Qbe Insurance Group Limited · ASX:QBE
Qbe Insurance — H1 2008 Earnings Presentation
34 slides from Qbe Insurance's earnings presentation, Aug 21, 2008
Slide 1: 2008 half year results announcement
QBE INSURANCE GROUP 2008 half year results announcement Presented by Frank O’Halloran CEO QBE Group 21 August 2008 All amounts in Australian dollars unless otherwise stated.
Slide 2: Highlights
Highlights half year ended 30 June 2008 • Quality insurance profit up 6% to $1,116 million (2007: $1,053 million) despite the substantial appreciation of the Australian dollar, increased frequency of large individual risk and catastrophe claims and market conditions • Insurance profit margin of 21.8
Slide 3: Highlights
Highlights half year ended 30 June 2008 • Net earned premium up 8% to $5,108 million and using constant exchange rates up 18% • Reinsurance costs as a percentage of gross earned premium reduced to 14% (2007: 17%) after additional protection purchased in the period and greater use of our captive Equa
Slide 4: Highlights
Highlights half year ended 30 June 2008 The Australian dollar continued to strengthen in the first half; Average rate Closing rate Rate Movement vs Jun 2007 Rate Movement vs Dec 2007 US dollar 92.4 cents + 12.5% 95.8 cents + 8.4% £ sterling 46.5 p + 12.1% 48.1 p + 8.2% Impact of exchange rate 2008 2
Slide 5: Highlights
Highlights half year ended 30 June 2008 • Combined operating ratio at near record level of 85.8% (2007: 86.2%) • Underwriting profit up 11% to $727 million due to net earned premium growth and strong performance of most of our diverse portfolios • Claims ratio of 54.7% (2007: 55.7%) reflects continu
Slide 6: Analysis of claims incurred
Analysis of claims incurred Half year Full year 2008 (1) 2007 2006 2005 % % % % Net claims ratio (2) 54.7 54.4 57.7 60.5 Analysis of claims ratio: - attritional 46.4 47.7 47.4 48.5 - large risk and catastrophe (3) 8.5 6.6 8.9 10.1 - risk margin (release)/upgrade (4) (0.2) 0.1 1.4 1.9 54.7 54.4 57.7
Slide 7: Highlights
Highlights • Total acquisition cost ratio (expenses and commissions) slightly better than target at 31.1% of net earned premium (2007: 30.5%) • Commission ratio decreased to 17.2% (2007: 18.2%) due to changes in business mix and the benefit of acquired underwriting agencies • Expense ratio increased
Slide 8: Highlights
Highlights Investment income • Gross investment income $513 million (2007: $679 million). Gross yield 4.3% (2007: 6.5%) • Lower investment income mainly due to stronger Australian dollar which reduced value of overseas investments by $1.4 billion since 31 December 2007, lower US interest rates and 6
Slide 9: Dividend
Dividend half year ended 30 June 2008 • We smooth out the impact of equity markets when considering our dividends • Interim dividend up 7% to 61.0 cents per share, 20% franked (2007: 57.0 cents per share, 60% franked). Lower franking rate in line with guidance at last AGM - Ex dividend date 26 Augus
Slide 10: Geographical diversification
Geographical diversification Gross earned premium – half year ended 30 June 2008 QBE Insurance Europe QBE Underwriting Ltd (Lloyd’s) 18.8% (22.5%) 18.3% (22.5%) Australia the Americas 22.7% (21.7%) 35.3% (28.3%) Asia Pacific 4.9% (5.0%) Note: June 2007 comparatives in parentheses 10 QBE INSURANCE GR
Slide 11: Worldwide portfolio mix
Worldwide portfolio mix Gross earned premium – half year ended 30 June 2008 Professional indemnity 6.9% (8.0%) Marine, energy and aviation Workers’ compensation 9.5% (10.7%) 7.4% (8.9%) Financial and credit 2.3% (2.0%) Property 27.1% (26.4%) Public/product liability 18.5% (19.4%) Other 2.4% (2.0%) A
