Qbe Insurance Group Limited · ASX:QBE
Qbe Insurance — FY2010 Earnings Presentation
40 slides from Qbe Insurance's earnings presentation, Feb 28, 2011
Slide 1: 2010 annual results announcement
QBE INSURANCE GROUP 2010 annual results announcement Presented by: Frank O’Halloran, CEO QBE Insurance Group Ltd 28 February 2011
Slide 2: Presentation roadmap
Presentation roadmap 1. Overview 2. 2010 financial results 3. Significant items 4. Investments 5. Divisional results 6. Balance sheet and capital 7. Strategic initiatives 8. Outlook and closing remarks 9. Appendices 2 FY 2010 results presentation
Slide 3: Overview
Overview Continued strong underwriting profit with premium growth ahead of target – all divisions in good shape Lower investment yields affected the 2010 insurance margin Balance sheet strong and flexible with capacity for further growth Acquisitions announced during 2010 and to date expecte
Slide 4: 2010 financial results
2010 financial results For the year ended 31 December 2010 2009 % change GWP US$M 13,629 11,239 21 NEP US$M 11,362 9,446 20 Underwriting profit US$M 1,168 981 19 COR % 89.7 89.6 - Insurance profit US$M 1,703 1,609 6 Insurance profit to NEP % 15.0 17.0 - Investment income (including FX gains) US$M 65
Slide 5: 2010 financial results scorecard
2010 financial results scorecard 2010 FY 2010 FY Target (1) Actual GWP and NEP increase 20% in US$ 9 21% & 20% Reinsurance expense ratio (to GEP) Less than 13.5% × 15.4% Combined commission & expense ratio Less than 30.0% 9 29.8% COR Less than 89% × 89.7% Insurance profit margin 16% to 18% × 15% Tax
Slide 6: Strong underwriting profit and premium growth ahead of target
Strong underwriting profit and premium growth ahead of target All divisions delivered an increased underwriting profit and return on allocated capital (ROE) above 15% Underwriting profit up 19% to US$1,168M COR of 89.7% – sixth consecutive year below 90% – outperformed large majority of peers
Slide 7: Insurance profit margin held back by lower investment yields and increased catastrophe claims
Insurance profit margin held back by lower investment yields and increased frequency of catastrophe claims Insurance profit up 6% to US$1,703M Insurance profit margin of 15% (2009: 17%) below guidance due to: − Net investment yield on policyholders’ funds down from 4.4% to 3.3% and lower average
Slide 8: Net profit after tax down 17% to US$1,278M
Net profit after tax down 17% to US$1,278M Significant items impacting reported profit before tax 2010 2009 US$M US$M Net realised and unrealised equity (losses)/gains (48) 78 Lower cash and FI yields (1.3% on US$25Bn) (325) - Increase in large risk and catastrophe claims (381) - GFC credit related
Slide 9: 2010 accident year central estimate claims ratio: lower attritional loss ratio
2010 accident year central estimate claims ratio: lower attritional loss ratio Analysis of net central estimate claims ratio 2010 2009 2008 (accident year) (1) Net earned premium US$M 11,362 9,446 9,293 Attritional % 50.0 51.4 50.7 Large and catastrophe % 9.5 7.4 7.7 GFC claims % - 1.2 1.8 Claims se
Slide 10: 2010 accident year results: improving accident year combined operating ratio
2010 accident year results: improving accident year combined operating ratio 2010 2009 2008 Net central estimate claims ratio (pre risk margins) % 58.6 59.5 59.6 Commissions % 15.5 16.2 17.2 Expenses % 14.3 13.1 13.7 Central estimate COR % 88.4 88.8 90.5 Accident year underwriting profit US$M 1,314
Slide 11: 2010 insurance profit: overall positive but investment yield down 1.9%
2010 insurance profit: overall positive but investment yield on policyholders’ funds down 1.9% 2010 2009 2008 Ins. Ins. Ins. profit profit profit US$M margin % US$M margin % US$M margin % Central estimate accident year underwriting profit 1,314 11.6 1,060 11.2 883 9.5 Savings on prior year central e
Slide 12: Weighted average discount rates – small negative impact on underwriting profit
Weighted average discount rates – small negative impact on underwriting profit for 2010 Risk-free discount The impact of discount rates on outstanding movements on profit & claims % loss and risk margins is Currency 2010 2009 2008 an estimate based on existing portfolios on a Australian dollar 5.4
Slide 13: Investment income – lower yields and no major one-off benefits as in 2009
Investment income – lower yields and no major one-off benefits as in 2009 US$M % Lower investment yields on FI 1,400 9.0 and cash securities, 7.7 particularly in US, UK and 8.0 Euro markets 1,200 1,199 1,159 7.0 Leveraged wider credit 1,000 5.9 spreads on good quality credit 6.0 – corporate bond
