Qbe Insurance Group Limited · ASX:QBE
Qbe Insurance — FY2003 Earnings Presentation
46 slides from Qbe Insurance's earnings presentation, Feb 25, 2004
Slide 1: Cover letter to ASX re 2003 results presentation
Insurance Group 25 February 2004 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 2003 Results Further to the Company’s release to the market today on its results for the year ende
Slide 2: Results and Outlook for the year ended 31 December 2003
-QBE INSURANCE GROUP LI si . RESULTS ‘ ies for the year ended 31 December 2003 (& OUTLOOK
Slide 3: Highlights
Highlights year ended 31 December 2003 Net profit after tax up 105% to $572 million (2002: $279 million) Net profit before tax up 146% to $769, million (2002: $311 million) | Insurance profit up 54% to $627 million (2002: 408 mill n) or 10.4% of net earned premium (2002: 7.2%) . Cash flow from opera
Slide 4: Highlights
Highlights year ended 31 December 2003 Gross written premium up 8% to $8,350 million Reported top line growth would have been a 17% using 2002 rates of exchange Growth supported by higher premium r rates, overall improved retention of business and an. increase in ne business including acquisitions m
Slide 5: Highlights
Highlights year ended 31 December 2003 Gross claims ratio reduced from 65.1% to 61.7% Net claims ratio reduced from 67.6% to 6 Improvements in the claims ratio were ‘achieved from higher premium rates and improved policy terms and conditions, partly of offset by increased prudential margins
Slide 6: Reinsurance costs increased from 22% to 23% of gross earned premium
year ended 31 December 2003 Reinsurance costs increased from 22% to 23% of gro earned premium due to proportional reinsurance t on US agency business (2%+) . Commission ratio increased from 17; 7% to 18. 2% reflecting a change in mix of business and higher prof commissions Expense ratio improved fro
Slide 7: Highlights
Highlights year ended 31 December 2003 Net investment income up 117% to $393 million (2002: $181 million) Gross investment yield before borrowing Cc expenses 4.6% (2002: 2.5%) Investment income includes realised and unrealised gains before tax of $110 million, mainly reflecting improved equity marke
Slide 8: Stronger A$ in 2003
Stronger A$ in 2003 usD Major currency changes in 2003: US$ = 25.39% UK - 17.36% EURO = 10.61% Mar 01 Jul 04 i Jan 02 Jul 02°.) ‘Jan 03
Slide 9: Currency mix
Currency mix year ended 31 December 2003 Market value of investments and cash ‘Other 13.3% (12.2%) erie 1%) AN2% (A Sterling 23.6% (27.5%) Sterling : 30.6% (33.0%) US dollar 33.6% (35.7%)
Slide 10: Geographical diversification
"Geog phical diversification year ended 31 December 2003 gross earned premiu Lloyd’s division 26.1% (30.4%) Asia- acific 7.0% (8.4%) the Americ 15.5% (11. European company, operations | 29.5% (29.2%)
Slide 11: Impact of stronger Australian dollar
2003 Actual $M 2003 at 2002 rr pact of stronger Australian -— dollar Gross earned premium Net earned premium Net investment income Profit after tax Total investments and cash Total assets Gross outstanding claims 7,816 6,036 393 572 11,823 20,478 - 10,480 Total liabilities. 17,110
Slide 12: Shareholder returns
Shareholder returns year ended 31 December 2003 Final dividend 22.0¢ per share, 30% franked (2002: 18.5¢,.12% franked) = Ex dividend date 2 March 2004 — Record. date 8 March 2004 _ —.Payment date 25 March 2004 sh Dividend payout $281 million for 2003, up 32% compar with 2002 Shares on issue of 672 m
Slide 13: Shareholder returns
Shareholder returns year ended 31 December 2003 I . Earnings per share . 2003 = basic 86.5 cents — diluted 77.5cents 43.4 cents * * LYONSs hybrid security holders will be provided with additional QBE shares at the dividend reinvestment rat — only if converted — ¢ LYONs securities remain outstanding
Slide 14: Dividend performance
320 2 —_ ~~ ° >. QO. 240 es o —) fos] —] Dividend performance year ended 31 December 2003 Cents per share dividend 32.5 31:0 265 & 24.0 47.9 20.8. “ae /1997 ? a
Slide 15: Worldwide operations
ide operations HALF YEAR FULL YEAR June Dec 2003 2003 Gross written premium GM 4,824 3,529 Gross earned premium $M __. 3,882 Net earned premium $M ~ 3,083... _ Claims ratio % 65.1. “Commission ratio% 18. ‘Expense ratio %* a ; 12.2 Combined operating ratio % 96.0 Underwriting profit $M 124 Investment
Slide 16: Worldwide operations
Worldw ‘ide operations year ended 31 December 2003 GWP_ Growth * COR Net profit. 2003 2003 2003 $M % Australia 1,869 18 “ » Asia-Pacific 542 (14) ei. 95.9 the Americas 1,342.35 99.6 European companies 2,441 9 98.9 Lioyd’s division 2,156 (5) 96.6 Group 8,350 8 97.7 General insurance 6,059 9 96.9 Inwa
Slide 17: Worldwide portfolio mix
