Qbe Insurance Group Limited · ASX:QBE
Qbe Insurance — Investor Day (October 2014)
74 slides from Qbe Insurance's investor day presentation, Oct 17, 2014
Slide 1: ASX cover letter: QBE North American Operations Investor and Analyst Day
QBE Insurance Group Limited ABN 28 008 485 014 AN Level 27, 8 Chifley Square, SYDNEY NSW 2000 Australia b GPO Box 82, Sydney NSW 2001 ¢ (=~) telephone + 612 9375 4444 + facsimile + 612 9231 6104 ™ QBE 17 October 2014 The Manager Market Announcements Office ASX Limited Level 4 Exchange Centre 20 Brid
Slide 2: Investor Day Presentation: QBE NA Operations Business Review
North America Operations For personal use only QBE Insurance Group Ltd Investor Day Presentation QBE NA Operations Business Review October 2014 1 1
Slide 3: North America Business Review - Agenda
North America Business Review - Agenda North America Operations For personal use only QBE NA Divisional Overview Dave Duclos– Chief Executive Officer QBE NA Financials 9.30 – 11.00 Richard Dziadzio – Chief Financial Office Standard Lines Alan Driscoll – Head of Standard Lines Coffee Break 11.00 – 11
Slide 4: NA Divisional Overview
For personal use only QBE NA Operations NA Divisional Overview Dave Duclos – October 2014 3
Slide 5: QBE North American Operations
QBE North American Operations North America Operations For personal use only “There have been significant changes to our management structure with a number of quality external appointments who are now implementing changes to the business portfolios, structure, people and processes. Good progress has
Slide 6: NA Executive Management Board
QBE NA Divisional Overview North America NA Executive Management Board Operations For personal use only Dave Duclos CEO 36 industry years 1 QBE year Business Groups Greg Deal Alan Driscoll Matt Freeman Jeff Grange Crop Standard Lines M&LS Specialty 38 industry years 36 industry years 13 industry yea
Slide 7: NA Historical Overview
QBE Divisional Overview North America NA Historical Overview Operations For personal use only 1990s 2000s 2010 – 2011 2012 – present Farmers Union US Representative US Agencies is Industry Insurance and QBE Office set-up formed with MGA consolidation on Agri business added acquisitions Lender Placed
Slide 8: Average Industry NCOR
QBE Divisional Overview Average Industry NCOR North America Operations For personal use only GWP Aspiring to mid 90s NCOR means performing at the Top of the US P&C industry $B Average NCOR 2008-2013, % 110 101.8 • Average US P&C 100 98.4 performance is far from 93.4 QBE NA’s aspirations 90 • Therefo
Slide 9: US P&C Industry Business Line Performance
QBE Divisional Overview US P&C Industry Business Line Performance North America Operations For personal use only Only way to achieve NCOR in the mid 90s is to grow specific specialist lines Market Average NCOR – Top Quartile and Market Average By Line Top Quartile Threshold 2008-2013, %, $Bn Top Qua
Slide 10: Market Size
QBE Divisional Overview Market Size North America Operations For personal use only Building a portfolio that delivers NCOR in the mid 90s, means targeting a market that is probably $80-100B in total size Size of the US P&C Market by NCOR Band 2013 GWP ($B) QBE Market 500 Window This chart reads as f
Slide 11: Industry Versus QBE
QBE Divisional Overview Industry Versus QBE North America Operations For personal use only QBE has historically outperformed the industry on the loss ratio; however, expense and commission ratio has been higher than that of the industry 2008 – 2013 Average NCOR Industry versus QBE, % 101.8 101.0 Com
Slide 12: NA High-level Strategy on a Page
QBE Divisional Overview NA High-level “Strategy on a Page” North America Operations For personal use only AMBITION Become a relevant specialty-focused carrier in NA, with market recognized underwriting ability, risk selection, and capacity GROW / MAINTAIN IMPROVE Divest WHERE TO WIN Middle US Specia
Slide 13: QBE NA Transformation
QBE NA Transformation North America Operations For personal use only 1. QBE NA Transformation will enable achievement of NA Strategy - QBE NA’s ambition is to become a successful specialty-focused carrier in North America - To achieve this transformation, NA has launched several key initiatives 2. T
Slide 14: Profitable Growth, Organization Optimization and Business Enablement
QBE NA Transformation Profitable Growth, Organization Optimization and Business Enablement North America Operations For personal use only Initiative Description 1 Middle Market Implement underwriting actions aligned to stabilize / grow premium 2 M&LS Implement actions to improve M&LS profitabili
