QBE Insurance Group Limited · ASX:QBE
QBE Insurance — H1 2002 Earnings Presentation
46 slides from QBE Insurance's earnings presentation, Aug 28, 2002
Slide 1: Results & Outlook for the half year ended 30 June 2002
QBE INSURANCE GROUP LIMITED RESULTS & OUTLOOK for the half year ended 30 June 2002 28 August 2002
Slide 2: Highlights
Highlights results half year to 30 June 2002 • Net profit after tax $115 million (2001 : profit $122 million) • Net profits affected by realised and unrealised losses on equities of $60 million after tax (2001: gains of $22 million) • Record insurance profit (before tax) up 27% to $160 million or 6%
Slide 3: Highlights
Highlights results half year to 30 June 2002 • Gross earned premium up 15% to $3.5 billion • Net earned premium up 18% to $2.7 billion • Combined operating ratio (COR) reduced from 102.2% to 99.0% with improved results in all divisions • Australia, Asia-Pacific and Lloyd’s operations produced CORs l
Slide 4: Highlights
Highlights results half year to 30 June 2002 • Gross claims incurred ratio reduced from 81.3% to 66.6%. Net claims ratio reduced from 69.8% to 68.4% • Reinsurance costs decreased from 24.3% to 22.8% of gross earned premium. Premium rate increases more than offset higher reinsurance costs • Expense r
Slide 5: Highlights
Highlights results half year to 30 June 2002 • Listed equities at 10.2% of total investments with 41% in Australian equities • Estimate of loss from USA terrorist attacks remains unchanged at $252 million after tax • Prudential margins included in outstanding claims are in excess of the Group’s benc
Slide 6: Highlights
Highlights results half year to 30 June 2002 • Investment income before realised and unrealised losses on investments up 19% to $194 million (2001 : $163 million) • Realised and unrealised losses on investments before tax of $97 million, mainly reflecting fall in equity markets (2001 : net gains $18
Slide 7: Highlights
Highlights results half year to 30 June 2002 • Profit after tax using the seven year spread basis of accounting was $195 million, compared with $138 million last year. This is the basis used for measurement of operational performance • The seven year spread basis of accounting spreads realised and u
Slide 8: Shareholder returns
Shareholder returns half year to 30 June 2002 • Interim dividend 16.5¢ per share on increased share capital from placement and rights issue late in 2001 (September 2001 : 16.5¢) • Shares on issue 600 million (September 2001 : 459 million) • Dividend payout $99 million, up 30% • Dividend 12% franked
Slide 9: Shareholder returns
Shareholder returns half year to 30 June 2002 2002 2001 Return on Equity : AASB 1023 8.6% 12.9% ex equity gains/losses 13.1% 10.5% Basic earnings per share 17.5 cents 24.8 cents ex equity gains/losses 27.6 cents 19.8 cents
Slide 10: Worldwide operations
Worldwide operations half year to 30 June 2002 2002 2001 Gross written premium $M 4,332 3,795 Gross earned premium $M 3,470 3,005 Net earned premium $M 2,679 2,274 Claims ratio % 68.4 69.8 Commission ratio % 18.2 20.0 Expense ratio % * 12.4 12.4 Combined operating ratio % 99.0 102.2 Insurance profit
Slide 11: Worldwide operations
Worldwide operations half year to 30 June 2002 Net profit GEP Growth COR after tax 2002 2002 2001 2002 2001 $M % % % $M $M Australia 670 20 98.6 100.5 42 45 Asia-Pacific 276 38 96.1 99.7 8 12 the Americas 414 44 100.0 102.6 10 11 European companies 1,009 (2) 100.5 104.7 20 33 Lloyd’s division 1,101
Slide 12: Geographical diversification
Geographical diversification half year to 30 June 2002 gross earned premium % Australia 18.9% (18.7%) Lloyd’s division 32.1% (32.3%) Asia-Pacific 8.6% (7.6%) the Americas 12.1% (10.0%) European companies 28.3% (31.4%)
Slide 13: Worldwide portfolio mix
Worldwide portfolio mix half year to 30 June 2002 gross earned premium % Other 8.4% (7.6%) Marine and aviation Workers’ compensation 12.6% (12.4%) 6.3% (5.8%) Professional indemnity Accident and health 6.4% (6.1%) 7.8% (9.2%) Liability 16.9% (14.1%) Property 25.4% (24.6%) Financial and credit 2.8% (
Slide 14: Group executive structure
Group executive structure half year to 30 June 2002 QBE GROUP BOARD FRANK O’HALLORAN CEO NEIL DRABSCH CFO QBE HEAD OFFICE GAYLE TOLLIFSON EXECUTIVE Finance and Business Risks DUNCAN RAMSAY Company Secretary OPERATIONS PETER SMITH Human Resources RAYMOND TIM KENNY STEVEN JONES the Americas BURNS Aust
Slide 15: Australian general insurance
Australian general insurance half year to 30 June 2002 • Managing Director, Raymond Jones • 16 years in the general insurance market • General insurance operations throughout Australia • Provides all major lines of insurance cover for personal and commercial risks • Market leader in: – corporate and
