Qbe Insurance Group Limited · ASX:QBE
Qbe Insurance — FY2008 Earnings Presentation
51 slides from Qbe Insurance's earnings presentation, Feb 27, 2009
Slide 1: Cover letter: QBE Presentation on the 2008 Results
QBE INSURANCE GROUP LIMITED ABN 28 008 485 014 82 Pitt Street Sydney NSW 2000 For personal use only Postal Address GPO Box 82 Sydney NSW 2001 27 February 2009 Telephone: (02) 9375 4444 Facsimile: (02) 9231 6104 DX 10171 Sydney Stock Exchange The Manager Company Announcements ASX Limited Level 6 Exch
Slide 2: 2008 Results Announcement
For personal use only QBE INSURANCE GROUP 2008 Results Announcement Presented by Frank O’Halloran CEO, QBE Insurance Group 27 February 2009 All amounts in Australian dollars unless otherwise stated.
Slide 3: QBE in great shape
QBE in great shape For personal use only • Businesses and balance sheet in great shape to capitalise on many opportunities available • Substantial majority of our products and businesses in the 45 countries in which we operate producing returns above our 15% minimum ROE requirement • QBE continues t
Slide 4: QBE in great shape
QBE in great shape For personal use only • Quality insurance business with underwriting profit expected to increase by around 30% in 2009 • Our short duration strategy on cash and fixed interest investments has allowed us to benefit from the wider credit spreads on reinvestment and avoid impairment
Slide 5: Highlights
Highlights For personal use only • Net profit after tax $1,859 million (2007: $ 1,925 million); a solid financial result considering the adverse impact of the global financial crisis • Return on equity at 20.9% of weighted average shareholders’ funds (2007: 26.1%) • Insurance profit of $2,183 millio
Slide 6: Highlights
Highlights For personal use only • Diluted earnings per share* of 205.9 cents (2007: 217.3 cents) • Full year dividend payout up 11% to $1,187 million; dividend per share for 2008 up 3% to 126.0 cents; final dividend on increased shares maintained at 65.0 cents per share (2007: 65.0 cents) • Cash fl
Slide 7: Highlights
Highlights For personal use only • Reinsurance expense was 13% of gross written premium improving on our target of 15% primarily due to lower reinsurance costs and synergies from acquisitions • QBE’s estimated net exposure to the largest single realistic disaster scenario at year end was 3.7% of net
Slide 8: Highlights
Highlights For personal use only • There were 29 natural peril catastrophe claims with a net cost to QBE of $424 million compared with 21 last year at a net cost of $317 million • Net claims ratio from large individual risk and catastrophe claims greater than $2.5 million was considerably higher at
Slide 9: Analysis of claims incurred
Analysis of claims incurred For personal use only 2008 2007 2006 % % % Analysis of net claims ratio: – Attritional (2) 47.5 47.7 47.4 – Large and catastrophe (2) (3) 10.2 6.6 8.9 – Risk margin upgrade (0.1) 0.1 1.4 Net claims ratio (1) (4) 57.6 54.4 57.7 1) Represents net claims incurred as a % of n
Slide 10: Highlights
Highlights For personal use only • Probability of adequacy of outstanding claims is well in excess of APRA’s 75% minimum benchmark – 86.1% using risk free government bond rates (as required by APRA) – 89.4% using risk free swap rates (as applied by life insurers) – around 93% using risk free governm
Slide 11: Highlights
Highlights For personal use only • Total acquisition cost ratio (expenses and commissions) slightly better than target at 30.9% of net earned premium (2007: 31.6%) • Commission ratio decreased to 17.2% (2007: 18.5%) due to changes in business mix and the benefit of acquired underwriting agencies • E
Slide 12: Highlights: Investment Income
Highlights For personal use only Investment Income • Gross investment income was $766 million (2007: $1,398 million) after net realised and unrealised equity losses of $554 million compared with gain of $100 million last year • Gross investment yield before borrowing costs and expenses was 2.9% comp
Slide 13: Impact of change in value of A$ in 2008
Impact of change in value of A$ in 2008 2008 2008 at 2007 For personal use only actual exchange rates* Impact $m $m % $m Gross written premium 13,142 13,296 (1) (154) Gross earned premium 12,853 12,998 (1) (145) Net earned premium 11,087 11,138 (1) (51) Net investment income 1,177 1,198 (2) (21) Net
Slide 14: Shareholders' returns
Shareholders’ returns For personal use only • Final dividend of 65.0 cents per share, 20% franked (2007: 65.0 cents, 50% franked) - Ex dividend date 4 March 2009 - Record date 11 March 2009 - Payment date 31 March 2009 • The unfranked portion of dividends payable to non-resident shareholders will re
Slide 15: Dividend performance
Dividend performance For personal use only 126.0 1200 122.0 1100 Compound annual average growth in dividend per share over 10 years was 16.9% 1000 900 95.0 800 2008 dividend – cents per share 700 Final 65 Payout $m Interim 61 71.0 600 126 500 54.0 400 42.0 300 35.0 30.0 200 32.5 31.0 100 0 1999 2000
Slide 16: Worldwide operations
Worldwide operations Jun Dec Dec Dec 2008 2008 2008 2007 For personal use only Gross written premium $m 6,603 6,539 13,142 12,406 Gross earned premium $m 5,958 6,895 12,853 12,361 Net earned premium $m 5,108 5,979 11,087 10,210 Claims ratio % 54.7 60.1 57.6 54.3 Commission ratio % 17.2 17.2 17.2 18.
