Qbe Insurance Group Limited · ASX:QBE
Qbe Insurance — FY2006 Earnings Presentation
48 slides from Qbe Insurance's earnings presentation, Feb 23, 2007
Slide 1: 2006 results announcement
QBE INSURANCE GROUP 2006 results announcement Presented by Frank O’Halloran CEO QBE Group 23 February 2007 All amounts in Australian dollars unless otherwise stated.
Slide 2: Highlights
Highlights year ended 31 December 2006 • Record net profit after tax up 36% to $1,483 million (2005: $1,091 million) • Insurance profit up 39% to $1,788 million (2005: $1,288 million) or 21.9% of net earned premium (2005: 17.4%) • Return on equity at 26.1% of average shareholders’ funds (2005: 23.9%
Slide 3: Highlights
Highlights year ended 31 December 2006 • Gross written and gross earned premium up 10% to $10,372 million and $10,069 million respectively due mainly to 2005 acquisitions, continued high retention of business and overall average premium rate increase of 6% • Net written premium up 12% to $8,530 mill
Slide 4: Highlights
Highlights year ended 31 December 2006 • Gross claims ratio reduced from 73.5% to 54.9% reflecting lower catastrophe claims and continued low claims frequency on most portfolios • Net claims ratio reduced from 59.9% to 55.8% • Net claims are after increasing risk margins in outstanding claims by 12%
Slide 5: Highlights
Highlights year ended 31 December 2006 • Risk profile further reduced with the maximum event retention from our largest realistic scenario at 4.0% of net earned premium at year end (2005: 4.3%) • Commission ratio increased from 16.9% to 17.0% reflecting growth in the Americas and Lloyd’s businesses,
Slide 6: Highlights
Highlights year ended 31 December 2006 • Gross investment income up 17% to $985 million (2005: $843 million) • Gross investment yield before borrowing costs and expenses unchanged from last year at 5.2% • Fixed interest and cash gross yields outperformed external benchmarks and were 4.7%, up from 4.
Slide 7: Shareholders returns
Shareholders returns year ended 31 December 2006 • Final dividend of 55¢ per share, 60% franked (2005: 38¢, 50% franked) - Ex dividend date 7 March 2007 - Record date 14 March 2007 - Payment date 2 April 2007 • The unfranked portion of dividends payable to non resident shareholders will now receive
Slide 8: Dividend performance
Dividend performance year ended 31 December 2006 800 95.0 700 600 71.0 500 Dividend – cents per share Payout $M 400 54.0 Final 55 Interim 40 300 42.0 35.0 200 30.0 32.5 31.0 24.0 26.5 100 0 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 Compound annual average growth in dividend payout over 10 ye
Slide 9: Worldwide operations
Worldwide operations HALF YEAR FULL YEAR Jun Dec Dec Dec 2006 2006 2006 2005 Gross written premium $M 5,656 4,716 10,372 9,408 Gross earned premium $M 4,932 5,137 10,069 9,171 Net earned premium $M 3,998 4,160 8,158 7,386 Claims ratio % 58.3 53.3 55.8 59.9 Commission ratio % 17.6 16.4 17.0 16.9 Expe
Slide 10: Worldwide operations
Worldwide operations year ended 31 December 2006 GWP Growth COR Net profit after tax 2006 2006 2006 2005 2006 2005 $M % % % $M $M Australia 2,491 2 82.9 83.6 387 360 Pacific Asia Central Europe 727 5 84.4 82.3 87 103 QBE Insurance (Europe) 2,502 (2) 88.8 90.0 385 314 Lloyd’s division 2,711 21 82.1 9
Slide 11: Geographical diversification
Geographical diversification gross earned premium - year ended 31 December 2006 QBE Insurance Lloyd’s division (Europe) 24% (25%) 26% (26%) Australia the Americas 24% (26%) 19% (16%) Pacific Asia Central Europe 7% (7%) Note: 2005 comparatives in parentheses QBE INSURANCE GROUP 11
Slide 12: Worldwide portfolio mix
Worldwide portfolio mix gross earned premium - year ended 31 December 2006 Professional indemnity Marine, energy and aviation 9.0% (9.1%) 11.7% (8.3%) Workers’ compensation 8.1% (8.9%) Financial and credit Property 2.6% (2.5%) 25.6% (26.9%) Liability 19.9% (21.8%) Accident and health Other 6.1% (6.2
