QBE Insurance Group Limited · ASX:QBE
QBE Insurance — FY2011 Earnings Presentation
42 slides from QBE Insurance's earnings presentation, Feb 28, 2012
Slide 1: 2011 annual results announcement
QBE INSURANCE GROUP 2011 annual results announcement Presented by: Frank O’Halloran, Group chief executive officer and John Neal, chief executive officer, global underwriting operations 28 February 2012 Not for distribution or release in the United States of America
Slide 2: Presentation roadmap
Presentation roadmap 1. Key messages 2. 2011 financial results 3. Significant items 4. Investments 5. Capital 6. Divisional results 7. Strategic initiatives 8. Outlook and closing remarks 9. Appendices 2 FY 2011 results presentation Not for distribution or release in the United States of America
Slide 3: Key messages: 2011 fundamentally sound and a positive start to 2012
Key messages: 2011 fundamentally sound and a positive start to 2012 Fundamentals of the business are sound with underlying COR for 2011 less than 90% and insurance margin close to 15% Achieving premium rate increases averaging in excess of 5% Large individual risk and catastrophe claims reported cur
Slide 4: Key messages: equity raising to replace tier 2 convertible debt
Key messages: equity raising to replace tier 2 convertible debt US$500M of tier 2 subordinated convertible borrowings callable at 30 June 2012 may not be approved by APRA as regulatory capital under new proposals Currently included in diluted earnings per share To avoid uncertainty we intend to repl
Slide 5: Key messages: 2011 financial results
Key messages: 2011 financial results In line with 12 January update - net profit after tax down 45% to US$704M due to a record level of catastrophes, lower risk-free rates and wider credit spreads COR of 96.8% (2010: 89.7%) - compared with last year record catastrophe claims added 6.2% and lower ris
Slide 6: Key messages: 2011 financial results
Key messages: 2011 financial results QBE’s new global reinsurance arrangements responded well saving US$219M compared with the 2010 program on an as if basis Commission and expense ratio reduced from 29.8% to 28.6% mainly from acquisitions and lower staff incentives Credit spread volatility and hist
Slide 7: 2011 financial results
2011 financial results For the year ended 31 December 2011 2010 % change GWP US$M 18,291 13,629 34 NEP US$M 15,359 11,362 35 Underwriting profit US$M 494 1,168 (58) COR % 96.8 89.7 Insurance profit US$M 1,085 1,703 (36) Insurance profit to NEP % 7.1 15.0 Investment income US$M 776 659 18 Net profit
Slide 8: Significant items included in reported profit before tax
Significant items included in reported profit before tax 2011 2010 US$M US$M Unrealised losses on cash and fixed interest securities *(241) (24) Lower risk-free discount rates (252) (25) Large individual risk and catastrophe claims (net) (2,355) (1,080) Savings on prior year central estimates 64 49
Slide 9: 2011 financial results scorecard
2011 financial results scorecard 2011 FY 2011 FY revised targets Actual GWP Over US$17.5Bn US$18.3Bn NEP Over US$15.0Bn US$15.4Bn Reinsurance expense ratio (to GEP) Around 12% x *13.9% Combined commission & expense ratio Around 29.5% 28.6% Attritional claims ratio 49% to 50% 49.2% COR Less than 94%
Slide 10: QBE continues to outperform the majority of peers who have reported to 24 February 2012
QBE continues to outperform the majority of peers who have reported to 24 February 2012 10 FY 2011 results presentation Not for distribution or release in the United States of America
Slide 11: 2011 FY insurance margin analysis
2011 FY insurance margin analysis Reported margin adjusted for: (1) Operational FX gains, assumed non-recurring (2) Large claims events above expected prudent allowances of 9% of NEP (3) Unrealised losses due to credit spread movement on policyholders’ funds 15.0 (4) Movement in risk-free rates from
Slide 12: 2011: large individual risk and catastrophe claims - frequency and severity
2011: large individual risk and catastrophe claims - frequency and severity 2011 Events and losses % of NEP Net cost US$M US crop flood and hail claims 319 2.1 Thailand floods 261 1.7 19 severe US tornadoes 243 1.6 Christchurch earthquakes 222 1.5 Japan earthquake and tsunami 154 1.0 Two Queensland
Slide 13: Reinsurance expense: net benefit from new worldwide programs
Reinsurance expense: net benefit from new worldwide programs 2011 new comprehensive program benefited profit by US$219M when compared with using the 2010 program 2011 reinsurance expense excluding US crop and lender placed homeowners’ business was 11.1% (2010: 13.8%) 2012 maximum event retention for
Slide 14: Claims ratios: lower attritional claims more than offset by higher large claims
Claims ratios: lower attritional claims more than offset by higher large individual risk and catastrophe claims and lower 2H risk-free rates 2011 2010 1H 2H FY 1H 2H FY 30 Jun 31 Dec 30 Jun 31 Dec NEP US$M 6,778 8,581 15,359 5,240 6,122 11,362 Attritional % 49.3 49.1 *49.2 49.0 50.9 50.0 Large indiv