Slide 15: Profitable Growth – Portfolio Transformation
QBE NA Transformation North America Profitable Growth – Portfolio Transformation Operations For personal use only GWP 2014 GWP 2017 Assumed Assumed, M&LS, 9% Specialty, Middle M&LS, 5% Specialty, Re, 6% 5% 6% Market, 17% Middle Market, Risk 16% 17% Mgmt., 4% Risk Mgmt., 4% Consumer, Crop, 27% Crop,
Slide 16: Profitable Growth - US Agencies Divestiture
QBE NA Transformation Profitable Growth - US Agencies Divestiture North America Operations For personal use only Year Founded: 1989 1967 1999 Year Acquired by QBE: 2008 2008 2008 Headquarters: Newtown, PA Irving, TX Glendale, CA CEO / President: Lori Long Tracy Bowden Guiller
Slide 17: Organizational Optimization – Design Principles
QBE NA Transformation Organizational Optimization – Design Principles North America Operations For personal use only Our organizational design principles will guide the decisions we make around structure, processes, souring opportunities and geographic footprint. Portfolio Build cost structures th
Slide 18: Quantum – Basis for a Successful Transformation
QBE NA Transformation Quantum – Basis for a Successful Transformation North America Operations For personal use only Quantum has led to the all encompassing transformation we are now driving. Its operational milestones have been met by aggressively managing cost / right sizing. Through reductions,
Slide 19: Impact on Staff To Date
QBE NA Transformation Impact on Staff To Date North America Operations For personal use only Increased offshoring and outsourcing has resulted in greater flexibility and variability of cost Headcount Trends GSSC Third Parties -31% Contractors 8,510 Full Time 6,817 5,906 Dec’12 Dec’13 Aug’14 18 18
Slide 20: Expense Ratio Improvement
QBE NA Transformation Expense Ratio Improvement North America Operations For personal use only A key outcome of the QBE NA Transformation will be to achieve a Top Quartile Expense Ratio Net UW Expense Ratio % 20.1 17-18 Driven by ~3+ points organizational 14.7 reduction re-design levers described:
Slide 21: Final Thoughts
Final Thoughts North America Operations For personal use only QBE NA is undertaking a considerable transformation program to deliver Top Quartile performances and is on track to achieve strong results in the years to come. Results stabilization occurring….underlying trends in several key areas imp
Slide 22: Financial Update
For personal use only QBE NA Operations Financial Update Richard Dziadzio – October 2014 21
Slide 23: QBE NA 2014 Overview
North America QBE NA 2014 Overview Operations For personal use only QBE NA GWP - $5.3 Billion Middle Market (17%) Program (26%) Risk Management* (4%) Consumer (5%) M&LS (9%) Specialty (6%) Crop (27%) Assumed Re (6%) * Formerly known as Major Brokers 22
Slide 24: QBE NA Historical Financials
North America QBE NA Historical Financials Operations For personal use only Year ended 31 December FY11 FY12 FY13 1H13 1H14 GWP US$M 7,451 6,565 5,951 2,750 2,472 1H 2013 vs 1H 2014 NEP US$M 6,025 5,625 5,030 2,115 1,917 Positives Loss Ratio (ex Solid rate increases % 64.1 66.2 67.1 58.1 57.5 achi
Slide 25: 2013 Impact of M&LS on QBENA Portfolio
North America 2013 Impact of M&LS on QBENA Portfolio Operations For personal use only QBENA NCOR negatively impacted by M&LS in 2013 and 1H14 2013 QBENA NCOR With and Without M&LS, % Expense Ratio Commission Ratio 103.0 Loss Ratio 99.1 20.1 13.1 M&LS impacts the expense ratio by 7 points 15.6 15.8
Slide 26: QBE NA GWP and Rate Movement
Historical Overview of GWP and Rate Movement North America Operations For personal use only QBE NA GWP and Rate Movement QBE NA GWP Rate movement $7,451M $6,565M 5.4% 5.6% $5,951M $4,619M 3.1% 0.5% 2010 2011 2012 2013 Note: Rate Movement excludes Crop 25
Slide 27: Historical Overview By Business: GWP and Rate Movement
Historical Overview By Business GWP and Rate Movement North America Operations For personal use only 1,314 1,344 Middle 1,227 Program 1,174 975 Market 1,075 Active 735 945 2010 2011 2012 2013 2010 2011 2012 2013 Rate Movement (%) 0.2% 2.4% 6.4% 6.2% Rate Movement (%) 0.0% 1.3% 6.4% 5.1% 256 253 189
Slide 28: Market Conditions Overview
Market Conditions Overview North America Operations For personal use only Current 2014 conditions Personal lines rates up ~3% Commercial lines rates up by ~2% for liability, but down for property Specialty lines varied but trending down to no better than flat Workers’ compensation rates up ~
