Qbe Insurance Group Limited · ASX:QBE
Qbe Insurance — FY2007 Earnings Presentation
50 slides from Qbe Insurance's earnings presentation, Feb 26, 2008
Slide 1: Cover letter: QBE Presentation on the 2007 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 26 February 2008 Telephone: (02) 9375 4444 Facsimile: (02) 9231 6104 DX 10171 Sydney Stock Exchange The Manager Company Announcements ASX Limited Level 6 Exch
Slide 2: Results announcement 2007
For personal use only QBE INSURANCE GROUP Results announcement 2007 Presented by Frank O’Halloran CEO, QBE Insurance Group 26 February 2008 All amounts in Australian dollars unless otherwise stated.
Slide 3: Highlights year ended 31 December 2007
Highlights year ended 31 December 2007 For personal use only • Record net profit after tax, up 30% to $1,925 million (2006: $1,483 million) • Insurance profit up 27% to $2,262 million (2006: $1,788 million) or 22.2% of net earned premium (2006: 21.9%) after the adverse impact of lower US and UK disc
Slide 4: Highlights: premium growth and currency split
Highlights year ended 31 December 2007 For personal use only • Gross written premium up 20% to $12,406 million and gross earned premium up 23% to $12,361 million, due mainly to 2007 acquisitions supported by high retention of business • Overall average premium rates were down 3% for the year • Gross
Slide 5: Highlights: reinsurance and combined operating ratio
Highlights For personal use only year ended 31 December 2007 • Reinsurance costs decreased from 17.8% to 16.0% of gross written premium primarily due to lower reinsurance costs in new acquisitions and increased participation of Equator Re in external protections • Reinsurance costs were above our ta
Slide 6: Highlights: claims ratios
Highlights For personal use only year ended 31 December 2007 • Gross claims ratio reduced from 54.9% to 53.8% reflecting lower large individual risk claims and continued low claims frequency on most portfolios • Net claims ratio reduced from 55.8% to 54.3% • 21 natural catastrophe claims with net co
Slide 7: Analysis of claims incurred
Analysis of claims incurred restated to include the US acquisitions for all years For personal use only 2007 2006 2005 % % % Net claims ratio (1) 54.4 57.7 60.5 Analysis of claims ratio: - attritional 47.7 47.4 48.5 - large and catastrophe (2) 6.6 8.9 10.1 - risk margin upgrade 0.1 1.4 1.9 54.4 57.7
Slide 8: Highlights: probability of adequacy
Highlights For personal use only year ended 31 December 2007 • Probability of adequacy of outstanding claims of 94.0%, including US acquisitions (2006: 94.6%) • Probability of adequacy was adversely affected by: – $181 million or 1.2% due to lower US$ and sterling interest rates; – $77 million or 0.
Slide 9: Risk margins in outstanding claims
Risk margins in outstanding claims year ended 31 December 2007 For personal use only First half Second half Full year 2007 $m % $m % $m % Opening 1Jan 2007 1,389 94.6 1,832 95.8 1,389 94.6 Discount effect 40 0.4 (221) (1.6) (181) (1.2) Acquisitions* 254 (0.3) - - 254 (0.3) Foreign exchange (43) (0.3
Slide 10: Highlights: commission and expense ratios
Highlights year ended 31 December 2007 For personal use only • Commission ratio increased from 17.0% to 18.5% largely due to the change in distribution mix following the US acquisitions and slightly higher incentive commissions for our agents • The combined commission and expense ratio of 31.6% was
