Qbe Insurance Group Limited · ASX:QBE
Qbe Insurance — H1 2014 Earnings Presentation
56 slides from Qbe Insurance's earnings presentation, Aug 19, 2014
Slide 1: Cover letter to ASX for results presentation
QBE Insurance Group Limited ABN 28 008 485 014 Level 27, 8 Chifley Square, SYDNEY NSW 2000 Australia GPO Box 82, Sydney NSW 2001 telephone + 612 9375 4444 + facsimile + 612 9231 6104 www.qgbe.com 19 August 2014 The Manager Market Announcements Office ASX Limited Level 4 Exchange Centre 20 Bridge Str
Slide 2: 2014 half year results announcement
For personal use only QBE Insurance Group 2014 half year results announcement John Neal Group Chief Executive Officer Pat Regan Group Chief Financial Officer Tuesday 19 August 2014 All figures in US$ unless otherwise stated Not for distribution or release in the United States 1
Slide 3: Half year in review
For personal use only Half year in review John Neal Group Chief Executive Officer 2 Not for distribution or release in the United States
Slide 4: Our value creation model drives our strategy
Our value creation model drives our strategy For personal use only 3 2014 half year results presentation Not for distribution or release in the United States
Slide 5: Progress to date
Progress to date For personal use only • Focus on underwriting excellence, evidenced by reducing attritional claims ratio • Sacrificed top-line to improve margin • Strong performances in Australia & New Zealand (COR 86.9%), Equator Re (COR Leadership in the core 89.9%), Asia Pacific (COR 91.7%) and
Slide 6: 1H14 financial results summary
1H14 financial results summary For personal use only For the half year ended 30 June 2014 2013 % change GWP $M 8,491 9,446 (10) NEP $M 6,947 7,333 (5) Underwriting profit $M 244 530 (54) COR % 96.5 92.8 - Insurance profit $M 530 790 (33) Insurance profit to NEP % 7.6 10.8 - Investment income $M 427
Slide 7: 1H14 result highlights and underwriting performance
1H14 result highlights and underwriting performance For personal use only • GWP down 10% to $8,491M (down 7% constant currency) Premium income • Premium rate increases around 1% overall • NEP reduced 5% to $6,947M (down 2% constant currency) • Adjusted(1) 1H14 combined operating ratio around 93% Und
Slide 8: 1H14 insurance profit margin analysis
1H14 insurance profit margin analysis For personal use only % 14.0 13.0 12.0 0.6 (1.3) 11.0 1.4 (1.1) 10.0 1.7 9.0 (0.8) 1.9 8.0 7.0 6.0 5.0 10.0 4.0 7.6 3.0 2.0 1.0 0.0 1H14 reported PY development Risk margins (2) Risk-free rates (3) Large risk & cats OTP (5) Other (6) Investment returns 1H14 adju
Slide 9: Comprehensive capital plan
Comprehensive capital plan For personal use only • Partial sale of Australian agencies Non-core asset sales • Sale of North American agencies planned for 2H14 • Complete sales of CEE businesses • North American middle market business retained • IPO of a minority stake Partial IPO of LMI • Targeted f
Slide 10: Capital plan and performance
For personal use only Capital plan and performance Pat Regan Group Chief Financial Officer 9
Slide 11: Capital plan objectives
Capital plan objectives For personal use only • Capital plan significantly improves regulatory and rating agency capital metrics • Agency sales convert intangibles into tangible capital thereby Capital objectives contributing to a substantial reduction in tangible gearing • Capital plan assumes an i
Slide 12: Capital plan
Capital plan For personal use only 1.56x APRA PCA multiple >1.8x 38% Debt to equity ~30% 30 June 2014 Equity and Partial sale of Sale of Partial IPO Proforma 30 June 2014 Equity and Partial sale of Sale of Partial IPO Proforma sub-debt Australian US agencies of LMI sub-debt Australian US agencies of
Slide 13: Other balance sheet objectives
Other balance sheet objectives For personal use only • PoA will be held at around 90% • Targeting predictable and consistent reserve development Reserving • Medical malpractice reinsured – other portfolios under consideration • No change to carrying value of goodwill at half year Goodwill and • Capi
Slide 14: Investments and cash at June: $31.4Bn
