Slide 1: Cover letter to ASX on 2012 results presentation
QBE Insurance Group Limited ABN 28 008 485 014 Head Office 82 Pitt Street SYDNEY NSW 2000 For personal use only Australia Postal Address Box 82 GPO SYDNEY 2001 26 February 2013 Telephone: +61 (2) 9375 4444 Facsimile: +61 (2) 9231 6104 DX 10171, Sydney Stock Exchange The Manager Markets Announcements
Slide 2: QBE Insurance Group 2012 full year results announcement
For personal use only QBE Insurance Group 2012 full year results announcement John Neal Group Chief Executive Officer Neil Drabsch Group Chief Financial Officer 26 February 2013 All figures in US$ unless otherwise stated 1
Slide 3: Year in review
For personal use only 2 Year in review
Slide 4: Key highlights
Key highlights For personal use only • NPAT up 8% to $761M Results in line with • Cash profit up 32% to $1,042M November guidance • Insurance profit margin 8% • Underlying FY12 insurance profit margin 11.8% • Attritional claims ratio improving due to rate and remediation Underlying insurance • Large
Slide 5: 2012 financial results summary
2012 financial results summary For personal use only For the year ended 31 December 2012 2011 % change GWP $M 18,434 18,291 1 NEP $M 15,798 15,359 3 Underwriting profit $M 453 494 (8) COR % 97.1 96.8 - Insurance profit $M 1,262 1,085 16 Insurance profit to NEP % 8.0 7.1 - Investment income $M 1,216
Slide 6: Key highlights: insurance profit performance
Key highlights: insurance profit performance For personal use only • Modest growth, GWP up 1% to $18.4Bn Premium income • Premium rate increases slightly in excess of 5% maintained despite lower • Acquisitions added $620M US crop and LPI • Remediation, lower crop prices and LPI volumes led to a redu
Slide 7: FY12 underlying insurance profit margin analysis
FY12 underlying insurance profit margin analysis For personal use only 15.0 14.0 13.0 0.6 0.6 12.0 0.6 (1.2) 0.4 (0.1) 11.0 10.0 2.9 9.0 8.0 7.0 6.0 11.8 5.0 4.0 8.0 3.0 2.0 1.0 0.0 FY12 reported PY development (1) Risk margin top-up Risk-free rates (3) Investment returns Attritional (5) Large risk
Slide 8: Key highlights: 2012 financial results
Key highlights: 2012 financial results For personal use only • Up 57% to $1,216M Net investment income • Net yield of 4.1% (2011 2.9%) higher than expected • Realised/unrealised gains of $504M (2011 $181M) Operational cash flow • Up 29% to $2.7Bn strong • Period premium held increased to 1.35 years
Slide 9: Overview of FY12 divisional results
Overview of FY12 divisional results For personal use only Australia & North Latin Europe New Asia Equator FY12 Group America America Zealand Pacific Re GWP ($M) 18,434 6,569 1,223 5,077 4,987 578 3,710 GEP ($M) 18,341 6,978 1,170 4,854 4,794 545 3,712 NEP ($M) 15,798 3,501 1,018 3,331 4,123 415 3,41
Slide 10: Australian & New Zealand Operations
Australian & New Zealand Operations For personal use only • COR 90.6% (2011 99.6%) Excellent underwriting • Insurance profit up 222% to $779M performance and return to profit • Insurance profit margin 18.9% (2011 6.3%) • GWP up 6% to $4,987M Premium rate increases of 8% • Strong renewal retention de
Slide 11: North American Operations
North American Operations For personal use only • COR 106.8% (2011 90.6%) 2012 underwriting result • Includes 5.2% for abnormal crop and catastrophe losses impacted by prior accident year • Adverse prior accident year claims 6.6% claims and catastrophe losses • Risk margin top-up 3.4% Full year revi
Slide 12: Capital, funding and investments
For personal use only Capital, funding and investments 11
Slide 13: Balance sheet