Slide 11: Highlights: investment income
Highlights For personal use only year ended 31 December 2007 • Gross investment income up 42% to $1,398 million (2006: $985 million) • Gross investment yield before borrowing costs and expenses was 6.3% compared with 5.2% last year • Fixed interest and cash gross yields outperformed external benchma
Slide 12: Impact of stronger A$ in 2007
Impact of stronger A$ in 2007 . 2007 at 2006 2007 exchange For personal use only Negative impact actual rates* $m $m % $m Gross written premium 12,406 13,113 (6) 707 Gross earned premium 12,361 13,074 (6) 713 Net earned premium 10,210 10,746 (5) 536 Net investment income 1,132 1,184 (5) 52 Net profi
Slide 13: Shareholders' returns
Shareholders’ returns year ended 31 December 2007 For personal use only • Final dividend of 65 cents per share, 50% franked (2006: 55 cents, 60% franked) - Ex dividend date 29 February 2008 - Record date 6 March 2008 - Payment date 26 March 2008 • The unfranked portion of dividends payable to non re
Slide 14: Dividend performance
Dividend performance For personal use only 1100 122.0 1000 Compound annual average growth in dividend payout over 10 years was 27.5% 900 800 95.0 700 Dividend – cents per share Payout $m 600 71.0 Final 65 500 Interim 57 54.0 400 300 42.0 35.0 200 30.0 32.5 31.0 26.5 100 0 1998 1999 2000 2001 2002 20
Slide 15: Worldwide operations
HALF YEAR FULL YEAR Worldwide operations year ended 31 December 2007 Jun Dec Dec Dec 2007 2007 2007 2006 For personal use only Gross written premium $m 6,520 5,886 12,406 10,372 Gross earned premium $m 5,751 6,610 12,361 10,069 Net earned premium $m 4,749 5,461 10,210 8,158 Claims ratio % 55.7 53.2
Slide 16: Worldwide operations by division
Worldwide operations year ended 31 December 2007 For personal use only GWP Growth COR Net profit after tax 2007 2007 2007 2006 2007 2006 $m % % % $m $m Australia 2,596 4 82.9 82.9 445 387 Asia Pacific 583 - 82.7 82.7 89 73 QBE Insurance Europe 2,503 (5) 92.1 88.9 341 399 Lloyd’s division 2,634 (3) 7
Slide 17: Geographical diversification
Geographical diversification gross earned premium - year ended 31 December 2007 For personal use only Gross earned premium $12,361 million (2006: $10,069 million) QBE Insurance Lloyd’s division Europe 21% (24%) 21% (26%) Australia 20% (24%) the Americas 33% (19%) Asia Pacific 5% (7%) Note: 2006 comp
Slide 18: Worldwide portfolio mix
Worldwide portfolio mix gross earned premium - year ended 31 December 2007 For personal use only Professional indemnity 6.9% (9.0%) Marine, energy and aviation Workers’ 9.9% (11.4%) compensation 8.4% (8.1%) Financial and credit Property 2.0% (2.5%) 26.2% (26.3%) Liability 19.6% (19.3%) Accident and
Slide 19: Balance sheet
Balance sheet 31 Dec 2007 31 Dec 2006 $m $m ASSETS For personal use only Investments and cash 24,606 19,972 Receivables 4,876 3,934 Recoveries on outstanding claims 4,360 3,624 Deferred insurance costs 1,683 1,409 Intangibles 2,493 1,475 ABC financial assets pledged for funds at Lloyd’s 900 995 Fixe
Slide 20: Net invested funds
Net invested funds For personal use only 31 Dec 2007 31 Dec 2006 $m % $m % Cash 988 4.0 1,019 5.1 Short term money 16,317 66.3 10,040 50.3 Fixed interest securities and other 5,552 22.6 7,134 35.7 Equities 1,656 6.7 1,741 8.7 Investment properties 93 0.4 38 0.2 Total investments and cash 24,606 100.
