Qbe Insurance Group Limited · ASX:QBE
Qbe Insurance — H1 2004 Earnings Presentation
38 slides from Qbe Insurance's earnings presentation, Aug 18, 2004
Slide 1: Cover letter to ASX
Insurance Group 18 August 2004 The Manager Company Announcements Australian Stock Exchange Limited Level 6 Exchange Centre 20 Bridge Street SYDNEY NSW 2000 Dear Sir/Madam, re: QBE results for the half year ended 30 June 2004 Further to the Company's release to the market today, please find attached
Slide 2: Results and Outlook for the half year ended 30 June 2004
ne] QBE INSURANCE GROUP LIMITED RESULTS for the half year ended 30 June 2004 & OUTLOOK
Slide 3: Highlights
Highlights half year to 30 June 2004 Net profit after tax up 33% to $320 million (2003 : $241 million) Insurance profit up 58% to $409 million (2003 : $259 million) or 13.1% of net earned premium (2003 : 8.4%) Cash flow from operations up 24% to $898 million (2003 : $726 million) Return on equity in
Slide 4: Highlights
Highlights half year to 30 June 2004 Gross written premium down 1% to $4,763 million due to stronger Australian dollar compared with same period last year Using consistent rates of exchange, gross written premium was Up 9% Growth assisted by small overall increases in premium rates, increased retent
Slide 5: Foreign exchange movements
® Foreign exchange movements half year to 30 June 2004 2004 cumulative average exchange rate movements Australian dollar against US doliar Australian dollar against GB pound 6.80 0.45 0.74 OS 0Al 5 O.f2% >< + + 6.70 0.40 t |USD __ GBP _ ee gag 0 ee a 0.65 035 | 0.38. 0.61 6.50 830 Jan Feb Mer ‘Apr M
Slide 6: Foreign exchange movements
& Foreign exchange movements a half year to 30 June 2004 2004 2004 at 2003* Exchange rate Actual Exchange rates impact $M $M % Gross written premium 4,763 5,276 (10) Gross earned premium 3,982 4,397 (9) Net earned premium 3,114 3,408 (9) Net investment income 120 133 (10) Profit after tax 320 345 (7
Slide 7: Highlights
ne] Highlights half year to 30 June 2004 Reinsurance costs increased from 21% to 22% of gross written premium due to proportional reinsurance treaties on US programme business Gross claims ratio reduced from 66.2 % to 57.8% Net claims ratio reduced from 65.1% to 62.0% Improvements in the claims rati
Slide 8: Highlights
ey Highlights half year to 30 June 2004 Commission ratio decreased from 18.7% to 16.8% reflecting a change in mix of business Expense ratio decreased from 12.2% to 12.0% with total underwriting expenses reducing slightly to $373 million Expense ratio impacted by increased investment in systems to im
Slide 9: Highlights
& Highlights half year to 30 June 2004 ¢ Investment income for the half year excluding realised and unrealised gains and losses on investments increased 6% to $186 million (2003 : $176 million) ¢ Flat equity markets and unrealised losses on our short duration fixed interest portfolio due to expected
Slide 10: Geographical diversification
Geographical diversification Gross earned premium half year to 30 June 2004 Lloyd’s division Australia 27% (27%) 23% (21%) Asia-Pacific a 6% (7%) the Americas 16% (15%) Europeancompany operations iti (itsti‘~™*S 26% (S07 ane
Slide 11: Worldwide portfolio mix
Worldwide portfolio mix half year to 30 June 2004 gross earned premium Professional indemnity Marine and aviation 9.2% (7.9% 27% (8.67%) Workers’ compensation 10.6% (8.7% Financial and credit 3.0% (3.6%), Property 32.4% (35.5%) Liability 18.4% (15.1%) a \ Accident and health . Other 5.7% (64%) 3.0%
Slide 12: Shareholder returns
Shareholder returns half year to 30 June 2004 Interim dividend 24.0¢ per share, 50% franked (2003: 20.0¢, 15% franked) * Ex dividend date 24 August 2004 * Record date 30 August 2004 « Payment date 20 September 2004 Dividend payout $164 million for 2004, up 23% from the interim dividend paid Septembe
Slide 13: Shareholder returns