Balance sheet For personal use only As at 31 Dec 12 31 Dec 11 • Shareholders’ equity up $972M Summary balance sheet $M $M due to: Investments and cash 31,525 28,024 – A$600M capital raising in 1H12 Trade and other receivables 5,232 5,514 – higher cash profit up 32% to Intangibles 6,068 6,065 US$1,04
Slide 14: Goodwill and intangibles
Goodwill and intangibles For personal use only • Goodwill - comfortable with headroom over carrying value for all divisions Subject to recoverability test for impairment relevant to expected cash flows and allowance for risk factors • Identifiable intangibles - $1,091M with a finite life to be mostl
Slide 15: Capital levels: tangible improvement
Capital levels: tangible improvement For personal use only Capital 2012 2011 Net assets $M 11,417 10,438 Intangibles (6,068) (6,065) Net tangible assets up 22% Net tangible assets 5,349 4,373 Interest bearing liabilities 4,932 4,757 Total tangible capitalisation 10,281 9,130 Regulatory capital $M 20
Slide 16: Borrowings
Borrowings For personal use only Borrowings profile as at 31 December % 2012 2011 • Capital initiatives Subordinated debt 47 49 – $500M issue of Tier 2 subordinated convertible Senior debt 29 28 securities Hybrid securities 18 18 – $150M of Tier 1 perpetual Capital securities 6 4 capital securities
Slide 17: Investments
Investments For personal use only Equities 0.4% (2011 1.1%) • Total investments and cash, up due to strong operational cash flow Corporate Short term bonds 41.7% money 25.9% – $31.5Bn (2011 $28.0Bn) (2011 54.8%) (2011 23.7%) • Fixed interest and cash portfolios highly liquid • Policyholders’ funds n
Slide 18: Reinsurance – 2013 program enhancements
Reinsurance – 2013 program enhancements For personal use only • Credit risk profile enhanced • Further increases to divisional retentions and pricing to Business as usual match current market conditions • Worldwide P&C catastrophe retentions unchanged • Increased group aggregate catastrophe cover (G
Slide 19: Value creation strategy
Value creation strategy For personal use only Confidence in immediate (FY13) business plans Leveraging the value opportunities of our global business Implementing Group wide programs of change to improve performance 18 FY12 results presentation
Slide 20: Operational excellence initiatives will deliver annual run-rate benefits
Operational excellence initiatives will deliver annual run-rate benefits of at least $250M by the end of FY15 For personal use only COST AND BENEFIT IMPACT (P&L) PROGRAM SCOPE • The focus of the transformation is to optimise US$ 300M process efficiency with minimal investment in 250 technology 225 2
Slide 21: Outlook 2013
Outlook 2013 For personal use only Premium rates to firm • Expect to increase 5% on average across the Group • GWP $18.5Bn to $19.0Bn Premium growth targets • NEP $15.5Bn to $16.0Bn modest • No material acquisitions planned Large individual risk and • Allowance of 10.5% of net earned premium catastr
Slide 22: FY13 insurance profit margin guidance analysis
FY13 insurance profit margin guidance analysis For personal use only 15.0 14.0 13.0 0.6 12.0 0.6 0.6 (0.1) (1.2) 0.4 (1.0) 11.0 (0.9) 1.1 10.0 2.9 9.0 8.0 7.0 6.0 11.8 11.0 5.0 4.0 8.0 3.0 2.0 1.0 0.0 FY12 PY Risk margin Risk-free Investment Attritional (5) Large risk & Expenses FY12 OTP Investment
Slide 23: Closing remarks
Closing remarks For personal use only • Senior management succession complete Implementing plans • ONE QBE global business around our new strategy • Transformational program underway Strong fundamentals • Premium rates up underpin our target FY13 • Strengthened claims provisions COR of 92.0% and 11.
