Qbe Insurance Group Limited · ASX:QBE
Qbe Insurance — H1 2006 Earnings Presentation
35 slides from Qbe Insurance's earnings presentation, Aug 16, 2006
Slide 1: ASX cover letter for half year results presentation
QBE INSURANCE GROUP LIMITED ABN 28 008 485 614 82 Pitt Street Sydney NSW 2000 Postal Address GPO Box 82 16 August 2006 Sydney NSW 2001 Telephone: (02} 9375 4444 Facsimile: (02) 9231 6104 DX 10171 Sydney Stock Exchange The Manager Company Announcements Australian Stock Exchange Limited Level 6 Exchan
Slide 2: QBE Insurance Group 2006 half year results presentation
QBE Insurance Group 2006 half year results presentation
Slide 3: Highlights
. Highlights Record operating profit after tax for the half year up 20% to $591 million (2005: $491 million) Profit before tax up 20% to $809 million (2005: $675 million) Insurance profit up 35% to $748 million (2005: $553 million) with an insurance profit margin of 18.7% (2005: 15.8%) Results refle
Slide 4: Highlights
Highlights * Gross written premium up 10% to $5,656 million (2005: $5,123 million) due to acquisitions in 2005, improved customer retention and higher than expected premium rate increases * Gross earned premium up 14% to $4,932 million (2005: $4,331 million) ¢ Net earned premium up 14% to $3,998 mil
Slide 5: Highlights
Highlights * QBE’s global weighted average premium rate increases were around 6.5% for first half, compared with our previous forecast of 4% - Rates on catastrophe exposed property portfolios and our Lloyd’s marine and energy syndicates substantially increased - Partly offset by reduction in rates f
Slide 6: Combined operating ratio improved to 87.9%
* Combined operating ratio improved to 87.9% (2005: 90.3%) * Underwriting profit up 42% to $482 million due to premium growth and strong performance of our diversified portfolios + Reinsurance costs reduced to just less than 19% of gross earned premium despite higher cost of protection for inwards r
Slide 7: Analysis of claims incurred
Analysis of claims incurred Half year Full year Actual Target Actual Actual 2006 2006 2005 2004 % % % % Claims ratio 58.3 61.5 59.9 61.3 Analysis of claims ratio - — attritional (2) 46.6 46.5 45.7 46.4 - large and catastrophe 7.2 14.1 11.7 10.4 - risk margin 45 0.9 2.5 45 58.3 61.5 59.9 61.3 “) Repr
Slide 8: Highlights
Highlights Net investment income down slightly to $331 million (2005: $337 million) Gross investment income $403 million compared with $409 million for the 2005 half year Total cash and fixed interest income up 12% to $359 million and outperformed benchmarks for all major portfolios Underperformance
Slide 9: Total acquisition cost ratio
« Total acquisition cost ratio (expenses and commissions) was 29.6% of net earned premium (2005: 29.3%) « Commission ratio increased to 17.6% (2005: 17.0%) due to changes in business mix « Expense ratio reduced from 12.3% to 12.0% reflecting synergies previously announced, offset by increased system
Slide 10: Shareholder returns
Shareholder returns half year ended 30 June 2006 « Interim dividend up 21% to 40.0¢ per share, 60% franked (2005: 33.0¢, 50% franked) - Ex dividend date 28 August 2006 - Record date 1 September 2006 - Payment date 14 September 2006 * Interim dividend payout $322 million, up 27% from the interim divi
Slide 11: Geographical diversification
Geographical diversification gross earned premium half year ended 30 June 2006 Lloyd’s division 24% (23%) Australia 25% (28%) ) Pacific Asia Central Europe 7% (8%) QBE Insurance (Europe) 26% (26%) the Americas 18% (15%) 10 & Note - amounts in parentheses represent June 2005 comparatives
Slide 12: Worldwide portfolio mix