Slide 12: Worldwide operations
Worldwide operations HALF YEAR FULL YEAR June June Dec Dec 2008 2007 2007 2006 Gross written premium $M 6,603 6,520 12,406 10,372 Gross earned premium $M 5,958 5,751 12,361 10,069 Net earned premium $M 5,108 4,749 10,210 8,158 Claims ratio % 54.7 55.7 54.3 55.8 Commission ratio % 17.2 18.2 18.5 17.0
Slide 13: Worldwide operations
Worldwide operations half year ended 30 June 2008 GWP Growth COR Insurance profit before tax 2008 2008 2008 2007 2008 2007 $M % % % $M $M Australian operations 1,480 12 82.1 82.4 322 273 Asia Pacific operations 303 5 86.0 80.5 44 58 QBE Insurance Europe 1,302 (3) 86.1 92.3 185 191 QBE Underwriting L
Slide 14: Australian operations
Australian operations half year ended 30 June 2008 2008 2007 Gross written premium $M 1,480 1,317 Gross earned premium $M 1,352 1,249 Net earned premium $M 1,131 1,059 Claims ratio % 54.9 57.3 Commission ratio % 12.8 12.7 Expense ratio % 14.4 12.4 Combined operating ratio % 82.1 82.4 Insurance margi
Slide 15: Asia Pacific operations
Asia Pacific operations half year ended 30 June 2008 2008 2007 Gross written premium $M 303 289 Gross earned premium $M 291 291 Net earned premium $M 207 205 Claims ratio % 43.9 40.0 Commission ratio % 20.8 20.5 Expense ratio % 21.3 20.0 Combined operating ratio % 86.0 80.5 Insurance margin % 21.3 2
Slide 16: European operations
European operations half year ended 30 June 2008 QBE Insurance QBE Underwriting Total European Europe Ltd (Lloyd’s) operations 2008 2007 2008 2007 2008 2007 Gross written premium $M 1,302 1,337 1,370 1,656 2,672 2,993 Gross earned premium $M 1,122 1,292 1,089 1,292 2,211 2,584 Net earned premium $M
Slide 17: the Americas
the Americas half year ended 30 June 2008 2008 2007 Gross written premium $M 2,148 1,921 Gross earned premium $M 2,104 1,627 Net earned premium $M 1,469 1,199 Claims ratio % 57.3 56.4 Commission ratio % 19.3 25.9 Expense ratio % 14.6 8.4 Combined operating ratio % 91.2 90.7 Insurance margin % 14.2 1
Slide 18: Captive reinsurer - Equator Re
Captive reinsurer - Equator Re half year ended 30 June 2008 2008 2007 Gross written premium $M 1,038 816 Gross earned premium $M 763 495 Net earned premium $M 734 394 Claims ratio % 58.2 56.1 Commission ratio % 20.8 13.7 Expense ratio % 6.3 5.8 Combined operating ratio % 85.3 75.6 Insurance margin %
Slide 19: Maximum event retention (MER)
Maximum event retention (“MER”) • Examples of realistic disaster scenario market losses (“RDS”) used in our risk modelling: - Sydney earthquake - 5.6 on richter scale - 2% damage ratio - European windstorm - US$31 billion loss - Tampa/east Gulf of Mexico windstorm - US$119 billion loss • QBE’s large
Slide 20: Balance sheet
Balance sheet 30 June 2008 31 Dec 2007 30 June 2007 $M $M $M ASSETS Investments and cash 23,268 24,606 23,727 Receivables 5,876 4,882 6,425 Recoveries on outstanding claims 4,040 4,360 4,361 Deferred insurance costs 1,849 1,683 2,385 Intangibles 2,662 2,493 2,428 ABC financial assets pledged for fun
Slide 21: Investments and cash
Investments and cash 30 June 2008 31 Dec 2007 $M % $M % Cash and cash equivalents 1,197 5.1 988 4.0 Short term money 13,074 56.2 16,317 66.3 Fixed interest securities and other 7,136 30.7 5,552 22.6 Equities 1,775 7.6 1,656 6.7 Investment properties 86 0.4 93 0.4 Total investments and cash (1) 23,26
Slide 22: Investments currency mix
Investments currency mix 30 June 2008 Total investments and cash Equities 2008: $23 billion (2007: $25 billion) 2008: $1.8 billion (2007: $1.7 billion) Other Other Sterling 12% (11%) Sterling 9% (7%) 23% (24%) 19% (24%) AUD AUD 26% (26%) 40% (51%) USD USD 39% (39%) 32% (18%) Note - amounts in parent