Slide 24: 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 2012. This presentation should be read in conjunction with all information which QBE has lodged with the Australian Securities Exchange (“ASX”). Copies o
Slide 25: Questions
For personal use only 24 Questions
Slide 26: Appendices
Appendices For personal use only 1. Insurance profit margin analysis 2. Claims ratio analysis 3. Risk margin analysis 4. Discount rates 5. Divisional results summary 6. 2013 reinsurance program enhancements 7. Regulatory capital 8. Nov guidance insurance profit margin analysis 9. 2013 premium outloo
Slide 27: FY11 versus FY12 insurance profit margin
FY11 versus FY12 insurance profit margin For personal use only 14.0 13.0 12.0 11.0 (3.4) 10.0 4.9 9.0 8.0 (1.4) (0.2) 1.0 (1.3) 1.3 7.0 6.0 (1.2) 1.2 5.0 4.0 8.0 7.1 3.0 2.0 1.0 0.0 FY11 reported Attritional (1) Large risk & cat Prior accident Risk margins Discount (5) Commissions Expenses (7) Inves
Slide 28: 2012 claims incurred
2012 claims incurred For personal use only Other PY central estimate development • Catastrophe experience improved significantly despite Discount - current accident year material drought related crop claims: Claims settlement costs – 6.1% versus 11.3% in 2011 Large individual risk and catastrophe cl
Slide 29: 2012 accident year central estimate claims ratio
2012 accident year central estimate claims ratio: For personal use only 2012 2011 1H 2H 1H 2H FY FY NEP $M 7,359 8,439 15,798 6,778 8,581 15,359 Attritional % **48.5 **50.2 *49.4 49.3 49.1 49.2 Large individual risk and catastrophes % 8.0 12.5 10.4 15.9 14.8 15.3 Claims settlement costs % 2.0 1.9 1.
Slide 30: 2012 accident year results
2012 accident year results For personal use only 2012 2011 2010 Net central estimate claims ratio (pre risk margins) % 59.5 65.3 58.6 Commissions % 16.2 14.9 15.5 Expenses % 14.9 13.7 14.3 Central estimate COR % 90.6 93.9 88.4 Accident year underwriting profit $M 1,485 937 1,314 Accident year underw
Slide 31: 2012 insurance profit
2012 insurance profit For personal use only 2012 2011 2010 Ins. Ins. Ins. profit profit profit $M margin % $M margin % $M margin % Central est. accident year underwriting profit 1,485 9.4 937 6.1 1,314 11.6 PY central estimate development (464) (2.9) 64 0.4 49 0.4 Release of discount and other from
Slide 32: FY12 risk margin analysis
FY12 risk margin analysis For personal use only 1500.0 1400.0 4 40 1300.0 88 1200.0 1100.0 1000.0 900.0 800.0 700.0 1,333 600.0 1,201 500.0 400.0 300.0 200.0 100.0 0.0 FY11 risk margin Net increase in risk margins Acquisitions FX / other FY12 risk margin 31 FY12 results presentation
Slide 33: Impact of movement in weighted average discount rates
Impact of movement in weighted average discount rates For personal use only Weighted average risk-free discount rates on outstanding claims % Currency 31 Dec 2011 30 June 2012 31 Dec 2012 Australian dollar 3.65 2.90 3.04 US dollar 0.95 0.85 0.87 Sterling 1.20 1.15 1.27 Euro 1.95 1.75 1.26 Argentine
Slide 34: North America
North America For personal use only 2012 2011 • Claims ratio of 77.6% and COR of 106.8%, impacted by prior accident year development Gross written premium $M 6,569 7,529 ($231M(3)), severe crop drought conditions ($113M(2)) and Superstorm Sandy ($117M) Gross earned premium $M 6,978 7,431 • Large ind
Slide 35: Latin America
Latin America For personal use only 2012 2011 • GWP up 59% primarily driven by the HSBC Gross written premium $M 1,223 768 Argentina and Optima Puerto Rico acquisitions • Organic GWP growth was 7% in USD or 12% Gross earned premium $M 1,170 752 on a constant currency basis • Claims ratio improved sl
