Qbe Insurance Group Limited · ASX:QBE
Qbe Insurance — H1 2014 Earnings Presentation
55 slides from Qbe Insurance's earnings presentation, Aug 19, 2014
Slide 1: QBE Insurance Group 2014 half year results announcement
QBE Insurance Group 2014 half year results announcement John Neal Group Chief Executive Officer Pat Regan Group Chief Financial Officer Tuesday 19 August 2014 All figures in US$ unless otherwise stated Not for distribution or release in the United States 1
Slide 2: Half year in review
Half year in review John Neal Group Chief Executive Officer 2 Not for distribution or release in the United States
Slide 3: Our value creation model drives our strategy
Our value creation model drives our strategy 3 2014 half year results presentation Not for distribution or release in the United States
Slide 4: Progress to date
Progress to date • Focus on underwriting excellence, evidenced by reducing attritional claims ratio • Sacrificed top-line to improve margin • Strong performances in Australia & New Zealand (COR 86.9%), Equator Re (COR Leadership in the core 89.9%), Asia Pacific (COR 91.7%) and Europe (COR 95.6%) bus
Slide 5: 1H14 financial results summary
1H14 financial results summary For the half year ended 30 June 2014 2013 % change GWP $M 8,491 9,446 (10) NEP $M 6,947 7,333 (5) Underwriting profit $M 244 530 (54) COR % 96.5 92.8 - Insurance profit $M 530 790 (33) Insurance profit to NEP % 7.6 10.8 - Investment income $M 427 394 8 Amortisation and
Slide 6: 1H14 result highlights and underwriting performance
1H14 result highlights and underwriting performance • GWP down 10% to $8,491M (down 7% constant currency) Premium income • Premium rate increases around 1% overall • NEP reduced 5% to $6,947M (down 2% constant currency) • Adjusted(1) 1H14 combined operating ratio around 93% Underlying insurance • At
Slide 7: 1H14 insurance profit margin analysis
1H14 insurance profit margin analysis % 14.0 13.0 12.0 0.6 (1.3) 11.0 1.4 (1.1) 10.0 1.7 9.0 (0.8) 1.9 8.0 7.0 6.0 5.0 10.0 4.0 7.6 3.0 2.0 1.0 0.0 1H14 reported PY development Risk margins (2) Risk-free rates (3) Large risk & cats OTP (5) Other (6) Investment returns 1H14 adjusted margin (1) (4) (7
Slide 8: Comprehensive capital plan
Comprehensive capital plan • Partial sale of Australian agencies Non-core asset sales • Sale of North American agencies planned for 2H14 • Complete sales of CEE businesses • North American middle market business retained • IPO of a minority stake Partial IPO of LMI • Targeted for completion in 2015
Slide 9: Capital plan and performance
Capital plan and performance Pat Regan Group Chief Financial Officer 9
Slide 10: Capital plan objectives
Capital plan objectives • Capital plan significantly improves regulatory and rating agency capital metrics • Agency sales convert intangibles into tangible capital thereby Capital objectives contributing to a substantial reduction in tangible gearing • Capital plan assumes an increased capital charg
Slide 11: Capital plan
Capital plan 1.56x APRA PCA multiple >1.8x 38% Debt to equity ~30% 30 June 2014 Equity and Partial sale of Sale of Partial IPO Proforma 30 June 2014 Equity and Partial sale of Sale of Partial IPO Proforma sub-debt Australian US agencies of LMI sub-debt Australian US agencies of LMI 2015 2015 3Q 14 a
Slide 12: Other balance sheet objectives
Other balance sheet objectives • PoA will be held at around 90% • Targeting predictable and consistent reserve development Reserving • Medical malpractice reinsured – other portfolios under consideration • No change to carrying value of goodwill at half year Goodwill and • Capital plans look to conv
Slide 13: Investments and cash at 30 June: $31.4Bn
Investments and cash at 30 June: $31.4Bn Emerging market Current portfolio Emerging market debt 0.6 % High yield debt equity 0.8% (FY13 0%) FY13 (0%) 0.6% (FY13 0%) • 94% in cash, money markets and bonds Equities 1.0% (FY13 0.9%) • 63% of fixed income invested in AAA or AA Short term money 26.3% (FY
Slide 14: Overview of 1H14 divisional statutory results
Overview of 1H14 divisional statutory results Australia North & New Latin Asia Equator 1H14 Group America Europe Zealand America Pacific Re GWP ($M) 8,491 2,415 2,694 2,263 716 403 1,686 GEP ($M) 7,819 2,213 2,451 2,184 624 347 1,476 NEP ($M) 6,947 1,159 1,738 1,875 553 278 1,344 Claims ratio (%) 63