Norldwide portfolio mix year ended 31 December 2003 gross earned premium Catastrophe “Professional indemnity 3.3% (3.3%) \yarine and aviation 9.2% (9.1%) : 8.2% (10,3%) Workers’ compensation oy 9.2% (9.2%) Financial and credit 3.3% (2.9%) Liability 15.9% (13.4%) ‘Accident and healt 5.7% (6.0% Motor
Slide 18: Balance sheet
$M ance sheet 31 Dec 2003 31 Dec 2002 SM_ ASSETS Investments and cash ~ Receivables . Recoveries on outstanding claims Deferred insurance costs Intangibles ; ABC investments pledged for funds at Lloyd's .- Fixed and other assets TOTAL ASSETS LIABILITIES Outstanding claims Unearned premium Borrowings
Slide 19: Investments and cash
31 Dec 2003 $M Cash . 717 Short term money 3,499 Fixed interest securities and other 6,216 Equ ities. 1,272 ae Property 119 Total investments and cash 11,823 Borrowings SS (1,334) Net invested funds 10,489
Slide 20: Balance sheet December 2003
Balance sheet 31 December. 2003 Net invested funds increased 4% to $10.5 billion due strong operational cash flow, dividend reinvestment an acquisitions, offset by the negative impact: of translating overseas investments to the stronger AS © Approximately 88% of fixed interest and cash k is AA rat o
Slide 21: Government bond yields
3 year A$ government bond Yields: 1 Jan 03 4.51% 31 Dec 03 5.39% 6 2 year US$ generic government bond Yields: 1 Jan 03 1.59% 31 Dec 03 1.83% 01-Apr-03 01-Jul-03 30-Sep-03 30-Dec-03 31-Dec-02 01-Jul-03 01-Apr-03 5 3 yr UK treasury 8.5% 7 Dec 05 3+ Yields: 1 Jan 03 3.97% 31 Dec 03 4.32% 31-Dec-02 01-A
Slide 22: Balance sheet December 2003
Balance sheet 31 December 2003 Receivables over 90 days have reduced with ~ conservative provision held for doubtful premium | ~ debtors. Bad debt experience during the besige “a continues to be low . Reinsurance recoveries on outstanding ‘claims x decreased from $3.7 billion to $2.9 billion. Provis
Slide 23: Balance sheet December 2003
Balance sheet 31 December 2003 ° Borrowings decreased to $1,334 million mainy.¢ due 4 the impact of the stronger A$ ia _.* Borrowings to shareholders’ funds 40. 3%" (2002: 4 49.3% _-* US$250 million subordinated debt issue (June 2003) used to repay debt and for general corporate purpose + US$550 mil
Slide 24: Balance sheet December 2003
Balance sheet 31 December:2003 adequacy — exceeds Group benchmark of-85‘ mol, f * Level of prudential margins increased : (2003, despit | the impact of the stronger A$ _ : ¢ The Group’s main asbestos related clains exposure is. in Australia - UK and US exposure is minimal — Grou survival ratio* is o
Slide 25: Capital adequacy December 2003
Capital adequacy 31 December 2003 * QBE estimates the Group capital adequacy multi around 2.1 times the minimum 1 capital re uire (2002 1.6 times) : * Subordinated debt and hybrid sestitities are included as tier 2 capital for determining the Group’ Ss rapital adequacy multiple : * The Australian re
Slide 26: Capital adequacy December 2003
Capital adequacy 31 December 2003 -* The capital adequacy multiple has improved due to a lower maximum event retention, higher prudent margins, increased tier 2 capital (sub: debt) and a lower capital requirement on overseas assets and liabilities due to the stronger A$. : -* All subsidiaries mainta
Slide 27: Australian general insurance
px © Australian general insurance year ended 31 December 2003 Gross written premium $M Gross earned premium $M Net earned premium $M Claims ratio % Commission ratio %_ Expense ratio. % Combined operating ratio % Insurance margin % * Gross written premium growth of 18% from improv retention, new busi
Slide 28: Australian general insurance
Australian general insurance year ended 31 December 2003 _* CTP, workers’ compensation, trade credit, professiona liability, corporate property/liability results sad of plan a * -* Joint venture underwriting agency with ING again produced excellent results. Awarded National Insuran Brokers’ Underwri
Slide 29: Asia-Pacific general insurance
> ‘Asia- Pacific general insurance year ended 31 December 2003 2003 Gross written premium $M 542 - Gross earned premium $M ‘4 549°" Net earned premium $M 430 Claims ratio % : 50.0... Commission ratio % 18.8 Expense ratio % 21.2 Combined operating o% 90.0 insurance margin c es “2 43.0- * Gross writte
Slide 30: Asia-Pacific general insurance
Asia-Pacific general insurance year ended 31 December 2003 Improved underwriting result from focus on portfolio profitability and the general improvement inp Rue rates, and policy terms and conditions Most operations recorded underwriting profits and profit achieved from the majority of products sol
Slide 31: the Americas
the Americas year ended 31 December 2003 - Gross written premium $M Gross earned premium $M Net earned premium $M Claims ratio % ~Commission ratio % Expense ratio % — Combined operating ratio % . insurance margin-% * Gross written premium growth was 35% due largely to general insurance agency accoun
