Qbe Insurance Group Limited · ASX:QBE
Qbe Insurance — Investor Day (October 2012)
83 slides from Qbe Insurance's investor day presentation, Oct 12, 2012
Slide 1: ASX cover letter - QBE North America Investor and Analyst Day
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 12 October 2012 Telephone: +61 (2) 9375 4444 Facsimile: +61 (2) 9231 6104 DX 10171, Sydney Stock Exchange The Manager Company Announcements
Slide 2: QBE North America Investor and analyst day presentation
For personal use only QBE INSURANCE GROUP QBE North America Investor and analyst day presentation October 12, 2012 All amounts in US dollars unless otherwise stated
Slide 3: Agenda
Agenda For personal use only Introduction and North American Overview John Rumpler – President & Chief Executive Officer, QBE North America QBE FIRST CD Davies – Chief Executive Officer, QBE FIRST Matt Freeman – Mortgage & Lender Services Executive, QBE FIRST NAU/Crop Greg Deal – Presi
Slide 4: Agenda
Agenda For personal use only North America – Introduction and Overview QBE FIRST NAU/Crop Intermediary Distribution Group Reinsurance Management (including Equator Re) QBENA Risk Management Closing Q&A QBE North America – Investor Day – October 12, 2012 3
Slide 5: North America
North America For personal use only John Rumpler - President & CEO, QBE North America QBE North America – Investor Day – October 12, 2012 4
Slide 6: North America: market position
North America: market position For personal use only Latin America, with 2012 forecast premium of $1.2BN, operates as a stand-alone division of the QBE Group in 2012 2012 forecast gross written premium of US$6.6BN Represents roughly 1.5% of the US non-life insurance market US focus currently
Slide 7: North America: historical overview
North America: historical overview For personal use only 1991 1993 1997 2001 2005 2006 2007 2008 2009 2010 2011 Balboa NAU acquired portfolio US Representative Winterthur US acquired Office set-up acquired: Regional business unit formed Sterling National is acquired American Royal Re Praetorian (Rei
Slide 8: North America: current / historical financials
North America: current / historical financials For personal use only Year ended 31 December 1H12 1H11 FY11 FY10 FY09 FY08 Gross written premium US$M 3,228 3,144 7,529 4,606 3,648 3,417 Net earned premium US$M 1,609 1,572 4,018 2,555 2,211 2,332 Combined operating ratio % 94.3 88.3 90.6 89.1 89.0 93.
Slide 9: North America: distribution and product mix
North America: distribution and product mix For personal use only 2012 Forecast GWP US $6.6BN Reinsurance Intermediary Program Crop QBE FIRST US$420M US$1.300BN US$1.550BN US$1.630BN US$1.700BN (6%) (20%) (23%) (25%) (26%) QBE North America – Investor Day – October 12, 2012 8
Slide 10: North America: market conditions and FY12 outlook
North America: market conditions and FY12 outlook For personal use only 2012 represents a year to focus on consolidation following recent acquisitions Rate increases in 2012 overall expected to be greater than 6%, exceeding those achieved in 2011 Current assessment of the impact of drought con
Slide 11: North America: key expense initiatives
North America: key expense initiatives For personal use only Target improvement in underwriting profit of $120M over next 3 years in claims and operating costs – Regional Insurance Claims – four operations consolidated into one – Program Insurance Claims – aligned with distribution streams and enh
Slide 12: North America: looking ahead
North America: looking ahead use only Deliver synergies from acquired businesses Opportunities Leverage business relationship with financial institutions Continue to capitalize on market hardening and additional possible rate increases above those achieved in 1H12 in personal and personal comm
Slide 13: Agenda
Agenda For personal use only Introduction and North American Overview QBE FIRST NAU/Crop Intermediary Distribution Group Reinsurance Management (including Equator Re) QBENA Risk Management Closing Q&A QBE North America – Investor Day – October 12, 2012 12
Slide 14: QBE FIRST