Slide 21: Balance sheet
Balance sheet For personal use only • Investments and cash increased by 23% to $24.6 billion due to strong operational cash flow and acquisitions in 2007 • 96% of our fixed interest and cash was rated Moody’s Aa3 or better • Approximately 99% of investments are highly liquid • We continue to adopt a
Slide 22: Currency mix
Currency mix at 31 December 2007 For personal use only Market value of total investments and cash Market value of equities 2007 $24,606 million (2006: $19,972 million) 2007 $1,656 million (2006: $1,741 million) Australian dollar Australian dollar Sterling 26% (28%) Sterling 51% (46%) 24% (35%) 24% (
Slide 23: Balance sheet
Balance sheet • Premium and reinsurance receivables over 90 days have decreased compared with last year For personal use only with conservative provisions held for doubtful debts. Continued low bad debt experience. • Reinsurance recoveries on outstanding claims increased to $4.4 billion from $3.6 bi
Slide 24: Balance sheet
Balance sheet For personal use only • Receivables and reinsurance recoveries are after provisions for doubtful debts of $255 million (2006: $296 million) • The lower provision is mainly due to settlement of 2005 and prior claims, commutations, generally improved ratings of reinsurers and the appreci
Slide 25: Borrowings
Borrowings Maturity date 31 Dec 2007 31 Dec 2006 $m $m For personal use only Short term bank loans . A$200m 26/07/08 200 - A$100m 14/09/08 100 - Senior debt . . . £175m 02/08/20 395 433 US $21m 02/08/20 24 - US $82m 01/07/23 89 - Subordinated debt A$170m 02/08/20 169 169 €115m 02/08/20 191 190 US$25
Slide 26: Outstanding claims provision
Outstanding claims provision For personal use only • QBE’s record of claims development demonstrates our prudent management of claims 2007 2006 2005 2004 2003 2002 Prior year release – net undiscounted $m 931 528 618 140 44 12 Total net outstanding claims (discounted) $m 13,871 11,645 10,870 9,462 7
Slide 27: Claims development
Claims development utilisation of prior year release For personal use only $m 2006 and prior year claims release – net undiscounted 931 Utilised as follows; 2007 accident year - undiscounted risk margin increase (1) 703 - US acquisitions - change in discount rate 68 - risk margin upgrade 30 - net in
Slide 28: Total insurance liabilities
Total insurance liabilities For personal use only 2007 2006 2005 2004 $m $m $m $m Outstanding claims 13,871 11,645 10,870 9,462 Unearned premium net of deferred insurance costs 4,015 3,233 2,841 2,590 17,886 14,878 13,711 12,052 Central estimate 15,433 12,656 11,695 10,373 Risk margin* - outstanding
Slide 29: Capital adequacy
Capital adequacy For personal use only 31 Dec 2007 31 Dec 2006 $m $m Tier 1 Share capital (as notified to ASX) 4,781 3,514 Reserves and retained earnings 3,691 2,780 Perpetual securities (net of borrowing costs) 1,294 736 Excess risk margin 1,577 1,486 Tax on excess risk margin (473) (446) Proposed
Slide 30: Australia
Australia For personal use only year ended 31 December 2007 2007 2006 Gross written premium $m 2,596 2,491 Gross earned premium $m 2,518 2,428 Net earned premium $m 2,141 2,051 Claims ratio % 55.2 55.9 Commission ratio % 12.0 11.8 Expense ratio % 15.7 15.2 Combined operating ratio % 82.9 82.9 Insura
Slide 31: Australia
Australia year ended 31 December 2007 For personal use only • Gross written premium up 4% to $2,596 million despite overall average premium rate reductions of around 3% offset by strong customer retention and new business • Continued excellent underwriting results with a COR of 82.9%, unchanged from
Slide 32: Asia Pacific
Asia Pacific For personal use only year ended 31 December 2007 2007 2006 Gross written premium $m 583 583 Gross earned premium $m 570 570 Net earned premium $m 416 446 Claims ratio % 41.3 42.6 Commission ratio % 20.0 20.4 Expense ratio % 21.4 19.7 Combined operating ratio % 82.7 82.7 Insurance margi
Slide 33: Asia Pacific
Asia Pacific year ended 31 December 2007 For personal use only • Gross written premium maintained at $583 million despite overall average premium rate reductions of around 6%, stronger Australian dollar and increased competition • Outstanding underwriting result with COR of 82.7% unchanged from 2006
Slide 34: European operations
European operations For personal use only year ended 31 December 2007 QBE Insurance Lloyd’s division Total European Europe * operations 2007 2006 2007 2006 2007 2006 Gross written premium $m 2,503 2,646 2,634 2,711 5,137 5,357 Gross earned premium $m 2,537 2,720 2,621 2,475 5,158 5,195 Net earned pr