Shareholder returns half year to 30 June 2004 e Earnings per share 2004 2003 * basic 47.2 cents 37.3 cents ¢ diluted 41.8 cents 32.7 cents * e Estimated 65% of LYONs hybrid securities fo convert in September 2004 e Shareholders’ funds expected to increase by approximately $420 million following conv
Slide 14: Dividend performance
interim $164M F e es é& Dividend performance half year fo 30 June 2004 320 42.0¢ s 240 AF = Cents per share S 160 32.5¢ 31.04 & = 80 a | Interim |B Fina
Slide 15: Worldwide operations
Worldwide operations HALF YEAR FULL YEAR une = june Dec Dec _ 2003 2003 2002 Gross writen premium $M — 482) 6,350 7,723 3,882 7,816 7,197 — 3,083 6,036 5,642 Gross earned premium $M Net earned premium $M Claims ratio % 65.1] 63.3 67.6 Commission ratio % 18.7 18,2 17.7 Expense ratio %* 12,2 12.3 12.4
Slide 16: Worldwide operations
@ Worldwide operations half year to 30 June 2004 Net profit GWP Growth * COR after tax and minorities 2004 2004 2004 #8 2003 2004 2003 SM % % % SM SM Australia 95] 1] 90.4 96.2 12] 75 Asia-Pacific 247 ~—- (10) 88.0 93.3 15 9 the Americas 692 (5) 91.8 95.7 22 19 European companies — 1,371 (5) 92.1 96
Slide 17: Balance sheet June 2004
& Balance sheet 30 June 2004 31Dec 2003 30 June 2003 $M $M $M ASSETS Investments and cash 14,435 11,823 11,495 Receivables 4,321 2,954 4,157 Recoveries on outstanding claims 3,273 2,885 3,289 Deferred insurance costs 1,680 1,167 1,620 Intangibles 931 511 502 ABC investments pledged for funds at Lloy
Slide 18: Net invested funds
& Net invested funds 30 June 2004 31 Dec 2003 $M % $M % Cash 1,127 7.8 717 6.1 Short term money 3,960 27.4 3,499 29.5 Fixed interest securities and other 7,796 54.0 6,216 52.6 Equities 1,426 99 1,272 10.8 Property 126 0.9 119 1.0 Total investments and cash « 14,435 100.0 11,823 100.0 Borrowings (1,4
Slide 19: Balance sheet June 2004
Balance sheet 30 June 2004 Net invested funds increased by $1.7 billion after settlement of acquisition of the QBE Mercantile Mutual joint venture on 1 July 2004 Approximately 88% of fixed interest and cash is AA rated or better Approximately 98% of investments are liquid We continue to adopt a cons
Slide 20: Balance sheet June 2004
Balance sheet 30 June 2004 Receivables over 90 days have reduced with conservative provision held for doubtful premium debtors. Bad debt experience during the period continues to be low Reinsurance recoveries on outstanding claims increased from $2.9 billion to $3.3 billion due to the impact of acqu
Slide 21: Balance sheet June 2004
ey Balance sheet 30 June 2004 Group policy of matching assets and liabilities in local currency and using borrowings and hedges to protect shareholders’ funds in overseas subsidiaries was beneficial in a half year of extreme currency volatility Borrowings increased by $118 million due to the weakeni
Slide 22: Capital adequacy June 2004
Capital adequacy 30 June 2004 QBE estimates the Group capital adequacy multiple is around 1.8 times the minimum capital requirement* (31 December 2003 : 2.1 times) Reduction reflects the impact of acquisitions and foreign exchange Subordinated debt and hybrid securities are included as tier 2 capita
Slide 23: Australian general insurance
€ _ Australian general insurance half year to 30 June 2004 2004 2003 Gross written premium $M 951 857 Gross earned premium $M 899 816 Net earned premium $M 767 679 Claims ratio % 63.6 71.6 Commission ratio % 12.6 11.3 Expense ratio % 14.2 13.3 Combined operating ratio % 90.4 96.2 insurance margin %
Slide 24: Asia-Pacific general insurance
& Asia-Pacific general insurance half year to 30 June 2004 2004 2003 Gross written premium $M 247 273 Gross earned premium $M 250 277 Net earned premium $M 209 223 Claims ratio % 51.6 56.1 Commission ratio % 17.7 18.4 Expense ratio % 18.7 18.8 Combined operating ratio % 88.0 and insurance margin % 1
Slide 25: The Americas
& the Americas half year to 30 June 2004 2004 2003 Gross written premium $M 692 729 Gross earned premium $M 641 584 Net earned premium $M 380 395 Claims ratio % 62.5 67.4 Commission ratio % 23.2 22.0 Expense ratio % 6.1 a 3 Combined operating ralio % 91.8 95.7 insurance margin % 9.5 5.6 * Gross writ
