QBE Insurance Group Limited · ASX:QBE
QBE Insurance — FY2003 Earnings Presentation
45 slides from QBE Insurance's earnings presentation, February 2004
Slide 1: QBE Insurance Group Limited Results & Outlook
QBE INSURANCE GROUP LIMITED RESULTS for the year ended 31 December 2003 & OUTLOOK
Slide 2: Highlights
Highlights year ended 31 December 2003 • Net profit after tax up 105% to $572 million (2002: $279 million) • Net profit before tax up 146% to $765 million (2002: $311 million) • Insurance profit up 54% to $627 million (2002: $406 million) or 10.4% of net earned premium (2002: 7.2%) • Cash flow from
Slide 3: Highlights
Highlights year ended 31 December 2003 • Gross written premium up 8% to $8,350 million • Reported top line growth would have been approximately 17% using 2002 rates of exchange • Growth supported by higher premium rates, overall improved retention of business and an increase in new business includin
Slide 4: Highlights
Highlights year ended 31 December 2003 • Gross claims ratio reduced from 65.1% to 61.7% • Net claims ratio reduced from 67.6% to 63.3% • Improvements in the claims ratio were achieved from higher premium rates and improved policy terms and conditions, partly offset by increased prudential margins
Slide 5: Highlights
Highlights year ended 31 December 2003 • Reinsurance costs increased from 22% to 23% of gross earned premium due to proportional reinsurance treaties on US agency business (2%+) • Commission ratio increased from 17.7% to 18.2% reflecting a change in mix of business and higher profit commissions • Ex
Slide 6: Highlights
Highlights year ended 31 December 2003 • Net investment income up 117% to $393 million (2002: $181 million) • Gross investment yield before borrowing costs and expenses 4.6% (2002: 2.5%) • Investment income includes realised and unrealised gains before tax of $110 million, mainly reflecting improved
Slide 7: Stronger A$ in 2003
Stronger A$ in 2003 USD Major currency changes in 2003: 0.78 0.76 US$ - 25.39% 0.74 UK - 17.36% 0.72 EURO - 10.61% 0.70 0.68 0.66 0.64 0.62 0.60 0.58 0.56 0.54 0.52 0.50 0.48 Mar 01 Jul 01 Jan 02 Jul 02 Jan 03 Jul 03 Jan 04
Slide 8: Currency mix
Currency mix year ended 31 December 2003 Market value of investments and cash Market value of equities Other Other Australian dollar 13.3% (12.2%) Australian dollar 39.6% (43.3%) 11.2% (15.7%) 22.5% (19.1%) Sterling 23.6% (27.5%) Sterling 30.6% (33.0%) US dollar US dollar 33.6% (35.7%) 25.6% (13.5%)
Slide 9: Geographical diversification
Geographical diversification year ended 31 December 2003 gross earned premium Lloyd’s division Australia 26.1% (30.4%) 21.9% (20.1%) Asia-Pacific 7.0% (8.4%) the Americas 15.5% (11.9%) European company operations 29.5% (29.2%)
Slide 10: Impact of stronger Australian dollar
Impact of stronger Australian dollar 2003 2003 at 2002 Exchange Actual exchange rates rate impact $M $M % Gross earned premium 7,816 8,622 9 Net earned premium 6,036 6,606 9 Net investment income 393 425 8 Profit after tax 572 621 8 Total investments and cash 11,823 14,065 16 Total assets 20,478 24,
Slide 11: Shareholder returns
Shareholder returns year ended 31 December 2003 • Final dividend 22.0¢ per share, 30% franked (2002: 18.5¢, 12% franked) – Ex dividend date 2 March 2004 – Record date 8 March 2004 – Payment date 25 March 2004 • Dividend payout $281 million for 2003, up 32% compared with 2002 • Shares on issue of 672
Slide 12: Shareholder returns
Shareholder returns year ended 31 December 2003 • Earnings per share 2003 2002 – basic 86.5 cents 42.7 cents – diluted 77.5 cents 43.4 cents * • LYONs hybrid security holders will be provided with additional QBE shares at the dividend reinvestment rate – only if converted • LYONs securities remain o
Slide 13: Dividend performance
Dividend performance year ended 31 December 2003 320 42.0 Total $281M 240 35.0 Payout $M Final $148M 30.0 160 Cents per share dividend 32.5 31.0 26.5 24.0 20.8 16.0 17.9 Interim $133M 80 0 1994 1997 2000 2003
Slide 14: Worldwide operations
Worldwide operations HALF YEAR FULL YEAR June Dec Dec Dec 2003 2003 2003 2002 Gross written premium $M 4,821 3,529 8,350 7,723 Gross earned premium $M 3,882 3,934 7,816 7,197 Net earned premium $M 3,083 2,953 6,036 5,642 Claims ratio % 65.1 61.4 63.3 67.6 Commission ratio % 18.7 17.7 18.2 17.7 Expen
Slide 15: Worldwide operations
Worldwide operations year ended 31 December 2003 GWP Growth * COR Net profit after tax 2003 2003 2003 2002 2003 2002 $M % % % $M $M Australia 1,869 18 92.8 97.1 180 103 Asia-Pacific 542 (14) 90.0 95.9 38 18 the Americas 1,342 35 93.1 99.6 46 14 European companies 2,441 9 94.7 98.9 168 76 Lloyd’s div
Slide 16: Worldwide portfolio mix
