Qbe Insurance Group Limited · ASX:QBE
Qbe Insurance — Shareholder Meeting (April 2005)
51 slides from Qbe Insurance's shareholder meeting presentation, Apr 8, 2005
Slide 1: Annual General Meeting of Shareholders cover letter
QBE INSURANCE GROUP LIMITED Insurance ABN 28 008 485 O14 Group 82 Pitt Street Sydney NSW 2000 Postal Address GPO Box 82 8 April 2005 Sydney NSW 2001 Telephone: (02) 9375 4444 Facsimile: (02} 9231 6104 DX 10171 Sydney Stock Exchange The Manager Company Announcements Australian Stock Exchange Limited
Slide 2: Chairman's Address
Chairman's Address Ladies and Gentlemen: We were pleased to report to you via the ASX release on February 24, 2005 that the 2004 financial year produced an outstanding underwriting and financial result. Net profit after tax was a record $820 million, up 43% from the profit of $572 million for 2003.
Slide 3: Chairman's Address (continued)
effect of potential market value volatility from anticipated rising interest rates. Our general policy on investments is to restrict the risk to shareholders by modest equity exposures; after all, shareholders are already exposed to the insurance risk from our policyholders. To strengthen QBE's posi
Slide 4: Chairman's Address: employee share plan and governance
Also important to the motivation of QBE employees is the global Employee Share and Option Plan which has been in place since 1981. This Plan has been extremely successful with 59% of staff at all levels throughout the organisation holding QBE shares. Presently, 2.74% of our issued shares are held by
Slide 5: Thanks to directors and retirement of Charles Curran
| would particularly like to thank my fellow directors for their continued support and acknowledge Charles Curran who has served on our board since 1991 and retires at the end of this meeting in accordance with our policy on tenure for directors. Charles joined the Board when we ended the cross-shar
Slide 6: CEO's Address
CEO’s Address Ladies and Gentlemen: | am very pleased to stand here today to report a further substantial increase in profitability for the year ended 31 December 2004. Particularly pleasing was that all of our five insurance and reinsurance divisions produced improved underwriting and insurance pro
Slide 7: Balance sheet positioning
QBE's balance sheet is extremely well positioned for the future as demonstrated by the following: * Net outstanding claims of $9.4 billion include prudential margins to give a 94% probability of adequacy. This percentage is at the high end of our internal target range and well in excess of the 91% h
Slide 8: 2004 initiatives and acquisitions
* We hired underwriting teams in the UK and secured new agency programmes in the US to complement existing business written. * We restructured our management team in the UK which will produce at least $40 million of annual savings in expenses and reinsurance costs by the end of 2005 and a further $4
Slide 9: Divisional operations and 2005 expectations
Our Americas operation, which includes the US and Latin America, is headed by Tim Kenny, President and Chief Executive Officer. Tim and his team completed 2004 with a combined operating ratio of 92.3% compared with 93.1%. The improvement in the underwriting result has come from strong premium rate i
Slide 10: Outlook and growth targets
We also expect overall premium rates to reduce, however maintaining the greater portion of the premium rate gains achieved over the past three years and sufficient to meet our profit targets for the substantial majority of the classes of business that we write. Importantly, the improved policy terms
Slide 11: Thanks to staff, directors and management
The record 2004 result would not have been achieved without the professional approach of over 7,500 staff worldwide. They are all aware of the need to continue to focus on QBE's four key values, referred to by the Chairman in his address. | appreciate the enormous support that | have received from o
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Slide 14: Directors and executives
id d [ i if Neil Drabsch Gayle Tollifson Raymond Jones ~< wee, Vince McLenaghan Tim Kenny Steven Burns Peter Grove a Y Duncan Ramsay Mark ten Hove
Slide 15: Proxy votes received
