QBE Insurance Group Limited · ASX:QBE
QBE Insurance — Investor Presentation (November 2009)
54 slides from QBE Insurance's investor presentation, Nov 2, 2009
Slide 1: Investor update
QBE INSURANCE GROUP Investor update 2 November 2009 All amounts in Australian dollars unless otherwise stated
Slide 2: Today's agenda
Today’s agenda Time Topic Presenter 1.00pm Opening remarks Frank O’Halloran – Chief Executive Officer 1.15pm Australian operations briefing and Q&A Terry Ibbotson – CEO, Australian Operations 1.45pm Asia Pacific operations briefing and Q&A Mike Goodwin – CEO, Asia Pacific Operations 2.15pm European
Slide 3: Opening remarks
Opening remarks Frank O’Halloran - Group CEO 3 QBE INVESTOR UPDATE - 2 NOVEMBER 2009
Slide 4: Today's presenters
Today’s presenters Frank O’Halloran Neil Drabsch Vince McLenaghan Terry Ibbotson Mike Goodwin Steven Burns John Rumpler 4 QBE INVESTOR UPDATE - 2 NOVEMBER 2009
Slide 5: Experienced management team
Experienced management team Strong stable management team with long tenure Top 13 executives in Group Operations Executive and Group Head Office Management have been with QBE and its acquired companies for an average of 16.5 years and a minimum of 6 years Depth for succession – over 13,650 sta
Slide 6: Recap on first half 2009
Recap on first half 2009 2009 FY Target 2009 1H Actual Profit after tax Greater than 2008 9 +19% to $1.02bn Insurance profit margin 16% to 18% 9 17.5% Combined operating ratio Less than 88% × 89.3% GWP and NEP increase Greater than 20% 9 22% and 21% Reinsurance expense ratio (to GEP) Less than 13% ×
Slide 7: Australian operations
Australian operations Terry Ibbotson – CEO, Australian operations 7 QBE INVESTOR UPDATE - 2 NOVEMBER 2009
Slide 8: Australian operations: historical overview
Australian operations: historical overview Half year ended Year ended 31 December 30 June 2009 2008 2007 2006 2005 2004 Gross written premium $m 1,630 2,914 2,596 2,491 2,431 2,102 Net earned premium $m 1,288 2,363 2,141 2,051 2,015 1,763 Combined operating ratio % 87.7 90.6 82.9 82.9 83.6 89.7 Insu
Slide 9: Australian operations: market position
Australian operations: market position Business managed in four main segments; Intermediary Distribution, Corporate Partners & Direct, Trade Credit & Surety and LMI Business written - 94% through intermediary brokers, agents and financial institutions - 6% consisting of personal lines and CTP so
Slide 10: Australian operations: distribution and product mix
Australian operations: distribution and product mix Broad distribution capability supported by strong product line underwriting and pricing: 2009 GWP $3.4bn Intermediary Corporate Partners LMI Credit and Surety Managed Funds Distribution and Direct Not included in reported GWP Colin Fagen Tony Mac
Slide 11: Australian operations: market conditions
Australian operations: market conditions Year to date rate increase of 7.2% across the book Downturn in economic activity, lower asset values Market segment mix by premium and reduced turnover have a negative impact on total premium – rate for risk has however improved Direct Corporate 2% In t
Slide 12: Australian operations: 2009 and beyond
Australian operations: 2009 and beyond Opportunities - Rates are firming in our major market sectors - Major competitors still challenged by low insurance margins, particularly in intermediated business and by competition from existing and new entrants in direct lines - QBE continues to improve el
Slide 13: Australian operations: 2009 and beyond
Australian operations: 2009 and beyond Forecast for 2009 - Impacted by GFC and Victorian bush fires - Expectation is that insurance profit will improve in the second half subject to any catastrophes exceeding current provisions Outlook for 2010 - Full benefit of rate increases to flow through in
Slide 14: Asian Pacific operations
Asian Pacific operations Mike Goodwin – CEO, Asia Pacific operations 14 QBE INVESTOR UPDATE - 2 NOVEMBER 2009
Slide 15: Asia Pacific operations: historical overview