Slide 17: Worldwide operations
Worldwide operations For personal use only GWP Growth COR Net profit after tax 2008 2008 2008 2007 2008 2008 $m % % % $m $m Australia 2,914 12 90.6 82.9 560 445 Asia Pacific 661 13 82.9 82.7 76 89 QBE Insurance Europe 2,525 1 93.8 92.1 201 341 Lloyd’s division 2,486 (6) 74.2 75.7 373 465 the America
Slide 18: History of premium income - a growth story
History of premium income - a growth story For personal use only $ Bn 14 Compound annual average growth rates over last 10 years: 12 - gross earned premium 19% - net earned premium 19% GEP $12.9 Bn 10 8 NEP $11.1 Bn 6 4 2 0 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 17 QBE INSURANCE GROUP – R
Slide 19: Geographical diversification
Geographical diversification gross earned premium For personal use only Gross earned premium $12,853 million (2007: $12,361 million) QBE Insurance Lloyd’s division Europe 19% (21%) 18% (21%) Australia 22% (20%) the Americas 36% (33%) Asia Pacific 5% (5%) Note: 2007 comparatives in parentheses 18 QBE
Slide 20: Worldwide portfolio mix
Worldwide portfolio mix gross earned premium For personal use only Professional indemnity 6.9% (7.3%) Marine, energy and aviation Workers’ 10.1% (9.9%) compensation 9.2% (9.7%) Financial and credit Property 2.1% (2.0%) 27.4% (27.8%) Liability 16.8% (18.7%) Other Accident and health 4.1% (2.9%) 3.8%
Slide 21: Balance sheet
Balance sheet 31 Dec 2008 $m 31 Dec 2007 $m ASSETS Investments and cash 28,541 24,606 For personal use only Receivables 5,041 4,616 Recoveries on outstanding claims 5,043 4,360 Deferred insurance costs 1,987 1,683 Intangibles 5,586 2,493 ABC financial assets pledged for funds at Lloyd’s 250 900 Fixe
Slide 22: Balance sheet
Balance sheet For personal use only • Investments and cash increased by 16% to $28.5 billion due to strong operational cash flow, funds from acquisitions in 2008 and the weaker Australian dollar • 98% of our fixed interest and cash was rated Moody’s Aa3 or better • Approximately 99% of investments a
Slide 23: Currency mix
Currency mix For personal use only Market value of total investments and cash Market value of equities 2008 $28,541 million (2007: $24,606 million) 2008 $1,589 million (2007: $1,656 million) Australian dollar Australian dollar Sterling Sterling 36% (51%) 28% (26%) 20% (24%) 17% (24%) Other Other 11%
Slide 24: Balance sheet
Balance sheet • Weakening Australian dollar, particularly against the US dollar (down 20%), increased the For personal use only value of assets and liabilities when converted to Australian dollars • Premium and reinsurance receivables over 90 days remain low with conservative provisions held for dou
Slide 25: Balance sheet
Balance sheet For personal use only • Receivables and reinsurance recoveries are after provisions for doubtful debts of $224 million (2007: $255 million) • The lower provision is mainly due to reinsurance settlements and higher quality reinsurance counterparties • Intangibles increased $3,093 millio
Slide 26: Balance sheet
Balance sheet For personal use only • Borrowings* to shareholders’ equity 32.9% (2007: 40.8%) • Borrowings* increased by $208 million to $3,666 million mainly due to weaker Australian dollar • $1,003 million of perpetual debt exchanged for senior notes of $702 million • Weighted average cost of borr
Slide 27: Total insurance liabilities
Total insurance liabilities For personal use only 2008 2007 2006 2005 $m $m $m $m Outstanding claims 16,161 13,871 11,645 10,870 Unearned premium net of deferred insurance costs 5,139 4,015 3,233 2,841 21,300 17,886 14,878 13,711 Central estimate 19,137 15,433 12,656 11,695 Risk margin* - outstandin
Slide 28: Capital adequacy