Worldwide portfolio mix year ended 31 December 2003 gross earned premium Catastrophe Professional indemnity 3.3% (3.3%) Marine and aviation 9.2% (9.1%) 8.2% (10.3%) Workers’ compensation 9.2% (9.2%) Financial and credit Property 3.3% (2.9%) 29.1% (28.2%) Liability 15.9% (13.4%) Other Accident and he
Slide 17: Balance sheet
Balance sheet 31 Dec 2003 31 Dec 2002 $M $M ASSETS Investments and cash 11,823 11,504 Receivables 2,954 3,380 Recoveries on outstanding claims 2,885 3,666 Deferred insurance costs 1,167 1,131 Intangibles 511 516 ABC investments pledged for funds at Lloyd’s 731 – Fixed and other assets 407 438 TOTAL
Slide 18: Net invested funds
Net invested funds 31 Dec 2003 31 Dec 2002 $M % $M % Cash 717 6.1 745 6.5 Short term money 3,499 29.5 3,549 30.8 Fixed interest securities and other 6,216 52.6 6,073 52.8 Equities 1,272 10.8 1,026 8.9 Property 119 1.0 111 1.0 Total investments and cash 11,823 100.0 11,504 100.0 Borrowings (1,334) (1
Slide 19: Balance sheet
Balance sheet 31 December 2003 • Net invested funds increased 4% to $10.5 billion due to strong operational cash flow, dividend reinvestment and acquisitions, offset by the negative impact of translating overseas investments to the stronger A$ • Approximately 88% of fixed interest and cash is AA rat
Slide 20: Comparison of international bond yields
Comparison of international bond yields 3 year A$ government bond 2 year US$ generic government bond 6 Yields: 2.25 Yields: 1 Jan 03 4.51% 1 Jan 03 1.59% 2 5.5 31 Dec 03 5.39% 31 Dec 03 1.83% 5 1.75 4.5 1.5 4 1.25 3.5 1 31-Dec-02 01-Apr-03 01-Jul-03 30-Sep-03 30-Dec-03 31-Dec-02 01-Apr-03 01-Jul-03
Slide 21: Balance sheet
Balance sheet 31 December 2003 • 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 decreased from $3.7 billion to $2.9 billion. Provision for do
Slide 22: Balance sheet
Balance sheet 31 December 2003 • Borrowings decreased to $1,334 million mainly due to the impact of the stronger A$ • Borrowings to shareholders’ funds 40.3%* (2002: 49.3%) • US$250 million subordinated debt issue (June 2003) used to repay debt and for general corporate purposes • US$550 million ass
Slide 23: Balance sheet
Balance sheet 31 December 2003 • Outstanding claims – greater than 90% probability of adequacy – exceeds Group benchmark of 85% • Level of prudential margins increased in 2003, despite the impact of the stronger A$ • The Group’s main asbestos related claims exposure is in Australia – UK and US expos
Slide 24: Capital adequacy
Capital adequacy 31 December 2003 • QBE estimates the Group capital adequacy multiple is around 2.1 times the minimum capital requirement* (2002 1.6 times) • Subordinated debt and hybrid securities are included as tier 2 capital for determining the Group’s capital adequacy multiple • The Australian
Slide 25: Capital adequacy
Capital adequacy 31 December 2003 • The capital adequacy multiple has improved due to a lower maximum event retention, higher prudential margins, increased tier 2 capital (sub debt) and a lower capital requirement on overseas assets and liabilities due to the stronger A$ • All subsidiaries maintain
Slide 26: Australian general insurance
Australian general insurance year ended 31 December 2003 2003 2002 Gross written premium $M 1,869 1,578 Gross earned premium $M 1,715 1,448 Net earned premium $M 1,425 1,221 Claims ratio % 67.2 72.1 Commission ratio % 11.1 10.5 Expense ratio % 14.5 14.5 Combined operating ratio % 92.8 97.1 Insurance
Slide 27: Australian general insurance
Australian general insurance year ended 31 December 2003 • CTP, workers’ compensation, trade credit, professional liability, corporate property/liability results all ahead of plan • Joint venture underwriting agency with ING again produced excellent results. Awarded National Insurance Brokers’ Under
Slide 28: Asia-Pacific general insurance
Asia-Pacific general insurance year ended 31 December 2003 2003 2002 Gross written premium $M 542 629 Gross earned premium $M 549 602 Net earned premium $M 430 441 Claims ratio % 50.0 55.1 Commission ratio % 18.8 20.4 Expense ratio % 21.2 20.4 Combined operating ratio % 90.0 95.9 Insurance margin %
Slide 29: Asia-Pacific general insurance
Asia-Pacific general insurance year ended 31 December 2003 • Improved underwriting result from focus on portfolio profitability and the general improvement in premium rates and policy terms and conditions • Most operations recorded underwriting profits and profits achieved from the majority of produ
Slide 30: the Americas
the Americas year ended 31 December 2003 2003 2002 Gross written premium $M 1,342 991 Gross earned premium $M 1,213 856 Net earned premium $M 740 672 Claims ratio % 63.4 68.4 Commission ratio % 23.5 24.7 Expense ratio % 6.2 6.5 Combined operating ratio % 93.1 99.6 Insurance margin % 8.4 2.7 • Gross
