Qbe Insurance Group Limited · ASX:QBE
Qbe Insurance — FY2009 Earnings Presentation
39 slides from Qbe Insurance's earnings presentation, Feb 26, 2010
Slide 1: ASX cover letter: QBE Presentation on the 2009 Results
QBE Insurance Group Limited ABN 28 008 485 014 Head Office 82 Pitt Street SYDNEY NSW 2000 For personal use only Australia Postal Address Box 82 GPO SYDNEY 2001 26 February 2010 Telephone: +61 (2) 9375 4444 Facsimile: +61 (2) 9231 6104 DX 10171, Sydney Stock Exchange The Manager Company Announcements
Slide 2: QBE Insurance Group 2009 annual results announcement
For personal use only QBE INSURANCE GROUP 2009 annual results announcement Presented by: Frank O’Halloran, CEO, QBE Insurance Group Limited 26 February 2010 All amounts in Australian dollars unless otherwise stated.
Slide 3: Overview: key messages
Overview: key messages For personal use only Net profit after tax up 6% to $1,970 million – profit is after amortisation of intangibles of $67 million (2008: $32 million) Overall our insurance portfolios are in excellent shape following a strong 2009 accident year COR of 87.6% before GFC claims
Slide 4: Overview: key messages
Overview: key messages For personal use only Agency businesses added $319 million to underwriting profit with 2.6% benefit to the COR (2008: 0.7%) Agencies generated $1.57 billion of premium income underwritten by QBE Based on management results before internal reinsurance, return on capital a
Slide 5: Overview: key messages
Overview: key messages For personal use only Stronger than forecast gross investment yield on cash and fixed interest portfolios of 3.9% (2008: 5.1%) compared with our target of 3.0% Overall investment return very pleasing with no permanent impairment of any securities held in cash and fixed int
Slide 6: Strong financial result: held back by low interest yields
Strong financial result: held back by low interest yields For personal use only 2009 target (2 Nov 09) 2009 2008 Profit after tax Greater than 2008 9 +6% to $1.97bn $1.86bn Insurance profit margin 17% to 18% 9 17.0% 19.7% Combined operating ratio 87% to 89% 8 89.6% 88.5% GWP and NEP increase 10% and
Slide 7: Significant items: impact on net profit before tax
Significant items: impact on net profit before tax For personal use only 2009 2008 $m $m Reported net profit before tax 2,432 2,420 Savings on prior year central estimates (79) (371) GFC credit-related claims 144 200 Net realised and unrealised equity (gains)/losses (97) 554 Unrealised loss on reval
Slide 8: Operational performance goals: substantially in line with expectations
Operational performance goals: substantially in line with expectations For personal use only Customer retention remains high on quality renewal business 9 Premium growth in original currency in line with target 9 Contributions from 2008 and 2009 acquisitions meeting or 9 exceeding targets $2
Slide 9: Experienced management team
Experienced management team For personal use only Strong stable management team with long tenure Top 13 executives in Group Operations Executive and Group Head Office Management have been with QBE and its acquired companies for an average of 16.3 years and a minimum of six years Low turnover o
Slide 10: Volatile exchange rate movements
Volatile exchange rate movements For personal use only Income statement Balance sheet Cumulative average rate of Closing rate of exchange for the period to 31 Dec exchange as at 31 Dec Movement* Movement 2009 2008 % 2009 2008 % USD 77.8 83.8 (7.2) 89.6 70.2 27.6 Sterling 50.1 45.8 9.4 55.5 48.1 15.4
Slide 11: Impact of exchange rate movements
Impact of exchange rate movements For personal use only 2009 2009 at 2008 Exchange rate impact actual FX rates(1) $m $m $m % Gross written premium 14,455 14,164 291 2 Gross earned premium 14,074 13,789 285 2 Net earned premium 12,149 11,979 170 1 Net investment income 1,237 1,225 12 1 Net profit aft
Slide 12: Change in Group capital hedging strategy
Change in Group capital hedging strategy For personal use only Local currency liabilities are matched with assets of the same currency Ceased hedging investment in foreign operations to avoid the liquidity risk in funding a large hedge portfolio The cessation of hedging our investment in forei
Slide 13: 2009 accident year central estimate claims ratio
2009 accident year central estimate claims ratio: note 9 of financial statements For personal use only Analysis of net claims ratio (accident year) (1) 2009 2008 Net earned premium $m 12,149 11,087 Attritional (2) % 51.4 50.7 Large and catastrophe % 7.4 7.7 GFC claims (3) % 1.2 1.8 Claims settlement