QBE FIRST For personal use only CD Davies – Chief Executive Officer, QBE FIRST Matt Freeman – Mortgage & Lender Services Executive, QBE FIRST QBE North America – Investor Day – October 12, 2012 13
Slide 15: QBE FIRST (2012 Forecast GWP $1.7 BN)
QBE FIRST (2012 Forecast GWP $1.7 BN) Two primary business segments For personal use only Mortgage & Lender Services (87% of GWP) Consumer & Affiliated Agencies (13% of GWP) Provides home and auto insurance tracking Provides voluntary insurance products and property tax solutions to mortgage dis
Slide 16: QBE FIRST - Strategic Distribution
QBE FIRST - Strategic Distribution One of the largest U.S. distributors of insurance products through financial institutions For personal use only Mortgage & Lender Services Consumer & Affiliated Agencies Direct Direct Conducts business with the servicing divisions QBEF has longstanding relationsh
Slide 17: Lender Placed Hazard Insurance - Process
QBE FIRST Lender Placed Hazard Insurance - Process For personal use only 1 Home Purchase 2 Lenders can: 3 How do investors protect their interest? 1. Retain Loan on Balance Sheet How do investors know which loans do 2. Sell to Secondary Market or do not have insurance? • Most individuals borrow mone
Slide 18: QBE FIRST Geographic spread by total insured value
QBE FIRST Geographic spread by total insured value For personal use only • Data as of July 2012 • Includes business generated by QBE FIRST and written with QBE carriers QBE North America – Investor Day – October 12, 2012 17
Slide 19: QBE FIRST Mortgage & Lender Services
QBE FIRST Mortgage & Lender Services For personal use only Strong market position – Estimated 33% market share (based on loans serviced) Breadth of offering: – Home and auto insurance tracking – Real estate tax services Leading edge technology – Complex IT systems support tracking and customer
Slide 20: QBE FIRST Consumer & Affiliated Agencies
QBE FIRST Consumer & Affiliated Agencies For personal use only Attractive economics in a competitive industry – Homebuilder channel offers attractive risk (new homes, creditworthy policyholders, pride of ownership) – Product is sold on a timing advantaged and convenience basis, not price – Loss ra
Slide 21: QBE FIRST Legal and Regulatory Update
QBE FIRST Legal and Regulatory Update For personal use only Core LPI product anticipated to be completely transitioned to admitted paper in all states by year-end Working with Government Sponsored Enterprises (e.g. Fannie Mae) on potential mortgage servicing guideline changes Regular interacti
Slide 22: QBE FIRST Integration Update
QBE FIRST Integration Update For personal use only Conversion from Balboa to QBE paper predominantly completed as of June 1, 2012 Transition and exit program from Bank of America shared services is on schedule Expected efficiencies from the integration of shared services as well as from consol
Slide 23: QBE FIRST Q&A
QBE FIRST For personal use only Q&A QBE North America – Investor Day – October 12, 2012 22
Slide 24: Agenda
Agenda For personal use only Introduction and North American Overview QBE FIRST NAU/Crop Intermediary Distribution Group Reinsurance Management (including Equator Re) QBENA Risk Management Closing Q&A QBE North America – Investor Day – October 12, 2012 23
Slide 25: NAU/Crop
NAU/Crop For personal use only Greg Deal – President & Chief Executive Officer, NAU Country Insurance Jim Korin – Chief Operating Officer, NAU Country Insurance QBE North America – Investor Day – October 12, 2012 24
Slide 26: Crop insurance (2012 GWP $1.63 BN)
Crop insurance (2012 GWP $1.63 BN) For personal use only NAU is the third largest underwriter and manager of multi peril crop insurance (MPCI) in the U.S. with an approximate 15% share MPCI is a U.S. government sponsored program to assist farmers with insurance of crops NAU writes business cov
Slide 27: Crop insurance business mix
Crop insurance business mix For personal use only Crop 2012 Forecast GWP by Line of Business 100% = $1,630M Named Peril Hail MPCI QBE North America – Investor Day – October 12, 2012 26
Slide 28: Multi peril crop insurance retention review
