Qbe Insurance Group Limited · ASX:QBE
Qbe Insurance — H1 2011 Earnings Presentation
41 slides from Qbe Insurance's earnings presentation, Aug 19, 2011
Slide 1: 2011 half year results announcement
QBE INSURANCE GROUP 2011 half year results announcement Presented by: Frank O’Halloran, CEO, QBE Insurance Group Ltd John Neal, CEO – Global underwriting operations, QBE Insurance Group Ltd 19 August 2011
Slide 2: Presentation roadmap
Presentation roadmap 1. Key messages and financial results 2. Claims analysis 3. Group reinsurance arrangements 4. Investments 5. Divisional results and strategic initiatives 6. Balance sheet and capital 7. Outlook and closing remarks 8. Appendices 2 HY 2011 results presentation
Slide 3: Key messages
Key messages Net profit after tax up 53% to US$673M from improved investment income, offset by record catastrophe claims Strong growth in premium income: - GWP up 30% to US$8.9Bn - NEP up 29% to US$6.8Bn New reinsurance program responded well to catastrophes Investment income, acquisitions, cash flo
Slide 4: Summary Group operating performance
Summary Group operating performance For the half year ended 30 June 2011 1H 2010 1H % change GWP US$M 8,942 6,861 30 NEP US$M 6,778 5,240 29 Underwriting profit US$M 291 542 (46) COR % 95.7 89.7 n/a Investment income on policyholders’ funds US$M 471 285 65 (including FX) Insurance profit US$M 762 82
Slide 5: Key messages: new reinsurance programs respond well in a period of record catastrophe claims
Key messages: new reinsurance programs respond well in a period of record catastrophe claims “An exceptional accumulation of very severe natural catastrophes makes 2011 the highest-ever loss year on record, even after the first half-year” Munich Re Large individual risk and catastrophe claims in the
Slide 6: Key messages: investment income, acquisitions, cash flow, tax and capital adequacy ahead of expectations
Key messages: investment income, acquisitions, cash flow, tax and capital adequacy ahead of expectations Investment income and yields ahead of target due to: - positive results from lower equity exposure - no impairment of bonds - increased FX gains Cash flow from operations up 61% to US$1,121M Inve
Slide 7: 2011 HY insurance margin analysis: strong underlying margin of 16%
2011 HY insurance margin analysis: strong underlying margin of 16% Reported margin adjusted for: 20.0 (1) Operational FX 19.0 gains, assumed non- 18.0 17.0 (0.8) 0.3 recurring 6.9 0.6 16.0 15.0 (2) Abnormal large 14.0 claims events above 13.0 15.0 expected prudent 12.0 (2.2) 11.0 allowances of 9% 10
Slide 8: QBE continues to outperform majority of global peers in difficult market conditions
QBE continues to outperform majority of global peers in difficult market conditions 22 of the top 50 major global insurers that have reported to date: 30 June COR% 30 June COR% 2011 2010 2011 2010 Progressive 91.8 92.4 Berkshire Hathaway 107.8 92.2 Sampo 92.5 93.6 Hannover Re 108.8 97.1 QBE 95.7 89.
Slide 9: 2011 1H accident year central estimate claims ratio
2011 1H accident year central estimate claims ratio: strong underlying performance Analysis of net central estimate 2011 2010 2009 2010 2009 2008 claims ratio (accident year) (1) 1H 1H 1H FY FY FY Net earned premium US$M 6,778 5,240 4,379 11,362 9,446 9,293 Attritional claims % 49.3 49.0 50.8 50.0 5
Slide 10: Attritional claims continue to be under control and stable
Attritional claims continue to be under control and stable 1H accident year attritional claims* ratio was 49.3% compared with 49.0% for the same period last year and 50.8% for 1H09 Stable attritional claims ratio due to: - premium rate increases matching claims inflation - action taken on property p
Slide 11: Record catastrophe claims impact claims ratio and insurance profit margin
Record catastrophe claims impact claims ratio and insurance profit margin – 7.8 % above average of past seven years Current estimated large individual risk and catastrophe claims net of reinsurance recoveries US$M % NEP 2 Christchurch earthquakes 186 2.7 12 US tornadoes 159 2.4 2 Queensland storms 1
Slide 12: 2011 1H accident year results: underlying portfolios performing well
2011 1H accident year results: underlying portfolios performing well Analysis of net central estimate 2011 2010 2009 2010 2009 2008 combined operating ratio (accident year) 1H 1H 1H FY FY FY Net central estimate claims ratio % 64.2 57.7 59.5 58.6 59.5 59.6 (pre risk margins) Commissions % 15.8 15.3
Slide 13: 2011 1H insurance profit
2011 1H insurance profit: negative impact of slightly lower discount rates and small savings from prior years 2011 1H 2010 1H 2010 FY Ins. Ins. Ins. profit profit profit US$M margin US$M margin US$M margin % % % Central estimate accident year underwriting profit 409 6.0 655 12.5 1,314 11.6 Savings o
Slide 14: Weighted average discount rates: impact on underwriting profit and PoA