A total of 3,098 valid proxy forms were received. The respective shareholdings have been accumulated and summarised by ASX Perpetual Registrars Limited as set out below: Resolution For Against Open Abstain 1 441,632,729 3,581,794 37,400 23,425,684 2 462,039,249 3,592,248 3,169,440 477,431 3 434,946,
Slide 16: Record net profit after tax
¢ Record net profit after tax of $820 million ¢ Increase of 43% on the profit of $572 million for 2003 ¢ Earnings per share, fully diluted for all hybrid securities, up 35% to 104.5 cents per share, compared with 77.5 cents per share last year
Slide 17: Final dividend
¢ Final dividend of 30 cents per share up 36% on the final dividend of 22 cents per share in 2003 ¢ Final dividend 50% franked ¢ Total payout for 2004, $388 million ¢ 53% of the total 2004 payout reinvested
Slide 18: Share price performance
« An investment in QBE has outperformed the Australian All Ordinaries Index and inflation with a growth rate of 50.4% in 2004, and a compound average annual growth rate of 21.6% over five years, 22.5% over 10 years and 23.7% over 20 years $30.00 - weeeQBE Share Price Performance == QBE Share Price P
Slide 19: Group financial summary
Gross earned premium Net earned premium Net investment income Profit after tax Total investments and cash Total assets Gross outstanding claims Total liabilities 8,571 6,781 508 820 15,067 25,102 12,469 20,622 9,090 7,135 536 878 15,147 25,566 12,595 20,734 “a A NY AN OO MD) =
Slide 20: Investment portfolio composition
$M % $M % Cash 1,121 7.4 717 6.1 Short term money 5,482 36.4 3,499 29.5 Fixed interest securities and other 6,947 46.1 6,209 52.5 Mortgages 10 0.1 7 0.9 Equities 1,390 9.2 1,272 10.8 Properties 117 0.8 119 1.0 Total investments & cash 15,067 100.0 11,823 400.0 Borrowings (1,789) (1,334) Net invested
Slide 21: Acquisition costs and new borrowings
¢ Cost of acquisitions in excess of $1 billion ¢ New borrowings in 2004 ~ £175 million 5 year fixed senior notes —~ US$ 375 million senior convertible securities ¢ US$220 million contingent securities in support of QBE’s Lloyd’s capital requirements
Slide 22: Regulatory capital adequacy and ratings
Group regulatory capital adequacy as calculated by QBE, is around 1.9 times minimum”, compared with 2.1 times last year Rating agencies Standard & Poor's and Fitch confirmed A+ rating for QBE’s main insurance subsidiaries Current capital together with expected profits and potential to convert up to
Slide 23: QBE values
° QBE values — Increasing the long term wealth of shareholders ~ Customer satisfaction and retention — Employee motivation — Integrity ¢ Staff incentive schemes aligned to financial targets, principally return on equity ¢ QBE Employee Share and Option Plan — 59% of staff worldwide hold QBE shares
Slide 24: Corporate governance and risk management
¢ The annual report includes a number of statements on QBE’s robust corporate governance structure and risk management framework ¢ Increased regulatory focus has resulted in substantial increase in compliance costs and disproportionate use of management time = Insurance Grou
Slide 25: 2005 trading on track
¢ Full year 12.5% to 13.5% insurance profit margin on track — currently slightly exceeds the high end of target range ¢ Premium growth targets of 10% gross written premium and 12.5% net earned premium on track ¢ Cash flow remains on budget
Slide 26: Investment yields and profit targets
¢ Gross investment yields have improved from recent interest rate movements ¢ We are confident of meeting our profit targets and growth subject to the usual caveats
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Slide 28: Insurance profit and combined operating ratio
¢ Insurance profit up 45% to $908 million (2003: $627 million) ¢ Combined operating ratio 91.2% (2003: 93.8%) ¢ Cash flow from operations $2.11 billion (2003: $2.09 billion)
Slide 29: Gross earned premium and investment income
¢ Gross earned premium up 10% to $8.57 billion e Net investment income $508 million (2003: $413 million)
Slide 30: Net outstanding claims
¢ Net outstanding claims of $9.4 billion include prudential margins providing a 94% probability of adequacy ¢ Positive release of prior year claims on undiscounted basis for each of the last seven years ¢ Minimal exposure to asbestos claims — provisions at the high end of world industry scale = Insu
Slide 31: Unearned premium liabilities and borrowings ratio
