Presenter:
Neil Drabsch, Group CFO
QBE INSURANCE GROUP
INVESTOR PRESENTATION
NEW YORK
SEPTEMBER 2005
Company overview
• QBE is an Australian-based general insurance and
reinsurance group and one of the world’s 25 largest
insurers and reinsurers as measured by net written
premium
– Established in 1886
– Listed on ASX as QBE in 1973 following merger of three
related companies
– Operates in 38 countries
• QBE specialises mainly in writing commercial lines in
general insurance (80%) and inward reinsurance (20%)
• QBE does not write any material life insurance or generally
undertake funds management on behalf of other
companies or individuals
• S&P A+ (Stable) insurer financial strength and counterparty
credit rating for main insurance subsidiaries.
Growth and insurance margin
Gross written
premium
A$M
1995
1996
1997
1998
1999
2000
2001
2002
2003
2004
2005*
* targets
1,336
1,561
2,054
2,409
2,877
4,406
6,793
7,723
8,350
8,766
9,500
COR
%
100.4
99.3
99.5
100.3
103.9
102.5
109.6
97.7
93.8
91.2
Company overview
Insurance
profit ratio
%
Insurance
profit
A$M
8.0
88
8.4
101
7.2
116
7.7
147
2.5
56
5.4
186
(2.6)
(119)
7.2
406
10.4
627
13.1
914
15.0 to 16.0
Total
investments
A$M
2,045
2,694
3,105
3,505
5,123
6,986
8,724
10,759
11,106
14,975
>17,000
History of growth
full year to 31 December 2004
Gross written and net earned premium
Compound average growth rates over last 12 years:
- gross written premium 21.7%
- net earned premium 20.1%
A$M
10,000
Projected 2005
8,000
GWP A$9.5 Bn
6,000
NEP A$7.5 Bn
4,000
2,000
0
1992
1994
1996
1998
2000
2002
2004
Corporate strategy
• QBE’s underlying business strategy is to maintain
operations in the key global insurance markets and to be a
lead underwriter for selected lines of business setting rates
and conditions in the markets in which it operates
• QBE’s strategy of diversification, by product and
geographic exposure, is key to managing our insurance
and reinsurance risks and has been a vital ingredient in the
Group’s success
• Carefully manage risk for both the asset and liability side of
the balance sheet
• Relatively modest insurance net retentions
• Grow the business both organically and through
acquisitions of insurance businesses, portfolios and teams
of underwriters
• Embed QBE culture throughout the organisation applying
proven effective risk management practices and controls
•
•
•
•
•
•
•
•
•
•
•
•
•
•
Recap half year results to
30 June 2005
Record operating profit of A$491 million up 43%
Lowest COR in past 30 years - 90.3% (2004: 90.5%)
Record insurance profit margin - 15.8% (2004:13.6%)
Gross and net earned premium up 9% and 13% respectively (despite higher A$)
Prudential margins in outstanding claims slightly in excess of our internal range
at 95% probability of adequacy
Low risk short duration cash and fixed interest investments A$14.3 billion,
benefited from interest rate increases (particularly US$ and A$)
Achieved lower insurance risk profile
Acquisitions in the period will add premium growth of A$500 million to benefit
2006
Achieved further product and geographic diversification
All 38 countries in excellent shape and looking for growth opportunities
Cash flow from operations again strong at A$672 million, although lower than last
year (2004: A$898 million) mainly due to settlement of 2004 catastrophe claims
EPS (diluted) up 32% to 59.2 cents per share
Dividend- interim 33¢ per share 50% franked (2004: 24¢ per share)
Insurance liabilities at 30 June 2005 include a substantial allowance for large
losses and catastrophes in second half of 2005
Worldwide operations
HALF YEAR
FULL YEAR
June
2005
June
2004
Dec
2004
Dec
2003***
Gross written premium $M
5,123
4,763
8,766
8,350
Gross earned premium $M
4,331
3,982
8,571
7,816
Net earned premium $M
3,506
3,114
6,781
6,036
Claims ratio %
61.0
61.6
61.3
63.3
Commission ratio%
17.0
16.8
17.5
18.2