Weighted average discount rates: impact on underwriting profit and PoA Actual weighted average Sensitivity scenarios risk-free discount rates on applied to 30 June 2011 outstanding claims% outstanding claims (2) 16 Aug Scenario Scenario Currency 2011 1H 2010 1H 2010 FY rate #1 #2 Australian dollar 5
Slide 15: Comprehensive worldwide reinsurance covers with significant pre-paid capacity for 2H
Comprehensive worldwide reinsurance covers with significant pre-paid capacity for 2H Total reinsurance cost for 2012 and 2013: - 70% fixed to growth in premium income - premium rate increases and changes in terms and conditions are expected to offset the substantial majority of potential rate rises
Slide 16: New reinsurance program, lower reinsurance cost and reduced maximum event retention
New reinsurance program, lower reinsurance cost and reduced maximum event retention Over the past five years QBE has increased GWP by 123% and significantly increased the diversity of its businesses, both by product and geography enabling the Group to reduce its overall risk profile and leverage rei
Slide 17: Investment income: yields achieved at upper end of target range
Investment income: yields achieved at upper end of target range 2011 2010 2009 Positive returns on equities 1H 1H 1H Credit spreads volatile, but Net investment income US$M 657 116 542 ultimately broadly unchanged Net yield on policyholders’ funds % 5.2 3.9 4.3 FI returns benefited from additional y
Slide 18: Investment portfolio: fixed income portfolios – high quality and liquid
Investment portfolio: fixed income portfolios – high quality and liquid FI & cash portfolio US$28,248M (2010: US$24,959M) Modified duration low at 0.4 years Sov/Supra Average term to maturity of securities 16% is 1.7 years Cash 86% of fixed income portfolio rated Aa 30% or better (97% is A or better
Slide 19: Comparison of cash rates with actual yields on FI and cash securities
Comparison of cash rates with actual yields on FI and cash securities Average Central Bank Currency mix of FI and cash rates % cash investments %(1) 2011 1H 2010 FY 2011 1H 2010 FY US dollar 0.3 0.3 33 33 Australian dollar 4.8 4.4 34 35 Sterling 0.5 0.5 16 15 Euro 1.1 1.0 9 9 Other 2.6 1.3 8 8 Total
Slide 20: The Americas: excellent underwriting results despite severe tornado season
The Americas: excellent underwriting results despite severe tornado season COR improved to 88.9% 2011 1H 2010 1H GWP growth of 50% largely Gross written premium US$M 3,524 2,342 driven by acquisition activity Premium rates starting to Gross earned premium US$M 3,154 2,073 increase, up 2.5% (ex US cr
Slide 21: European operations: strong results given record global catastrophe claims
European operations: strong results given record global catastrophe claims GWP growth assisted by Secura 2011 1H 2010 1H acquisition and overall premium rate increases of 2% Gross written premium US$M 2,824 2,412 Renewal retention maintained at over Gross earned premium US$M 2,242 1,935 80% Growth i
Slide 22: Australia: unprecedented weather related catastrophe claims impact results
Australia: unprecedented weather related catastrophe claims impact results 2011 1H 2010 1H GWP growth of 25% aided by acquisitions of CUNA portfolios Gross written premium US$M 2,268 1,812 Overall rate increases of 4% on renewed business. Gross earned premium US$M 2,123 1,818 GWP up 6% in local curr
Slide 23: Asia Pacific: solid performance despite devastating Christchurch earthquakes
Asia Pacific: solid performance despite devastating Christchurch earthquakes GWP growth mainly from changes in 2011 1H 2010 1H FX rates Gross written premium US$M 326 295 Premium rates on renewed business flat – exception was NZ rates up 11% Gross earned premium US$M 315 284 Claims ratio down due to
Slide 24: Equator Re: underwriting profit despite frequency of global catastrophes
Equator Re: underwriting profit despite frequency of global catastrophes GWP up 49% due to Group 2011 1H 2010 1H acquisitions, reinstatement premium income and new Gross written premium US$M 2,021 1,359 worldwide programs Gross earned premium US$M 1,545 1,032 Higher reinsurance costs due to share of
Slide 25: Operational transformation programs on track
Operational transformation programs on track Major divisional IT and operations transformation programs in Europe and the Americas are on track to deliver indicated savings by 2012 and 2014 respectively 2011 2012 US$M US$M Quantification of benefit: Claims leakage and expense savings 70 100 One-time
Slide 26: Capital adequacy: substantial excess capital to support growth expectations
Capital adequacy: substantial excess capital to support growth expectations Based on APRA criteria Total QBE regulatory capital US$M Minimum capital requirement ("MCR") US$M Excess capital US$M MCR multiple 30 June 2011 8,234 4,904 3,330 1.7x 31 Dec 2010 7,003 4,328 2,675 1.6x 31 Dec 2009 6,001 3,67