Multi peril crop insurance retention review For personal use only Government sets the rates Government protection 1. Assigned risk allows us to cede poor policies/crops/counties to the government 2. Balance is retained in commercial fund with stop loss protection 3. Government takes all exposure
Slide 29: US crop insurance geographic premium mix, 2012
US crop insurance geographic premium mix, 2012 For personal use only QBE North America – Investor Day – October 12, 2012 28
Slide 30: US drought monitor (as of October 4, 2012)
US drought monitor (as of October 4, 2012) For personal use only Source: http://droughtmonitor.unl.edu, Anthony Artusa NOAA/NWS/NCEP/CPC QBE North America – Investor Day – October 12, 2012 29
Slide 31: QBE's crop insurance strengths
QBE‟s crop insurance strengths For personal use only Industry leading insurance technology platform: policy quoting, processing/underwriting, claims Dedicated seasoned underwriting and loss adjustment teams to service crop business Clearly defined strategy focusing our resources on targeted bu
Slide 32: NAU leaders in technology
NAU leaders in technology For personal use only NAU’s proprietary software, developed on an Oracle data base, is the backbone of our operations and key to our profitability and strong agency relationships NAU possess the most advanced technology for reporting and production gathering: Automated po
Slide 33: NAU regulations
NAU regulations For personal use only 1. Federal government oversight Approval process is rigorous Daily review of policy and claim data filings Monthly accounting reports Stringent claims review process 1. 200k reviews 2. 500k reviews 3. Data missing 4. Standard overall review process Nat
Slide 34: NAU/Crop Q&A
NAU/Crop For personal use only Q&A QBE North America – Investor Day – October 12, 2012 33
Slide 35: Agenda
Agenda For personal use only Introduction and North American Overview QBE FIRST NAU/Crop Intermediary Distribution Group Reinsurance Management (including Equator Re) QBENA Risk Management Closing Q&A QBE North America – Investor Day – October 12, 2012 34
Slide 36: Intermediary distribution
Intermediary distribution For personal use only Mike Scala – President, Intermediary Distribution Tony Cid – Head of Regional Business Doug Bennett – Head of Program Business Mark Leverick – Head of Major Brokers Business QBE North America – Investor Day – October 12, 2012 35
Slide 37: US insurance market conditions
US insurance market conditions For personal use only Generally strong H1 underwriting results - significantly reduced Cats YOY Pricing strengthened between 4-5% on average - Property leading the increases (+6% in July)* Prior year reserve releases for the overall market continue but slowing do
Slide 38: Overview of traditional and non-traditional channels
Overview of traditional and non-traditional channels For personal use only Traditional Channel Non-traditional Channel Excess & Surplus Lines Admitted Insurance Insurance Co Company Underwriting Policy Admin Wholesale Broker Claims Loss Control Retail Agent / Brokers Retail Agent Insured Insured QBE
Slide 39: QBE North America – Intermediary Distribution
QBE North America – Intermediary Distribution For personal use only Intermediary distribution is expected to contribute 43% of QBE North America’s GWP in 2012 QBENA 2012 Forecast GWP by Business Unit 100% = $6,600M Regional 17% QBE First 26% Program 24% Intermediary Distribution 43% Crop 25% Major B
Slide 40: Overview of Intermediary Distribution
Overview of Intermediary Distribution For personal use only Intermediary Distribution comprises 4 distribution channels Intermediary Distribution Regional Program Major Brokers Specialty Description Production Business largely Lines include through sourced through Business Trade Credit, Exclusive an
Slide 41: Key Intermediary Distribution initiatives
Key Intermediary Distribution initiatives For personal use only Key initiatives being undertaken within Intermediary Distribution include Rebranding of legacy brands to one QBE (former Winterthur and Praetorian brands no longer retained) Upgrading of technology platform Underwriting improvemen
Slide 42: Regional (2012 Forecast GWP $1.11BN)