Worldwide portfolio mix gross earned premium half year ended 30 June 2006 Workers’ . Professional compensation indemnity 8% (9%) 9% (9%)} Financial and credit 2% (2%) Marine and aviation 9% (6%) Liability 20% (23%) Property 30% (29%) Other 1% (1%) Motor and motor“ casualty 18% (14%) Accident and hea
Slide 13: Worldwide operations
Wor Idwide operations HALF YEAR FULL YEAR June June Dec Dec 2006 2005 2005 2004 Gross written premium $M 5,656 §,123 9,408 6,766 Gross earned premium $M 4,932 4,331 9.171 8,571 Net earned premium $M 3,998 3,506 7,386 6,781 Claims ratio % 58.3 61.0 59.9 61.3 Commission ratio % 17.6 17.0 16.9 17.5 Exp
Slide 14: Worldwide operations
Worldwide operations half year ended 30 June 2006 GWP Growth COR Insurance Net profit after profit margin tax 2006 2006 2006 2005 2006 2005 2006 2005 $M % % % % %o $M $M Australia 1,294 3 82.7 86.2 25.2 21.4 184 166 Pacific Asia Central Europe 345 (4) 83.0 88.8 21.1 15.8 39 34 QBE Insurance (Europe)
Slide 15: Australia Pacific Asia Central Europe (APACE)
Australia Pacific Asia Central Europe (APACE) half year ended 30 June 2006 Australia PACE Total APACE 2006 2005 2006 2005 2006 2005 Gross written premium $M 1,291 1,255 345 358 1,636 1,613 Gross earned premium $M 1,213 1,199 335 348 1,548 1,547 Net earned premium $M 1,031 1,004 265 260 1,296 1,264 C
Slide 16: European operations
European operations half year ended 30 June 2006 QBE Insurance Lloyd's division Total European (Europe) operations 2006 2005 2006 2005 2006 2005 Gross written premium $M 1,370 1,407 1,667 1,393 3,037 2,800 Gross earned premium $M 1,280 1,138 1,201 1,015 2,481 2,153 Net earned premium $M 1,081 971 87
Slide 17: the Americas
the Americas half year ended 30 June 2006 2006 2005 Gross written premium $M 983 710 Gross earned premium $M 903 631 Net earned premium $M 546 355 Claims ratio % 57.8 62.0 Commission ratio % 24.2 24.2 Expense ratio % 9.0 7.0 Combined operating ratio % 81.0 83.2 Insurance margin % 12.6 10.4 Gross wri
Slide 18: Equator Re
Equator Re half year ended 30 June 2006 « Gross written premium up 112% to $517 million and net earned premium up 52% to $198 million due to higher premium rates on excess of loss protections and new quota share arrangements for our Lloyd’s syndicates « As previously indicated, Equator has increased
Slide 19: Investment income
Investment income half year ended 30 June 2006 2006 2005 $M $M Dividends 22 25 Realised gains on equities 26 38 Unrealised (losses) gains on equities (11) 17 Income from equities 37 80 Interest 340 281 Realisec gains on fixed interest securities 32 17 Unrealised (losses) gains on fixed interest secu
Slide 20: Comparison of AAA cash yields
Comparison of AAA cash yields versus actual yields 19 AEE ee Ee
Slide 21: Balance sheet
Balance sheet 30 June 2006 31 Dec 2005 30 June 2005 $M $M $M ASSETS Investments and cash 18,165 17,597 15,721 Receivables 5,031 3,689 4,312 Recoveries on outstanding claims 4,219 4.213 3,237 Deferred insurance costs 1,651 1,446 1,674 Intangibles 1,389 1,382 1,056 ABC financial assets pledged for fun
Slide 22: Balance sheet
Balance sheet 30 June 2006 « Net invested funds increased by $535 million since 31 December 2005 to $16.0 billion « Approximately 89% of fixed interest and cash is Moody's Aa rated or better « Approximately 99% of investments are liquid « We continue to actively manage our fixed interest portfolios
Slide 23: Balance sheet: net invested funds
Balance sheet net invested funds 30 June 2006 31 Dec 2005 $M % $M % Cash and cash equivalents 1,752 9.6 1,061 6.0 Short term money 7,172 39.5 8,292 47.1 Fixed interest securities and other 7,746 42.7 7,537 42.9 Equities 1,461 8.0 674 3.8 Investment properties 34 0.2 33 0.2 Total investments and cash
Slide 24: Investments currency mix
Investments currency mix 30 June 2006 Market value of total Mark I f iti investments and cash arket value of equities Other Other 12% (13%) Sterling _ 10% (12%) 32% (27%) Sterling 34% (35%) AUD AUD 28% (30%) 40% (34%) USD USD 26% (22%) 18% (27%) 23 & Note - amounts in parentheses represent June 2005
