Qbe Insurance Group Limited · ASX:QBE
Qbe Insurance — H1 2007 Earnings Presentation
36 slides from Qbe Insurance's earnings presentation, Aug 20, 2007
Slide 1: 2007 half year results announcement
QBE INSURANCE GROUP 2007 half year results announcement Presented by Frank O’Halloran CEO QBE Group 20 August 2007 All amounts in Australian dollars unless otherwise stated.
Slide 2: Highlights
Highlights Half year ended 30 June 2007 • Record operating profit after tax for the half year, up 56% to $921 million (2006: $591 million) • Insurance profit up 41% to $1,053 million (2006: $748 million) with an insurance profit margin of 22.2% (2006: 18.7%) • Results reflect continued low frequency
Slide 3: Highlights
Highlights Half year ended 30 June 2007 • Gross written premium up 15% to $6,520 million (2006: $5,656 million) due to acquisitions and continued high customer retention • Growth adversely affected by increased competition, overall weighted average reduction in premium rates of around 3% and depreci
Slide 4: Highlights
Highlights Half year ended 30 June 2007 • Combined operating ratio improved to 86.2% (2006: 87.9%) • Underwriting profit up 35% to $653 million due to premium growth and strong performance of our diversified portfolios • Claims ratio was 55.7% (2006: 58.3%). Overall average reduction in premium rate
Slide 5: Highlights: Analysis of claims incurred
Highlights Analysis of claims incurred Full year Half year Full year (actual) (target) (actual) 2007 (3) 2007 (4) 2006 2005 2004 % % % % % Net claims ratio (1) 58.0 55.7 55.8 59.9 61.3 Analysis of claims ratio: - attritional 46.5 45.4 44.1 45.7 46.4 - large risk and catastrophe (2) 10.5 7.0 10.0 11.
Slide 6: Highlights: Insurance liabilities
Highlights Insurance liabilities - 30 June 2007 • Outstanding claims – probability of adequacy 95.8% at 30 June (31 December 2006: 94.6%). Considered prudent due to cyclical nature of exposures, especially historically higher incidence of catastrophes in the second half of the year • Risk margins in
Slide 7: Highlights: Investment income
Highlights Investment income • Gross investment income $679 million compared with $403 million for the 2006 half year • Gross yield 6.5% (2006: 4.5%) • Investment income net of cost of borrowings and investment expenses increased 70% to $564 million (2006: $331 million) • Continued low risk absolute
Slide 8: Highlights
Highlights • Total acquisition cost ratio (expenses and commissions) was 30.5% of net earned premium (2006: 29.6%) • Commission ratio increased to 18.2% (2006: 17.6%) due to changes in business mix and US acquisitions • Expense ratio increased to 12.3% (2006: 12.0%) reflecting increased systems impl
Slide 9: Dividend
Dividend Half year ended 30 June 2007 • Interim dividend up 43% to 57¢ per share, 60% franked (2006: 40¢ per share, 60% franked) - Ex dividend date 4 September 2007 - Record date 10 September 2007 - Payment date 21 September 2007 • Interim dividend payout $492 million, up 53% from the interim divide
Slide 10: Geographical diversification
Geographical diversification Gross earned premium – half year ended 30 June 2007 QBE Insurance Lloyd’s division (Europe) 22.5% (24.3%) 22.5% (27.2%) Australia the Americas 21.7% (24.6%) 28.3% (18.3%) Asia-Pacific 5.0% (5.6%) Note: 2006 comparatives in parentheses 10 QBE INSURANCE GROUP
Slide 11: Worldwide portfolio mix
Worldwide portfolio mix Gross earned premium – half year ended 30 June 2007 Professional indemnity Marine, energy and aviation 8.0% (8.8%) 10.7% (12.2%) Workers’ compensation 8.9% (7.9%) Financial and credit Property 2.0% (2.5%) 26.4% (28.2%) Liability 19.4% (19.3%) Accident and health Other 5.6% (6
Slide 12: Worldwide operations
Worldwide operations HALF YEAR FULL YEAR June June Dec Dec 2007 2006 2006 2005 Gross written premium $M 6,520 5,656 10,372 9,408 Gross earned premium $M 5,751 4,932 10,069 9,171 Net earned premium $M 4,749 3,998 8,158 7,386 Claims ratio % 55.7 58.3 55.8 59.9 Commission ratio % 18.2 17.6 17.0 16.9 Ex
