QBE Insurance Group Limited · ASX:QBE
QBE Insurance — FY2002 Earnings Presentation
44 slides from QBE Insurance's earnings presentation, Mar 6, 2003
Slide 1: QBE Insurance Group Limited Results & Outlook
QBE INSURANCE GROUP LIMITED RESULTS & OUTLOOK for the year ended 31 December 2002 6 March 2003
Slide 2: Highlights
Highlights year ended 31 December 2002 • Net profit after tax $279 million (2001: loss $25 million) • Net profit includes realised and unrealised losses on equities of $151 million after tax (2001: losses of $22 million) • Insurance profit $406 million (2001: loss $119 million) or 7.2% of net earned
Slide 3: Highlights
Highlights year ended 31 December 2002 • Gross written premium up 14% to $7.7 billion, gross earned premium up 14% to $7.2 billion • Average premium rate increases exceeded our expectation of 20% in 2002 • Net earned premium up 22% to $5.6 billion • Combined operating ratio (COR) decreased from 109.
Slide 4: Highlights
Highlights year ended 31 December 2002 • Gross claims incurred ratio reduced from 99.7% (80.3% excluding the WTC loss) to 65.1%. Net claims ratio reduced from 76.6% (69.4% excluding the WTC loss) to 67.6% • Reinsurance costs decreased from 26% to 22% of gross earned premium. Premium rate increases m
Slide 5: Highlights
Highlights year ended 31 December 2002 • Expense ratio decreased from 12.8% to 12.4% • Investment income $181 million down from $344 million last year • Investment income includes realised and unrealised losses before tax of $151 million, mainly reflecting the fall in equity markets (2001: net gains
Slide 6: Highlights
Highlights year ended 31 December 2002 • The basis used for measurement of management operational performance is the seven year spread basis of accounting • The seven year spread basis of accounting spreads realised and unrealised property and equity gains evenly over seven years to give a better me
Slide 7: Shareholder returns
Shareholder returns year ended 31 December 2002 • Final dividend 18.5¢ per share, 12% franked, compared with 13.5¢. Total dividend for 2002 was 35.0¢ (2001 30.0¢) • Shares on issue 615 million (2001 : 585 million) • Final dividend payout $114 million, up 43% • Dividend reinvestment plans continue at
Slide 8: Historical share price performance
Historical share price performance An investment in QBE has outperformed the Australian All Ordinaries Index and inflation with a compound average annual growth rate of 12.0% over 5 years, 20.1% over 10 years and 24.9% over 20 years 20 18 QBE share price performance QBE share price performance inclu
Slide 9: Dividend performance
Dividend performance year ended 31 December 2002 $M 240 Total $213M 200 160 Final $114M 120 80 Interim $99M 40 0 1993 1996 1999 2002
Slide 10: History of growth
History of growth year ended 31 December 2002 gross and net earned premium Compound average growth rates over last 10 years: - gross earned premium 23.2% $M - net earned premium 22.3% 8,000 GEP $7,197M 6,000 4,000 NEP $5,642M 2,000 0 1993 1996 1999 2002
Slide 11: History of key ratios
History of key ratios Combined operating ratio (COR) and insurance profit to net earned premium 90.0 10 COR% * 92.0 Ins profit % * 8 94.0 6 96.0 4 Insurance profit % 98.0 2 COR% 100.0 0 102.0 -2 104.0 -4 106.0 -6 108.0 -8 1992 1993 1994 1995 1996 1997 1998 1999 2000 2001 2002 Financial years * 2001
Slide 12: Worldwide operations
Worldwide operations HALF YEAR FULL YEAR June Dec Dec Dec 2002 2002 2002 2001 Gross written premium $M 4,332 3,391 7,723 6,793 Gross earned premium $M 3,470 3,727 7,197 6,298 Net earned premium $M 2,679 2,963 5,642 4,634 Claims ratio % 68.4 66.9 67.6 76.6 Commission ratio % 18.2 17.2 17.7 20.2 Expen
Slide 13: Worldwide operations
Worldwide operations year ended 31 December 2002 GWP Growth COR Net profit (loss) after tax 2002 2002 2002 2001 2002 2001 $M % % % $M $M Australia 1,578 18 97.1 100.6 103 57 Asia-Pacific 629 20 95.9 99.4 18 27 the Americas 991 36 99.6 112.4 14 (19) European companies 2,249 12 98.9 119.1 76 (95) Lloy
Slide 14: Geographical diversification
Geographical diversification year ended 31 December 2002 gross earned premium Lloyd’s division 30.4% (30.9%) Australia 20.1% (19.1%) Asia-Pacific 8.4% (8.2%) the Americas 11.9% (10.4%) European companies 29.2% (31.4%)
Slide 15: Worldwide portfolio mix
Worldwide portfolio mix year ended 31 December 2002 gross earned premium Other Marine and aviation 11.1% (9.1%) 9.3% (13.5%) Workers’ compensation Accident and health 9.2% (5.8%) 7.7% (8.6%) Professional indemnity 9.1% (7.1%) Property 27.3% (23.7%) Liability 12.6% (13.5%) Financial and credit 2.9% (
Slide 16: Balance sheet