Slide 29: QBE NA Product Mix Overview
QBE NA Product Mix Overview North America Operations For personal use only QBE NA GWP - $5.3 Billion Multiple Peril Crop (27%) Commercial Property (16%) Personal Property (10%) M&LS (9%) Workers Comp (8%) Commercial Liability (6%) Specialty (6%) Commercial Auto (5%) Personal Auto (4%) Commercial Agr
Slide 30: QBE NA Half Year Reserves Overview
QBE NA Half Year Reserves Overview North America Operations For personal use only Half Year Net Reserves Balance By Business Half Year Comments $51M of adverse prior year development in the first half: Program (44%) - $32M pertaining to late Middle Market (24%) Crop claim notifications Risk Manage
Slide 31: Standard Lines
For personal use only QBE NA Operations Standard Lines Alan Driscoll – October 2014 30
Slide 32: QBE NA 2014 Overview
QBE NA 2014 Overview North America Operations For personal use only QBE NA GWP - $5.3 Billion Middle Market (17%) Program (26%) Risk Management* (4%) Consumer (5%) M&LS (9%) Specialty (6%) Crop (27%) Assumed Re (6%) * Formerly known as Major Brokers 31
Slide 33: Standard Lines: Current Profile
Standard Lines: Current Profile North America Operations For personal use only Business groups organized around Product, Distribution Channel and Customer with a focus on technical leadership and superior underwriting proficiency 1 2 3 4 Middle Market Program Risk Management Consumer • Standard Comm
Slide 34: Middle Market Business Overview
1 Middle Market North America Business Overview Operations For personal use only Ambition: To be a top performing middle market organization working with select partners and offering products for small, medium and large commercial accounts, personal lines products, and agricultural products Delive
Slide 35: Long Term Value of Middle Market Business
1 Middle Market North America Long Term Value of Middle Market Business Operations For personal use only With a renewed management team, we believe in our ability to leverage pre-existing strong relationships with our independent agents Confidence in ability to further leverage national footprin
Slide 36: Middle Market Premium and Agent Count By State
1 Middle Market North America Premium (All Products) and Agent Count By State Operations For personal use only Focus Areas HQ Consolidate underwriting and servicing for small and large commercial Maximize profitable growth by effective agency and portfolio management Grow new > 100 M business
Slide 37: Middle Market Product Mix Overview
1 Middle Market North America Product Mix Overview Operations For personal use only 2014 Product Mix Comm Agri (9%) Comm Auto (12%) Comm Flow (7%) Comm Liab (11%) Comm Prop (11%) Comm WC (10%) Pers Auto (25%) Pers Liab (1%) Pers Prop (14%) 36
Slide 38: Program Business Overview
2 Program Business Overview For personal use only Our ambition is to be the predominant underwriter of Program Business in the US Protect current profitable CAT programs and grow non-critical CAT Property Property Grow in non-Coastal, non-CAT regions and protect non-Critical CAT programs Fix o
Slide 39: Program Product Mix Overview
2 Program Product Mix Overview For personal use only 2014 Product Mix Comm Auto (10%) Comm Prop (53%) General Liability (10%) Other (0%) Pers Auto (1%) Pers Prop (6%) Workers Comp (20%) 38
Slide 40: Risk Management Business Overview
3 Risk Management North America Business Overview Operations For personal use only Along with our diverse mix of products, QBE’s Risk Management team offers experience, knowledge and skill. Coverage is customized to each client to manage risks effectively Coverage: All risks, including machinery b
Slide 41: Risk Management Strategy and Mix Overview
3 Risk Management North America Strategy and Mix Overview Operations For personal use only Business Strategy 2014 Product Mix Where to Play Focus on national accounts segment of commercial lines Property: Target real estate, financial institutions, manufacturing and service industries Casualty
Slide 42: Consumer and Affiliated Agencies Business Overview and Distribution
4 Consumer and Affiliated Agencies North America Business Overview and Distribution Operations For personal use only Provides voluntary insurance products distributed primarily through financial institutions, homebuilders and other key partners Value Added Proprietary technology facilitates homebu