Slide 14: Comparison of cash rates with actual yields
Comparison of cash rates with actual yields Average AAA Currency mix of FI and cash rates % cash investments % 2010 2009 2010 2009 US dollar 0.3 0.3 33 36 Australian dollar 4.4 3.3 35 33 Sterling 0.5 0.6 15 19 Euro 1.0 1.3 9 5 Other 1.3 1.5 8 7 Total weighted average yield 1.9 1.5 100 100 Actual gro
Slide 15: 2010 2H insurance profit margin affected by lower investment yields
2010 2H insurance profit margin affected by lower investment yields and reduced period premium held 2010 2009 1H 2H Full 1H 2H Full 30 Jun 31 Dec Year 30 Jun 31 Dec Year COR % 89.7 89.7 89.7 89.3 89.9 89.6 Underwriting margin % 10.3 10.3 10.3 10.7 10.1 10.4 Yield on insurance funds % 3.8 3.2 3.3 4.3
Slide 16: Insurance margin guidance on strong growth of 22% – 25% in net earned premium
Insurance margin guidance on strong growth of 22% – 25% in net earned premium 18.0 18.0 Guidance based on: 17.5 - Full utilisation of 17.0 9% catastrophe 0.5 16.5 claims allowance 0.5 16.0 - No savings allowed 0.3 15.5 15.0 (1.0) 1.1 for commission 15.0 and expense 15.0 efficiencies 14.5 14.0 - No
Slide 17: The Americas: underwriting profit up 19% to US$309M
the Americas: underwriting profit up 19% to US$309M and strong platform for growth in 2011 2010 2009 Average premium rate increases of slightly less than Gross written premium US$M 5,165 4,001 1% on renewed business (Market Scout: -5%) Gross earned premium US$M 5,117 3,939 GWP up 29% and NEP up
Slide 18: European operations: improved COR and claims ratio
European operations: improved COR and claims ratio despite increase in catastrophe claims 2010 2009 GWP up 5% in US$ and sterling Gross written premium US$M 4,156 3,961 NEP up only 2% with higher Gross earned premium US$M 4,008 3,892 reinstatement premiums following catastrophe claims Net earned
Slide 19: Australia: strong performance despite higher catastrophes
Australia: strong performance despite higher frequency of weather-related catastrophes 2010 2009 GWP up 36% (15% in A$) assisted by Elders acquisition, Gross written premium US$M 3,707 2,728 premium rate increases and new distribution channels Gross earned premium US$M 3,720 2,588 Overall averag
Slide 20: Asia Pacific: steady growth with improved COR
Asia Pacific: steady growth with improved COR and insurance profit margin 2010 2009 Growth in local currency in most countries with GWP up Gross written premium US$M 601 549 9% and NEP up 13% Gross earned premium US$M 587 524 Premium rates on renewed business flat across Asia Net earned premium
Slide 21: Equator Re: slightly higher underwriting profit
Equator Re: slightly higher underwriting profit despite increased catastrophe claims 2010 2009 Equator is the Group’s captive reinsurer providing protections Gross written premium US$M 2,479 1,994 to QBE’s global operations GWP up 24% in line with overall Gross earned premium US$M 2,363 1,918 gr
Slide 22: Capital adequacy: APRA MCR multiple exceeds internal benchmark
Capital adequacy: APRA MCR multiple exceeds our internal benchmark >1.5x Note: all dollar amounts are in US$M MCR multiple 2010 $4,332 $2,211 $462 1.6x Minimum capital requirement ("MCR") 2009 $3,674 $2,327 1.6x APRA excess capital Dividend underwriting 2008 $3,244 $2,317 1.7x Regulatory capital d
Slide 23: Balance sheet strong and flexible with capacity for further growth
Balance sheet strong and flexible with capacity for further growth Shareholders' funds - US$M PoA on outstanding claims liabilities - % 12,000 91.0 10,000 90.0 8,000 89.0 88.0 6,000 9,164 10,311 87.0 89.8 4,000 7,834 86.0 88.1 2,000 85.0 86.1 - 84.0 2008 2009 2010 2008 2009 2010 Debt/equity ratio -
Slide 24: Comprehensive global reinsurance programs from 2011 to 2013
Comprehensive global reinsurance programs from 2011 to 2013 MER reduced to around 4.0%* of projected NEP (2010: 4.3%) New arrangement combines multiple products and programs with single layer for catastrophes and risk covers Price and cover for catastrophes, per risk and aggregate risk substan
Slide 25: 2011 large risk and catastrophe claims to date well within allowances
2011 large individual risk and catastrophe claims to date well within allowances Preliminary estimated claims US$M Allowances for FY 2011 US$M net of reinsurance: Queensland storms 100 Allowance in COR target (9% of NEP) 1,300 Cyclone Yasi 100 Aggregate catastrophe and risk covers 350 US winter stor
Slide 26: Acquisition strategy: history of growth and profit
Acquisition strategy: history of growth and profit 48 acquisitions GWP U/W NEP COR profit Ins. EPS on announced between US$M US$M % US$M profit ins. profit 2005 and 2010 US$M US cents including: 2005 FY 7,171 5,630 89.1 616 982 128 - Americas: Colombia, National Farmers’ Union, One-Beacon, 2009 FY
