Qbe Insurance Group Limited · ASX:QBE
Qbe Insurance — H1 2011 Earnings Presentation
42 slides from Qbe Insurance's earnings presentation, Aug 19, 2011
Slide 1: Cover letter to ASX: QBE 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 19 August 2011 Telephone: +61 (2) 9375 4444 Facsimile: +61 (2) 9231 6104 DX 10171, Sydney Stock Exchange The Manager Company Announcements A
Slide 2: QBE Insurance Group 2011 half year results announcement
For personal use only QBE INSURANCE GROUP 2011 half year results announcement Presented by: Frank O’Halloran, CEO, QBE Insurance Group Ltd John Neal, CEO – Global underwriting operations, QBE Insurance Group Ltd 19 August 2011
Slide 3: Presentation roadmap
Presentation roadmap For personal use only 1. Key messages and financial results 2. Claims analysis 3. Group reinsurance arrangements 4. Investments 5. Divisional results and strategic initiatives 6. Balance sheet and capital 7. Outlook and closing remarks 8. Appendices 2 HY 2011 results presentatio
Slide 4: Key messages
Key messages For personal use only Net profit after tax up 53% to US$673M from improved investment income, offset by record catastrophe claims Strong growth in premium income: - GWP up 30% to US$8.9Bn - NEP up 29% to US$6.8Bn New reinsurance program responded well to catastrophes Investment income,
Slide 5: Summary Group operating performance
Summary Group operating performance For personal use only For the half year ended 30 June 2011 1H 2010 1H % change GWP US$M 8,942 6,861 30 NEP US$M 6,778 5,240 29 Underwriting profit US$M 291 542 (46) COR % 95.7 89.7 n/a Investment income on policyholders’ funds US$M 471 285 65 (including FX) Insura
Slide 6: Key messages: new reinsurance programs respond well to record catastrophe claims
Key messages: new reinsurance programs respond well in a period of record catastrophe claims For personal use only “An exceptional accumulation of very severe natural catastrophes makes 2011 the highest-ever loss year on record, even after the first half-year” Munich Re Large individual risk and cat
Slide 7: Key messages: investment income, acquisitions, cash flow, tax and capital adequacy
Key messages: investment income, acquisitions, cash flow, tax and capital adequacy ahead of expectations For personal use only Investment income and yields ahead of target due to: - positive results from lower equity exposure - no impairment of bonds - increased FX gains Cash flow from operations up
Slide 8: 2011 HY insurance margin analysis: strong underlying margin of 16%
2011 HY insurance margin analysis: strong underlying margin of 16% For personal use only Reported margin adjusted for: 20.0 (1) Operational FX 19.0 gains, assumed non- 18.0 17.0 (0.8) 0.3 recurring 6.9 0.6 16.0 15.0 (2) Abnormal large 14.0 claims events above 13.0 15.0 expected prudent 12.0 (2.2) 11
Slide 9: QBE continues to outperform majority of global peers
QBE continues to outperform majority of global peers in difficult market conditions For personal use only 22 of the top 50 major global insurers that have reported to date: 30 June COR% 30 June COR% 2011 2010 2011 2010 Progressive 91.8 92.4 Berkshire Hathaway 107.8 92.2 Sampo 92.5 93.6 Hannover Re 1
Slide 10: 2011 1H accident year central estimate claims ratio
2011 1H accident year central estimate claims ratio: strong underlying performance For personal use only Analysis of net central estimate 2011 2010 2009 2010 2009 2008 claims ratio (accident year) (1) 1H 1H 1H FY FY FY Net earned premium US$M 6,778 5,240 4,379 11,362 9,446 9,293 Attritional claims %
Slide 11: Attritional claims continue to be under control and stable
Attritional claims continue to be under control and stable For personal use only 1H accident year attritional claims* ratio was 49.3% compared with 49.0% for the same period last year and 50.8% for 1H09 Stable attritional claims ratio due to: - premium rate increases matching claims inflation - acti
Slide 12: Record catastrophe claims impact claims ratio and insurance profit margin
Record catastrophe claims impact claims ratio and insurance profit margin – 7.8 % above average of past seven years For personal use only Current estimated large individual risk and catastrophe claims net of reinsurance recoveries US$M % NEP 2 Christchurch earthquakes 186 2.7 12 US tornadoes 159 2.4
Slide 13: 2011 1H accident year results: underlying portfolios performing well
2011 1H accident year results: underlying portfolios performing well For personal use only Analysis of net central estimate 2011 2010 2009 2010 2009 2008 combined operating ratio (accident year) 1H 1H 1H FY FY FY Net central estimate claims ratio % 64.2 57.7 59.5 58.6 59.5 59.6 (pre risk margins) Co
Slide 14: 2011 1H insurance profit: impact of lower discount rates
2011 1H insurance profit: negative impact of slightly lower discount rates and small savings from prior years For personal use only 2011 1H 2010 1H 2010 FY Ins. Ins. Ins. profit profit profit US$M margin US$M margin US$M margin % % % Central estimate accident year underwriting profit 409 6.0 655 12.