Slide 43: Consumer and Affiliated Agencies Market Share Overview
4 Consumer and Affiliated Agencies North America Market Share Overview Operations For personal use only Key Objective is to protect market share: Where to Play: Personal lines coverage where we have 85% top 25 builders; 35% top 5 financial an advantaged access to business leads institutions via a
Slide 44: Mortgage & Lender Services
For personal use only QBE NA Operations Mortgage & Lender Services Bob James – October 2014 43
Slide 45: QBE NA 2014 Overview
QBE NA 2014 Overview North America Operations For personal use only QBE NA GWP - $5.3 Billion Middle Market (17%) Program (26%) Risk Management (4%) Consumer (5%) M&LS (9%) Specialty (6%) Crop (27%) Assumed Re (6%) 44
Slide 46: Mortgage & Lender Services Business Overview
Mortgage & Lender Services North America Business Overview Operations For personal use only Business Overview Provides home and auto insurance tracking Value added services: – Insurance tracking solutions – Insurance recovery services Insurance products include: – Lender placed hazard, flood,
Slide 47: Lender Placed Hazard Insurance - Process
Mortgage & Lender Services North America Lender Placed Hazard Insurance - Process Operations For personal use only 1 Home Purchase 2 Lenders can: 3 How do investors protect their interest? 1. Retain Loan on Balance Sheet How do investors know which loans do 2. Sell to Secondary Market or do not have
Slide 48: M&LS Historical Look Back
Mortgage & Lender Services North America Historical Look Back Operations For personal use only Throughout 2013, M&LS management GWP and NEP was focused on securing two major $M GWP accounts (Nationstar and Chase) to NEP restore premium volume, both of which were unsuccessful 1,332 1,372 Increasi
Slide 49: M&LS Opportunities
Mortgage & Lender Services North America Opportunities Operations For personal use only QBE continues to pursue a strategy of the highest compliance and ethical standards to maintain existing clients and attract servicers away from the Opportunities competition for growth RFP activity could incr
Slide 50: Crop
For personal use only QBE NA Operations Crop Richard Dziadzio – October 2014 49
Slide 51: QBE NA 2014 Overview
QBE NA 2014 Overview North America Operations For personal use only QBE NA GWP - $5.3 Billion Middle Market (17%) Program (26%) Risk Management (4%) Consumer (5%) M&LS (9%) Specialty (6%) Crop (27%) Assumed Re (6%) 50
Slide 52: Crop Overview MPCI model
Crop North America Overview MPCI model Operations For personal use only MPCI is a unique, heavily regulated, government subsidized insurance program run by US Federal Crop Insurance Corp (FCIC) Rates are set by government actuaries, carriers may not decline or adjust pricing for individual site
Slide 53: Crop: QBE Overview
Crop North America QBE Overview Operations For personal use only QBE is the third largest underwriter and manager of multi peril crop insurance (MPCI) in the U.S. with an approximate 13% share The two largest are Rain and Hail (owned by ACE) and RCIS (owned by Wells Fargo) There are 17 Approve
Slide 54: Crop: Overview of Key Products
Crop North America Overview of Key Products Operations For personal use only Crop Policies Description Yield Base Protect against yield losses due to natural causes 1 Products Paid if harvest is less than yield insured after a deductible Catastrophe – Pays 55% of a crop established price on crop l
Slide 55: How Commodity Prices affect underwriting profit
Crop North America How Commodity Prices affect underwriting profit Operations For personal use only Spring Cycle Policy, Crop Price and Coverage Spring Crop Harvest Policy First prices Price End of Dates Coverage Premium established Established Coverage – Begins – Billing Date – 2/1 to 10/1 to 12/15
Slide 56: Crop Premium Mix
Crop Premium Corn, Wheat, Soybean North America Operations For personal use only Crop Premium Mix % Corn 44.0% 39.0% Soybean 23.0% 23.0% Wheat 16.0% 17.0% All Other 16.0% 22.0% 2013 2014 55
Slide 57: Crop Strategy and Business Objectives
Crop North America Strategy and Business Objectives Operations For personal use only Business Strategy Business Objectives Where to Play Organic Growth. Maintain and grow MPCI Geography: Entire US, with specific focus on crop count by 3% net underserved states and the mid-west Provide competit
Slide 58: Crop Futures
