: competitor performance 2005 - 2010
Top 10 P&C insurers: competitor performance 2005 - 2010 Average combined operating ratio Average return on equity Combined operating ratio Return on equity Fy Fy Fy Fy Fy Hy Weighted Fy Fy Fy Fy Fy Hy Weighted Rank Company 2005 2006 2007 2008 2009 2010 average Rank Company 2005 2006 2007 2008 2009 2