Balance sheet 31 Dec 2002 31 Dec 2001 Assets $M $M Investments and cash 11,508 9,165 Receivables 3,278 2,993 Recoveries on outstanding claims 3,666 4,509 Deferred insurance costs 1,131 1,099 Intangibles 516 472 Fixed and other assets 438 414 Total assets 20,537 18,652 Liabilities Outstanding claims
Slide 17: Balance sheet
Balance sheet 31 December 2002 • Investments and cash increased by $2.3 billion to $11.5 billion reflecting strong cash flow and increased borrowings • Listed equities at 7.9% of total investments and cash, with 43% of equities in Australia, 33% in Europe, 14% in USA and 10% other • Quality fixed in
Slide 18: Balance sheet
Balance sheet 31 December 2002 • Receivables over 90 days have reduced. Conservative provision held for doubtful premium debtors. Bad debts experience over the years has been low • Reinsurance recoveries on outstanding claims decreased from $4.5 billion to $3.7 billion. Provision for doubtful debts
Slide 19: Balance sheet
Balance sheet 31 December 2002 • Debt increased to $1,456 million; 20% short term, 25% long term subordinated debt and 55% hybrid 20 year zero coupon securities with flexibility for conversion • Overall borrowing costs reduced to 4.8% per annum from 7.0% • Prudential margins exceed Group benchmark o
Slide 20: Balance sheet
Balance sheet 31 December 2002 • Premium liabilities of $3.2 billion represent unearned portion of policies in force. Includes substantial premium rate increases to be earned in 2003 and allowances for large losses and catastrophes to expiry of policies • Strong Group capital adequacy around 1.6 tim
Slide 21: Australian general insurance
Australian general insurance year ended 31 December 2002 2002 2001 Gross written premium $M 1,578 1,340 Gross earned premium $M 1,448 1,202 Net earned premium $M 1,221 1,006 Claims ratio % 72.1 72.6 Commission ratio % 10.5 13.1 Expense ratio % 14.5 14.9 Combined operating ratio % 97.1 100.6 Insuranc
Slide 22: Australian general insurance
Australian general insurance year ended 31 December 2002 • Joint venture underwriting agency with ING exceeded premium and profit expectations. Awarded National Insurance Brokers’ Underwriter of the Year • CTP, workers’ compensation, Western QBE and trade credit performed at or above expectations •
Slide 23: Asia-Pacific general insurance
Asia-Pacific general insurance year ended 31 December 2002 2002 2001 Gross written premium $M 629 523 Gross earned premium $M 602 516 Net earned premium $M 441 405 Claims ratio % 55.1 54.7 Commission ratio % 20.4 22.3 Expense ratio % 20.4 22.4 Combined operating ratio % 95.9 99.4 Insurance margin %
Slide 24: Asia-Pacific general insurance
Asia-Pacific general insurance year ended 31 December 2002 • 13 of 18 operations recorded underwriting profits • Good results from Hong Kong, Singapore, Fiji, New Zealand, French Territories and PNG • Malaysia incurred integration costs from MBf merger and Japan incurred costs of closure • Losses fr
Slide 25: the Americas
the Americas year ended 31 December 2002 2002 2001 Gross written premium $M 991 731 Gross earned premium $M 856 655 Net earned premium $M 672 490 Claims ratio % 68.4 80.2 Commission ratio % 24.7 26.0 Expense ratio % 6.5 6.2 Combined operating ratio % * 99.6 112.4 Insurance margin % ** 2.7 (5.9) * 20
Slide 26: the Americas
the Americas year ended 31 December 2002 • Significant improvement in 2002 portfolio performance more than offset prior year deterioration • Strong focus on disciplined growth from renewals and new business with proven profitable track records • Capital base strengthened in 2002 - AM Best A (excelle
Slide 27: European company operations
European company operations year ended 31 December 2002 2002 2001 Gross written premium $M 2,249 2,017 Gross earned premium $M 2,103 1,978 Net earned premium $M 1,731 1,368 Claims ratio % 72.2 88.4 Commission ratio % 14.7 18.3 Expense ratio % 12.0 12.4 Combined operating ratio % * 98.9 119.1 Insuran
Slide 28: European company operations
European company operations year ended 31 December 2002 • Actions taken in 2001 and a lower frequency of claims in 2002 more than offset prior year deterioration • Risk profile of portfolios reduced and business written benefited from improved terms and conditions and premium rate increases • Manage
Slide 29: Lloyd's division (Limit)
Lloyd’s division (Limit) year ended 31 December 2002 2002 2001 Gross written premium $M 2,276 2,182 Gross earned premium $M 2,188 1,947 Net earned premium $M 1,577 1,365 Claims ratio % 62.1 72.9 Commission ratio % 22.8 24.6 Expense ratio % 11.7 11.1 Combined operating ratio % * 96.6 108.6 Insurance