Regional (2012 Forecast GWP $1.11BN) For personal use only Regional 2012 GWP by Line of Business 100% = $1,110M Production through approximately 315 exclusive Commercial agents and 1,440 independent Commercial Agri Auto agencies Personal Commercial Licensed in all 50 states and Liability Propert
Slide 43: Regional profitability alignment
Regional profitability alignment For personal use only Portfolio review of areas with under performing results. Actions taken to improve profitability include termination of unprofitable agents, new pricing goals, mandatory increase of commercial property portfolio and identifying policies with freq
Slide 44: Regional – pricing trend
Regional – pricing trend For personal use only Total personal and commercial quarterly rate activity 2011 2012 Product Q1 Q2 Q3 Q4 Q1 Q2 CL 3.3% 3.2% 1.8% 4.1% 3.3% 5.3% PL -0.4% 0.7% 4.5% 4.4% 5.1% 6.3% All 0.8% 1.6% 3.5% 4.3% 4.7% 5.7% Commercial property rate (cumulative YTD) +15.0% +10.0% +5.0%
Slide 45: Program (2012 Forecast GWP $1.55BN)
Program (2012 Forecast GWP $1.55BN) For personal use only Program 2012 GWP by Line of Business 100% = $1,550M Diversified portfolio across Workers Comp products and geography Accident & Health Disciplined underwriting selection Property (CAT) Average partnership size of Liability $15M GWP Ad
Slide 46: QBE Program business channel
QBE Program business channel For personal use only Authority Delegated For 1. Underwriting 2. Policy Administration QBE Programs 3. Loss Control Third Party Administrator (TPA) Quote/ -Claims Binder/ Program Administrator -Loss Control* Policy Issuance Retail Agent TPA usually deals directly with in
Slide 47: Program – pricing trend
Program – pricing trend For personal use only Total personal and commercial quarterly rate activity 2011 2012 Product Q1 Q2 Q3 Q4 Q1 Q2 CL 0.8% 1.7% 3.4% 4.1% 9.7% 5.3% PL 2.5% 1.5% 2.3% 4.0% 4.1% 4.2% A&H 12.8% 13.8% 13.7% 14.0% 13.4% 10.9% All 0.9% 1.7% 3.4% 4.1% 9.5% 5.2% Commercial Property Rate
Slide 48: Program – business focus
Program – business focus For personal use only Market leader in U.S. with $1.55BN in GWP Specialty niche focus in small to middle market arena Focus on small to mid-sized commercial customers that are underserved in the marketplace Value added products and services – customized coverage – sp
Slide 49: Program – business control framework
Program – business control framework For personal use only Rigorous due diligence process on all new programs Revised contracts on underwriting and claims On site audits of all with delegated authority (inc claims TPAs) Quarterly actuarial reserve and pricing reviews Improved MIS and dashb
Slide 50: Program – competition in the US Program landscape
Program – competition in the US Program landscape For personal use only To compete at the highest level, carriers need 50 state admitted, 50 state non-admitted, A or better rated paper by AM Best Need multi-line products including AL, GL, Package, Property, IM, WC, E&O Adequate capacity is nee
Slide 51: Major brokers (2012 Forecast GWP $140M)
Major brokers (2012 Forecast GWP $140M) For personal use only Unit was established in 3Q 2010 Unit now over 40 FTEs, covering multiple functions Key developments to including Underwriting, Sales/Account Management and date Operations Provides coverage on all major lines including Property & Ca
Slide 52: Major brokers – premium split
Major brokers – premium split For personal use only Major Brokers 2012 GWP by Line of Business 100% = $140M GL WC Property Auto Property Fac QBE North America – Investor Day – October 12, 2012 51
Slide 53: Major brokers – market conditions
Major brokers – market conditions For personal use only Market Size LOB Market conditions $BN Stable to slight firming, up to 5% Property 60 Increases tailing off in 2H2012 Property Fac Stable to gentle firming 0.95 Auto liability - primary Rates firming 5% - 10% 18.5 WC - primary Rating stable with
Slide 54: Specialty (2012 Forecast GWP ~$50M)
Specialty (2012 Forecast GWP ~$50M) For personal use only Aviation General aviation insurance focusing on workers‟ compensation, airports, and private, corporate and commercial aircraft (except for military and major airlines) Established in 2011, future growth to be driven by development of new