Slide 14: 2009 accident year results: central estimates
2009 accident year results: central estimates For personal use only 2009 2008 % % Net claims ratio (pre risk margins) 59.5 59.6 Commissions 16.2 17.2 Expenses 13.1 13.7 Combined operating ratio 88.8 90.5 GFC claims (1.2) (1.8) Combined operating ratio pre GFC claims 87.6 88.7 13 FY 2009 Results
Slide 15: Underwriting result analysis
Underwriting result analysis For personal use only 2009 COR 2008 COR $m % $m % Central estimate accident year underwriting 1,508 87.6 1,250 88.7 profit (pre GFC) GFC claims (credit-related only) (144) 1.2 (200) 1.8 (Increase)/decrease in risk margins (38) 0.3 13 (0.1) Savings on prior year central e
Slide 16: Agencies contribution to underwriting profit
Agencies contribution to underwriting profit For personal use only COR COR 2009 impact 2008 impact $m % $m % Australia 52 0.4 32 0.3 The Americas 267 2.2 42 0.4 Total agency contribution (1) 319 2.6 74 0.7 Acquisition cost to date (2) $1,635 million $1,448 million Pre-tax return on investment (3) 20
Slide 17: Outstanding claims provisions: higher discount rates benefit POA
Outstanding claims provisions: higher discount rates benefit POA For personal use only 94.1% 94.6% 94.0% 86.1% 88.1% 18000 100.0% 16,161 16000 95.0% 1,199 13,871 14,350 90.0% 14000 Outstanding claims - $m Probability of adequacy 1,134 1,591 85.0% 12000 11,645 10,870 1,389 80.0% 10000 1,243 75.0% 800
Slide 18: Investment yield: exceeded target despite historically low interest rates
Investment yield: exceeded target despite historically low interest rates For personal use only Policyholders’ Shareholders’ Total investment funds funds income 2009 2008 2009 2008 2009 2008 $m $m $m $m $m $m Equity income - - 148 (490) 148 (490) Fixed interest income 706 889 275 367 981 1,256 Prope
Slide 19: Investments: low risk and high quality portfolio
Investments: low risk and high quality portfolio For personal use only Low risk and relatively short duration strategy paid off in a year of huge volatility in equity markets, fluctuating credit spreads and ongoing low cash rates Appreciation of the A$ against US$ and sterling reduced reported v
Slide 20: Shareholder returns
Shareholder returns For personal use only 12.6% -1.1% 10.0% 18.3% 24.5% 23.9% 26.1% 26.1% 20.9% 18.4% 250 30% 217.3 205.9 192.8 25% 200 Earnings per share (cents) 173.5 20% Return on equity 150 131.5 109.3 15% 100 77.5 10% 50 40.7 43.4 (4.9) 5% 0 0% 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009
Slide 21: Dividend performance
Dividend performance For personal use only 31 30 35 42 54 71 95 122 126 128 1400 140 1,306 2009 final dividend 66.0 cents, 20% franked 1,187 1200 – Ex div date 3 March 2010 120 1,068 – Record date 10 March 2010 Dividend per share 1000 – Payment date 30 March 2010 100 678 Payout $m Total 2009 dividen
Slide 22: History of premium income: a growth story
History of premium income: a growth story despite strengthening A$ For personal use only 16.0 Compound annual average growth rates over last 10 years 14.0 - gross earned premium 18% 12.0 - net earned premium 19% Premium - $ bn 10.0 8.0 NEP $12.1bn GEP $14.1bn 6.0 4.0 2.0 0.0 2000 2001 2002 2003 2004
Slide 23: Geographical diversification
Geographical diversification For personal use only Gross earned premium $14,074 million (2008: $12,853 million) Asia Pacific 5% (5%) Australia 24% (22%) the Americas 36% (36%) Europe 35% (37%) Note: 2008 comparatives in parentheses 22 FY 2009 Results
Slide 24: Worldwide portfolio mix
Worldwide portfolio mix For personal use only Workers’ Bloodstock comp. 1.7% (1.7%) Short tail 55.5% (53.9%) Financial & 7.4% (9.2%) Long tail 44.5% (46.1%) credit 3.3% (2.1%) Property Marine, energy & 29.5% (27.4%) aviation 9.8% (10.0%) Other 3.5% (2.5%) Liability 15.2% (16.8%) Professional indemni
Slide 25: Australia: excellent growth and continued market leading results
Australia: excellent growth and continued market leading results For personal use only GWP benefited from Elders and 2009 2008 QBE LMI acquisitions and over 8% overall average increase in Gross written premium $m 3,509 2,914 premium rates Excellent QBE LMI result, Gross earned premium $m 3,328 2
Slide 26: Asia Pacific: strong organic growth – profit held back by catastrophes