Slide 36: Europe
Europe For personal use only 2012 2011 • GWP up £185M or 6% in local currency, mainly Gross written premium $M 5,077 4,828 due to the Brit UK regional acquisition supplemented by modest organic growth in 4,854 property, casualty and motor Gross earned premium $M 4,635 • Reinsurance expense ratio fel
Slide 37: Australia & New Zealand
Australia & New Zealand For personal use only 2012 2011 • Excellent underwriting performance and return Gross written premium $M 4,987 4,699 to profitability for 2012, achieving a COR of 90.6% (2011 99.6%) and insurance profit margin of 18.9% (2011 6.3%) Gross earned premium $M 4,794 4,531 • Premium
Slide 38: Asia Pacific
Asia Pacific For personal use only 2012 2011 • Strong return to profitability due to the benefits Gross written premium $M 578 467 of portfolio remediation activities taken post the catastrophe activity in 2011 in the region Gross earned premium $M 545 457 • GWP up 24% to $578M, which included 18% o
Slide 39: Equator Re
Equator Re For personal use only 2012 2011 • Despite improved catastrophe experience, the 99.7% COR was disappointing, impacted by Gross written premium $M 3,710 3,807 prior year development, severe crop drought conditions and Superstorm Sandy Gross earned premium $M 3,712 3,697 • Equator Re’s catas
Slide 40: Reinsurance – 2013 worldwide cat XoL
Reinsurance – 2013 worldwide cat XoL For personal use only FPS 1 Worldwide cat XoL reinsurance covers all QBE business except inwards reinsurance, marine and energy (Lloyd’s syndicate 1036), QBE LMI, QBE FPS (with lenders-placed covered by a separate QBE FPS treaty) and crop, all of which have their
Slide 41: Reinsurance – 2013 worldwide risk XoL
Reinsurance – 2013 worldwide risk XoL For personal use only 1 Worldwide risk XoL reinsurance covers all QBE business except inwards reinsurance, marine and energy (Lloyd’s syndicate 1036), QBE LMI, QBE FPS (with lenders-placed covered by a separate QBE FPS treaty) and crop, all of which have their o
Slide 42: APRA minimum capital requirement
APRA minimum capital requirement For personal use only As at 31 December 2012 $M 2011 $M Tier 1 Share capital and reserves 11,290 10,248 Perpetual securities 316 164 Excess risk margins (net of tax) 1,139 967 Deductions (6,075) (6,072) 6,670 5,307 Tier 2 Subordinated debt and hybrid securities 2,243
Slide 43: Regulatory capital – estimated LAGIC impact
Regulatory capital – estimated LAGIC impact For personal use only 10,000 MCR/PCA Capital Base • Regulatory capital coverage at 31 31 December 2012 1.6x PCA December 2012: 9,000 1.7x MCR › 1.7 x MCR 8,000 › estimated PCA 1.6x 7,000 › estimated CET1 (multiple of PCA) 113% versus minimum requirement of
Slide 44: 2012 insurance profit margin versus Nov guidance
2012 insurance profit margin versus Nov 12 guidance For personal use only 14.0 13.0 12.0 11.0 0.3 (0.5) 10.0 0.3 (0.6) 1.4 (0.5) 9.0 (0.4) 8.0 7.0 6.0 5.0 4.0 8.0 8.0 3.0 2.0 1.0 0.0 Margin guidance at Large risk & cat Yield on tech Risk-free rates (3) Prior accident year Expenses (5) Risk margin to
Slide 45: 2013 premium outlook
2013 premium outlook For personal use only GWP in local GWP guidance NEP in local NEP guidance Full year 2013 currency Bn $USBn (1) currency Bn $USBn (1) North America 6.5 6.5 3.2 3.2 Latin America 1.5 1.5 1.3 1.3 Europe 3.2 5.1 2.3 3.6 Australia & New Zealand 4.9 5.0 4.0 4.0 Asia Pacific 0.7 0.7 0.