Slide 16: Australian general insurance
Australian general insurance half year to 30 June 2002 • GWP $730 million, up 19%, and GEP $670 million, up 20% • Growth from strong retention of business, rate increases and new premium from acquisitions in 2001 • COR 98.6% (2001 : 100.5%) • Corporate property and corporate liability results ahead
Slide 17: Asia-Pacific general insurance
Asia-Pacific general insurance half year to 30 June 2002 • Managing Director, Vince McLenaghan • 25 years experience in the insurance industry • Operations in 18 countries with head office in Sydney - 14 in underwriting profit • Provides personal and commercial insurance
Slide 18: Asia-Pacific general insurance
Asia-Pacific general insurance half year to 30 June 2002 • Relationship with all major brokers and over 5,000 agencies • Number 1 in PNG, Fiji, Solomon Islands and Vanuatu • Number 4 in NZ and market leader in professional liability, general liability, corporate property, trade credit and marine car
Slide 19: Asia-Pacific general insurance
Asia-Pacific general insurance half year to 30 June 2002 • GWP $296 million, up 41%, and GEP $276 million, up 38% • Growth from acquisitions in NZ, Singapore and PNG last year, as well as 2002 acquisitions in Indonesia and Malaysia • COR 96.1% (2001 : 99.7%) • Results benefited from premium rate inc
Slide 20: the Americas
the Americas half year to 30 June 2002 • President, Tim Kenny • 20 years experience in the insurance industry • Reinsurance and general insurance business in the Americas with a focus on health, property and medium tail casualty lines of business • Based in New York. Offices in Argentina, Brazil, Pa
Slide 21: the Americas
the Americas half year to 30 June 2002 • GWP $494 million, up 47%, and GEP $414 million, up 44% • Premium growth due to rate increases, new agency business and acquisitions made in 2001 • Written premium is 46% general insurance and 54% reinsurance • COR 100.0% (2001 : 102.6%) • Deterioration in pri
Slide 22: European company operations
European company operations half year to 30 June 2002 • Managing Director, Paul Glen • Over 12 years experience in the life and non life insurance markets • Diversified insurance and reinsurance operations in the UK, Ireland, France, Australasia and six countries in Central and Eastern Europe • Stru
Slide 23: European company operations
European company operations half year to 30 June 2002 • GWP $1,208 million, down 6%, and GEP $1,009 million, down 2% • Decrease reflects portfolio restructuring last year, offset by substantial premium rate increases • COR 100.5% (2001 : 104.7%) • Written premium is 55% general insurance and 45% rei
Slide 24: Lloyd's division
Lloyd’s division half year to 30 June 2002 • Chief Executive Officer, Steven Burns • Over 20 years experience in the Lloyd’s and London insurance markets and appointed member of Lloyd’s Prudential Supervisory Committee • Diversified general insurance and reinsurance business in the Lloyd’s market •
Slide 25: Lloyd's division
Lloyd’s division half year to 30 June 2002 Total Syndicate Capacity QBE share Type of business A$m % 386 * 950 40 Non-marine liability (ex US) 566 490 100 Property & aviation reinsurance 1036 204 100 Direct marine & energy 2000/2999 394 100 Non-marine property & liability 2724/2999 354 100 Direct ma
Slide 26: Lloyd's division
Lloyd’s division half year to 30 June 2002 • GWP $1,604 million, up 19%, and GEP $1,101 million, up 18% • Growth as a result of significant rate increases and QBE’s increased share of Limit syndicates • COR 98.1% (2001 : 101.1%) • Results reflect positive market conditions and actions taken on unpro
Slide 27: Investments
Investments half year to 30 June 2002 • Group General Manager, Mark ten Hove • Over seventeen years experience in international funds’ management • Bob Owen heads up the funds management team - 28 years experience in the financial markets • Chris Zwolinski heads up Group Treasury - 23 years experien
Slide 28: Investments
Investments half year to 30 June 2002 • Investment income before realised and unrealised losses up 19% to $194 million • Equities portfolio split 41% Australian dollars, 33% Sterling, 14% US dollars and 12% other currencies • Strong performance from cash and fixed interest, gross yield of 4.6% • Net
Slide 29: Investments
Investments half year to 30 June 2002 • Low exposure to listed equities at 10.2% of total investments and cash, with 41% of total equities in Australian companies • No investment exposure to recent corporate collapses in USA and Australia • Equity collars expired in May 2002 - not replaced due to pr
Slide 30: Increase in net invested funds