Capital adequacy For personal use only 31 Dec 2008 31 Dec 2007 $m $m Tier 1 Share capital and reserves 11,230 8,472 Perpetual securities 382 1,294 Excess risk margins 1,162 1,577 Less deductions (5,657) (3,481) 7,117 7,862 Tier 2 Subordinated debt and hybrids 805 745 QBE capital base* 7,922 8,607 Mi
Slide 29: Capital adequacy
Capital adequacy • QBE retains $3.3 billion in excess of our calculation of APRA’s stringent risk For personal use only based minimum capital requirement (2007: $5.0 billion) • Minimum capital requirement in dollar terms increased 28% to $4.6 billion in 2008 (2007: $3.6 billion) • Risk based capital
Slide 30: Australia
Australia For personal use only 2008 2007 Gross written premium $m 2,914 2,596 Gross earned premium $m 2,800 2,518 Net earned premium $m 2,363 2,141 Claims ratio % 62.8 55.2 Commission ratio % 11.8 12.0 Expense ratio % 16.0 15.7 Combined operating ratio % 90.6 82.9 Insurance margin % 20.9 25.6 29 QB
Slide 31: Australia
Australia • Gross written premium up 12% to $2,914 million due to continued high customer retention For personal use only and acquisitions including PMI Australia and new agencies and distribution channels • Achieved average overall premium rate increase on renewal business of 1% (2007: reduction of
Slide 32: Lenders' Mortgage Insurance
Lenders’ Mortgage Insurance • In 2008 QBE acquired PMI Australia (now QBE LMI) a consistently For personal use only profitable residential LMI insurer for over 40 years, with S&P AA- rating • Gross earned premium $203 million (2007: $194 million) – Target 2009: $207 million • Combined operating rati
Slide 33: Asia Pacific
Asia Pacific For personal use only 2008 2007 Gross written premium $m 661 583 Gross earned premium $m 626 570 Net earned premium $m 451 416 Claims ratio % 41.2 41.3 Commission ratio % 20.6 20.0 Expense ratio % 21.1 21.4 Combined operating ratio % 82.9 82.7 Insurance margin % 24.8 25.0 32 QBE INSURAN
Slide 34: Asia Pacific
Asia Pacific For personal use only • Gross written premium up 13% to $661 million due to continued high customer retention, solid organic growth and weaker Australian dollar • Overall premium rates on renewal business declined by 2% • Outstanding underwriting result with COR of 82.9% (2007: 82.7%) •
Slide 35: European operations
European operations For personal use only QBE Insurance Lloyd’s Division Total European Europe operations 2008 2007 2008 2007 2008 2007 Gross written premium $m 2,525 2,503 2,486 2,634 5,011 5,137 Gross earned premium $m 2,374 2,537 2,379 2,621 4,753 5,158 Net earned premium $m 1,881 2,026 1,371 1,6
Slide 36: European operations
European operations • Gross written premium reduced by 3% to $5,011 million due to stronger For personal use only Australian dollar against sterling • Gross written premium in sterling was up 7% to £2.3 billion, mainly due to the stronger US dollar against sterling and the high proportion of US doll
Slide 37: European operations
European operations For personal use only • QBE is the largest manager of capacity and second largest provider of capital at Lloyd’s • QBE provides 100% of capital to all managed syndicates with the exception of syndicate 386 where participation is 69% • No further increase in QBE’s participation in
Slide 38: the Americas
the Americas For personal use only 2008 2007 Gross written premium $m 4,462 3,656 Gross earned premium $m 4,590 3,976 Net earned premium $m 3,108 2,574 Claims ratio % 60.2 59.4 Commission ratio % 19.0 22.8 Expense ratio % 14.4 11.4 Combined operating ratio % 93.6 93.6 Insurance margin % 11.5 12.8 37
Slide 39: the Americas