Investments and cash at 30 June: $31.4Bn For personal use only Emerging market Current portfolio Emerging market debt 0.6 % High yield debt equity 0.8% (FY13 0%) FY13 (0%) 0.6% (FY13 0%) • 94% in cash, money markets and bonds Equities 1.0% (FY13 0.9%) • 63% of fixed income invested in AAA or AA Shor
Slide 15: Overview of 1H14 divisional statutory results
Overview of 1H14 divisional statutory results For personal use only Australia North & New Latin Asia Equator 1H14 Group America Europe Zealand America Pacific Re GWP ($M) 8,491 2,415 2,694 2,263 716 403 1,686 GEP ($M) 7,819 2,213 2,451 2,184 624 347 1,476 NEP ($M) 6,947 1,159 1,738 1,875 553 278 1,3
Slide 16: Overview of 1H14 divisional results excluding QS
Overview of 1H14 divisional results excluding QS For personal use only Australia North & New Latin Asia Equator 1H14 Group America Europe Zealand America Pacific Re GWP ($M) 8,491 2,415 2,694 2,263 716 403 600 GEP ($M) 7,819 2,213 2,451 2,184 624 347 400 NEP ($M) 6,947 1,867 2,020 1,908 580 297 274
Slide 17: North America 1H14 COR versus 1H13 COR ex QS
North America 1H14 COR versus 1H13 COR ex QS For personal use only % 105.0 100.0 (0.4) 0.7 1.6 1.2 95.0 (1.6) 1.9 90.0 99.3 95.9 85.0 80.0 1H13 COR PY development Risk margins Expense ratio Large risk & Discount rate Other 1H14 COR catastrophes movement • Renegotiation of quota share with Equator Re
Slide 18: 1H14 attritional claims ratio analysis
1H14 attritional claims ratio analysis For personal use only 1H14 1H13 2H13 NEP Attritional NEP Attritional NEP Attritional $M % $M % $M % Rest of World 6,217 46.6 6,359 47.9 6,362 47.0 Crop(1) 145 67.0 139 67.0 1,002 67.0 Lender placed(2) 269 46.9 455 45.9 342 40.3 Argentina(3) 316 106.4 380 71.5 3
Slide 19: Outlook
For personal use only Outlook John Neal Group Chief Executive Officer 18 Not for distribution or release in the United States
Slide 20: Revised outlook 2014
Revised outlook 2014 For personal use only • GWP in the range of $16.6Bn - $17.0Bn • NEP in the range of $13.9Bn - $14.2Bn Premium targets • Includes $390M one-off impact of medical malpractice reinsurance on NEP (nil P&L impact) • Net claims ratio of 62.0% - 63.0% • 2H14 large individual risk and c
Slide 21: Closing remarks
Closing remarks For personal use only • Australia & New Zealand, Europe, Asia Pacific and Equator Re performing in line with expectations Stabilising performance • North America transformation on track • Latin America disappointing but decisive reserving action taken • Emerging markets division esta
Slide 22: Questions
For personal use only Questions 21 Not for distribution or release in the United States
Slide 23: 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 2014. This presentation should be read in conjunction with all information which QBE has lodged with the Australian Securities Exchange (“ASX”). Copies
Slide 24: Appendices
For personal use only Appendices 23 2014 half year results presentation
Slide 25: Appendices
Appendices For personal use only 1. Accident year analysis 2. Discount rates 3. COR analysis 4. Divisional results summary 5. APRA PCA calculation 6. Borrowings 7. Investments 8. Divisional premium outlook 9. Capital raising 24 2014 half year results presentation Not for distribution or release in
Slide 26: 1H14 accident year central estimate claims ratio
1H14 accident year central estimate claims ratio For personal use only 2013 1H14 1H 2H FY NEP $M 6,947 7,333 8,063 15,396 Attritional(1) % 49.8 49.4 49.7 49.6 Large individual risk and catastrophes % 9.9 8.3 11.0 9.7 Claims settlement costs % 2.5 2.2 2.9 2.6 Discount % (4.6) (3.2) (2.1) (2.7) Accide
Slide 27: 1H14 accident year results
1H14 accident year results For personal use only 1H14 1H13 1H12 Net central estimate claims ratio (pre risk margins) % 57.6 56.7 56.3 Commissions % 17.1 17.8 16.8 Expenses % 16.3 15.6 14.6 Central estimate COR % 91.0 90.1 87.7 Accident year underwriting profit $M 625 733 904 Accident year underwriti
Slide 28: 1H14 insurance profit
1H14 insurance profit For personal use only 1H14 1H13 1H12 Ins. Ins. Ins. profit profit profit margin margin margin $M % $M % $M % Central est. accident year underwriting 625 9.0 733 9.9 904 12.3 profit PY central estimate development (131) (1.9) (178) (2.4) (117) (1.6) Other (including unwind of pr
Slide 29: 1H14 movement in weighted average discount rates