Increase in net invested funds half year to 30 June 2002 $M Cash flow from operations 455 New funds from acquisitions 5 Lloyd’s reinsurance to close 32 Subtotal 492 Capital raising 40 Stronger A$ (408) Dividends paid (52) Other (22) Total increase in invested funds * 50 * Net of $32 million represen
Slide 31: Net invested funds
Net invested funds 30 June 2002 31 December 2001 $M % $M % Equities * 1,078 11.4 977 10.6 Cash (net of overdrafts) 665 7.0 459 5.0 Short-term deposits 2,785 29.4 3,295 35.9 Other interest bearing securities 4,833 51.1 4,346 47.3 Property 100 1.1 106 1.2 Investments and cash 9,461 100.0 9,183 100.0 B
Slide 32: Borrowings
Borrowings • Borrowings increased from $838 million at 31 December to $1,033 million • LYONsTM debt raising of US$298 million undertaken to reduce costs of borrowing in current low interest rate environment • Interest expense $31 million (2001: $38 million) • Weighted average interest rate 5.2% (Dec
Slide 33: Capital
Capital • Shareholders’ funds $2,720 million, up 4% since 31 December 2001 • Standard & Poor’s A+ rating reaffirmed • Solvency – at market value 45.5% (December 2001 : 47.4%) – including subordinated debt as equity 52.9% (December 2001 : 55.7%)
Slide 34: Market conditions
Market conditions half year to 30 June 2002 • Substantial premium rate increases across most lines of business • Tightening of policy wordings and increased deductibles for commercial lines contracts • Reduced reinsurance cover and capacity • Terrorism exclusions from 1 January 2002 • More regulatio
Slide 35: Market conditions - QBE
Market conditions - QBE • Pre 2002 reinsurance contracts exposed to terrorism until expiry, exposure limited - will be negligible by year end • Terrorism cover provided where legislated or reinsurance cover available • QBE, as a market leader in many of the countries in which it operates, is well pl
Slide 36: Market conditions - QBE
Market conditions - QBE • Overall rate increases in excess of 20% • Over $1 billion of unprofitable business cancelled in the 18 months to end of 2001 • More robust disaster scenarios and aggregate methodology • Reduced risk profile including less retrocession and proportional reinsurance exposure
Slide 37: Employee share options
Employee share options • Approximately 7 million options issued to management and staff over the past 5 years are still outstanding • Large percentage out of the money post 11 September due to fixed hurdle criteria • Majority of options held by overseas staff • Options issued under 2001 and subseque
Slide 38: Outlook
Outlook subject to the usual caveats • Expect to achieve 2002 premium targets of $7.4 billion GWP and $5.5 billion NEP • On track to achieve previously announced insurance profit range of 6.0% to 6.5% of net earned premium for 2002 • Profit in second half should exceed profit in first half • Benefit
Slide 39: Outlook
Outlook subject to the usual caveats • Further premium rate increases expected, albeit at a lower rate, in 2003 • Acquisition activity likely to increase in 2003 • Retention of existing customers increasing across the Group • Organic growth higher than past four years due to market conditions
Slide 40: Outlook
Outlook subject to the usual caveats • Further expense efficiencies likely to be offset by increased compliance costs, additional Lloyd’s levy, NSW Insurance Protection Tax, higher staff superannuation contributions and higher incentive payments • Retained profits and increased long term debt to sup
Slide 41: Outlook
Outlook subject to the usual caveats • Improved investment yields over next 12 months • Total investment portfolio likely to be in excess of $10 billion at end of 2002, increasing to over $11 billion at end of 2003 • Increased investment portfolio due to Limit reinsurance to close for 2000 and 2001
Slide 42: Outlook
Outlook subject to the usual caveats 2002 premium forecast GWP NEP $b $b Australian general insurance 1.5 1.2 Asia-Pacific general insurance 0.6 0.5 the Americas 1.1 0.7 European company operations 2.0 1.4 Lloyd’s division 2.2 1.7 Total QBE Group 7.4 5.5
Slide 43: History of growth
History of growth half year to 30 June 2002 gross earned premium Compound average growth rates over last 10 years: - gross earned premium 24.1% - net earned premium 23.1% $M 4,000 GEP $3,470M 3,000 NEP $2,679M NEP 2,000 1,000 0 1993 1996 1999 2002
Slide 44: History of growth
History of growth shareholders’ funds $M $2,720M 3,000 2,500 2,000 1,500 1,000 500 0 1993 1996 1999 2002
Slide 45: History of growth
History of growth half year to 30 June 2002 $M dividends 180 150 $99M 120 90 60 30 0 1993 1996 1999 2002
Slide 46: Internet www.qbe.com
Internet www.qbe.com