Slide 13: Worldwide operations
Worldwide operations Half year ended 30 June 2007 GWP Growth COR Profit after tax and minorities 2007 2007 2007 2006 2007 2006 $M % % % $M $M Australia 1,317 2 82.4 82.7 228 184 Asia-Pacific 289 7 80.5 79.9 52 35 QBE Insurance (Europe) 1,337 (7) 92.3 91.0 185 163 Lloyd’s division 1,656 (1) 83.6 90.3
Slide 14: Australia Asia Pacific (AAP)
Australia Asia Pacific (AAP) Half year ended 30 June 2007 Australia Asia-Pacific Total AAP 2007 2006 2007 2006 2007 2006 Gross written premium $M 1,317 1,291 289 271 1,606 1,562 Gross earned premium $M 1,249 1,213 291 272 1,540 1,485 Net earned premium $M 1,059 1,031 205 209 1,264 1,240 Claims ratio
Slide 15: European operations
European operations Half year ended 30 June 2007 QBE Insurance Lloyd’s Total European (Europe) division operations 2007 2006 2007 2006 2007 2006 Gross written premium $M 1,337 1,444 1,656 1,667 2,993 3,111 Gross earned premium $M 1,292 1,343 1,292 1,201 2,584 2,544 Net earned premium $M 1,048 1,137
Slide 16: The Americas
The Americas Half year ended 30 June 2007 the Americas Acquisitions the Americas (excl acquisitions) (incl acquisitions) 2007 2006 2007 2006 2007 2006 Gross written premium $M 924 983 997 - 1,921 983 Gross earned premium $M 895 903 732 - 1,627 903 Net earned premium $M 613 546 586 - 1,199 546 Claims
Slide 17: Captive reinsurer - Equator Re
Captive reinsurer - Equator Re Half year ended 30 June 2007 Equator Re 2007 2006 Gross written premium $M 816 517 Gross earned premium $M 495 255 Net earned premium $M 394 198 Claims ratio % 56.1 70.8 Commission ratio % 13.7 14.1 Expense ratio % 5.8 2.0 Combined operating ratio % 75.6 86.9 Insurance
Slide 18: Maximum event retention (MER)
Maximum event retention (“MER”) • Examples of realistic disaster scenario market losses (“RDS”) used in our risk modelling: - US Gulf of Mexico windstorm - US $100 bn loss - San Francisco earthquake – US $65 bn loss - European windstorm - €65 bn loss • QBE’s largest RDS is a San Francisco earthquake
Slide 19: Investment income
Investment income Half year ended 30 June 2007 2007 2006 $M Yield% $M Yield% Equity income (1) 121 34 Fixed interest, short term money and cash income 546 359 Property income 1 3 Gain on sale of related entity 3 - Other income 8 7 Gross investment income 679 6.5 403 4.5 Exchange gains 1 14 Borrowing
Slide 20: Comparison with cash yield
Comparison with cash yield versus actual yields Actual gross Average yields Investment mix Portfolio Current AAA cash achieved by 30 June 2007 mix by AAA cash yields QBE* currency rate % % % % 2003 3.1 4.6 Australian dollar 23.4 6.5 2004 3.4 4.8 Sterling 27.3 5.8 2005 4.2 5.2 US dollar 38.8 5.3 2006
Slide 21: Balance sheet
Balance sheet 30 June 2007 31 Dec 2006 30 June 2006 $M $M $M ASSETS Investments and cash 23,727 19,972 18,165 Receivables 6,425 3,934 5,031 Recoveries on outstanding claims 4,361 3,624 4,219 Deferred insurance costs 2,385 1,409 1,651 Intangibles 2,428 1,475 1,389 ABC financial assets pledged for fun
Slide 22: Balance sheet: Net invested funds
Balance sheet Net invested funds 30 June 2007 31 Dec 2006 $M % $M % Cash and cash equivalents 2,140 9.0 1,019 5.1 Short term money 12,734 53.7 10,040 50.3 Fixed interest securities and other 6,934 29.2 7,134 35.7 Equities 1,833 7.7 1,741 8.7 Investment properties 86 0.4 38 0.2 Total investments and
Slide 23: Balance sheet: Investments
Balance sheet 30 June 2007 Investments • Net invested funds increased to $20 billion at 30 June compared with $18 billion at 31 December 2006 • Strong Australian dollar has reduced overseas investments and cash when translated to A$ by $1,053 million • Approximately 95% of fixed interest and cash is
Slide 24: Investments currency mix