Slide 13: Balance sheet
Balance sheet 31 Dec 2006 31 Dec 2005 $M $M ASSETS Investments and cash 19,972 17,597 Receivables 3,939 3,689 Recoveries on outstanding claims 3,624 4,213 Deferred insurance costs 1,409 1,446 Intangibles 1,475 1,382 ABC financial assets pledged for funds at Lloyd’s 995 1,032 Fixed and other assets 3
Slide 14: Net invested funds
Net invested funds 31 Dec 2006 31 Dec 2005 $M % $M % Cash 1,019 5.1 1,061 6.0 Short term money 10,040 50.3 8,292 47.1 Fixed interest securities and other 7,134 35.7 7,537 42.9 Equities 1,741 8.7 674 3.8 Investment properties 38 0.2 33 0.2 Total investments and cash 19,972 100.0 17,597 100.0 Borrowin
Slide 15: Balance sheet
Balance sheet • Investments and cash increased by 14% to $20.0 billion due to strong operational cash flow and acquisitions • 92% of our fixed interest and cash is rated Moody’s Aa3 or better • Approximately 99% of investments are highly liquid • We continue to adopt a conservative approach to our f
Slide 16: Currency mix
Currency mix at 31 December 2006 Market value of total investments Market value of equities and cash 2006 $1,741 million (2005: $674 million) 2006 $19,972 million (2005: $17,597 million) Australian dollar Australian dollar Sterling 28% (30%) Sterling 46% (54%) 35% (34%) 27% (37%) Other US dollar Oth
Slide 17: Balance sheet
Balance sheet • Receivables over 90 days have decreased with conservative provisions held for doubtful premium debtors. Continued low bad debt experience • Reinsurance recoveries on outstanding claims reduced to $3.6 billion from $4.2 billion – includes claims incurred but not reported of $1.6 billi
Slide 18: Balance sheet
Balance sheet • Borrowings* to shareholders’ funds 37.6% (2005: 41.8%) • Borrowings* increased by $234 million to $2,364 million principally from the issue of £300 million perpetual preferred securities, partly offset by the repayment of $400 million short term bank facility • Weighted average cost
Slide 19: Analysis of claims incurred
Analysis of claims incurred 2007 (3) 2007 (4) 2006 2005 2004 (target) (target) % % % % % Net claims ratio (1) 59.0 59.7 55.8 59.9 61.3 Analysis of claims ratio: - attritional 45.0 - 44.1 45.7 46.4 - large and catastrophe (2) 13.0 - 10.0 11.7 10.4 - risk margin upgrade 1.0 - 1.7 2.5 4.5 59.0 59.7 55.
Slide 20: Outstanding claims provision
Outstanding claims provision QBE’s record of claims development demonstrates our prudent management of claims 2006 2005 2004 2003 2002 Prior year release – net $M 528 618 140 44 12 undiscounted Total net outstanding claims $M 11,645 10,870 9,462 7,595 7,994 (discounted) Risk margin over central $M 1
Slide 21: Claims development
Claims development utilisation of prior year release $M Prior year release – net undiscounted (1) 528 2006 accident year Undiscounted risk margin increase (2) 610 (1) Includes around $110 million to strengthen old latency and run off claims for 2000 and prior years and $43 million additional provisi
Slide 22: Total insurance liabilities
Total insurance liabilities 2006 2005 2004 $M $M $M Outstanding claims 11,645 10,870 9,462 Unearned premium net of deferred insurance costs 3,233 2,841 2,590 14,878 13,711 12,052 Central estimate 12,656 11,695 10,373 Risk margin* - outstanding claims 1,389 1,243 1,058 - unearned premium 833 773 621
Slide 23: Capital adequacy
Capital adequacy 31 Dec 2006 31 Dec 2005 $M $M Tier 1 Share capital (as notified to ASX) 3,514 3,263 Reserves and retained earnings 2,780 1,856 Perpetual securities (net of borrowing costs) 736 - Excess risk margin 1,486 1,411 Tax on excess risk margin (446) (423) Proposed dividend - (196) Deduction
Slide 24: Australia Pacific Asia Central Europe (APACE)