Slide 25: Balance sheet
Balance sheet 30 June 2006 Receivables increase is consistent with previous years and also includes higher reinsurance recoveries from 2005 catastrophes Receivables over 90 days have reduced with conservative provisions held for doubtful premium debtors Reinsurance recoveries on outstanding claims w
Slide 26: Balance sheet
Balance sheet 30 June 2006 « Group policy of matching assets and liabilities in local currency and using borrowings and hedges to protect shareholders’ funds in overseas subsidiaries was maintained * Borrowings slightly up to $2,163 million from $2,130 million at 31 December 2005 due to exchange rat
Slide 27: Insurance liabilities
insurance liabilities 30 June 2006 * Outstanding claims — probability of adequacy slightly above 95% (31 December 2005: 94%). Considered prudent due to cyclical nature of exposures and historically higher incidence of catastrophes in the second half of the year * Risk margin in outstanding claims up
Slide 28: Insurance liabilities
Insurance liabilities 30 June 31 Dec 30 June 2006 2005 2005 $M $M $M Total net outstanding claims (discounted) 11,495 10,870 9,998 Unearned premium net of deferred insurance costs 3,484 2,841 3,066 Net insurance liabilities 14,979 13,711 13,064 Represented by: Risk margin - outstanding claims 1,422
Slide 29: Capital adequacy
Capital adequacy 30 June 2006 * QBE estimates the Group capital adequacy multiple is around 1.9 times the minimum capital requirement* consistent with 31 December 2005 « Following the issue of perpetual securities in July 2006, the Group capital adequacy multiple has increased to around 2.1 times th
Slide 30: Capital adequacy
Capital adequacy 30 June 31 Dec 30 June 2006 2005 2005 $M $M $M Tier 1 Share capital* 3,403 3,263 3,046 Reserves and retained earnings 2,184 1,856 1,473 Excess risk margin 1,635 1,411 1,258 Tax on excess risk margin (491) (423) (377) Proposed dividend (322) (196) (114) Deductions, mainly intangibles
Slide 31: 2006 outlook
2006 outlook Subject to no material movement in current exchange rates; large losses and catastrophes not exceeding the allowance in our business plans; and no major fall in equity markets or interest rates: « Achieve insurance profit margin of 17% to 18% for full year * On target to achieve an incr
Slide 32: 2006 outlook
2006 outlook Investigation of a number of small to medium bolt-on acquisitions which may be converted by year end Sufficient capital to finance acquisitions of up to $1.5 billion of net written premium Excess capital will be carefully monitored to ensure return on equity and earnings per share are o
Slide 33: Head office management changes
Head office management changes « Vince McLenaghan appointed Chief Operating Officer for the Group « Vince is 47 years old with 30 years experience in the insurance industry, including 24 years at QBE * His recent roles at QBE have been - 1995, Assistant General Manager, Pacific - 1998, General Manag
Slide 34: Head office management changes
Head office management changes « Blair Nicholls appointed Chief Actuarial Officer for the Group « Blair is 39 years old with 12 years experience at QBE. His roles have been - 1994, Technical Manager, Australian operations - 1995, Actuary, Australian operations - 1999, Technical Services Manager, QBE
Slide 35: Historical share price performance
Historical share price performance An investment in QBE has outperformed the Australian All Ordinaries Index and inflation with a compound average annual growth rate of 16.3% over 5 years, 20.3% over 10 years and 22.7% over 20 years QBE Historical Share Price Performance - Last 206 Years $50.00 «mm