Slide 32: Reinsurance expense was up 39%
year ended 31 December 2003 Reinsurance expense was up 39% (2002: 22%) due: increased proportional reinsurance on new ; business ogg Tes Strong focus on disciplined growth from renewals an new business with proven profitable track records . Improved COR achieved in both the general insurance and rei
Slide 33: European company operations
‘Som European company operations year ended 31 December 2003 2003 Gross written premium $M 2,441 Gross earned premium $M 2,302 . Net earned premium $M f Claims ratio % Commission ratio. % Expense ratio % Combined operating ratio % Insurance margin % « Gross written premium up 9%, with growth primari
Slide 34: European company operations
~ European company operations year.ended 31 December 2003 Improved claims ratio reflects a lower claims frec enc) ~ higher premium rates and improved Policy terms and | conditions e Risk profile reduced, including withdrawal from primar satellite and engineering business Upgrades of prior year claim
Slide 35: Lloyd's division (Limit)
Lloyd's division (Limit) year ended 31 December 2003 Gross written premium $M _ Gross earned premium $M - Net earned premium $M Claims ratio% Commission ratio % Expense ratio % Combined operating ratio % insurance margin % + Largest manager of capacity at Lloyd’s - Gross written premium down 5% prim
Slide 36: Lloyd's division (Limit)
Lloyd’s division (Limit) year ended 31 December 2003 Improved claims ratio due to below average level of — major catastrophes and risk losses and high r premiut rates i | All syndicates and portfolios are currently producing underwriting profits an / Recently acquired Ensign commercial motor busine:
Slide 37: Investment income
Investment income 2003 $M - Dividends Interest Other income .. Exchange (losses) gains Interest expense and other borrowing costs ENS Amortisation of goodwill oe Other expenses Realised gains on fixed interest securities Realised losses on equities and properties Unrealised (losses) gains on fixed i
Slide 38: Investment income
Investment income year ended 31 December 2003 with reduced volatility from market value movements and active management maximised yields _~ ~Net realised and unrealised equity gains of $159 millio before tax (2002: $207 million loss) Increase in equity exposure, mainly in US equities, assisted overa
Slide 39: Business strategy and 2004 targets
_ Subject to no material movement in current exchange rates; la Business strategy and 2004 targets losses and catastrophes not exceeding the allowance inour _ business plans; and no major fall in equity markets. or interest ra Achieve an insurance margin of 10.0%: t011. 0% a Increase profit after ta
Slide 40: 2004 projected gross written premium
2004 projected gross written premiurr Lloyd's £1.12 billion. ‘European company operations -USA/Latin America US$1.05 billion. Australia A$1.95 billion Asia-Pacific (18 countries) - A$0.60 billio: At A$ to US$ 78c and A$ to £ 42p, equates to approximately A$9.2 billion gross written prem
Slide 41: Business strategy and 2004 targets
Business strategy and 2004 targets Reinsurance costs to reduce to around 21% of gross earned premium Overall premium rate increases at the. major renewal — date of 1 January 2004 were slightly better than anticipated Continue to further reduce risk profile 0 of insurance - business — including maxim
Slide 42: Business strategy and 2004 targets
Business strategy and 2004 targets » Continue low risk strategy for investments - target gross.’ ~~ investment yield of 4% or higher Increase equities to 12.5% of total invesimeg "a appropriate api Net invested funds to benefit from stfong cash flow and other initiatives me A 5% movement in the A$ a
Slide 43: Gross written premium, COR and insurance profit history
8,350** -. Gross written Insurance Insurance premium COR profit profit ASM % % ASM 4994 1,180* 100.2 74 7 1995. 1,336 100.4 8.0 88 » 1996 1,561 99.3. 8. 101 1997 2,054 99.5 7.2) 116. 1998 2,409 100.3 7.7 147, 1999 2,877 103.9 25... 56. 2000 4,406. 102.5 5.4 186 2001 6,793. 109.6 (2.6) (119) 2002 7,7
Slide 44: History of growth
— listory of growth year ended 31 December 2003 gross and net earned premium Compound average growth rates over last.10 years: -.gross earned premium 21.8% $M | - net earned premium 21.4% 8,000 6,000 4,000 2,000 1994 | 1997 2000
Slide 45: Historical share price performance
ae < 8 & 2 iJ se a w Pa] 3. : $20 $18 $16 $14 $12 $10 $8 $6 $4 J $2 $0 istorical share price performance An investment in QBE has outperformed the Australian All Ordinaries Index _ and inflation with a compound average annual growth rate of 14.2% over 5 years, 16.8%. over 10 years and 22.5% over 20
Slide 46: . - oes
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