Slide 15: Weighted average discount rates: impact on underwriting profit and PoA
Weighted average discount rates: impact on underwriting profit and PoA For personal use only Actual weighted average Sensitivity scenarios risk-free discount rates on applied to 30 June 2011 outstanding claims% outstanding claims (2) 16 Aug Scenario Scenario Currency 2011 1H 2010 1H 2010 FY rate #1
Slide 16: Comprehensive worldwide reinsurance covers with significant pre-paid capacity
Comprehensive worldwide reinsurance covers with significant pre-paid capacity for 2H For personal use only Total reinsurance cost for 2012 and 2013: - 70% fixed to growth in premium income - premium rate increases and changes in terms and conditions are expected to offset the substantial majority of
Slide 17: New reinsurance program, lower cost and reduced maximum event retention
New reinsurance program, lower reinsurance cost and reduced maximum event retention For personal use only Over the past five years QBE has increased GWP by 123% and significantly increased the diversity of its businesses, both by product and geography enabling the Group to reduce its overall risk pr
Slide 18: Investment income: yields achieved at upper end of target range
Investment income: yields achieved at upper end of target range For personal use only 2011 2010 2009 Positive returns on equities 1H 1H 1H Credit spreads volatile, but Net investment income US$M 657 116 542 ultimately broadly unchanged Net yield on policyholders’ funds % 5.2 3.9 4.3 FI returns benef
Slide 19: Investment portfolio: fixed income portfolios high quality and liquid
Investment portfolio: fixed income portfolios – high quality and liquid For personal use only FI & cash portfolio US$28,248M (2010: US$24,959M) Modified duration low at 0.4 years Sov/Supra Average term to maturity of securities 16% is 1.7 years Cash 86% of fixed income portfolio rated Aa 30% or bett
Slide 20: Comparison of cash rates with actual yields
Comparison of cash rates with actual yields on FI and cash securities For personal use only Average Central Bank Currency mix of FI and cash rates % cash investments %(1) 2011 1H 2010 FY 2011 1H 2010 FY US dollar 0.3 0.3 33 33 Australian dollar 4.8 4.4 34 35 Sterling 0.5 0.5 16 15 Euro 1.1 1.0 9 9 O
Slide 21: The Americas: excellent underwriting results despite severe tornado season
The Americas: excellent underwriting results despite severe tornado season For personal use only COR improved to 88.9% 2011 1H 2010 1H GWP growth of 50% largely Gross written premium US$M 3,524 2,342 driven by acquisition activity Premium rates starting to Gross earned premium US$M 3,154 2,073 incre
Slide 22: European operations: strong results given record catastrophe claims
European operations: strong results given record global catastrophe claims For personal use only GWP growth assisted by Secura 2011 1H 2010 1H acquisition and overall premium rate increases of 2% Gross written premium US$M 2,824 2,412 Renewal retention maintained at over Gross earned premium US$M 2,
Slide 23: Australia: unprecedented weather related catastrophe claims impact results
Australia: unprecedented weather related catastrophe claims impact results For personal use only 2011 1H 2010 1H GWP growth of 25% aided by acquisitions of CUNA portfolios Gross written premium US$M 2,268 1,812 Overall rate increases of 4% on renewed business. Gross earned premium US$M 2,123 1,818 G
Slide 24: Asia Pacific: solid performance despite Christchurch earthquakes
Asia Pacific: solid performance despite devastating Christchurch earthquakes For personal use only GWP growth mainly from changes in 2011 1H 2010 1H FX rates Gross written premium US$M 326 295 Premium rates on renewed business flat – exception was NZ rates up 11% Gross earned premium US$M 315 284 Cl
Slide 25: Equator Re: underwriting profit despite global catastrophes
Equator Re: underwriting profit despite frequency of global catastrophes For personal use only GWP up 49% due to Group 2011 1H 2010 1H acquisitions, reinstatement premium income and new Gross written premium US$M 2,021 1,359 worldwide programs Gross earned premium US$M 1,545 1,032 Higher reinsurance
Slide 26: Operational transformation programs on track
Operational transformation programs on track For personal use only Major divisional IT and operations transformation programs in Europe and the Americas are on track to deliver indicated savings by 2012 and 2014 respectively 2011 2012 US$M US$M Quantification of benefit: Claims leakage and expense s
Slide 27: Capital adequacy: substantial excess capital to support growth
Capital adequacy: substantial excess capital to support growth expectations For personal use only Based on APRA criteria Total QBE regulatory capital US$M Minimum capital requirement ("MCR") US$M Excess capital US$M MCR multiple 30 June 2011 8,234 4,904 3,330 1.7x 31 Dec 2010 7,003 4,328 2,675 1.6x