Slide 15: Overview of 1H14 divisional results excluding QS
Overview of 1H14 divisional results excluding QS Australia North & New Latin Asia Equator 1H14 Group America Europe Zealand America Pacific Re GWP ($M) 8,491 2,415 2,694 2,263 716 403 600 GEP ($M) 7,819 2,213 2,451 2,184 624 347 400 NEP ($M) 6,947 1,867 2,020 1,908 580 297 274 Claims ratio (%) 63.1
Slide 16: North America 1H14 COR versus 1H13 COR ex QS
North America 1H14 COR versus 1H13 COR ex QS % 105.0 100.0 (0.4) 0.7 1.6 1.2 95.0 (1.6) 1.9 90.0 99.3 95.9 85.0 80.0 1H13 COR PY development Risk margins Expense ratio Large risk & Discount rate Other 1H14 COR catastrophes movement • Renegotiation of quota share with Equator Re adversely impacted th
Slide 17: 1H14 attritional claims ratio analysis
1H14 attritional claims ratio analysis 1H14 1H13 2H13 NEP Attritional NEP Attritional NEP Attritional $M % $M % $M % Rest of World 6,217 46.6 6,359 47.9 6,362 47.0 Crop(1) 145 67.0 139 67.0 1,002 67.0 Lender placed(2) 269 46.9 455 45.9 342 40.3 Argentina(3) 316 106.4 380 71.5 357 59.7 Group 6,947 49
Slide 18: Outlook
Outlook John Neal Group Chief Executive Officer 18 Not for distribution or release in the United States
Slide 19: Revised outlook 2014
Revised outlook 2014 • GWP in the range of $16.6Bn - $17.0Bn • NEP in the range of $13.9Bn - $14.2Bn Premium targets • Includes $390M one-off impact of medical malpractice reinsurance on NEP (nil P&L impact) • Net claims ratio of 62.0% - 63.0% • 2H14 large individual risk and catastrophe allowance o
Slide 20: Closing remarks
Closing remarks • Australia & New Zealand, Europe, Asia Pacific and Equator Re performing in line with expectations Stabilising performance • North America transformation on track • Latin America disappointing but decisive reserving action taken • Emerging markets division established to leverage su
Slide 21: Questions
Questions 21 Not for distribution or release in the United States
Slide 22: Important disclaimer
Important disclaimer The information in this presentation provides an overview of the results for the half year ended 30 June 2014. This presentation should be read in conjunction with all information which QBE has lodged with the Australian Securities Exchange (“ASX”). Copies of those lodgements ar
Slide 23: Appendices
Appendices 23 2014 half year results presentation
Slide 24: Appendices
Appendices 1. Accident year analysis 2. Discount rates 3. COR analysis 4. Divisional results summary 5. APRA PCA calculation 6. Borrowings 7. Investments 8. Divisional premium outlook 9. Capital raising 24 2014 half year results presentation Not for distribution or release in the United States
Slide 25: 1H14 accident year central estimate claims ratio
1H14 accident year central estimate claims ratio 2013 1H14 1H 2H FY NEP $M 6,947 7,333 8,063 15,396 Attritional(1) % 49.8 49.4 49.7 49.6 Large individual risk and catastrophes % 9.9 8.3 11.0 9.7 Claims settlement costs % 2.5 2.2 2.9 2.6 Discount % (4.6) (3.2) (2.1) (2.7) Accident year claims ratio %
Slide 26: 1H14 accident year results
1H14 accident year results 1H14 1H13 1H12 Net central estimate claims ratio (pre risk margins) % 57.6 56.7 56.3 Commissions % 17.1 17.8 16.8 Expenses % 16.3 15.6 14.6 Central estimate COR % 91.0 90.1 87.7 Accident year underwriting profit $M 625 733 904 Accident year underwriting profit margin % 9.0
Slide 27: 1H14 insurance profit
1H14 insurance profit 1H14 1H13 1H12 Ins. Ins. Ins. profit profit profit margin margin margin $M % $M % $M % Central est. accident year underwriting 625 9.0 733 9.9 904 12.3 profit PY central estimate development (131) (1.9) (178) (2.4) (117) (1.6) Other (including unwind of prior year (250) (3.6) (
Slide 28: 1H14 movement in weighted average discount rates
1H14 movement in weighted average discount rates Weighted average risk-free discount rates on outstanding claims % Currency 30 June 2014 31 Dec 2013 30 June 2013 Australian dollar 3.12 3.52 3.27 US dollar 1.42 1.53 1.30 Sterling 2.02 2.06 1.66 Euro 1.19 1.74 1.67 Argentine peso 27.00(1) 19.06 19.56
Slide 29: 1H14 major COR impacts by division
1H14 major COR impacts by division Australia & North New Latin Asia 1H14 Group America Europe Zealand America Pacific Equator Re NEP ($M) 6,947 1,159 1,738 1,875 553 278 1,344 COR (%) 96.5 103.0 95.6 86.9 136.3 91.7 89.9 Ins. profit margin (%) 7.6 (0.6) 6.4 18.6 (24.6) 9.4 14.0 Normalisation adj. (1
