Qbe Insurance Group Limited · ASX:QBE
Qbe Insurance — Citi Australian Investment Conference 2012
38 slides from Qbe Insurance's conference presentation, Oct 24, 2012
Slide 1: ASX cover letter: Citi Australian Investment Conference Presentation
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 24 October 2012 Telephone: +61 (2) 9375 4444 Facsimile: +61 (2) 9231 6104 DX 10171, Sydney Stock Exchange The Manager Company Announcements
Slide 2: Citi Australian Investment Conference - QBE Insurance Group
For personal use only Citi Australian Investment Conference QBE Insurance Group Neil Drabsch Group CFO Jenny Boddington CEO, QBE LMI 24 October 2012 All amounts in US$ unless otherwise stated 1
Slide 3: FY12 financial performance targets
FY12 financial performance targets For personal use only • On track to meet FY12 financial target of insurance profit margin better than 12.0% • Premium growth – low single digit • Overall premium rate increases of over 5% being achieved, significantly higher in Australia and North America • Large i
Slide 4: Regulatory capital – estimated LAGIC impact
Regulatory capital – estimated LAGIC impact For personal use only • Following consultation with APRA, in 9,000 MCR/PCA Capital Base principle understanding of impact of LAGIC 1.54x 30 June 2012 1.59x proposals on regulatory capital 8,000 • US $1.5Bn tier 2 securities issued in 2011 7,000 will contin
Slide 5: US specialist classes update - crop
US specialist classes update - crop For personal use only • Including anticipated net claims from US drought conditions, reaffirm FY12 crop guidance in the range of 99% to 102% COR underpinned by: › US Federal Government multi-peril crop scheme reinsurance; › QBE specific external stop loss reinsura
Slide 6: US specialist classes update - LPI
US specialist classes update - LPI For personal use only • QBE FIRST on track to achieve FY12 GWP of around $1.7Bn comprising $1.1Bn lender placed (LPI); $0.2Bn real estate owned (REO); and $0.4Bn auto CPI, renters insurance and voluntary home and motor • Expect overall mid-to-high single digit (por
Slide 7: QBE Lenders' Mortgage Insurance (QBE LMI)
For personal use only QBE Lenders’ Mortgage Insurance (QBE LMI) Jenny Boddington CEO, QBE LMI 6 Investment Conference – 24 October 2012 Citi Australian
Slide 8: Agenda
Agenda For personal use only 1. Snapshot of QBE LMI 2. Background on the Australian market 3. Current highlights on QBE LMI 4. Appendix - background information on QBE LMI 7 Citi Australian Investment Conference – 24 October 2012
Slide 9: Snapshot of LMI and QBE LMI
Snapshot of LMI and QBE LMI For personal use only • In Australia, LMI is a single premium insurance with revenue earned over a long period (9 years) • LMI protects the lender against losses due to borrower default on their mortgage and covers the full loan amount • LMI used for full documentation lo
Slide 10: Financial performance/position June 2012
Financial performance/position 30 June 2012 For personal use only P&L highlights Summarised balance sheet As at As at A$ millions 31-Dec-11 30-Jun-12 6 Months Year ended ended A$ millions / % 31-Dec-11 30-Jun-12 Cash and investments 1,633 1,800 Other assets 219 201 Total assets 1,852 2,001 Gross
Slide 11: Background information on the Australian market
For personal use only Background information on the Australian market 10 Citi Australian Investment Conference – 24 October 2012
Slide 12: Australian housing loans – key differentiators from other markets
Australian housing loans – key differentiators from other markets For personal use only • Mortgage origination concentrated in 4 major banks (circa 80% of system) • Conservative lending practices: › mature marketplace with strong underwriting and credit culture not chasing revenue up the risk curve
Slide 13: Impact of GFC on Australian mortgages
