Qbe Insurance Group Limited · ASX:QBE
Qbe Insurance — FY2014 Earnings Presentation
43 slides from Qbe Insurance's earnings presentation, Feb 24, 2015
Slide 1: Corrected presentation cover letter to ASX
QBE Insurance Group Limited ABN 28 008 485 014 Level 27, 8 Chifley Square, SYDNEY NSW 2000 Australia GPO Box 82, Sydney NSW 2001 telephone + 612 9375 4444 • facsimile + 612 9231 6104 www.qbe.com For personal use only 24 February 2015 The Manager Markets Announcements Office ASX Limited Level 4 Excha
Slide 2: QBE Insurance Group 2014 annual results presentation
For personal use only QBE Insurance Group 2014 annual results presentation John Neal Group Chief Executive Officer Pat Regan Group Chief Financial Officer Tuesday 24 February 2015 All figures in US$ unless otherwise stated 1
Slide 3: John Neal, Group Chief Executive Officer
For personal use only John Neal Group Chief Executive Officer 2
Slide 4: 2014 financial results summary
2014 financial results summary For personal use only For the year ended 31 December 2013 2014 Change GWP $M 17,975 16,332 9% NEP $M 15,396 14,084 9% Underwriting profit $M 341 547 60% COR % 97.8 96.1 1.7ppt Insurance profit $M 841 1,074 28% Insurance profit to NEP % 5.5 7.6 2.1ppt Cash profit before
Slide 5: Transforming QBE
Transforming QBE For personal use only • Remediation largely completed – particularly in North America and Europe Underwriting • Attritional claims ratio(1) – significantly reduced and remains a key focus excellence • Reinsurance – external program restructured and improved • Argentine workers’ comp
Slide 6: Transforming QBE – underwriting excellence
Transforming QBE – underwriting excellence For personal use only Underlying attritional claims ratio analysis(1) % 50 • Australian & New Zealand Operations – 49 price increases and portfolio remediation and revised risk selection 48 • European Operations – significant 47 rationalisation and remediat
Slide 7: Transforming QBE – financial strength
Transforming QBE – financial strength For personal use only 2012 2013 2014 60.0% Goodwill and intangibles to equity $M $M $M NEP 50.0% 15,798 15,396 14,084 40.0% Goodwill and intangibles 6,068 4,480 3,831 30.0% 53.4% Borrowings 4,932 4,571 3,581 43.3% 20.0% 34.7% Shareholders’ funds 11,358 10,356 11
Slide 8: Transforming QBE – operational discipline
Transforming QBE – operational discipline For personal use only JULY 2013 ANNOUNCEMENT 2014 ACTUALS (FY15 TARGET) ORIGINAL COST AND BENEFIT IMPACT (P&L) COST AND BENEFIT IMPACT (P&L) US$ 300M 250 US$ 300M 299 225 262 200 200 129 85 240 279 100 190 100 195 25 46 0 0 85 85 -14 -105 -11 -140 -150 -156
Slide 9: Transforming QBE – leadership team
Transforming QBE – leadership team For personal use only John Neal Group Chief Executive Officer • Group Executive Committee – 6 out of 8 new to role in the past two years • Senior Executives – 30% refresh over the past two years Pat Regan Jason Brown Mike Emmett Jenni Smith • Leadership Academy Gro
Slide 10: Pat Regan, Group Chief Financial Officer
For personal use only Pat Regan Group Chief Financial Officer 9
Slide 11: Overview of 2014 divisional management results
Overview of 2014 divisional management results For personal use only Australia & North Emerging (1)Group 2014 New Zealand America Europe Markets Equator Re (statutory) GWP ($M) 4,392 5,310 4,526 2,179 642 16,332 Contribution to Group GWP 27% 32% 28% 13% - 100% GEP ($M) 4,386 5,457 4,805 1,942 764 16
Slide 12: 2014 insurance margin analysis
2014 insurance margin analysis For personal use only (%) 14.0 13.0 12.0 11.0 0.0 0.7 (0.5) (0.9) 10.0 0.9 9.0 2.2 8.0 7.0 6.0 5.0 9.8 4.0 7.4 3.0 2.0 1.0 0.0 FY14 reported margin Risk-free rates (2) Crop (3) OTP (4) PY development (5) LMI (6) Risk margins (7) FY14 adjusted margin (1) (1) Reported in
Slide 13: Improving financial performance - portfolio
Improving financial performance - portfolio For personal use only • Worldwide reinsurance treaties restructured and improved • Aggregate covers consolidated and placed for 2015 and 2016 – single treaty Reinsurance provides $960M of cover in excess of $1,100M for large individual risk and catastrophe
Slide 14: Improving financial performance - expenses
Improving financial performance - expenses For personal use only 2,800 $M 2,700 83 67 2,600 56 119 58 2,500 53 57 2,400 105 195 2,300 2,200 2,100 2,357 2,274 2,000 1,900 1,800 FY12 Expenses OTP Inflation Investment in Emerging market Non-underwriting FX Other Other cost savings OTP savings FY14 Expe
Slide 15: Financial strength and flexibility
Financial strength and flexibility For personal use only 2014 components of capital plan executed in full $780M capital raising Repurchase and cancellation of $500M of convertible securities $700M tier 2 capital qualifying subordinated debt issue $393M buyback of non-qualifying senior debt
Slide 16: Financial strength and flexibility (cont.)