Asia Pacific operations: historical overview Half year ended 30 June Year ended 31 December 2009 2008 2007 2006 2005 2004 Gross written premium $m 363 661 583 727 691 520 Net earned premium $m 246 451 416 563 536 381 Combined operating ratio % 89.0 82.9 82.7 84.4 82.3 82.2 Insurance profit $m 37 112
Slide 16: Asia Pacific operations: distribution and revenue mix
Asia Pacific operations: distribution and revenue mix 2009 GWP $700m Asia Pacific New Zealand 2009 $395m 2009 $115m 2009 $190m (56%) (16%) (28%) Fiji Hong Kong Philippines Solomon Islands Indonesia Singapore French Polynesia Macau Thailand Vanuatu Malaysia Vietnam New Caledonia India Papua New Guine
Slide 17: Asia Pacific operations: geographic diversity
Asia Pacific operations: geographic diversity Joint ventures in Hong Kong (75%), Malaysia (51%), Philippines (59%), Indonesia (60%) and India (26%) Increase in specialist skills has resulted in greater exposure to international broker business, adding estimated $30m in annual GWP in 2009 Initi
Slide 18: Asia Pacific operations: strategic overview
Asia Pacific operations: strategic overview Distribution by lines of business - 1H 2009 GEP QBE differentiates through specialist solutions and increased focus on corporate Engineering Accident & 5% and affinity segments Health 7% Property Good product diversity Workers' 22% Comp. Continued op
Slide 19: Asia Pacific operations: market conditions
Asia Pacific operations: market conditions New Zealand - QBE results have been strong, particularly in liability classes, however industry results have been poor, affected by a frequency of large claims - Premium rates now showing signs of hardening Pacific - Generally rates stabilising apart fr
Slide 20: Asia Pacific operations: 2009 and beyond
Asia Pacific operations: 2009 and beyond Demand for additional cover expected to increase in 2010 as Asian economies recover We expect to deliver greater automation, process efficiency and increased accessibility to internet enabled systems for intermediaries and clients Acquisition opportunit
Slide 21: European operations
European operations Steven Burns - CEO, QBE European operations 21 QBE INVESTOR UPDATE - 2 NOVEMBER 2009
Slide 22: European operations: historical overview
European operations: historical overview Half year ended 30 June Year ended 31 December 2009 2008 2007 2006 2005 2004 Gross written premium £m 1,490 2,297 2,148 2,135 2,008 1,921 Net earned premium £m 796 1,491 1,528 1,578 1,549 1,468 Combined operating ratio % 89.9 85.5 84.8 85.9 92.1 93.8 Insuranc
Slide 23: European operations: market position
European operations: market position Commercial specialist with focus on market leading positions (over 60% of business led) and ability to influence price and terms The largest managing agency in Lloyd’s, the world’s leading market for global reinsurance and specialty lines Strong diversifica
Slide 24: European operations: distribution and product mix
European operations: distribution and product mix An integrated product-driven structure linked to broad distribution capability: 2009 GWP £2.6bn Casualty Property Motor Reinsurance Marine & Aviation Specialty British Energy Marine Ash Bernard Matthew Jonathan Colin Emilio Graeme Robert Bathia Mag
Slide 25: European operations: market conditions
European operations: market conditions European operations rate increases at +4.9% for year to date and projected to 4% for the full year Strongest rate increases on US catastrophe-exposed classes, principally energy +30% and reinsurance +10% Lagging classes are predominantly ex US global casu
Slide 26: European operations: 2009 and beyond
European operations: 2009 and beyond 2009 full year COR expected to slightly improve, provided no major catastrophe activity in final quarter Major IT outsourcing contracts entered into with Accenture and IBM as part of operational transformation programme Underwriting conditions to remain cha
Slide 27: Tea/coffee break
Tea/coffee break Briefing resumes at 3:15pm (AEDT) 27 QBE INVESTOR UPDATE - 2 NOVEMBER 2009
Slide 28: Americas operations