Investments currency mix 30 June 2007 Total investments and cash Equities 2007: $24 billion (2006: $20 billion) 2007: $1.8 billion (2006: $1.7 billion) Other Other Sterling 11% (13%) Sterling 11% (12%) 27% (35%) 26% (27%) AUD AUD 23% (28%) 48% (46%) USD USD 39% (24%) 15% (15%) Note - amounts in pare
Slide 25: Receivables and recoveries on outstanding claims
Balance sheet 30 June 2007 Receivables and recoveries on outstanding claims • Excluding the US acquisitions, receivables are consistent with previous half years • Excluding US acquisitions, reinsurance recoveries on outstanding claims reduced as below: Jun 2007 Dec 2006 Reinsurance recoveries 1,970
Slide 26: Balance sheet: Borrowings
Balance sheet 30 June 2007 Borrowings • Borrowings increased to $3,576 million mainly due to the issue of perpetual capital securities and hybrid convertible securities in May to fund US acquisitions (31 December 2006: $2,364 million) • Ratio of borrowings to shareholders’ funds was 46.3%, higher th
Slide 27: Balance sheet: Funding acquisitions
Balance sheet 30 June 2007 Funding acquisitions • Fundraising during six months to 30 June 2007: - $403 million net of expenses from the placement of 12.5 million shares in March; - $452 million from the reinvestment and underwriting of the 2006 final dividend resulting in the issue of 14.6 million
Slide 28: Borrowings
Borrowings Maturity date 30 June 2007 31 Dec 2006 $M $M Senior debt £175M 28/09/09 413 433 US $21M 01/04/09 25 - US $20M 15/11/07 24 - US $82M 30/12/35 97 - Subordinated debt A $170 02/08/20 169 169 € 115M 02/08/20 182 190 US $250M 01/07/23 290 312 Perpetual debt £300M 18/07/16* 703 736 US $550M 01/
Slide 29: Insurance liabilities
Insurance liabilities 30 June 31 Dec 30 June 2007 2006 2006 $M $M $M Total net outstanding claims (discounted) 14,065 11,645 11,495 Unearned premium net of deferred insurance costs 4,457 3,233 3,484 Net insurance liabilities 18,522 14,878 14,979 Represented by: Risk margin - outstanding claims 1,832
Slide 30: Capital adequacy
Capital adequacy 30 June 2007 • QBE estimates the Group capital adequacy multiple is around 2.3 times the minimum capital requirement*, broadly consistent with the 31 December 2006 multiple of 2.4 times • Subsidiaries maintain strong capital adequacy margins for local regulatory purposes • Standard
Slide 31: Capital adequacy
Capital adequacy 30 June 2007 31 Dec 2006 $M $M Tier 1 Share capital*, reserves and retained earnings 7,720 6,294 Perpetual securities (net of borrowing costs) 1,346 736 Excess risk margin 2,244 1,475 Tax on excess risk margin (675) (443) Deductions, intangibles (2,428) (1,475) Proposed dividend (49
Slide 32: Acquisitions
Acquisitions • Management have over past six months focused on completion of US acquisitions • Our comprehensive review of statistics has already identified opportunities to improve results from both acquisitions • Ongoing acquisition activity targeted outside US • Acquisition of Seguros Cumbre in M
Slide 33: 2007 outlook
2007 outlook Subject to no material movement in current exchange rates; large risk claims and catastrophes not exceeding the allowance in our business plans; and no major fall in equity markets or interest rates: • Insurance profit now expected to be in the range of 18.5% to 20.0% for the full year
Slide 34: 2007 outlook
2007 outlook • Reviewing a number of acquisition opportunities in line with our stringent criteria for value and EPS accretion – now 100 acquisitions in past 25 years • Sufficient capital to finance acquisitions of up to $1.5 billion of additional net written premium • Excess capital will be careful
Slide 35: Historical share price performance
Historical share price performance QBE Historical Share Price Performance - Last 20 Years $75.00 $70.00 QBE Share Price Performance $65.00 QBE Share Price Performance Including Reinvestment of Dividends ASX All Ordinaries Accumulation Index $60.00 $55.00 $50.00 $45.00 QBE Share Price (A$) An investm
Slide 36: www.qbe.com
www.qbe.com 36 QBE INSURANCE GROUP