Slide 27: Balance sheet: key balance sheet ratios are strong
Balance sheet: key balance sheet ratios are strong Shareholders' funds - US$M PoA on outstanding claims liabilities - % 12,000 100.0 10,000 95.0 8,000 90.0 6,000 11,209 10,311 85.0 9,164 4,000 88.1 89.8 88.5 2,000 80.0 - 75.0 2009 FY 2010 FY 2011 1H 2009 FY 2010 FY 2011 1H Debt/equity ratio - % Addi
Slide 28: Strategy
Strategy Focus on building shareholder wealth by: - market leading performance - acquisitions - underwriting discipline - operational excellence Build on our successful and disciplined long-term strategy of growth through product diversification and geographic spread Enhance our excellent management
Slide 29: 2011 premium outlook
2011 premium outlook Projected Projected Projected GWP – local GWP NEP currency Bn (1) US$Bn US$Bn Australia A$4.3 4.6 3.6 Asia Pacific US$0.7 0.7 0.4 Europe £2.8 4.5 3.1 The Americas US$7.7 7.7 4.7 Equator Re (2) 3.2 17.5 15.0 (1) Cumulative average foreign exchange rates assumed at US$1 = A$1.05 c
Slide 30: Acquisitions to drive 2H premium growth and profit contribution
Acquisitions to drive 2H premium growth and profit contribution 2011 acquisitions completed Effective Cost Additional date US$M annualised GWP US$M Renaissance Re US multi line crop insurer 1 Jan 270 560 CUNA Australian mutual insurer 1 April 22 90 Balboa: US lender-placed and voluntary insurance po
Slide 31: 2011 FY financial performance projections
2011 FY financial performance projections: large risk and catastrophe claims in 1H and market uncertainty lowers insurance profit targets 2011 FY GWP (excluding portfolio transfer from acquisitions) over US$17.5Bn NEP over US$15.0Bn Reinsurance expense ratio (to GEP) around 12% Combined commission &
Slide 32: Outlook for remainder of 2011: assumptions
Outlook for remainder of 2011: assumptions Overall premium rate increases on renewed business expected to be close to 4% for FY11 Reinsurance expense ratio of close to 12% of gross earned premium by year end The minimum projected insurance profit margin of 11% includes: - allowance of 13% of NEP for
Slide 33: Outlook for remainder of 2011: assumptions
Outlook for remainder of 2011: assumptions Additional reinsurance protections purchased for 2H to be funded from expected premium rate increases 14% projected insurance margin is achievable for FY11 if: - net large individual risk and catastrophe claims match our previous target of US$1,650M (1H: US
Slide 34: Outlook: longer term
Outlook: longer term Focus on acquisitions which do not rely on investment income to support insurance margins Substantially fixed reinsurance cost for 2012 and 2013 Deliver incremental annualised benefits from operational transformation programs of around 1% of COR or US$200M by 2014 Low interest y
Slide 35: Important disclaimer
Important disclaimer The information in this presentation provides an overview of the results for the year ended 30 June 2011. This presentation should be read in conjunction with all information which QBE has lodged with the Australian Securities Exchange (“ASX”). Copies of those lodgements are ava
Slide 36: QBE INSURANCE GROUP www.qbe.com
QBE INSURANCE GROUP www.qbe.com 36 HY 2011 results presentation
Slide 37: Appendices
Appendices 1. Worldwide reinsurance covers 2. PoA of total insurance liabilities 3. Dividend performance 4. Borrowings summary 37 HY 2011 results presentation
Slide 38: Comprehensive worldwide reinsurance covers with significant pre-paid capacity for the second half
Comprehensive worldwide reinsurance covers with significant pre-paid capacity for the second half Worldwide catastrophes Single layer US$1.3bn excess US$200m with pre-paid cover to US$2.6bn (1) - US$2.2bn remaining for 2011 – no reinstatement premiums - 80% commitment for 2012 and 2013 Additional hi
Slide 39: Probability of adequacy of total insurance liabilities at 95.2%
Probability of adequacy of total insurance liabilities at 95.2% 2011 1H 2010 1H 2010 FY 2009 FY US$M US$M US$M US$M Net outstanding claims 16,600 12,671 15,017 12,864 Unearned premium net of deferred insurance costs 6,110 4,320 4,785 4,374 Net total insurance liabilities 22,710 16,991 19,802 17,238
Slide 40: Dividend performance
Dividend performance 1,600 126 128 128 140 122 Dividend per share A$ cents 1,400 120 95 1,200 100 Payout A$M 1,000 678 694 645 62 62 80 800 576 60 600 452 40 400 628 642 677 492 542 20 200 322 - - 2006 2007 2008 2009 2010 2011 Interim Final Dividends per share 2011 interim dividend 62.0 Australian c
Slide 41: Borrowings summary
Borrowings summary 30 June 2011 31 December 2010 Maturity date Call date Principal amount US$M US$M Bank loans 13 May 2012 13 May 2012 US$100 million 100 - 19 January 2011 19 January 2011 US$25 million - 25 30 June 2011 30 June 2011 US$2 million - 2 100 27 Senior debt 28 September 2015 28 September