Crop Futures North America Operations For personal use only Corn Futures Soybean Futures Wheat Futures With key commodity prices down from the reference prices (set in Feb to price policies), higher expected yields may not offset price declines – underwriting losses are likely in certain states, aft
Slide 59: Specialty
For personal use only QBE NA Operations Specialty Jeff Grange – October 2014 58
Slide 60: QBE NA 2014 Overview
QBE NA 2014 Overview North America Operations For personal use only QBE NA GWP - $5.3 Billion Middle Market (17%) Program (26%) Risk Management (4%) Consumer (5%) M&LS (9%) Specialty (6%) Crop (27%) Assumed Re (6%) 59
Slide 61: Specialized Insurance for Unique Risks
Specialty North America Specialized Insurance for Unique Risks Operations For personal use only Replace potential liabilities with a sense of security with QBE—a company whose experience and expertise allow us to say yes to highly unique insurance needs 1 2 3 4 Management & Professional Accident & H
Slide 62: Management & Professional Liability Business Overview
1 Management & Professional Liability North America Business Overview Operations For personal use only Primary Public / Private company D&O launched Establish a recognized market presence in US management liability & professional lines market Ambition “One stop shopping” full underwriting servic
Slide 63: Specialty Product Launch Timeline
Specialty North America Product Launch Timeline Operations For personal use only CONFIRMED DESIRED NEW LINES 2014 2015 2016 and Beyond Fidelity Surety Political Risk Inland Marine, Multinational Cargo & Transit Healthcare* Transactional Liability (“TL”)** A&H Supplemental Care products Launch timing
Slide 64: Specialty Lines Industry Performance
Specialty North America Lines Industry Performance Operations For personal use only Portfolio re-balance to Specialty lines is underway Market Average NCOR – Top Quartile and Market Average By Line Top Quartile Threshold 2008-2013, %, $Bn Top Quartile Average 76 79 79 80 80 88 90 92 93 96 98 56 64 7
Slide 65: Risk Update
For personal use only QBE NA Operations Risk Update John Langione – October 2014 64
Slide 66: Supporting the Business and Growth Strategy
Supporting the Business and Growth Strategy North America Operations For personal use only Business plan stress testing (divisional and Participated in creation bottom up), aligned with and evolution of NA top risks Underwriting Committee Completed ORSA pilot Risk engagement in with NAIC and
Slide 67: Risk Management Maturity
Risk Management Maturity North America Operations For personal use only Current State Actions Focus on embedding risk management in Alignment of risk management team with each shared service and business business unit - KPI’s identified and monitored for all functions - One ERM components cascad
Slide 68: Run Off: Discontinued Programs Unit
Run Off Discontinued Programs Unit North America Operations For personal use only Highlights Discontinued Programs Unit fully dedicated to management of runoff programs - Underwriting audits, non-renewal strategies, and dispute management New leader of unit with substantial industry experience i
Slide 69: Claims
For personal use only QBE NA Operations Claims Dave Duclos – October 2014 68
Slide 70: Program Claim Handling Progress
Program Claim Handling Progress North America Operations For personal use only January 2013 January 2015 49 TPA’s handling our claims 15 TPA’s handling our claims 40% of the pending claims were 71% of the pending claims are handled by QBE/Sedgwick staff handled by QBE/Sedgwick staff 36% of
Slide 71: Claims & Loss Control Highlights
Claims & Loss Control Highlights North America Operations For personal use only Global Shared Services Transitions to Sedgwick and our Global Shared Services and Outsourcing Center allowed us to achieve ~$70M expense reduction (Quantum) by 2016 Claim handling of 15 MGAs (22 Programs) to be moved
Slide 72: Claims Metrics Dashboard and Performance
Claims Metrics Dashboard and Performance North America Operations For personal use only Line 1 Line 2 Line 3 Line 4 Line 5 Line 6 Claims Year-To-Date Variance (reported in arrears) Actual Plan Prior to Plan to Prior Case Incurred Claims % NEP 47.0% n/a 69.0% n/a n/a 22.0% Line 1 Claims Severity ($)
Slide 73: Closing Remarks / Questions
For personal use only QBE NA Operations Closing Remarks / Questions Dave Duclos – October 2014 72
Slide 74: Important disclaimer
Important disclaimer North America Operations For personal use only 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