Slide 23: Balance sheet
Balance sheet 30 June 2008 Receivables and recoveries on outstanding claims • Receivables $5,876 million (2007: $4,882 million) overall within normal trade terms and after $69 million provision for doubtful premium debtors (2007: $59 million) • Reinsurance recoveries on outstanding claims reduced as
Slide 24: Balance sheet
Balance sheet 30 June 2008 Borrowings* • Borrowings reduced to $3,287 million mainly due to effects of foreign exchange movements since the year end (31 December 2007: $3,458 million) • Borrowings comprise 21% short term debt, 59% long term/subordinated debt and 20% hybrid securities • Ratio of borr
Slide 25: Insurance liabilities
Insurance liabilities 30 June 31 Dec 30 June 2008 2007 2007 $M $M $M Total net outstanding claims (discounted) 13,112 13,871 14,065 Unearned premium net of deferred insurance costs 4,196 4,015 4,457 Net insurance liabilities 17,308 17,886 18,522 Represented by: Risk margins - outstanding claims 1,49
Slide 26: Capital adequacy
Capital adequacy 30 June 2008 $M 31 Dec 2007 $M Tier 1 Share capital*, reserves and retained earnings 8,802 8,472 Perpetual securities (net of borrowing costs) 1,188 1,294 Excess risk margins 1,707 1,577 Tax on excess risk margins (512) (473) Deductions, intangibles (2,662) (2,493) Proposed dividend
Slide 27: Acquisitions
Acquisitions • Completion of acquisition of North Pointe in the US in April 2008 expected to produce $150 million of net written premium in 2009 • Acquisition of Deep South, an underwriting agency in the US, expected to generate additional net written premium of $35 million in 2009 • We expect to cl
Slide 28: QBE Group pro-forma balance sheet on completion of PMI
QBE Group pro-forma balance sheet on completion of PMI QBE Group actual PMI proforma Consolidation QBE Group 30 June 2008 on completion adjustments proforma $M $M $M $M Assets Investments at market value 23,268 1,600 (522) (1) 24,346 Deferred insurance costs 1,849 74 1,923 Reinsurance recoveries on
Slide 29: PMI acquisition summary
PMI acquisition summary • Purchase price is NTA using US GAAP of $1,027 million with 20% held back and only paid in full if claims ratio on unearned premium at 30 June 2008 is less than 50% - reduces $1 for each $1 claims ratio is above 50% • Average claims ratio of 25% for past 15 years • We partly
Slide 30: 2008 outlook
2008 outlook Subject to no material movement in current exchange rates; large individual risk and catastrophe claims not exceeding the significant allowance in our business plans; and no major fall in equity markets or interest rates: • Assuming a full allowance for large individual risk and catastr
Slide 31: 2008 outlook
2008 outlook • Target acquisition expense ratio (commission and expenses) on existing business of around 31% for 2008 • Income tax expense expected to be around 22% for 2008 • Currently reviewing a number of acquisition opportunities in line with our stringent criteria for value and EPS accretion •
Slide 32: Historical share price performance
Historical share price performance QBE Historical Share Price Performance - Last 20 Years $80.00 $75.00 QBE Share Price Performance $70.00 QBE Share Price Performance Including Reinvestment of Dividends ASX All Ordinaries Accumulation Index $65.00 $60.00 $55.00 $50.00 An investment in QBE has outper
Slide 33: www.qbe.com
www.qbe.com 33 QBE INSURANCE GROUP
Slide 34: www.qbe.com
QBE INSURANCE GROUP www.qbe.com 34