Slide 27: Acquisitions: converted seven acquisitions in 2010
Acquisitions: converted seven acquisitions in 2010 meeting criteria of EPS accretion in year one Cost Additional US$M annualised 2010 acquisitions GWP US$M NAU Country – US multi peril crop insurer 573 900 CNA Argentina – workers’ compensation insurer 66 135 Secura NV – Belgian based specialist rein
Slide 28: Balboa distribution and portfolio transfer agreement
Balboa distribution and portfolio transfer agreement Initial 10 year distribution agreement with Bank of America announced to market on 4 February 2011 Lender-placed and voluntary homeowners’ insurance, contents, motor and related consumer lines (no LMI included) US$1.2Bn portfolio transfer of
Slide 29: 2011 financial performance targets
2011 financial performance targets: outlook for strong growth in premium income and profitability 2011 FY GEP growth 19% to 22% NEP growth 22% to 25% Reinsurance expense ratio (to GEP) Around 12% Combined commission & expense ratio* Around 31% COR 87% - 90% Insurance profit margin 15% - 18% Tax rate
Slide 30: Projected 2011 insurance profit sensitivity
Projected 2011 insurance profit sensitivity: premium growth and insurance margin scenarios Insurance margin Insurance profit 15% 16% 17% 18% NEP growth 20% US$M 2,045(1) 2,181 2,318 2,454 NEP growth 22% US$M 2,079 2,218 2,356 2,495 NEP growth 25% US$M 2,130 2,272 2,414 2,556(2) Growth based on 201
Slide 31: QBE continues to outperform majority of peers
QBE continues to outperform majority of peers in difficult market conditions Sample of underwriting results for global insurers who have reported to date: 31 December COR% 31 December COR% 2010 2009 2010 2009 Allianz 98.2 98.3 RSA 100.4 98.8 AXA 95.7 99.1 Suncorp * 99.2 92.2 Chubb 89.3 88.3 Swiss Re
Slide 32: Outlook and closing remarks
Outlook and closing remarks Expected 2% increase in overall average premium rates on renewed business and organic growth limited in soft insurance markets Synergies from expense and claims initiatives in Europe and Americas on track Forecast gross investment yield on policyholders’ funds of 3.
Slide 33: Disclaimer
Disclaimer The information in this presentation provides an overview of the results for the year ended 31 December 2010. This presentation should be read in conjunction with all information which QBE has lodged with the Australian Securities Exchange (“ASX”). Copies of those lodgements are available
Slide 34: www.qbe.com
QBE INSURANCE GROUP www.qbe.com 34 FY 2010 results presentation
Slide 35: Appendices
Appendices 1. Dividend performance 2. PoA of total insurance liabilities 3. Claims ratios 1H:2H accident and financial year 4. Analysis of movement in risk margins 5. Historical COR by division 35 FY 2010 results presentation
Slide 36: Dividend performance
Dividend performance 1,600 126 128 128 140 122 Dividend per share A$ cents 1,400 120 95 1,200 100 Payout A$M 1,000 678 694 645 80 800 576 60 600 452 40 400 628 642 492 542 20 200 322 - - 2006 2007 2008 2009 2010 Interim Final Dividends per share 2010 final dividend 66.0 Australian cents, 10% frank
Slide 37: Probability of adequacy of total insurance liabilities at 95.5%
Probability of adequacy of total insurance liabilities at 95.5% 2010 2009 2008 2007 US$M US$M US$M US$M Net outstanding claims 15,017 12,864 11,346 12,163 Unearned premium net of deferred insurance costs 4,785 4,374 3,608 3,521 Net total insurance liabilities 19,802 17,238 14,954 15,684 Risk margin
Slide 38: Claims ratios: accident year and financial year for 1H and 2H
Claims ratios: accident year and financial year for 1H and 2H 2010 2009 1H 2H Full 1H 2H Full 30 Jun 31 Dec Year 30 Jun 31 Dec Year NEP US$M 5,240 6,122 11,362 4,379 5,067 9,446 Attritional % 49.0 50.9 50.0 50.8 52.0 51.4 Large individual risk and catastrophes % 9.3 9.7 9.5 7.2 7.6 7.4 GFC % - - - 2
Slide 39: Analysis of movement in risk margins
Analysis of movement in risk margins 2010 2009 US$M US$M At 1 January 1,017 842 Foreign exchange movements and other impacts (9) 122 Acquisitions 384 24 Margin releases and adverse movement in (122) 29 discount rates and other factors Risk margins at 31 December 1,270 1,017 Adverse movements in di
Slide 40: Historical combined operating ratio by division
Historical combined operating ratio by division COR 2010 2009 2008 2007 2006 2005 % % % % % % Australian operations 89.2 89.0 90.6 82.9 82.9 83.6 Asia Pacific 86.7 88.1 82.9 82.7 82.7 82.3 European operations 90.5 91.3 85.6 84.8 86.1 92.1 the Americas 89.7 89.7 93.6 93.6 89.7 92.9 Equator Re 90.1 88