Slide 35: European operations
European operations year ended 31 December 2007 For personal use only • Gross written premium reduced by 4% to $5,137 million due to overall average premium rate reductions of 4.5% and significant adverse foreign currency impact due to 34% of business written in US dollars. The lower premium was off
Slide 36: European operations
European operations For personal use only year ended 31 December 2007 • QBE is the largest manager and second largest provider of capacity 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
Slide 37: the Americas
the Americas year ended 31 December 2007 For personal use only 2007 2006 Gross written premium $m 3,656 1,941 Gross earned premium $m 3,976 1,876 Net earned premium $m 2,574 1,153 Claims ratio % 59.4 55.9 Commission ratio % 22.8 25.6 Expense ratio % 11.4 8.2 Combined operating ratio % 93.6 89.7 Insu
Slide 38: the Americas
the Americas year ended 31 December 2007 For personal use only • Gross written premium up 88% to $3,656 million due to acquisitions in 2007 partly offset by the need to cancel existing business due to competition and less than adequate pricing • Overall average premium rates down less than 1% includ
Slide 39: Equator Re - captive reinsurer
Equator Re - captive reinsurer For personal use only year ended 31 December 2007 2007 2006 Gross written premium $m 1,990 901 Gross earned premium $m 1,631 678 Net earned premium $m 1,426 538 Claims ratio % 54.6 63.6 Commission ratio % 22.0 13.0 Expense ratio % 3.9 4.8 Combined operating ratio % 80.
Slide 40: Equator Re
Equator Re year ended 31 December 2007 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 maximum event
Slide 41: Investment income
Investment income year ended 31 December 2007 2007 2006 For personal use only $m Yield% $m Yield% Total equity income (1) 166 9.8 151 12.5 Total fixed interest and cash income (2) 1,211 5.9 822 4.7 Total property income 5 7.6 7 19.6 Other income 14 6 Realised gains/(losses) on sale of controlled ent
Slide 42: Investment income
Investment income year ended 31 December 2007 For personal use only • Fixed interest returns well ahead of budget and overall external benchmarks • Short duration fixed interest strategy successful in maximising yields during the recent period of rising interest rates • Net investment income include
Slide 43: 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 achieved 2007 currency rate by QBE* % % % % 2002 3.4 2.5 Australian dollar 25.9 7.0 2003 3.1 4.6 US dollar 39.2 3.0 2004 3.4
Slide 44: 2008 outlook
2008 outlook For personal use only Subject to no material movement in budgeted exchange rates; large individual risk and catastrophe claims not exceeding the allowance in our business plans; no major fall in equity markets or interest rates; and regulatory approvals for acquisitions, we expect: • gr
Slide 45: 2008 outlook
2008 outlook For personal use only • Equator Re’s participation on external reinsurance programmes with exposures within Group net retentions to increase • the overall risk profile of our business including the maximum event retention ratio to reduce • a combined commission and expense ratio of 31.5
Slide 46: 2008 outlook
2008 outlook For personal use only • invested funds to increase to around $27 billion from acquisitions and strong cash flow • gross investment yields to be around 5.5% including 5% capital gain on equities and allowance for interest rate differentials on forward currency hedges • to continue our lo
Slide 47: 2008 projected premium income
2008 projected premium income For personal use only Gross written Original A$bn currency Australia 2.8 A$2.8 Asia Pacific 0.7 A$0.7 QBE Insurance Europe 2.6 £1.1 QBE Underwriting – Lloyd’s division 2.4 £1.1 the Americas 4.8 US$4.3 Equator Re 2.1 A$2.1 Equator Re elimination (2.1) A($2.1) Total Group
Slide 48: History of premium income - a growth story
History of premium income - a growth story For personal use only $ Bn 14 12 Compound average growth rates over last 10 years: - gross earned premium 21.3% GEP $12.4 Bn 10 - net earned premium 21.5% 8 NEP $10.2 Bn 6 4 2 0 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 47 QBE INSURANCE GROUP
Slide 49: 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 QBE Share Price Performance Including Reinvestment of Dividends $70.00 ASX All Ordinaries Accumulation Index $65.00 $60.00 $55.00 $50.00 QBE Share
Slide 50: www.qbe.com
For personal use only QBE INSURANCE GROUP www.qbe.com 49