the Americas • Gross written premium up 22% to $4,462 million due to acquisitions in 2007 For personal use only and the North Pointe acquisition made in 2008, partly offset by cancellation of existing business due to competition and new business less than budget due to inadequate pricing • Overall a
Slide 40: Equator Re - captive reinsurer
Equator Re - captive reinsurer For personal use only 2008 2007 Gross written premium $m 2,231 1,990 Gross earned premium $m 1,978 1,631 Net earned premium $m 1,913 1,426 Claims ratio % 56.6 54.6 Commission ratio % 21.4 22.0 Expense ratio % 5.8 3.9 Combined operating ratio % 83.8 80.5 Insurance margi
Slide 41: Equator Re
Equator Re For personal use only • Equator Re is QBE’s wholly owned captive reinsurer and provides excess of loss and proportional reinsurance protection below Group retentions to the various operating subsidiaries • The captive assists in the management of the Group’s maximum event retention and ca
Slide 42: Investment income
Investment income 2008 2007 For personal use only $m Yield% $m Yield% Total equity income (1) (490) (30.2) 166 9.8 Total fixed interest and cash income (2) 1,256 5.1 1,211 5.9 Total property income 7 6.8 5 7.6 Other income (7) 14 Realised gains on sale of controlled entities - 2 Gross investment inc
Slide 43: Investment income
Investment income For personal use only • QBE’s absolute return and low risk strategy has worked well for shareholders in a year of record financial downturn • Focus on investing in quality cash and fixed interest securities has meant we have had not a single case of impairment • Short duration fixe
Slide 44: Comparison with cash yield
Comparison with cash yield For personal use only versus actual yields Actual Average gross Investment mix Portfolio Current AAA cash yields 31 December mix by AAA cash yields for achieved 2008 currency rate year by QBE* % % % % 2003 3.1 4.6 Australian dollar 36 4.25 2004 3.4 4.8 US dollar 36 0.25 20
Slide 45: 2009 outlook
2009 outlook For personal use only Subject to no material movement in budgeted exchange rates; large individual risk and catastrophe claims not exceeding the substantial allowance in our business plans; and no major fall in equity markets or interest rates, we expect: • Gross written premium and net
Slide 46: 2009 outlook
2009 outlook For personal use only • Expected reinsurance expense ratio of less than 13% of gross written premium • Combined commission and expense ratio of around 29% • Expected gross investment yield of around 3% - a 1% movement is equivalent to around $300 million before tax • Targeted tax expens
Slide 47: 2009 outlook
2009 outlook For personal use only • With around 76% of QBE business in overseas currencies, an average 5% appreciation or depreciation of the Australian dollar against all currencies impacts gross written premium by around $496 million and net profit after tax by around $77 million • Continue our s
Slide 48: 2009 projected premium income
2009 projected premium income For personal use only Gross written Original A$bn currency Australia 3.3 A$3.3bn Asia Pacific 0.8 A$0.8bn QBE Insurance Europe 3.0 £1.35bn QBE Underwriting – Lloyd’s division 2.9 £1.3bn the Americas 6.2 US$4.2bn Equator Re 2.9 A$2.9bn Equator Re elimination (2.9) (A$2.9
Slide 49: A track record of underwriting profits
A track record of underwriting profits For personal use only *COR COR COR COR COR 2004 2005 2006 2007 2008 % % % % % Australia 89.7 83.6 82.9 82.9 90.6 Asia Pacific 86.4 82.3 82.7 82.7 82.9 Europe 95.6 90.0 88.9 92.1 93.8 Lloyd’s 91.6 94.5 82.1 75.7 74.2 Americas 93.5 92.9 89.7 93.6 93.6 Equator Re
Slide 50: 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 $50.00 An invest
Slide 51: QBE Insurance Group
For personal use only QBE INSURANCE GROUP www.qbe.com 50 QBE INSURANCE GROUP – RESULTS YEAR ENDED 31 DECEMBER 2008