Impact of GFC on Australian mortgages For personal use only • Many lenders withdrew from lending in the above 90% LVR space due to a shortage of funding • Lenders also withdrew from the low documentation market • Most lenders have returned to the above 90% LVR market (starting in early 2011) • Low d
Slide 14: Australian loans outperform most peers
Australian loans outperform most peers For personal use only •Definitions of „non-performing‟ differ across jurisdictions, and in some cases exclude loans that are 90+ days past due but are not impaired; includes 18 large US banks, 52 large institutions from across the euro area, 13 large other Euro
Slide 15: Housing – short term outlook (BIS Shrapnel)
Housing – short term outlook (BIS Shrapnel) For personal use only Residential property market demand shows signs of recovery in 2012/13 • Strong growth in First Home Buyer demand with modest growth from up-graders and investors • High levels of net overseas migration (especially students and migrant
Slide 16: Housing – long term outlook (BIS Shrapnel)
Housing – long term outlook (BIS Shrapnel) For personal use only • Economic growth to remain solid underwritten by mining, but non-mining sectors to strengthen over 2013/14 • Housing interest rates to remain supportive until 2014, with risk of high rates curtailing the upturn in 2015 • Underlying de
Slide 17: Current highlights on QBE LMI
For personal use only Current highlights on QBE LMI 16 Citi Australian Investment Conference – 24 October 2012
Slide 18: Risk management within QBE LMI
Risk management within QBE LMI For personal use only • Underwriting risk mitigants › use of local knowledge (e.g. Brisbane underwriters look at Queensland deals) › we do not insure loans at the top end of the market › we avoid concentration in high rise developments and regional areas • Improvements
Slide 19: Queensland performance is within expectations
Queensland performance is within expectations For personal use only • Queensland exposure › represents 25% of LMI book › delinquency rate is 0.70% (0.60% for total book) › the delinquency trend is not accelerating relative to other states in 2012 › worst performing areas are Gold Coast, Far North Ql
Slide 20: QLD performance compares favourably to previous NSW downturn
QLD performance compares favourably to previous NSW downturn For personal use only Incurred Losses Trend Analysis by Development Year 100% 80% 60% 40% 20% 0% 0 1 2 3 4 5 6 7 8 2004 (NSW) 2005 (NSW) 2008 (QLD) 2009 (QLD) Please note - Early development years for underw riting years 2004 & 2005 are no
Slide 21: Hardship policy is a successful initiative
Hardship policy is a successful initiative For personal use only • Hardship policy › LMI works with lenders to support genuine “hardship” cases, where borrowers are likely to recover from their temporary circumstances › most borrowers applying for hardship are not in arrears › hardship can result in
Slide 22: Key messages
Key messages For personal use only • Financial strength › strong, diversified parent › rated AA- by S&P and Fitch, Aa3 by Moodys › meets APRA and S&P prudential capital requirements › no debt • Investment portfolio › low duration › high quality › no RMBS • Claims paying resources › claims provisions
Slide 23: Questions & answers
For personal use only Questions & answers 22 Citi Australian Investment Conference – 24 October 2012
Slide 24: Appendix: Background info on QBE LMI
Appendix: Background info on QBE LMI For personal use only • How does LMI work • Financial performance • Portfolio profile • Claims and arrears performance 23 Citi Australian Investment Conference – 24 October 2012
Slide 25: How does LMI work? Liability management
How does LMI work ? Liability management For personal use only • Dynamic provisioning based on defaults • Key sensitivities › interest rates › unemployment › house price movement • Risk margins – modelled separately using co-variance analysis • Provisioning: defaults X claim rate X severity • Most d