Slide 30: 1H14 COR analysis
1H14 COR analysis % 105.0 100.0 (1.9) 0.8 (1.7) 95.0 (1.4) (0.6) 1.3 90.0 85.0 80.0 96.5 93.0 75.0 70.0 65.0 60.0 1H14 reported COR PY development (1) Risk margins (2) Risk-free rates (3) Large risk & cats (4) OTP (5) Other (6) 1H14 adjusted COR (1) Adverse prior accident year development $131M (P&L
Slide 31: North America 1H14 COR versus 1H13 COR
North America 1H14 COR versus 1H13 COR % 105 0.7 (0.4) 1.6 100 1.2 (1.6) 1.9 5.1 95 103.0 90 94.5 85 80 1H13 COR Equator QS PY development Risk margins Expense ratio Large risk & Discount rate Other 1H14 COR catastrophes movement • Renegotiation of quota share with Equator Re adversely impacted the
Slide 32: North America
North America 1H14 1H13 • Rate increases averaged 0.7%, reflecting increased Gross written premium $M 2,415 2,703 competition in some P&C and specialty lines • GWP down 11% due to further contraction in LPI and Gross earned premium $M 2,213 2,536 reduced program premium following termination of poor
Slide 33: Europe
Europe 1H14 1H13 • GWP fell by 13% (18% on a local currency basis) due to Gross written premium $M 2,694 3,103 exiting of non-core and poorly performing businesses and heightened competition Gross earned premium $M 2,451 2,480 • Overall premium rate reductions of 0.6% reflecting competitive market c
Slide 34: Australia & New Zealand
Australia & New Zealand 1H14 1H13 • GWP stable in AUD, albeit down 10% in USD Gross written premium $M 2,263 2,507 • Despite more competitive market dynamics, rate increases averaged slightly less than 2% and retention Gross earned premium $M 2,184 2,392 remains strong at ~82% • COR of 86.9% and ins
Slide 35: Latin America
Latin America 1H14 1H13 • GWP down 2% including $175M adverse impact from Gross written premium $M 716 733 the substantial devaluation of the Argentine peso partially offset by a $99M one-off workers’ compensation premium adjustment Gross earned premium $M 624 694 • Underlying GWP growth was 8% Net
Slide 36: Asia Pacific
Asia Pacific 1H14 1H13 • Excluding $66M of premium associated with the multi- Gross written premium $M 403 400 year MTR contract written in 2013, underlying GWP growth was 21% including: Gross earned premium $M 347 311 – 25% in Asia – 5% in the Pacific Net earned premium $M 278 244 • Strengthened ma
Slide 37: Equator Re
Equator Re 1H14 1H13 • GWP down 11% due to increased divisional retentions, the introduction of aggregate deductibles Gross written premium $M 1,686 1,889 on certain per risk covers and a modest reduction in premium rates consistent with the external market Gross earned premium $M 1,476 1,533 • NEP
Slide 38: APRA PCA calculation
APRA PCA calculation $M HY14 FY13 Tier 1 Ordinary share capital and reserves 11,277 10,403 Net surplus relating to insurance liabilities 1,421 1,352 Deductions (5,303) (5,330) Capital securities 254 286 7,649 6,711 Tier 2 Subordinated debt and hybrid securities 2,041 2,244 Total capital base 9,690 8
Slide 39: Borrowings
Borrowings Borrowings profile % 1H14 FY13 • Capital initiatives Subordinated debt 47 50 - Conversion of $250M of Tier 2 convertible sub-debt resulted in the issuance of 23.7M Senior debt 36 43 ordinary shares at A$11.32 per share Bank loans 10 - - Reinvestment of 43% or A$65M of the 2013 Capital sec
Slide 40: Investments in corporate bonds: fixed and floating rate
Investments in corporate bonds: fixed and floating rate 30 Jun 14 31 Dec 13 COUNTRY US$M % US$M % Australia 5,764 40.1 6,214 42.6 USA 1,811 12.6 1,859 12.7 UK 748 5.2 931 6.3 Japan 1,118 7.8 1,044 7.1 Canada 842 5.9 772 5.3 ROW other 2,982 20.7 2,741 18.6 Germany 174 1.2 199 1.4 France 160 1.1 130 0
Slide 41: Investments in sovereign / supra-national bonds
Investments in sovereign / supra-national bonds 30 Jun 14 31 Dec 13 COUNTRY US$M % US$M % Australia 411 6.1 519 6.1 USA 2,348 34.5 3,667 43.1 UK 1,027 15.1 914 10.7 Canada 344 5.1 405 4.8 ROW other 1,439 21.2 1,711 20.1 Germany 427 6.3 462 5.4 France 505 7.4 380 4.5 Netherlands 229 3.4 243 2.9 Euroz
Slide 42: Argentina investment portfolio
Argentina investment portfolio 30 Jun 14 31 Dec 13 US$M % US$M % Cash & money market 229 34.8 252 37.9 Sovereign(1) 133 20.2 163 24.5 Central bank 118 18.0 65 9.8 Corporate 105 16.0 117 17.6 Fixed income unit trust 72 11.0 68 10.2 TOTAL(2) 657 100.0 665 100.0 (1) Argentine sovereign bonds issued und