Financial strength and flexibility (cont.) For personal use only As at 31 Dec 2013 2014 Summary balance sheet $M $M Cash remittances to Group • Up 44% to $770M Investments and cash 30,619 28,583 Trade and other receivables 5,119 4,748 Goodwill and intangibles • Down 14% to $3,831M Intangibles 4,480
Slide 17: Investment performance and strategy
Investment performance and strategy For personal use only Total investments and cash at 31 Dec 2014 - $28.6Bn Exposure to growth assets Equities (listed & unlisted) 2.9% Corporate bonds (2013 0.9%) • Increased from ~2% to ~9% during 2014 42.9% Property trusts & investment (2013 47.2%) properties 3.3
Slide 18: Outlook
For personal use only Outlook John Neal Group Chief Executive Officer 17
Slide 19: 2015 outlook
2015 outlook For personal use only Gross written premium $15.5 – 15.9Bn (1) ($16.4 – 16.8Bn in constant currency) Net earned premium $12.6 – 13.0Bn (1) ($13.4 – 13.8Bn in constant currency) Combined operating ratio 94% - 95% (2) (3) Insurance profit margin 8.5% - 10% (2) (3) (1) Premium targets are
Slide 20: Building shareholder value
Building shareholder value For personal use only • Overarching focus on underwriting and claims management excellence Underwriting • Maintain attritional claims ratio in a competitive environment performance • Improve performance in North America and Latin America • Planned transformation expense sa
Slide 21: Questions
For personal use only 20 Questions
Slide 22: Important disclaimer
Important disclaimer For personal use only The information in this presentation provides an overview of the results for the year ended 31 December 2014. This presentation should be read in conjunction with all information which QBE has lodged with the Australian Securities Exchange (“ASX”). Copies o
Slide 23: Appendices
For personal use only Appendices 22 2014 annual results presentation
Slide 24: Appendices
Appendices For personal use only 1. Claims ratio analysis 2. Attritional claims analysis 3. Discount rates 4. Risk margins 5. Major COR impacts by division 6. Divisional premium outlook 7. Foreign exchange rates 8. APRA PCA calculation 9. Borrowings 10. Investments 11. Reinsurance 23 2014 annual r
Slide 25: 2014 claims ratio analysis (excluding med-mal)
2014 claims ratio analysis (excluding med-mal) For personal use only 2013 2014 1H 2H FY 1H 2H(1) FY(1) NEP $M 7,333 8,063 15,396 6,947 7,499 14,446 Attritional(2) % 49.4 49.7 49.6 49.8 51.6 50.7 Large individual risk and % 8.3 10.6 9.5 9.9 12.3 11.2 catastrophes Claims settlement costs % 2.2 3.3 2.8
Slide 26: 2014 attritional claims ratio analysis
2014 attritional claims ratio analysis For personal use only 2012 2013 2014 NEP Attritional NEP Attritional NEP Attritional $M % $M % $M % Rest of World 12,744 49.1 12,721 47.5 12,303 46.6 Medical malpractice reinsurance(1) - - - - (362) - US multi-peril crop insurance(2) 1,103 67.0 1,141 67.0 965 6
Slide 27: 2014 movement in weighted average discount rates
2014 movement in weighted average discount rates For personal use only Weighted average risk-free discount rates on outstanding claims % Currency 31 Dec 2012 31 Dec 2013 30 June 2014 31 Dec 2014 Australian dollar 3.04 3.52 3.12 2.46 US dollar 0.87 1.53 1.42 1.33 Sterling 1.27 2.06 2.02 1.30 Euro 1.2
Slide 28: 2014 movement in risk margins
2014 movement in risk margins For personal use only 1,800 1,600 (5) (23) (133) 1,400 (51) 1,200 1,000 800 1,565 1,353 600 400 200 0 2013 risk margin Sale / disposal FX PoA reduction Central estimate reduction 2014 risk margin 27 2014 annual results presentation
Slide 29: 2014 major COR impacts by division
2014 major COR impacts by division For personal use only Australia North & New Latin Asia Equator Corporate (1)2014 America Europe Zealand America Pacific Re Group adjustments NEP ($M) 4,471 3,929 3,834 1,112 593 525 (18) 14,446 COR (%) 100.8 94.3 87.0 122.9 93.5 79.9 0.1 96.2 Ins. profit margin (%)
Slide 30: 2015 premium outlook
2015 premium outlook For personal use only GWP in local GWP target NEP in local NEP target Full year 2015 currency Bn $USBn(1) currency Bn $USBn(1) North America 5.2 5.2 3.8 3.8 Europe 2.9 4.4 2.3 3.5 Australia & New Zealand 5.2 4.0 4.3 3.3 Emerging Markets 2.1 2.1 1.6 1.6 Equator Re 1.1 1.1 0.5 0.5
Slide 31: FX rates versus US$