Slide 15: 2011 accident year results: assisted by lower commission and expense ratios
2011 accident year results: assisted by lower commission and expense ratios 2011 2010 2009 Net central estimate claims ratio (pre risk margins) % 65.3 58.6 59.5 Commissions % 14.9 15.5 16.2 Expenses % 13.7 14.3 13.1 Central estimate COR % 93.9 88.4 88.8 Accident year underwriting profit US$M 937 1,3
Slide 16: 2011 insurance profit: consistent savings on central estimates
2011 insurance profit: consistent savings on central estimates 2011 2010 2009 Ins. Ins. Ins. profit profit profit US$M margin % US$M margin % US$M margin % Central estimate accident year underwriting profit 937 6.1 1,314 11.6 1,060 11.2 Savings on prior year central estimates 64 0.4 49 0.4 61 0.7 Re
Slide 17: Investment income: lower net yield due to wider credit spreads
Investment income: lower net yield due to wider credit spreads 2011 2010 Credit spreads volatile, FY FY with unrealised losses at Net investment income US$M 776 659 year end of US$241M Underlying gross yield on Net yield on policyholders’ funds % 3.3 3.3 cash and fixed interest portfolio was 2.3% (2
Slide 18: Investment portfolio: 36% in US$, 33% in A$, 15% in £ and 8% in €
Investment portfolio: 36% in US$, 33% in A$, 15% in £ and 8% in € Total investments & cash US$28,024M (2010: US$25,328M) (1) Successfully avoided any permanent impairment Fixed interest book remains short and highly liquid with modified duration of 0.4 years and average credit quality of Aa Modest e
Slide 19: Capital adequacy: QBE prepared for expected regulatory changes globally
Capital adequacy: QBE prepared for expected regulatory changes globally Based on current APRA criteria Bar chart not to scale MCR multiple 1.5x 1.6x 6,281 (tier 1) 722 (tier 2) 514 (tier 2) 1.6x The multiple of 1.5X is in line with our internal benchmark and is lower than 2010 due to reduced discoun
Slide 20: Acquisitions: converted three acquisitions in 2011
Acquisitions: converted three acquisitions in 2011 - all exceeding profit expectations Additional Effective 2011 acquisitions Business annualised GWP US$M date US insurance operations of Mainly crop 618 1 January 2011 Renaissance Re Balboa in the US Lenders placed homeowners 1,852 1 April 2011 busin
Slide 21: North America: strong underwriting profit despite increased catastrophes
North America: strong underwriting profit despite increased frequency and severity of catastrophes COR up slightly to 90.6%, with high frequency of claims arising from tornadoes, 2011 2010 crop flood and hail and Hurricane Irene Underperformance in intermediated Gross written premium US$M 7,529 4,60
Slide 22: Latin America: strong growth through acquisitions and rate increases
Latin America: strong growth through acquisitions and rate increases in our major markets Strong premium rate increases in 2011 2010 the SME portfolios in Argentina and Mexico up 12% and 6% Gross written premium US$M 768 559 respectively and flat in the other regions Gross earned premium US$M 752 55
Slide 23: Europe: benefits from business transformation programs offset by catastrophe claims
Europe: benefits from business transformation programs offset by frequency of catastrophe claims Renewal retention on quality business maintained at over 80%, with overall 2011 2010 average premium rate increase around 2% GWP up 16% or (12% in local currency) Gross written premium US$M 4,828 4,156 d
Slide 24: Australia: record year for catastrophes with net claims and lower discount rates
Australia: record year for catastrophes with net claims and lower discount rates affecting underwriting profit GWP up 21% (or 6% in local currency), aided by CUNA Mutual acquisition, FX and rate 2011 2010 increases Average 2011 premium rate increases > 5% on Gross written premium US$M 4,486 3,707 re
Slide 25: Asia Pacific: a year of high frequency and severity of catastrophes
Asia Pacific: a year of high frequency and severity of catastrophes GWP up 13% despite challenging market conditions 2011 2010 Overall average premium rate increases were around 4% for the region – largely Gross written premium US$M 680 601 driven by New Zealand property Gross earned premium US$M 65
Slide 26: Equator Re: higher CORs will occur in years of extreme catastrophe activity
Equator Re: like all reinsurers, higher CORs will occur in years of extreme catastrophe activity GWP growth of 54% aided by increased proportional reinsurance from US 2011 2010 acquisitions Gross written premium US$M 3,807 2,479 COR increased to 104.5%, in line with global reinsurers, due to record
Slide 27: Operational transformation programs
Operational transformation programs The major IT and transformation program in Europe due for completion in 1H12 and is set to deliver a return of around 40% over 5 years on an approximate £100M investment The Americas change program is on schedule to complete in 2014 We are upgrading our forecast 2