Slide 26: European company operations
& European company operations half year to 30 June 2004 2004 2003 Gross written premium $M 1,371 1,445 Gross earned premium $M 1,110 1,157 Net earned premium $M 964 1,005 Claims ratio % 66.1 69.0 Commission ratio % 15.2 15.4 Expense ratio % 10.8 12.0 Combined operating ratio % 92.1 96.4 insurance ma
Slide 27: Lloyd's division (Limit)
Lloyd's division (Limit) half year to 30 June 2004 2004 2003 Gross written premium $M 1,502 1,517 Gross earned premium $M 1,082 1,048 Net earned premium $M 794 781 Claims ratio % 58.3 55.8 Commission ratio % 19.5 27.7 Expense ratio % 12.3 12.7 Combined operating ratio % 90.1 96,2 insurance margin %
Slide 28: Investment income
Investment income 2004 2003 SM SM Dividends 30 28 Interest 220 193 Other income 7 9 Exchange (losses) gains (9) 1 Interest expense and other borrowing costs (37} (39) Other expenses (18) (16) Net cost of ABCs (7) - 186 176 Realised (losses) gains on fixed interest securities (13} Realised gains (los
Slide 29: Investment income
ne] Investment income half year to 30 June 2004 Investment income excluding realised and unrealised gains and losses increased 6% to $186 million Growth due to positive cash flows, acquisitions in 2004 and interest rate increases Stronger A$ when compared with last year, flat equity markets and unre
Slide 30: Comparison of cash yield versus actual yields
& Comparison of cash yield versus actual yields year) Average Actual Investment mix Current cash yields yields 30 June 2004 cash rate % % % % 2000 5.81 6.54 Australian dollar 25.7 5.25 2001 4.63 5.50 US dollar 28.6 1.50 2002 3.39 2.70 Sterling 33.0 4.75 2003 3.06 4.63 Other 12.7 Le 2.00 2004 (half 3
Slide 31: Currency mix
J om ® Currency mix at 30 June 2004 Market value of investments and cash Market value of listed equities Other Other AUD 13% (12% AUD 12% (12% Pim, 26% (22%) ( 6% (39%) Sterling | 33% (34%) usD US ee 29% (32%) | 24% (21%)
Slide 32: Acquisitions
Acquisitions half year to 30 June 2004 Acquisition of the remaining 50% in the QBE Mercantile Mutual joint venture, ING’s general insurance subsidiaries in Australia and the Zurich insurance business in Singapore were completed on 30 June 2004 These acquisitions will add approximately $325 million o
Slide 33: 2004 outlook
& 2004 outlook Subject fo no material movement in current exchange rates; large /osses and catastrophes not exceeding the allowance in our business plans; and no major fall in equity marke?s or interest rates: Target insurance profit margin upgraded to 12.0% -13.0% through 2005 Insurance liabilities
Slide 34: 2004 outlook
2004 outlook Weaker A$ in past three months will assist growth in second half Acquisitions completed will assist growth We continue to look at a number of small acquisitions in Australia, the Asia-Pacific region, the Americas and Europe Our strong capital position, the expected conversion of hybrid
Slide 35: 2004 outlook
2004 outlook Continue low risk strategy for investments (target gross investment yield of 4% or higher in second half) Increase exposure to listed equities if appropriate Net investment income to benefit from strong cash flow and higher interest yields e.g. average cash yield increased from 3.29% to
Slide 36: 2004 projected gross written premium
® 2004 projected gross written premium SA Bn Australia A$2.20 billion 2.20 Asia-Pacific (16 countries) A$0.60 billion 0.60 USA / Latin America US$1.00 billion 1.40 European company operations** £1.02 billion 2.60 Lloyd’s** £0.94 billion 2.40 “2.20 * Assumes A$ to US$ 72c and A$ to £ 39p, average rat
Slide 37: Historical share price performance
® Historical share price performance 4 An investment in QBE has outperformed the Australian All Ordinaries Index and inflation with a compound average annual growth rate of 21.9% over 5 years, 21.1% over 10 years and 23.7% over 20 years ~«- QBE Share Price Performance $24.00 — QBE Share Price Perfor
Slide 38: Internet
Internet www.qbe.com