Slide 55: Intermediary Distribution – appendix
Intermediary Distribution – appendix For personal use only Appendix QBE North America – Investor Day – October 12, 2012 54
Slide 56: Definitions (1/2)
Definitions (1/2) For personal use only Retail Agents A “retailer” is typically an independent business person who represents multiple insurance carriers to consumers who need insurance on their homes, cars or business Note: There are some agents called Captive Agents that only represent one compa
Slide 57: Definitions (2/2)
Definitions (2/2) For personal use only Third Party Administrators Claims are often outsourced by insurance companies to TPAs who have special knowledge and experience in handling certain kinds of losses (trucking, contracting, public entities). Sometimes TPAs offer loss control services as well Pro
Slide 58: Intermediary Distribution Q&A
Intermediary Distribution For personal use only Q&A QBE North America – Investor Day – October 12, 2012 57
Slide 59: Agenda
Agenda For personal use only Introduction and North American Overview QBE FIRST NAU/Crop Intermediary Distribution Group Reinsurance Management (including Equator Re) QBENA Risk Management Closing Q&A QBE North America – Investor Day – October 12, 2012 58
Slide 60: Group Reinsurance Management
Group Reinsurance Management For personal use only Jim Fiore – Head of Group Reinsurance QBE North America – Investor Day – October 12, 2012 59
Slide 61: QBE Group – reinsurance buying strategies
QBE Group – reinsurance buying strategies For personal use only QBE’s Reinsurance program protects QBE’s balance sheet, increases underwriting capacity, and enhances profitability. QBE’s Reinsurance team pursues three main activities: Aggregate Managing Reinsurance Management and CAT Risk Pooling Co
Slide 62: Maximum Event Retention (MER)
Maximum Event Retention (MER) For personal use only MER: The largest loss to which an insurer will be exposed (based on 250 year loss probability) due to a concentration of risk exposures Potential losses are calculated based on the latest QBE aggregates using industry standard catastrophe modelin
Slide 63: MER components: Nat Cat MER
MER components: Nat Cat MER For personal use only Group MER is derived from analyzing MER across QBE Group 589 113 Modeled losses 3 14 take into 400 58 account: Recoveries Equator from all Retro applicable reinsurance treaties Inwards and Includes outward QBE First reinstatement premiums Group I
Slide 64: Realistic Disaster Scenarios-RDS
Realistic Disaster Scenarios-RDS For personal use only The Realistic Disaster Scenarios represent a list of severe catastrophic events used to stress test the QBE portfolio The QBE RDSs include relevant adjusted Lloyd‟s of London scenarios plus an additional three scenarios derived specifically to
Slide 65: QBE's reinsurance purchasing process
QBE‟s reinsurance purchasing process For personal use only QBE follows a rigorous process to evaluate how much reinsurance to purchase. This provides QBE with capital, balance sheet protection and improves profits: Reinsurer Program Performance Broker selection & Modeling management selection Design
Slide 66: 2012 Group covers: risk and GAR
2012 Group covers: risk and GAR For personal use only QBE’s global reinsurance program is comprised of 4 main covers. Risk and GAR are two such covers providing a $1BN Risk Limit • WW Risk provides QBE with Large Limits Capacity • GAR provides for a greater than expected Frequency of Large non-Cat L
Slide 67: 2012 Group catastrophe covers: Australia and QBE FIRST covers
2012 Group catastrophe covers: Australia and QBE FIRST covers For personal use only QBE’s remaining global covers are the Catastrophe XL and GACC. These covers, in combination with specific local layers provide broad coverage for catastrophes 1 Equator provides retention protection for Catastrophe X
Slide 68: Equator Re
Equator Re For personal use only Equator Re is QBE‟s reinsurance captive, with $3.8BN of GWP in 2011 . Corporate Quota Share $2.7BN Excess of Loss $1.1BN Contracts are written on a „net‟ basis i.e. • Pricing benchmarked against external markets with benefit of inuring reinsurance • Equator bridges