Australia Pacific Asia Central Europe (APACE) year ended 31 December 2006 Australia PACE Total APACE 2006 2005 2006 2005 2006 2005 Gross written premium $M 2,491 2,431 727 691 3,218 3,122 Gross earned premium $M 2,428 2,405 704 688 3,132 3,093 Net earned premium $M 2,051 2,015 563 536 2,614 2,551 Cl
Slide 25: APACE
APACE year ended 31 December 2006 Australia • Gross written premium up 2% to $2,491 million despite overall average premium rate reductions of around 3% offset by strong customer retention and new business • Continued excellent underwriting results with a COR of 82.9% (2005: 83.6%) and an outstandin
Slide 26: APACE
APACE year ended 31 December 2006 Pacific Asia Central Europe • Gross written premium up 5% to $727 million despite overall average premium rate reductions of around 6% • Premium growth affected by a slight reduction in overall premium rates and increased competition • Solid underwriting result with
Slide 27: European operations
European operations year ended 31 December 2006 QBE Insurance Limit Total European (Europe) operations 2006 2005 2006 2005 2006 2005 Gross written premium $M 2,502 2,558 2,711 2,236 5,213 4,794 Gross earned premium $M 2,586 2,370 2,475 2,273 5,061 4,643 Net earned premium $M 2,209 1,954 1,644 1,743
Slide 28: European operations
European operations year ended 31 December 2006 • Gross written premium up 9% to $5,213 million due to 2005 acquisitions and overall average premium rate increases • Organic growth lower than anticipated due to increased competition particularly motor, employers’ liability, professional and general
Slide 29: European operations
European operations year ended 31 December 2006 • Limit is the largest manager of capacity at Lloyd’s • Overall 2007 exposure to catastrophes largely unchanged from 2006 • 1 January 2007 renewals – slight decrease in overall average premium rates of 3%, although marked variation by class of business
Slide 30: the Americas
the Americas year ended 31 December 2006 2006 2005 Gross written premium $M 1,941 1,492 Gross earned premium $M 1,876 1,435 Net earned premium $M 1,153 843 Claims ratio % 55.9 60.0 Commission ratio % 25.6 25.5 Expense ratio % 8.2 7.4 Combined operating ratio % 89.7 92.9 Insurance margin % 13.9 10.3
Slide 31: the Americas
the Americas year ended 31 December 2006 • Gross written premium up 30% to $1,941 million due to acquisitions in 2005 and 2006 and overall higher average premium rates • General insurance now represents 77% of total GWP compared with 72% last year, reflecting our strategy of focusing on general insu
Slide 32: the Americas
the Americas year ended 31 December 2006 • Subject to regulatory approvals, acquisitions of Praetorian Financial Group and Winterthur US will provide further diversification and increased distribution through 76 offices in the US with GWP growth of more than 150% in 2007 and a further 20% in 2008 •
Slide 33: Equator Re - captive reinsurer
Equator Re - captive reinsurer year ended 31 December 2006 2006 2005 Gross written premium $M 901 353 Gross earned premium $M 678 347 Net earned premium $M 538 295 Claims ratio % 63.6 80.0 Commission ratio % 13.0 9.8 Expense ratio % 4.8 - Combined operating ratio % 81.4 89.8 Insurance margin % 24.9
Slide 34: Equator Re
Equator Re year ended 31 December 2006 • Equator Re provides excess of loss and proportional reinsurance protection, below Group retentions to the various operating subsidiaries • Also participates on a number of the Group’s reinsurance protections placed with external reinsurers and purchases exces
Slide 35: Investment income
Investment income year ended 31 December 2006 2006 2005 $M Yield% $M Yield% Total equity income (1) 151 12.5 171 16.6 Total fixed interest and cash income (2) 822 4.7 654 4.3 Total property income 7 19.6 - - Other income 6 7 Realised (losses)/gains on sale of controlled entities (1) 11 Gross investm
Slide 36: Investment income