¢ Unearned premium liabilities of $3.4 billion include substantial allowance for large losses and catastrophes for 2005 ¢ Ratio of borrowings to shareholders funds, 40.5% (2003: 40.3%) = Insurance Grou
Slide 32: Low risk investment portfolio
¢ Low risk investment portfolio $15.1 billion ¢ Strong capital adequacy ratio and balance sheet flexibility for growth = Insurance Grou
Slide 33: Acquisitions to add annualised premium
Acquisitions will add over $1.5 billion of annualised gross written premium ($0.7 billion written in 2004)
Slide 34: Acquisitions list
Ensign commercial motor business in the UK ING’s 50% interest in the QBE Mercantile Mutual joint venture Additional capacity in Lloyd’s syndicate 386 (68.4% equity in 2005) Businesses in Brazil, Singapore, Argentina, Estonia and the UK
Slide 35: Underwriting teams and restructure
New underwriting teams in the UK and agency programmes in the US UK restructure, $40 million annual savings expected by end 3008 and a further $40 million annual savings by en 7 Purchased three large profitable underwriting agency businesses in Australia Further lowered our maximum event retention f
Slide 36: 2005 acquisitions
In 2005: « Purchased businesses in Colombia and Vietnam ¢ Acquired underwriting agency with operations in Spain, Germany and France
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Slide 38: Division results with 2005 premium expectation
Gross written premium $M Gross earned premium $M Net earned premium $M Claims ratio % Commission ratio % Expense ratio % Combined operating ratio % Insurance margin % 2,102 2,114 1,831 61.0 13.3 13.8 88.1 17.6 2005 gross written premium is expected to be $2.4 billion ORE Insurance Grau
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Slide 40: Division results with 2005 premium expectation
Gross written premium $M Gross earned premium $M Net earned premium $M Claims ratio % Commission ratio % Expense ratio % Combined operating ratio % Insurance margin % 520 534 439 48.3 17.1 20.0 85.4 18.5 2005 gross written premium expected to be $750 million (From January 2005 includes Central Europ
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Slide 42: Americas results
Gross written premium $M 1,382 1,342 Gross earned premium $M 1,354 1,213 Net earned premium $M 805 740 Claims ratio % 60.1 63.4 Commission ratio % 25.7 23.5 Expense ratio % 6.5 6.2 Combined operating ratio % 92.3 93.1 Insurance margin % 8.8 8.4 2005 gross written premium expected to be $US 1.25 bill
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Slide 44: European results
Gross written premium $M 2,453 2,309 2,441 2,156 Gross earned premium $M 2,304 2,265 2,302 2,037 Net earned premium $M 1,971 1,735 1,908 1,533 Claims ratio % 66.3 60.3 66.7 59.2 Commission ratio % 15.0 20.9 15.6 25.4 Expense ratio % 13.0 10.9 12.4 10.5 Combined operating ratio% 94.3 92.1 94.7 95.1 I
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Slide 46: Investment portfolio and 2005 strategy
¢ Investment portfolio of $15 billion ¢ Investment performance exceeded internal benchmarks and budget ¢ Low risk strategy will continue in 2005 ¢ Investment portfolio expected to be close to $17 billion by end of 2005
Slide 47: 2005 outlook and targets
¢ Gross written premium expected to increase by 10%, and net earned premium by 12.5% ¢ Target of 10% increase in net earned premium for 2006 (subject to acquisitions) ¢ Target insurance profit margin for 2005 is 12.5% to 13.5% of net earned premium nsurance Gr
Slide 48: Profit sensitivities
1% movement in equity markets impacts profit after tax by approximately $10 million 1% movement in interest yield is equivalent to approximately $58 million profit after tax* 1% movement in the claims ratio is approximately $56 million profit after tax 5% movement in the Australian dollar against al
Slide 49: 1st Quarter
ist Quarter ¢ Premium growth and key ratios on track ¢ Insurance profit margin slightly in excess of the high end of target range of 12.5% — 13.5% = Insurance Grou
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Slide 51: CEO's 2004 incentives
¢ CEO’s 2004 incentives are based on the achievement of a 22.8% ROE using QBE’s seven year spread basis of accounting. This exceeded the minimum hurdle rate of 13% ROE. Short term incentive: Profit Share Incentive — cash component 1,650,880 Long term incentive - SEES (: Conditional rights to shares
QBE Insurance Group — Shareholder Meeting (April 2005) on 6ix