Slide 26: How does LMI work? Scoring and portfolio management tools
How does LMI work ? Scoring and portfolio management tools For personal use only • Scoring tools based on historical and projected data › riskband – based on relative mix of borrower default › appscore – based on market risk variables and loan risk variables • Stress testing › quarterly review of po
Slide 27: Transition from default to claim
Transition from default to claim For personal use only Healthy policies Defaults Cures (0.6% of healthy policies) Properties In Nil claims possession (30% of Claims Surplus defaults) (50% of PIPs) Claims @20% severity 26
Slide 28: Earning of premiums
Earning of premiums For personal use only • Single premium earned over a period of risk emergence • Premium covers: › cost of capital › claims › operating expenses › acquisition expenses Yr 1 Yr 2 Yr 3 Yr 4 Yr 5 Yr 6 Yr 7 Yr 8 Yr 9 The earning pattern mirrors the probability of default 27 Citi Aus
Slide 29: Premium level and mix tracks mortgage originations
Premium level and mix tracks mortgage originations For personal use only Written Premium ($m) 300.0 250.0 200.0 $m 150.0 $271m $231m $226m 100.0 $166m $167m 50.0 0.0 2008 FY 2009 FY 2010 FY 2011 FY 1H 2012 Written Premium 28 Citi Australian Investment Conference – 24 October 2012
Slide 30: Portfolio profile – Risk in Force of $152b
Portfolio profile – Risk in Force of $152b For personal use only RIF % by Product at 30-Jun-12 RIF % by Delivery Channel at 30-Jun-12 5% 35% FLOW FULL DOC TRANCHE LOW DOC 65% 95% RIF % by Lender Group at 30-Jun-12 RIF % by State at 30-Jun-12 1% 2% 10% 22% 31% 13% NSW ADI QLD NON-ADIs VIC NEW ZEALAND
Slide 31: Portfolio profile (contd.)
Portfolio profile (contd.) For personal use only RIF % by LVR Band at 30-Jun-12 RIF % by FHOG at 31-Mar-12 Average LVR 1% 15% of 75% - this is 17% based on date 23% of last credit approval 0.00% to 60% 8% 60.01% to 70% 70.01% to 80% 80.01% to 85% FHOG 85.01% to 90% Non-FHOG 90.01% to 95% 95.01% + 20
Slide 32: Recent trends in Claims Paid
Recent trends in Claims Paid For personal use only 31 Citi Australian Investment Conference – 24 October 2012
Slide 33: Profitability follows the economic cycle
Profitability follows the economic cycle For personal use only Incurred Loss Ratios (including reserves) at June 2012 PRIOR 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 Underw riting Year 32 Citi Australian Investment Conference – 24 October 2012
Slide 34: Claim frequency and severity
Claim frequency and severity For personal use only QBE LMI Claim Frequency and Severity by Calendar Year as at 30-Jun-2012 0.35% 40.0% 35.0% 0.30% 30.0% 0.25% 25.0% 0.20% Frequency Severity 20.0% 0.15% 15.0% 0.10% 10.0% 0.05% 5.0% 0.00% 0.0% 85 86 87 88 89 90 91 92 93 94 95 96 97 98 99 00 01 02 03 0
Slide 35: Claim frequency varies by state according to economic conditions
Claim frequency varies by state according to economic conditions For personal use only Claim Frequency by State at 2012 Annualised 0.35% 0.30% 0.25% Claim Frequency % 0.20% 0.15% 0.10% 0.05% 0.00% 2007 2008 2009 2010 2011 2012 Calendar Year NSW QLD VIC WA OTHER NZ 34 Citi Australian Investment Con
Slide 36: Arrears performance: historical delinquency rates by state
Arrears performance: historical delinquency rates by state For personal use only Historical Delinq. Rates by State at 30-Jun-12 1.00% 0.80% 0.60% Delinq Rate 0.40% 0.20% 0.00% 2008 2009 2010 2011 2012 Calendar Year Ending NSW QLD VIC WA OTHER NZ Total Delinquency rate – number of arrears > 60 days /
Slide 37: 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 lodged with the ASX on 17 August, 2012, QBE‟s Investor and Analyst Day North America
Slide 38: QBE Insurance Group
For personal use only QBE Insurance Group 37
QBE Insurance Group — Citi Australian Investment Conference 2012 on 6ix