Asia Pacific: strong organic growth – profit held back by a number of catastrophes For personal use only Despite the strong A$, GWP rose 2009 2008 by 7% and GEP rose by 8% Gross written premium $m 706 661 High customer retention and organic growth from intermediaries Gross earned premium $m 674
Slide 27: European operations: COR affected by lower savings on prior year claims
European operations: COR affected by lower savings on prior year claims provisions For personal use only GWP in sterling up 12% but 2009 2008 reduced to 2% growth on translation due to strong A$ Gross written premium $m 5,094 5,011 Claims ratio increase due to lower prior year savings on claims
Slide 28: the Americas: premium growth and profit benefit from 2008 acquisitions
the Americas: premium growth and profit benefit from 2008 acquisitions For personal use only GWP up 15% mainly due to new 2009 2008 business from ZC Sterling and weaker average A$ compared with 2008 Gross written premium $m 5,146 4,462 Overall average premium rate increases of 2% for the year Gr
Slide 29: Equator Re: captive reinsurer
Equator Re: captive reinsurer For personal use only GWP up 15% and GEP up 25% 2009 2008 mainly from increased participation in proportional covers from US and Gross written premium $m 2,564 2,231 European operations Underlying premium growth Gross earned premium $m 2,467 1,978 adversely affected
Slide 30: Group capital adequacy
Group capital adequacy For personal use only 10,000 9,000 2.4x 1.7x 8,000 2.4x 1.6x Capital base $m 7,000 6,000 4,995 3,301 1.9x 2,518 5,000 1.8x 4,295 4,000 2,573 2,086 3,000 4,621 4,146 2,000 3,612 2,555 2,846 3,013 1,000 - 0 2004 2005 2006 2007 2008 2009 Minimum capital requirement Excess capital
Slide 31: Borrowings: lower gearing ratio
Borrowings: lower gearing ratio For personal use only 2009 2008 Reduction in debt due to − repayment of short term bank loans of $600 million Repayment profile (1) $m $m − retirement of $363 million of senior debt Less than 1 year 861 1,120 − repurchase of $193 million of QBE debt securities 1 – 5
Slide 32: 2010: premium outlook
2010: premium outlook For personal use only GWP NEP GWP GWP NEP GWP NEP bn bn A$bn growth % A$bn US$bn US$bn Australia A$4.2 A$3.3 4.2 19.0 3.3 3.8 3.0 Asia Pacific A$0.8 A$0.5 0.8 10.0 0.5 0.7 0.5 Europe £2.75 £1.75 4.8 (6.0) 3.1 4.3 2.8 The Americas US$4.6 US$2.8 5.1 - 3.1 4.6 2.8 Equator Re – A$2
Slide 33: 2010: financial performance targets
2010: financial performance targets Subject to the usual caveats i.e. no material change in current exchange rates, large individual risk and catastrophe claims not exceeding the significant allowance in our business For personal use only plans, and no major fall in equity markets or interest rates
Slide 34: 2010: operational performance goals
2010: operational performance goals For personal use only 2010 premium growth to benefit from Elders and ZC Sterling acquisitions Target overall average premium rate increase of 2% Increase existing customer retention ratio Further reinsurance cost synergies Continue low risk investment st
Slide 35: Summary: key messages
Summary: key messages For personal use only Strong technical results for 2009 expected to continue in all key markets Foreign exchange outlook for A$ uncertain but performance in underlying currencies remains strong Continuing low interest rate environment will impact 2010 investment yield on
Slide 36: Historically low yields in 2009
Historically low yields in 2009 For personal use only Average AAA Actual gross cash yields for year yields achieved (1) % % 2004 3.4 4.8 2005 4.2 5.2 2006 4.9 5.2 2007 5.4 6.3 2008 3.9 2.9 2009 1.5 4.1 2010 1.5 3.0 (target) 2011 ? ? (1) Includes yields on cash, fixed interest securities and equities
Slide 37: Outlook: watch for benefit of higher interest rates
Outlook: watch for benefit of higher interest rates For personal use only Annualised AAA 2010 interest rate target yield of 3% + 1% + 2% Combined operating ratio Less than 89% Less than 88% Less than 87% Insurance profit 16% to 18% +2.8% +5.6% Impact on profit after tax - +$316m +$625m POA of outsta
Slide 38: Historical share price performance
Historical share price performance For personal use only QBE Historical Share Price Performance - Last 20 Years $80.00 $75.00 QBE Share Price Performance $70.00 QBE Share Price Performance Including Reinvestment of Dividends ASX All Ordinaries Accumulation Index $65.00 $60.00 $55.00 An investment in
Slide 39: QBE Insurance Group www.qbe.com
For personal use only QBE INSURANCE GROUP www.qbe.com 38