Slide 28: 2012 financial performance targets
2012 financial performance targets: subject to the usual caveats 2012 FY GEP growth low single digit NEP growth low single digit Reinsurance expense ratio (to GEP) around 12.5% Claims ratio less than 60.5% Combined commission & expense ratio less than 29.5% COR less than 90% Insurance profit margin
Slide 29: Outlook and closing remarks
Outlook and closing remarks Our businesses are in good shape and are quickly maximising the value to be derived from improving market conditions Overall average premium rates up by more than 5% in 2012. Early indications point to a hardening of the insurance and reinsurance market Focus on reducing
Slide 30: Disclaimer
Disclaimer The information in this presentation provides an overview of the results for the year ended 31 December 2011. This presentation should be read in conjunction with all information which QBE has lodged with the Australian Securities Exchange (“ASX”) including QBE’s full year results filed w
Slide 31: Disclaimer
Disclaimer Any forward-looking statements assume large individual risk and catastrophe claims do not exceed the significant allowance in our business plans; no overall reduction in premium rates; no significant fall in equity markets and interest rates; no major movement in budgeted foreign exchange
Slide 32: QBE Insurance Group www.qbe.com
QBE INSURANCE GROUP www.qbe.com 32 FY 2011 results presentation Not for distribution or release in the United States of America
Slide 33: Appendices
Appendices 1. Weighted average discount rates 2. PoA of total insurance liabilities 3. Analysis of movement in risk margins 4. Investments - corporate bonds, fixed and floating rate 5. Investments - sovereign/supranational bonds 6. Reinsurance – 2012 worldwide programs 7. QBE business model – growth
Slide 34: Weighted average discount rates
Weighted average discount rates Weighted average risk-free discount rates on outstanding claims % Currency 31 Dec 2010 30 June 2011 31 Dec 2011 23 Feb 2012 (1) Australian dollar 5.45 5.05 3.65 4.00 US dollar 1.85 1.65 0.95 1.00 Sterling 2.25 2.25 1.20 1.30 Euro 2.50 2.85 1.95 2.00 Group weighted ave
Slide 35: Probability of adequacy of total insurance liabilities at 92.6%
Probability of adequacy of total insurance liabilities at 92.6% 2011 2010 2009 2008 US$M US$M US$M US$M Net outstanding claims 16,984 15,017 12,864 11,346 Unearned premium net of deferred insurance costs 5,929 4,785 4,374 3,608 Net total insurance liabilities 22,913 19,802 17,238 14,954 Risk margin
Slide 36: Analysis of movement in risk margins – balance sheet
Analysis of movement in risk margins – balance sheet 2011 2010 US$M US$M At 1 January 1,270 1,017 Foreign exchange movements and other impacts (15) (9) Acquisitions 76 384 Adverse movement in discount rates partly offset by increase in undiscounted risk margins and other (130) (122) factors Risk mar
Slide 37: Investments: corporate bonds, fixed & floating rate
Investments: corporate bonds, fixed & floating rate COUNTRY 31 Dec 11 % 31 Dec 10 % US$M US$M Australia 5,346 36 4,495 38 USA 3,003 20 2,664 23 UK 2,556 17 2,039 17 Japan 119 1 29 - Canada 485 3 163 1 ROW other 1,388 9 978 8 Germany 235 2 62 1 France 749 5 630 5 Netherlands 455 3 122 1 GIIPS (1) (2)
Slide 38: Investments: sovereign/supranational bonds
Investments: sovereign/supranational bonds COUNTRY 31 Dec 11 % 31 Dec 10 % US$M US$M Australia 760 13 896 16 USA 2,078 37 2,087 37 UK 699 12 500 9 Japan - - 29 1 Canada 559 10 255 5 ROW other 627 11 667 12 Germany 239 4 407 7 France 402 7 376 7 Netherlands 48 1 70 1 GIIPS - - 28 - Eurozone other 275
Slide 39: Reinsurance – 2012 program enhancements
Reinsurance – 2012 program enhancements QBE’s 2012 worldwide (WW) catastrophe reinsurance structure(1) included a number of enhancements: Vertical limit on Australian cat cover extended by A$0.25bn to A$4.5bn Sterling lender-placed risks removed from WW cat XoL and included with Balboa risks in an e
Slide 40: Reinsurance – 2012 worldwide cat XoL
Reinsurance – 2012 worldwide cat XoL ($m) GACC(2) 2012 WW cat XoL, GACC and Equator Re retentions WW cat XL(1) QBE FIRST ($m) 4 50 0 4 50 0 4 2 50 4 2 50 Aust only 4000 4000 3 50 0 3 50 0 3000 3000 $3.0bn xs 2 50 0 $1.5bn annual 2 50 0 single layer 2000 2000 program for 19 0 0 Aust/NZ only 19 0 0 (1
Slide 41: Reinsurance – 2012 worldwide risk XoL
Reinsurance – 2012 worldwide risk XoL ($m) 2012 WW risk XoL, GAR and Equator Re retentions GAR(1) ($m) 600 600 $200m xs 500 Section A Section B Section C 500 $400m 82.5% placed non Section "clash" (1 A + Property, A ie casualty, 1 or more B 400 engineering 400 marine & claims or 2 or and motor aviat
Slide 42: QBE business model: growth by acquisition
QBE business model: growth by acquisition Compound annual average premium growth rates since 2001 - gross written premium 18.0% - net earned premium 20.5% 42 FY 2011 results presentation Not for distribution or release in the United States of America