1H14 movement in weighted average discount rates For personal use only Weighted average risk-free discount rates on outstanding claims % Currency 30 June 2014 31 Dec 2013 30 June 2013 Australian dollar 3.12 3.52 3.27 US dollar 1.42 1.53 1.30 Sterling 2.02 2.06 1.66 Euro 1.19 1.74 1.67 Argentine peso
Slide 30: 1H14 major COR impacts by division
1H14 major COR impacts by division For personal use only Australia & North New Latin Asia 1H14 Group America Europe Zealand America Pacific Equator Re NEP ($M) 6,947 1,159 1,738 1,875 553 278 1,344 COR (%) 96.5 103.0 95.6 86.9 136.3 91.7 89.9 Ins. profit margin (%) 7.6 (0.6) 6.4 18.6 (24.6) 9.4 14.0
Slide 31: 1H14 COR analysis
1H14 COR analysis For personal use only % 105.0 100.0 (1.9) 0.8 (1.7) 95.0 (1.4) (0.6) 1.3 90.0 85.0 80.0 96.5 93.0 75.0 70.0 65.0 60.0 1H14 reported COR PY development (1) Risk margins (2) Risk-free rates (3) Large risk & cats (4) OTP (5) Other (6) 1H14 adjusted COR (1) Adverse prior accident year
Slide 32: North America 1H14 COR versus 1H13 COR
North America 1H14 COR versus 1H13 COR For personal use only % 105 0.7 (0.4) 1.6 100 1.2 (1.6) 1.9 5.1 95 103.0 90 94.5 85 80 1H13 COR Equator QS PY development Risk margins Expense ratio Large risk & Discount rate Other 1H14 COR catastrophes movement • Renegotiation of quota share with Equator Re a
Slide 33: North America
North America For personal use only 1H14 1H13 • Rate increases averaged 0.7%, reflecting increased Gross written premium $M 2,415 2,703 competition in some P&C and specialty lines • GWP down 11% due to further contraction in LPI and Gross earned premium $M 2,213 2,536 reduced program premium followi
Slide 34: Europe
Europe For personal use only 1H14 1H13 • GWP fell by 13% (18% on a local currency basis) due to Gross written premium $M 2,694 3,103 exiting of non-core and poorly performing businesses and heightened competition Gross earned premium $M 2,451 2,480 • Overall premium rate reductions of 0.6% reflectin
Slide 35: Australia & New Zealand
Australia & New Zealand For personal use only 1H14 1H13 • GWP stable in AUD, albeit down 10% in USD Gross written premium $M 2,263 2,507 • Despite more competitive market dynamics, rate increases averaged slightly less than 2% and retention Gross earned premium $M 2,184 2,392 remains strong at ~82%
Slide 36: Latin America
Latin America For personal use only 1H14 1H13 • GWP down 2% including $175M adverse impact from Gross written premium $M 716 733 the substantial devaluation of the Argentine peso partially offset by a $99M one-off workers’ compensation premium adjustment Gross earned premium $M 624 694 • Underlying
Slide 37: Asia Pacific
Asia Pacific For personal use only 1H14 1H13 • Excluding $66M of premium associated with the multi- Gross written premium $M 403 400 year MTR contract written in 2013, underlying GWP growth was 21% including: Gross earned premium $M 347 311 – 25% in Asia – 5% in the Pacific Net earned premium $M 278
Slide 38: Equator Re
Equator Re For personal use only 1H14 1H13 • GWP down 11% due to increased divisional retentions, the introduction of aggregate deductibles Gross written premium $M 1,686 1,889 on certain per risk covers and a modest reduction in premium rates consistent with the external market Gross earned premium
Slide 39: APRA PCA calculation
APRA PCA calculation For personal use only $M HY14 FY13 Tier 1 Ordinary share capital and reserves 11,277 10,403 Net surplus relating to insurance liabilities 1,421 1,352 Deductions (5,303) (5,330) Capital securities 254 286 7,649 6,711 Tier 2 Subordinated debt and hybrid securities 2,041 2,244 Tota
Slide 40: Borrowings
Borrowings For personal use only Borrowings profile % 1H14 FY13 • Capital initiatives Subordinated debt 47 50 - Conversion of $250M of Tier 2 convertible sub-debt resulted in the issuance of 23.7M Senior debt 36 43 ordinary shares at A$11.32 per share Bank loans 10 - - Reinvestment of 43% or A$65M o
Slide 41: Investments in corporate bonds: fixed and floating rate
Investments in corporate bonds: fixed and floating rate For personal use only 30 Jun 14 31 Dec 13 COUNTRY US$M % US$M % Australia 5,764 40.1 6,214 42.6 USA 1,811 12.6 1,859 12.7 UK 748 5.2 931 6.3 Japan 1,118 7.8 1,044 7.1 Canada 842 5.9 772 5.3 ROW other 2,982 20.7 2,741 18.6 Germany 174 1.2 199 1.