FX rates versus US$ For personal use only 2015 December 2013 June 2014 December 2014 assumed Closing rate Average Closing rate Average Closing rate Average Average rate rate rate rate AUD 0.89 0.96 0.94 0.91 0.82 0.90 0.77 GBP 1.66 1.57 1.71 1.67 1.56 1.65 1.51 EUR 1.38 1.33 1.37 1.37 1.21 1.32 1.14
Slide 32: North America
North America For personal use only 2013 2014 • Substantially improved underwriting performance despite Gross written premium $M 5,951 5,310 a disappointing year in crop and challenging conditions impacting lender-placed Gross earned premium $M 6,225 5,457 • Overall premium rate increases of around
Slide 33: Europe
Europe For personal use only 2013 2014 • On a constant currency basis, GWP fell 17% due to: – portfolio and geographic remediation and disposal 5,236 4,526 activities which led to a reduction in GWP of $543M Gross written premium $M – increase in competitive market conditions, 5,146 4,805 particular
Slide 34: Australia & New Zealand
Australia & New Zealand For personal use only • GWP broadly stable in AUD, albeit down 9% in USD, 2013 2014 reflecting the lower Australian dollar 4,805 4,392 • Premium rates marginally increased overall in 2014, Gross written premium $M whilst policy retention remains strong at ~81% 4,626 4,386 • C
Slide 35: Latin America
Latin America For personal use only 2013 2014 • GWP up only 1% from 2013, due to a $328M FX Gross written premium $M 1,380 1,394 impact largely due to the 32% depreciation of the Argentine Peso. Constant currency growth was 25%. Gross earned premium $M 1,341 1,222 • Excluding one-off workers’ compen
Slide 36: Asia Pacific
Asia Pacific For personal use only 2013 2014 • GWP and NEP growth of 8% and 15% respectively Gross written premium $M 727 785 • Excluding $63M of premium associated with the 2013 multi-year MTR contract and $15M FX, underlying GWP Gross earned premium $M 643 720 growth was 21%, with particularly str
Slide 37: Equator Re
Equator Re For personal use only 2013 2014 • GWP down 18% due to increased divisional retentions, the introduction of aggregate deductibles on certain per Gross written premium $M 783 642 risk covers and lower premium rates consistent with market conditions Gross earned premium $M 802 764 • Claims r
Slide 38: APRA PCA calculation
APRA PCA calculation For personal use only $M 2013 2014 Ordinary share capital and reserves 10,403 11,082 Net surplus relating to insurance liabilities 1,352 1,199 Regulatory adjustments to Common Equity Tier 1 Capital (5,330) (4,725) Common Equity Tier 1 Capital 6,425 7,556 Additional Tier 1 Capita
Slide 39: Borrowings
Borrowings For personal use only Borrowings profile % 2013 2014 • Borrowings down $990M or 22% Subordinated debt 50 61 ― $484M repayment of senior debt Senior debt 43 30 ― $250M hybrid conversion Bank loans - - ― $700M subordinated debt issuance ― $500M repurchase and cancellation of subordinated de
Slide 40: Investments in corporate bonds: fixed and floating rate
Investments in corporate bonds: fixed and floating rate For personal use only 31 Dec 13 31 Dec 14 COUNTRY US$M % US$M % Australia 6,181 42.8 4,433 36.1 USA 1,850 12.8 1,925 15.7 UK 924 6.4 710 5.8 Japan 1,040 7.2 1,198 9.8 Canada 769 5.3 817 6.7 ROW other 2,615 18.1 1,917 15.7 Germany 198 1.4 192 1.
Slide 41: Investments in sovereign / supra-national bonds
Investments in sovereign / supra-national bonds For personal use only 31 Dec 13 31 Dec 14 COUNTRY US$M % US$M % Australia 516 6.8 367 7.6 USA 3,643 48.3 2,315 48.0 UK 448 5.9 191 4.0 Canada 404 5.4 293 6.1 ROW other 1,349 17.9 948 19.7 Germany 460 6.1 428 8.9 France 277 3.7 96 2.0 Netherlands 243 3.
Slide 42: Argentine investment portfolio
Argentine investment portfolio For personal use only 31 Dec 13 31 Dec 14 US$M % US$M % Cash & money market 236 36.3 39 13.5 Sovereign(1) 164 25.2 75 26.0 Central bank 65 10.0 66 22.8 Corporate 117 18.0 50 17.3 Fixed income unit trust 68 10.5 59 20.4 TOTAL(2) 650 100.0 289 100.0 (1) Argentine soverei
Slide 43: QBE 2015 Reinsurance Program
QBE 2015 Reinsurance Program For personal use only Risk XL Cat XL Large Risk and Catastrophe Reinstatements A$250M xs A$250M xs Worldwide Risk XL and Cat XL 1) Covers all QBE business except inwards A$4.0Bn A$4.25Bn reinsurance (QBE Re), marine and energy (Lloyd’s ANZ Only ANZ Only syndicate 1036),