Americas operations John Rumpler - President & CEO, QBE the Americas 28 QBE INVESTOR UPDATE - 2 NOVEMBER 2009
Slide 29: Americas operations: historical overview
Americas operations: historical overview Half year ended 30 June Year ended 31 December 2009 2008 2007 2006 2005 2004 Gross written premium US$m 2,065 3,740 3,062 1,467 1,137 1,022 Net earned premium US$m 1,231 2,605 2,156 871 643 567 Combined operating ratio % 86.6 93.6 93.6 89.7 92.9 93.5 Insuranc
Slide 30: Americas operations: market position
Americas operations: market position Business is managed in four segments - Reinsurance, Specialty (including agencies), Regional and Latin America Outperforming majority of peers in each market segment Diversified portfolio (product and geography) with a focus on small to mid-sized commercial
Slide 31: Americas operations: distribution and product mix
Americas operations: distribution and product mix An integrated product-driven structure linked to broad distribution capability: 2009 GWP US$4.1bn Reinsurance Latin America Regional Specialty Robert Jose Peter Stephen Mezzasalma Sojo Christen Fitzpatrick US$480m US$345m US$1.33bn US$1.95bn (11%)
Slide 32: Americas operations: market conditions
Americas operations: market conditions Overall premium rates slightly positive across the Americas portfolio and ahead of plan; US market still soft, particularly in commercial lines Renewal retention ratios in the mid 80% range, in line with expectations SME market generally stable although G
Slide 33: Americas operations: 2009 and beyond
Americas operations: 2009 and beyond Opportunities - Channel optimisation and cross-sell opportunities among the Americas businesses as well as with other divisions - Distribution channels enable greater penetration in commercial lines, middle market and with financial institutions - Opportunities
Slide 34: Americas operations: 2009 and beyond
Americas operations: 2009 and beyond Soft pricing conditions likely to remain for short term with no expected improvements until late 2010 Acquired US agencies expected to contribute to underwriting profit of around US$190m for 2009 full year Aim to reduce average NCOR (excluding agencies cont
Slide 35: Group operational outlook and reinsurance management
Group operational outlook and reinsurance management Vince McLenaghan - Group COO 35 QBE INVESTOR UPDATE - 2 NOVEMBER 2009
Slide 36: Group operational outlook
Group operational outlook Overall premium rate to exposure for 2009 expected to increase by around 4% Majority of products and countries exceeding the 15% minimum ROE requirement (excluding agencies) despite lower investment yields Customer retention rates remain high but can be improved Exp
Slide 37: Agencies
Agencies Agencies acquisition strategy - Protect existing distribution - Reduce acquisition costs - Access to new premium income Agencies contribution to underwriting profit - 2008 $73m with COR impact - 0.7% - 2009 around $290m with COR impact - 2.4% Estimated return on pre-tax agency income
Slide 38: Agencies: product and segment mix
Agencies: product and segment mix Australia US Name Product/Segment Name Product/Segment CHU/CUA Strata home units ZC Sterling Lender placed home insurance UAA Mobile plant Deep South Commercial motor Invivo Medical malpractice CAU Condominium NCIB Trade credit SIU Californian earthquake Austral Cre
Slide 39: Group reinsurance management
Group reinsurance management External reinsurance targeted to manage Group maximum event retention to be less than 4% of net earned premium Highly rated and quality reinsurers to minimise counterparty risk Equator Re utilised to manage retentions, aggregate exposure and capital management in s
Slide 40: Equator Re (QBE's captive reinsurer): historical overview
Equator Re (QBE’s captive reinsurer): historical overview Half year ended 30 June Year ended 31 December 2009 2008 2007 2006 2005 2004 Gross written premium $m 1,718 2,231 1,990 901 353 278 Net earned premium $m 1,233 1,913 1,426 538 295 231 Combined operating ratio % 93.8 83.8 80.5 81.4 89.8 68.8 I
Slide 41: Equator Re: only reinsures QBE captive business