Slide 42: Investments in sovereign / supra-national bonds
Investments in sovereign / supra-national bonds For personal use only 30 Jun 14 31 Dec 13 COUNTRY US$M % US$M % Australia 411 6.1 519 6.1 USA 2,348 34.5 3,667 43.1 UK 1,027 15.1 914 10.7 Canada 344 5.1 405 4.8 ROW other 1,439 21.2 1,711 20.1 Germany 427 6.3 462 5.4 France 505 7.4 380 4.5 Netherlands
Slide 43: Argentina investment portfolio
Argentina investment portfolio For personal use only 30 Jun 14 31 Dec 13 US$M % US$M % Cash & money market 229 34.8 252 37.9 Sovereign(1) 133 20.2 163 24.5 Central bank 118 18.0 65 9.8 Corporate 105 16.0 117 17.6 Fixed income unit trust 72 11.0 68 10.2 TOTAL(2) 657 100.0 665 100.0 (1) Argentine sove
Slide 44: 2014 premium outlook
2014 premium outlook For personal use only GWP in local GWP guidance NEP in local NEP guidance Full year 2014 currency Bn $USBn(1) currency Bn $USBn(1) North America 5.3 5.3 2.6 2.6 Europe 2.8 4.6 1.8 3.0(2) Australia & New Zealand 5.2 4.7 4.2 3.8 Latin America 1.3 1.3 1.1 1.1 Asia Pacific 0.8 0.8 0
Slide 45: Capital raising
For personal use only Capital raising 44 2014 half year results presentation Not for distribution or release in the United States
Slide 46: Equity Raising: Offer Summary
Equity Raising: Offer Summary For personal use only • Placement and SPP to raise up to $750 million (approximately A$810 million) Offer size and › institutional Placement to raise $600 million (approximately A$650 million) structure › Share Purchase Plan (SPP) to raise $150 million (approximately A$
Slide 47: Equity raising: Offer Timetable
Equity raising: Offer Timetable For personal use only Key dates1 (AEDT) Trading halt for QBE shares Tuesday, 19 August 2014 QBE shares resume trading Wednesday, 20 August 2014 Allotment of new shares Wednesday, 27 August 2014 Ex dividend date Wednesday, 27 August 2014 1 Expected dates, subject to ch
Slide 48: Key Risks
Key Risks For personal use only General The following “Key Risks” slides summarise some of the key risks that may affect the future performance of an investment in QBE Insurance Group Limited (QBE). You should be aware that the risk factors identified are not exhaustive, and some of these risk facto
Slide 49: Key Risks (Cont'd)
Key Risks (Cont’d) For personal use only • Foreign exchange: QBE’s financial results are significantly affected by changes in exchange rates in the countries in which QBE operates including countries in the Asia Pacific, North America, Europe and Latin America. Material unfavorable movements of exch
Slide 50: Key Risks (Cont'd)
Key Risks (Cont’d) For personal use only • Regulatory change: QBE is subject to extensive regulation and supervision in the jurisdictions in which it does business. Such regulation and supervision is primarily for the benefit and protection of policyholders and not for the benefit of investors or sh
Slide 51: International Selling Restrictions
International Selling Restrictions For personal use only General This document does not constitute an offer of new ordinary shares (New Shares) of QBE Insurance Group Limited (QBE or the Company) in any jurisdiction in which it would be unlawful. In particular, this document may not be distributed t
Slide 52: International Selling Restrictions (Cont'd)
International Selling Restrictions (Cont’d) For personal use only The following is a summary of the statutory rights of rescission or to damages, or both, available to purchasers in Ontario. In Ontario, every purchaser of the New Shares purchased pursuant to this document (other than (a) a "Canadian
Slide 53: International Selling Restrictions (Cont'd)
International Selling Restrictions (Cont’d) For personal use only France This document is not being distributed in the context of a public offering of financial securities (offre au public de titres financiers) in France within the meaning of Article L.411-1 of the French Monetary and Financial Code
Slide 54: International Selling Restrictions (Cont'd)
International Selling Restrictions (Cont’d) For personal use only New Zealand This document has not been registered, filed with or approved by any New Zealand regulatory authority under or in accordance with the Securities Act 1978 (New Zealand). The New Shares are not being offered or sold in New Z
Slide 55: International Selling Restrictions (Cont'd)
International Selling Restrictions (Cont’d) For personal use only Switzerland The New Shares may not be publicly offered in Switzerland and will not be listed on the SIX Swiss Exchange (SIX) or on any other stock exchange or regulated trading facility in Switzerland. This document has been prepared
Slide 56: International Selling Restrictions (Cont'd)
International Selling Restrictions (Cont’d) For personal use only United States This document does not constitute an offer to sell, or a solicitation of an offer to buy, any New Shares in the United States. The New Shares referenced herein have not been, and will not be, registered under the U.S. Se