Expense ratio %*
12.3
12.1
12.4
12.3
Combined operating ratio %
90.3
90.5
91.2
93.8
Underwriting profit $M
339
297
597
372
Investment income on policyholders’ funds $M**
214
128
317
255
Insurance profit $M
553
425
914
627
Insurance profit % to NEP
15.8
13.6
13.5
10.4
Investment income on shareholders’ funds $M
123
4
187
158
Amortisation
(1)
-
(1)
(20)
Net profit before tax $M
675
429
1,100
765
* All expenses other than investment expenses, borrowing costs and amortisation of goodwill are allocated to the underwriting result
** Investment yields on average policyholder funds 4.1 % (2004 : 2.9%)
*** Not restated for AIFRS
Worldwide portfolio mix
gross earned premium
half year ended 30 June 2005
Workers’ compensation
Professional indemnity
9% (11%)
9% (9%)
Financial and credit
Marine and aviation
2% (3%)
6% (6%)
Liability
23% (19%)
Property
29% (32%)
Other
1% (2%)
Motor and motor
casualty
14% (12%)
Accident and health
7% (6%)
Short tail 53% (54%), Long tail 47% (46%)
Worldwide operations
half year ended 30 June 2005
Insurance
profit margin
GWP*
Growth
2005
$M
2005
%
2005
%
2004
%
2005
%
2004
%
2005
$M
2004
$M
1,255
32
89.3
89.3
18.1
14.9
138
135
358
8
89.6
90.9
15.1
12.0
34
16
QBE Insurance (Europe)
1,407
9
89.2
91.3
15.6
13.6
164
93
Lloyd’s division
1,393
(7)
92.5
90.1
15.4
15.1
120
76
710
3
92.1
91.3
11.3
9.5
35
23
Group
5,123
8
90.3
90.5
15.8
13.6
491
343
General insurance
3,816
10
90.3
90.9
15.8
13.6
373
257
Inward reinsurance**
1,307
-
90.4
89.3
15.8
13.7
118
86
Group
5,123
8
90.3
90.5
15.8
13.6
491
343
Australia
Pacific Asia Central Europe
the Americas
COR
Net profit after
tax and
minorities
• Weighted average premium rates for the Group down by 3.6% compared with budget of 3.1%.
• “Attrition” claims at historical lows
* The stronger A$ reduced reported growth by approximately 1.5%
** Inward reinsurance reduced as a proportion of GWP – 26% (2004 : 27%). Excluding facultative
reinsurance inward reinsurance business is 19% (2004 : 24%) of total GWP
Net invested funds
30 June 2005
31 Dec 2004
$M
%
$M
%
Cash and cash equivalents
Short term money
Fixed interest securities and other
Equities
Property
1,492
5,362
7,492
1,344
31
9.5
34.1
47.7
8.5
0.2
1,121
5,482
6,957
1,383
32
7.5
36.6
46.5
9.2
0.2
Total financial assets and cash (1)
15,721
100.0
14,975
100.0
Borrowings
(2)
Net invested funds (1)
(1)
(2)
1,742
1,805
13,979
13,170
Excludes ABC financial assets and ABC securities
Borrowings denoted as “financial liabilities” in financial statements
Acquisitions
half year ended 30 June 2005
•
Acquisitions made since January 2005 were:
- Greenhill underwriting agency in Western Europe: €75 million gross
premium
- Central de Seguros in Colombia: US$60 million gross premium
- National Farmers Union Property and Casualty company in the US:
US$200 million gross premium
- MiniBus Plus underwriting agency: £40 million gross premium
- British Marine P & I and specialist small marine hull: £70 million gross
premium
•
These acquisitions will add approximately A$750 million of annualised
gross written premium and expected to be EPS accretive in 2006
•
We continue to look at a number of acquisition opportunities in all markets
•
90 acquisitions since 1982
•
QBE has teams experienced in acquisitions in each division
Market conditions
• 4 years of cumulative premium rate increases for most
commercial lines of business
• Significant gains on terms and conditions across all
portfolios – e.g. higher deductibles are being retained
• More competition emerging, particularly for larger risks –
however not irrational
• Recent US Hurricane Katrina market loss could be as high
as US$60 billion. Losses for QBE are within allowances
included in insurance liabilities at 30 June 2005
• Losses from Katrina and Rita are expected to generate
increased pressure on market capital with likely hardening