Investment income year ended 31 December 2006 • Fixed interest returns well ahead of budget and overall external benchmarks • Short duration fixed interest strategy successful in maximising yields during the recent period of rising interest rates • Net investment income includes $27 million (2005: $
Slide 37: Comparison with cash yield
Comparison with cash yield versus actual yields Actual Average gross Investment mix Portfolio Current AAA cash yields 31 December mix by AAA cash yields achieved 2006 currency rate by QBE* % % % % Australian dollar 28 6.2 2002 3.4 2.5 US dollar 24 5.2 2003 3.1 4.6 Sterling 35 5.0 2004 3.4 4.8 Other
Slide 38: US acquisitions
US acquisitions • Recently announced acquisitions of Praetorian Financial Group and Winterthur US expected to be completed 2nd quarter 2007 • Total purchase price US$1,956 million plus refinancing the Winterthur US parent loan US$557 million • Expected net assets to be acquired US$1.24 billion • We
Slide 39: US acquisitions
US acquisitions full year targets (1) Winterthur US Praetorian Total Gross written premium A$M 1,850 1,795 3,645 Net earned premium A$M 1,765 1,665 3,430 Claims ratio % 63.5 61.0 63.0 Commission ratio % 16.0 19.0 17.0 Expense ratio % 13.5 7.0 10.0 Combined operating ratio (COR) % 93.0 87.0 90.0 Insu
Slide 40: QBE the Americas strategy
QBE the Americas strategy • The acquisition of Winterthur US and Praetorian businesses achieves two major components of QBE’s US growth and diversification strategy: - Winterthur US provides a well established infrastructure and distribution channel in local agency commercial and personal business t
Slide 41: 2007 outlook
2007 outlook Subject to no material movement in current exchange rates; large risk and catastrophe claims not exceeding the allowance in our business plans; no major fall in equity markets or interest rates; and regulatory approvals for acquisitions, we expect to: • Achieve gross written and net ear
Slide 42: 2007 outlook
2007 outlook • Complete and integrate the acquisitions in the Americas and achieve targets and expected synergies • Increase Equator Re’s participation on external reinsurance programmes with exposures within Group net retentions • Continue to reduce the overall risk profile of our business includin
Slide 43: 2007 outlook
2007 outlook • Increase invested funds, net of debt, to $24 billion from acquisitions and expected strong cash flow. Target gross investment yield slightly in excess of 5.5%. • Continue low risk strategy for investments and absolute return criteria • Maintain Group capital adequacy above Group revis
Slide 44: 2007 projected premium income
2007 projected premium income Gross written Net earned $Bn $Bn Australia 2.6 2.2 Asia Pacific 0.6 0.5 QBE Insurance (Europe) 2.9 2.3 Limit 2.7 1.6 the Americas 4.7 3.8 Equator Re 1.3 1.0 Equator Re elimination (1.3) Total Group 13.5* 11.4 * assumes A$ to US$0.78 and A$ to £0.40 QBE INSURANCE GROUP 4
Slide 45: Growth and insurance margin
Growth and insurance margin Insurance Insurance GWP COR profit profit $M % % $M 1997 2,054 99.5 7.2 116 1998 2,409 100.3 7.7 147 1999 2,877 103.9 2.5 56 2000 4,406 102.5 5.4 186 2001 6,793 109.6 (2.6) (119) 2002 7,723 97.7 7.2 406 2003 8,350 93.8 10.4 627 2004 8,766 91.2 13.7 928 2005 9,408 89.1 17.
Slide 46: History of premium income - a growth story
History of premium income - a growth story $ Bn 10 Compound average growth rates over last 10 years: GEP $10.1 Bn - gross earned premium 21.1% 8 - net earned premium 21.1% NEP $8.2 Bn 6 4 2 0 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 QBE INSURANCE GROUP 46
Slide 47: Historical share price performance
Historical share price performance QBE Historical Share Price Performance - Last 20 Years $65.00 $60.00 QBE Share Price Performance QBE Share Price Performance Including Reinvestment of Dividends $55.00 ASX All Ordinaries Accumulation Index $50.00 $45.00 An investment in QBE has outperformed the Aus
Slide 48: www.qbe.com
QBE INSURANCE GROUP www.qbe.com