Slide 69: Equator Re
Equator Re For personal use only Equator Re is QBE‟s wholly-owned captive reinsurer providing excess of loss and proportional reinsurance protections to all QBE divisions . Bermuda based captive that operates as a separate profit centre and within About Equator the overall risk appetite of the QBE
Slide 70: Equator Re and Group WW covers
Equator Re and Group WW covers For personal use only Equator provides reinsurance protection below the retentions for the World wide programs Benefits Catastrophe XL • Additional side-ways cover through layer with additional reinstatement w/o additional premium • Price adjusted based on exposure, wh
Slide 71: Market conditions
Market conditions For personal use only QBE Reinsurance weathered 2011 well. Similar coverage for 2012/2013. Competitive Market conditions Capacity in the marketplace indicates some reduction is likely for the 2013 placement. For multi-year agreements should see impact in 2014 Reinsurer • Long s
Slide 72: Group Reinsurance Management Q&A
Group Reinsurance Management For personal use only Q&A QBE North America – Investor Day – October 12, 2012 71
Slide 73: Agenda
Agenda For personal use only Introduction and North American Overview QBE FIRST NAU/Crop Intermediary Distribution Group Reinsurance Management (including Equator Re) QBENA Risk Management Closing Q&A QBE North America – Investor Day – October 12, 2012 72
Slide 74: QBENA risk management
QBENA risk management For personal use only John Langione – Chief Risk Officer, QBE North America QBE North America – Investor Day – October 12, 2012 73
Slide 75: QBENA risk management
QBENA risk management For personal use only Risk Core services: Risk management strategy and governance QBE ERM Develop QBENA risk appetite APPROACH statements and monitor compliance Business Economic Planning Capital Business planning Provide training and tools The combination of strategic
Slide 76: QBE Group-wide risk management strategy (RMS)
QBE Group-wide risk management strategy (RMS) – fully adopted by all divisions For personal use only Risk management policy – Objectives and approach, responsibility, risk management culture, risk strategy Risk management framework – Governance, risk appetite and tolerance, risk policies, measur
Slide 77: QBENA risk management Q&A
QBENA risk management For personal use only Q&A QBE North America – Investor Day – October 12, 2012 76
Slide 78: Agenda
Agenda For personal use only Introduction and North American Overview QBE FIRST NAU/Crop Intermediary Distribution Group Reinsurance Management (including Equator Re) QBENA Risk Management Closing Q&A QBE North America – Investor Day – October 12, 2012 77
Slide 79: North America – closing Q&A
North America – closing Q&A For personal use only John Rumpler - President & CEO, QBE North America Chris Fish – Chief Financial Officer, QBE North America John Langione – Chief Risk Officer, QBE North America QBE North America – Investor Day – October 12, 2012 78
Slide 80: North America Q&A
North America For personal use only Q&A QBE North America – Investor Day – October 12, 2012 79
Slide 81: Important disclaimer
Important disclaimer For personal use only • This presentation should be read in conjunction with all information which QBE has lodged with the Australian Securities Exchange (“ASX”); including QBE‟s half year results filed with the ASX on August 17 2012. Copies of those lodgements are available fro
Slide 82: Important disclaimer (continued)
Important disclaimer (continued) For personal use only • Any forward-looking statements assume large individual risk and catastrophe claims do not exceed the significant allowance in our business plans; no overall reduction in premium rates; no significant fall in equity markets and interest rates;
Slide 83: QBE North America Investor and analyst day presentation
For personal use only QBE INSURANCE GROUP QBE North America Investor and analyst day presentation October 12, 2012 All amounts in US dollars unless otherwise stated