of property, marine and marine energy premium rates
Managing exposure to catastrophes
• QBE considers information from a wide range of exposure
monitoring processes:
– Catastrophe modelling software, such as Risk Management
Solutions (RMS) model output
– Probable Maximum Loss (PML) and Maximum Event
Retention (MER) analysis
– Realistic Disaster Scenario reporting
• Assessment of potential loss is usually from the ground up,
e.g. sums insured, net retentions
• This helps ensure that potential losses from a major
catastrophic event are within QBE’s allowances
Managing exposure to catastrophes
Realistic disaster scenarios (RDS)
reporting process
• RDS reporting forms an integral part of Lloyd’s catastrophe
and large loss exposure monitoring processes
• QBE has adopted RDS reporting as best-practice across
the whole Group for monitoring exposures to extreme
events
• Examples of RDS hurricane events in the US include:
– Florida windstorm (2 scenarios)
– North-east US windstorm
– Gulf of Mexico windstorm
– Hurricane Andrew (based on current exposures)
Managing exposure to catastrophes
Realistic disaster scenario US windstorms
The following table sets out industry loss scenarios that we
apply as a base for purchasing reinsurance protection
RDS event
Estimated
industry loss
US$Bn
Florida WS – Miami
Florida WS – Tampa
Northeast US WS
Gulf of Mexico WS
Hurricane Andrew
* $10B off shore energy loss, $50B onshore property loss
** Estimated present value of loss
70
70
60
60*
40**
Managing exposure to catastrophes
Lloyd’s realistic disaster scenario
Gulf of Mexico windstorm assumes a US$60 billion insured
loss; US$10 billion offshore energy; US$50 billion mainland
property loss
Managing exposure to catastrophes
2004 US hurricanes
Market loss
Ivan
Charley
Jeanne
Frances
QBE loss
Gross
Net
US$B
11
8
4
5
US$M
510
175
2005 outlook
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:
• Target range for insurance profit margin upgraded to 15% -16%
through 2005 from the previously announced 12.5% to 13.5%
range
• Insurance liabilities at 30 June 2005 include a substantial
allowance for large losses and catastrophes in second half of
2005
• Current premium rates are adequate to meet profit targets for the
substantial majority of our portfolios
• Improved insurance policy terms and conditions are being largely
maintained
• Expect to achieve 2005 gross written and net earned premium of
$9.5 billion and $7.5 billion respectively
2006 outlook
•
•
•
•
•
•
•
•
Premium rate expectations and the strength of our insurance liabilities
give us confidence for continuation of a strong level of insurance
profitability
Premium growth will be mainly driven by “acquisitions” made in 2005,
although effect of Katrina and Rita likely to create positive overall
premium growth for existing portfolios
Estimated premium growth for 2006: 10% gross written premium and
12.5% net earned premium
Large loss and catastrophe margins in premium rates expected to
exceed highest experience in past seven years
Reinsurance rates expected to firm and increase with strict risk and
policy conditions retained
Previously announced synergies from restructures and acquisitions to
benefit reinsurance costs and expenses
Investment yields on cash and fixed interest securities are expected to
be higher on an investment portfolio increased by $2 billion in 2005
Income tax rate expected to be in the range of 27% to 28%
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 17.3% over
5 years, 21.1% over 10 years and 22.2% over 20 years
QBE historical share price perform ance - last 20 years
$35.00
QBE Share Price Performance
$30.00
QBE Share Price Performance Including Reinvestment of Dividends
ASX All Ordinaries Accumulation Index
QBE Share Price (A$)
$25.00
$20.00
$15.00
$10.00
$5.00
$0.00
Jun-85
Jun-87
Jun-89
Jun-91
Jun-93
Jun-95
Jun-97
Jun-99
Jun-01
Jun-03
Jun-05