Slide 30: Lloyd's division (Limit)
Lloyd’s division (Limit) year ended 31 December 2002 • Strengthened our position in three specialist areas: non-marine liability (ex USA), marine and energy insurance and non-marine reinsurance. Most portfolios now in profit • Expense ratio up due to higher Lloyd’s levy, profit share incentives and
Slide 31: Lloyd's market
Lloyd’s market Quarterly movements in insurance rates 2000 - 2002 260 240 Aviation Motor 220 Professional 200 Energy Index 180 Non-Marine Liability 160 Property Direct Marine 140 Personal Accident 120 Property RI 100 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 00 00 00 00 01 01 01 01 02 02 02 Source: Lloyd’s
Slide 32: Lloyd's market
Lloyd’s market Movements in insurance rates 1992 - 2003 (est) 140 130 Marine 120 Non Marine Index Motor 110 Aviation Market 100 90 1992 1993 1994 1995 1996 1997 1998 1999 2000 2001 2002 2003 Source: Moody’s
Slide 33: Lloyd's market
Lloyd’s market Underwriting year development - gross loss ratios % 1993 1994 1995 1996 1997 1998 1999 2000 2001 2002 Q1 5 12 6 8 6 6 5 9 5 1 Q2 9 15 7 10 9 15 19 13 13 3 Q3 14 21 14 16 18 29 31 20 32 8 Q4 20 27 23 22 27 49 44 32 82 14 Q8 43 44 45 47 63 89 92 90 91 Q 12 50 51 52 61 79 112 117 118 Sou
Slide 34: Limit syndicates
Limit syndicates Five managed syndicates Syndicate Total QBE capacity share Type of business 2002 2003 £M £M % 386/2386 350 450 50 Non-marine liability (ex USA) 566 180 161 100 Property & aviation reinsurance 1036 75 90 100 Direct marine & energy 2000 145 176 100 Non-marine property & liability 2724
Slide 35: Net invested funds
Net invested funds 31 December 2002 31 December 2001 $M % $M % Cash 502 4.4 459 5.0 Short term money 3,792 32.9 4,080 44.4 Fixed interest securities 6,077 52.8 3,543 38.7 Equities * 1,026 8.9 977 10.7 Property 111 1.0 106 1.2 Total investments and cash 11,508 100.0 9,165 100.0 Borrowings (1,456) (83
Slide 36: Investments
Investments year ended 31 December 2002 • Investment income before realised and unrealised losses stable at $332 million • Total portfolio split 19% Australian dollars, 33% Sterling, 36% US dollars, 3% Euro and 9% other currencies • Active management rewarded with strong performance from cash and fi
Slide 37: Investments
Investments year ended 31 December 2002 • Net realised and unrealised equity losses $207 million before tax (2001: $27 million loss), offset by net realised and unrealised gains on fixed interest securities $50 million and properties $6 million • Equity collars expired in May 2002 - not replaced due
Slide 38: Increase in net invested funds
Increase in net invested funds year ended 31 December 2002 $M Cash flow from operations 1,511 New funds from acquisitions 102 Lloyd’s capacity increase 362 Subtotal 1,975 Capital raising 91 Stronger A$ (82) Dividends paid (115) Market value movements (151) Net plant and equipment purchased (50) Tota
Slide 39: Conservative risk management
Conservative risk management • Sound, practical corporate governance • Assumptions in detailed product plans subject to rigorous management review • Disciplined underwriting process with integrated actuarial support • Detailed limits and authorities at all levels of the organisation • Performance ag
Slide 40: Conservative risk management
Conservative risk management • Reinsurance arrangements with approved highly rated reinsurers • Business plans allow for catastrophe and large losses to cover estimated four times the maximum event retention based on robust disaster scenarios • Relatively modest retentions on a product and Group bas
Slide 41: Business strategy and 2003 targets
Business strategy and 2003 targets Subject to the usual caveats……….. • Maximise opportunities in current hard market – average increase in premium rates of 10% to 15% expected in 2003 – improved policy terms and conditions to continue – increased quality customer retention – consider acquisitions as
Slide 42: Business strategy and 2003 targets
Business strategy and 2003 targets • Achieve return on equity in excess of 1.5 times WACC (estimate around 13.5%) • Reinsurance costs to remain around 22% of gross earned premium • Further reduce risk profile • Continue focus on aggregate exposures and reduce maximum event retention • Further reduce
Slide 43: Business strategy and 2003 targets
Business strategy and 2003 targets • Increase net invested funds by over $1.5 billion from strong cash flow and Lloyd’s reinsurance to close • Continue low risk strategy for investments - target gross investment yield of 4% • Maintain Group capital adequacy of at least 1.5 times APRA minimum require
Slide 44: Internet www.qbe.com
Internet www.qbe.com