Slide 43: 2014 premium outlook
2014 premium outlook GWP in local GWP guidance NEP in local NEP guidance Full year 2014 currency Bn $USBn(1) currency Bn $USBn(1) North America 5.3 5.3 2.6 2.6 Europe 2.8 4.6 1.8 3.0(2) Australia & New Zealand 5.2 4.7 4.2 3.8 Latin America 1.3 1.3 1.1 1.1 Asia Pacific 0.8 0.8 0.6 0.6 Equator Re 3.0
Slide 44: Capital raising
Capital raising 44 2014 half year results presentation Not for distribution or release in the United States
Slide 45: Equity Raising: Offer Summary
Equity Raising: Offer Summary • Placement and SPP to raise up to $750 million (approximately A$810 million) Offer size and › institutional Placement to raise $600 million (approximately A$650 million) structure › Share Purchase Plan (SPP) to raise $150 million (approximately A$160 million) • Institu
Slide 46: Equity raising: Offer Timetable
Equity raising: Offer Timetable Key dates1 (AEDT) Trading halt for QBE shares Tuesday, 19 August 2014 QBE shares resume trading Wednesday, 20 August 2014 Allotment of new shares Wednesday, 27 August 2014 Ex dividend date Wednesday, 27 August 2014 1 Expected dates, subject to change. 46 2014 half y
Slide 47: Key Risks
Key Risks General The following “Key Risks” slides summarise some of the key risks that may affect the future performance of an investment in QBE Insurance Group Limited (QBE). You should be aware that the risk factors identified are not exhaustive, and some of these risk factors are beyond QBE’s co
Slide 48: Key Risks (Cont'd)
Key Risks (Cont’d) • Foreign exchange: QBE’s financial results are significantly affected by changes in exchange rates in the countries in which QBE operates including countries in the Asia Pacific, North America, Europe and Latin America. Material unfavorable movements of exchange rates could have
Slide 49: Key Risks (Cont'd)
Key Risks (Cont’d) • Regulatory change: QBE is subject to extensive regulation and supervision in the jurisdictions in which it does business. Such regulation and supervision is primarily for the benefit and protection of policyholders and not for the benefit of investors or shareholders. As the amo
Slide 50: International Selling Restrictions
International Selling Restrictions General This document does not constitute an offer of new ordinary shares (New Shares) of QBE Insurance Group Limited (QBE or the Company) in any jurisdiction in which it would be unlawful. In particular, this document may not be distributed to any person, and the
Slide 51: International Selling Restrictions (Cont'd)
International Selling Restrictions (Cont’d) The following is a summary of the statutory rights of rescission or to damages, or both, available to purchasers in Ontario. In Ontario, every purchaser of the New Shares purchased pursuant to this document (other than (a) a "Canadian financial institution
Slide 52: International Selling Restrictions (Cont'd)
International Selling Restrictions (Cont’d) France This document is not being distributed in the context of a public offering of financial securities (offre au public de titres financiers) in France within the meaning of Article L.411-1 of the French Monetary and Financial Code (Code monétaire et fi
Slide 53: International Selling Restrictions (Cont'd)
International Selling Restrictions (Cont’d) New Zealand This document has not been registered, filed with or approved by any New Zealand regulatory authority under or in accordance with the Securities Act 1978 (New Zealand). The New Shares are not being offered or sold in New Zealand, or allotted wi
Slide 54: International Selling Restrictions (Cont'd)
International Selling Restrictions (Cont’d) Switzerland The New Shares may not be publicly offered in Switzerland and will not be listed on the SIX Swiss Exchange (SIX) or on any other stock exchange or regulated trading facility in Switzerland. This document has been prepared without regard to the
Slide 55: International Selling Restrictions (Cont'd)
International Selling Restrictions (Cont’d) United States This document does not constitute an offer to sell, or a solicitation of an offer to buy, any New Shares in the United States. The New Shares referenced herein have not been, and will not be, registered under the U.S. Securities Act of 1933 (