Equator Re: only reinsures QBE captive business Half year ended 30 June Year ended 31 December GWP 2009 2008 2007 2006 2005 2004 Australia $m 64 123 162 95 74 88 Asia Pacific $m 108 108 163 65 57 54 Americas $m 801 1,090 909 113 92 54 Europe $m 745 910 756 628 130 82 Total $m 1,718 2,231 1,990 901 3
Slide 42: Premium outlook 2009: on track in local currency
Premium outlook 2009: on track in local currency Original plan Revised GWP – GWP – Original plan Revised Forecast local currency local currency GWP GWP NEP bn bn $bn $bn (1) $bn (1) Australia $3.3 $3.4 3.3 3.4 2.8 Asia Pacific $0.8 $0.7 0.8 0.7 0.4 Europe £2.65 £2.6 5.9 5.1 3.2 The Americas US$4.2 U
Slide 43: Group financial and capital management
Group financial and capital management Neil Drabsch - Group CFO 43 QBE INVESTOR UPDATE - 2 NOVEMBER 2009
Slide 44: Group financial and capital management
Group financial and capital management Balance sheet remains strong and flexible Recent holding company credit rating upgrade At year end a continuing strong Australian dollar will increase FCTR debit Regulatory capital adequacy not materially affected by currency movements, MCR forecast aro
Slide 45: Balance sheet
Balance sheet 30 June 2009 31 Dec 2008 31 Dec 2007 ASSETS $m $m $m Investments and cash 25,647 28,541 24,606 Receivables 5,605 5,041 4,616 Recoveries on outstanding claims 4,612 5,043 4,360 Deferred insurance costs 2,221 1,987 1,683 Intangibles 5,129 5,586 2,493 ABC financial assets pledged for fund
Slide 46: Group capital adequacy: remaining strong
Group capital adequacy: remaining strong 10,000 9,000 2.4x 1.7x 8,000 2.4x 1.7x Capital base $ million 7,000 4,995 3,301 6,000 3,012 1.9x 5,000 1.8x 4,295 4,000 2,573 2,086 3,000 4,621 4,544 2,000 3,612 2,555 2,846 3,013 1,000 0 2004 2005 2006 2007 2008 1H 2009 Minimum capital requirement Excess cap
Slide 47: Borrowings: lower debt/equity ratio
Borrowings: lower debt/equity ratio Projected 31 Dec 30 June 31 Dec 2009 2008 Weighted average cost Repayment profile (1) 2009 of borrowings currently 7.1% $m $m $m (31 Dec 2008: 6.5%) Less than 1 year (2) 576 1,383 1,120 Low debt/equity ratios provide 1 – 5 years 1,155 1,269 1,333 capacity and
Slide 48: Currency
Currency Currency volatility expected to continue into 2010 Top line affected by weaker US dollar and Sterling Profit and loss translated at cumulative average rates; - 2009 estimated A$ = US $0.79 cents; £0.51 pence - 2010 estimated A$ = US $0.90 cents; £0.58 pence Movement in year on year
Slide 49: Closing remarks
Closing remarks Frank O’Halloran - Group CEO 49 QBE INVESTOR UPDATE - 2 NOVEMBER 2009
Slide 50: Group underwriting results
Group underwriting results Half year ended 30 June Year ended 31 December 2009 2008 2007 2006 2005 2004 Gross written premium $m 8,057 13,142 12,406 10,372 9,408 8,766 Gross earned premium $m 7,118 12,853 12,361 10,069 9,171 8,571 Net earned premium $m 6,186 11,087 10,210 8,158 7,386 6,781 Claims ra
Slide 51: Top 10 P&C insurers: competitive analysis
Top 10 P&C insurers: competitive analysis Combined Operating Ratio Return on Equity Weighted Weighted Rank Company 2004 2005 2006 2007 2008 Average Rank Company 2004 2005 2006 2007 2008 Average % % % % % % % % % % % % 1 FM Global 78.0 77.0 74.9 75.4 98.8 81.2 1 QBE 24.5 23.9 26.1 26.1 20.9 24.0 2 Tr
Slide 52: Strategy
Strategy Maintain our prudent approach to managing insurance and investment risk Growth mainly targets acquisition opportunities, although organic growth to be pursued in the right conditions Acquisition strategy focused on bolt-on EPS accretive targets History of successful acquisitions and
Slide 53: Updated outlook 2009
Updated outlook 2009 Overall financial results on track, although stronger Australian dollar is impacting top line and NPAT Higher than expected claims frequency from large individual risk claims offset by lower cost of catastrophes Lower releases of claims provisions from prior years Subjec
Slide 54: www.qbe.com
QBE INSURANCE GROUP www.qbe.com 2 November 2009 54
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