Slide 31: the Americas
the Americas year ended 31 December 2003 • Reinsurance expense was up 39% (2002: 22%) due to increased proportional reinsurance on new agency business • Strong focus on disciplined growth from renewals and new business with proven profitable track records • Improved COR achieved in both the general
Slide 32: European company operations
European company operations year ended 31 December 2003 2003 2002 Gross written premium $M 2,441 2,249 Gross earned premium $M 2,302 2,103 Net earned premium $M 1,908 1,731 Claims ratio % 66.7 72.2 Commission ratio % 15.6 14.7 Expense ratio % 12.4 12.0 Combined operating ratio % 94.7 98.9 Insurance
Slide 33: European company operations
European company operations year ended 31 December 2003 • Improved claims ratio reflects a lower claims frequency, higher premium rates and improved policy terms and conditions • Risk profile reduced, including withdrawal from primary satellite and engineering business • Upgrades of prior year claim
Slide 34: Lloyd's division (Limit)
Lloyd’s division (Limit) year ended 31 December 2003 2003 2002 Gross written premium $M 2,156 2,276 Gross earned premium $M 2,037 2,188 Net earned premium $M 1,533 1,577 Claims ratio % 59.2 62.1 Commission ratio % 25.4 22.8 Expense ratio % 10.5 11.7 Combined operating ratio % 95.1 96.6 Insurance mar
Slide 35: Lloyd's division (Limit)
Lloyd’s division (Limit) year ended 31 December 2003 • Improved claims ratio due to below average level of major catastrophes and risk losses and higher premium rates • All syndicates and portfolios are currently producing underwriting profits • Recently acquired Ensign commercial motor business wil
Slide 36: Investment income
Investment income 2003 2002 $M $M Dividends 46 30 Interest 365 365 Other income 16 17 Exchange (losses) gains (13) 22 Interest expense and other borrowing costs (82) (73) Amortisation of goodwill (20) (8) Other expenses (29) (21) 283 332 Realised gains on fixed interest securities 1 21 Realised loss
Slide 37: Investment income
Investment income year ended 31 December 2003 • Investment income was affected by generally lower fixed interest yields and the translation of overseas investment income to the stronger A$ • Holding short dated fixed interest securities was rewarded with reduced volatility from market value movement
Slide 38: Business strategy and 2004 targets
Business strategy and 2004 targets Subject to no material movement in current exchange rates; large losses and catastrophes not exceeding the allowance in our business plans; and no major fall in equity markets or interest rates: • Achieve an insurance margin of 10.0% to 11.0% • Increase profit afte
Slide 39: 2004 projected gross written premium
2004 projected gross written premium Lloyd’s £1.12 billion European company operations £1.15 billion USA / Latin America US$1.05 billion Australia A$1.95 billion Asia-Pacific (18 countries) A$0.60 billion At A$ to US$ 78c and A$ to £ 42p, equates to approximately A$9.2 billion gross written premium
Slide 40: Business strategy and 2004 targets
Business strategy and 2004 targets • Reinsurance costs to reduce to around 21% of gross earned premium • Overall premium rate increases at the major renewal date of 1 January 2004 were slightly better than anticipated • Continue to further reduce risk profile of insurance business – including maximu
Slide 41: Business strategy and 2004 targets
Business strategy and 2004 targets • Continue low risk strategy for investments - target gross investment yield of 4% or higher • Increase equities to 12.5% of total investments and cash if appropriate • Net invested funds to benefit from strong cash flow and other initiatives • A 5% movement in the
Slide 42: Growth and insurance margin
Growth and insurance margin Gross written Insurance Insurance Total premium COR profit profit investments A$M % % A$M A$M 1994 1,180* 100.2 7.4 72 1,755 1995 1,336 100.4 8.0 88 2,045 1996 1,561 99.3 8.4 101 2,694 1997 2,054 99.5 7.2 116 3,105 1998 2,409 100.3 7.7 147 3,505 1999 2,877 103.9 2.5 56 5,
Slide 43: History of growth
History of growth year ended 31 December 2003 gross and net earned premium Compound average growth rates over last 10 years: - gross earned premium 21.8% $M - net earned premium 21.4% 8,000 GEP $7,816M 6,000 NEP $6,036M 4,000 2,000 0 1994 1997 2000 2003
Slide 44: Historical share price performance
Historical share price performance An investment in QBE has outperformed the Australian All Ordinaries Index and inflation with a compound average annual growth rate of 14.2% over 5 years, 16.8% over 10 years and 22.5% over 20 years $20 $18 QBE share price performance QBE share price performance inc
Slide 45: Internet www.qbe.com
Q Internet www.qbe.com