Slide 28: Balance sheet: key balance sheet ratios are strong
Balance sheet: key balance sheet ratios are strong For personal use only Shareholders' funds - US$M PoA on outstanding claims liabilities - % 12,000 100.0 10,000 95.0 8,000 90.0 6,000 11,209 10,311 85.0 9,164 4,000 88.1 89.8 88.5 2,000 80.0 - 75.0 2009 FY 2010 FY 2011 1H 2009 FY 2010 FY 2011 1H Debt
Slide 29: Strategy
Strategy For personal use only Focus on building shareholder wealth by: - market leading performance - acquisitions - underwriting discipline - operational excellence Build on our successful and disciplined long-term strategy of growth through product diversification and geographic spread Enhance ou
Slide 30: 2011 premium outlook
2011 premium outlook For personal use only Projected Projected Projected GWP – local GWP NEP currency Bn (1) US$Bn US$Bn Australia A$4.3 4.6 3.6 Asia Pacific US$0.7 0.7 0.4 Europe £2.8 4.5 3.1 The Americas US$7.7 7.7 4.7 Equator Re (2) 3.2 17.5 15.0 (1) Cumulative average foreign exchange rates assu
Slide 31: Acquisitions to drive 2H premium growth and profit contribution
Acquisitions to drive 2H premium growth and profit contribution For personal use only 2011 acquisitions completed Effective Cost Additional date US$M annualised GWP US$M Renaissance Re US multi line crop insurer 1 Jan 270 560 CUNA Australian mutual insurer 1 April 22 90 Balboa: US lender-placed and
Slide 32: 2011 FY financial performance projections
2011 FY financial performance projections: large risk and catastrophe claims in 1H and market uncertainty lowers insurance profit targets For personal use only 2011 FY GWP (excluding portfolio transfer from acquisitions) over US$17.5Bn NEP over US$15.0Bn Reinsurance expense ratio (to GEP) around 12%
Slide 33: Outlook for remainder of 2011: assumptions
Outlook for remainder of 2011: assumptions For personal use only Overall premium rate increases on renewed business expected to be close to 4% for FY11 Reinsurance expense ratio of close to 12% of gross earned premium by year end The minimum projected insurance profit margin of 11% includes: - allow
Slide 34: Outlook for remainder of 2011: assumptions
Outlook for remainder of 2011: assumptions For personal use only Additional reinsurance protections purchased for 2H to be funded from expected premium rate increases 14% projected insurance margin is achievable for FY11 if: - net large individual risk and catastrophe claims match our previous targe
Slide 35: Outlook: longer term
Outlook: longer term For personal use only Focus on acquisitions which do not rely on investment income to support insurance margins Substantially fixed reinsurance cost for 2012 and 2013 Deliver incremental annualised benefits from operational transformation programs of around 1% of COR or US$200M
Slide 36: Important disclaimer
Important disclaimer For personal use only The information in this presentation provides an overview of the results for the year ended 30 June 2011. This presentation should be read in conjunction with all information which QBE has lodged with the Australian Securities Exchange (“ASX”). Copies of th
Slide 37: QBE Insurance Group www.qbe.com
For personal use only QBE INSURANCE GROUP www.qbe.com 36 HY 2011 results presentation
Slide 38: Appendices
Appendices For personal use only 1. Worldwide reinsurance covers 2. PoA of total insurance liabilities 3. Dividend performance 4. Borrowings summary 37 HY 2011 results presentation
Slide 39: Comprehensive worldwide reinsurance covers for the second half
Comprehensive worldwide reinsurance covers with significant pre-paid capacity for the second half For personal use only Worldwide catastrophes Single layer US$1.3bn excess US$200m with pre-paid cover to US$2.6bn (1) - US$2.2bn remaining for 2011 – no reinstatement premiums - 80% commitment for 2012
Slide 40: Probability of adequacy of total insurance liabilities
Probability of adequacy of total insurance liabilities at 95.2% For personal use only 2011 1H 2010 1H 2010 FY 2009 FY US$M US$M US$M US$M Net outstanding claims 16,600 12,671 15,017 12,864 Unearned premium net of deferred insurance costs 6,110 4,320 4,785 4,374 Net total insurance liabilities 22,710
Slide 41: Dividend performance
Dividend performance For personal use only 1,600 126 128 128 140 122 Dividend per share A$ cents 1,400 120 95 1,200 100 Payout A$M 1,000 678 694 645 62 62 80 800 576 60 600 452 40 400 628 642 677 492 542 20 200 322 - - 2006 2007 2008 2009 2010 2011 Interim Final Dividends per share 2011 interim divi
Slide 42: Borrowings summary
Borrowings summary For personal use only 30 June 2011 31 December 2010 Maturity date Call date Principal amount US$M US$M Bank loans 13 May 2012 13 May 2012 US$100 million 100 - 19 January 2011 19 January 2011 US$25 million - 25 30 June 2011 30 June 2011 US$2 million - 2 100 27 Senior debt 28 Septem