FY13 results presentation

QBE Insurance Group
2013 full year results announcement
John Neal • Group Chief Executive Officer
Neil Drabsch • Group Chief Financial Officer
25 February 2014
All figures in US$ unless otherwise stated
1 •
Year in review
2 •
2013 result overview
Results
Underlying insurance
business
Capital position
Dividend
•
•
•
•
Net profit before amortisation and tax $797M (2012 $1,348M)
Net loss after tax of $254M (2012 profit of $761M)
Cash profit $761M (2012 $1,042M)
Insurance profit margin 5.5% (2012 8.0%)
•
•
•
•
•
Underlying 2013 insurance profit margin 10 - 11%
Current accident year central estimate COR 92.5%
Attritional claims ratio (ex crop/FPS) 48.2% (2012 49.8%)
Large individual risk and catastrophe claims of 9.7%
Prior accident year central estimate development $621M(1)
•
•
•
Net tangible assets $5,923M up 10% from 2012
PCA multiple 1.59x (2012 1.57x)
CET1(2) ratio 114% (2012 112%) or 1.9x required minimum
•
•
•
Final dividend 12 Australian cents per share, fully franked
Full year dividend 32 Australian cents per share
Cash payout ratio of around 50%(3)
(1) Before $69M adjustment for discount on certain long tail portfolios
(2) Common Equity Tier 1
(3) Calculated by converting cash profit to A$ at the cumulative average rate of exchange
3 • 2013 results presentation
2013 financial results summary
For the year ended 31 December
2013
2012
% change
GWP
$M
17,975
18,434
(2)
NEP
$M
15,396
15,798
(3)
Underwriting profit
$M
341
453
(25)
%
97.8
97.1
-
$M
841
1,262
(33)
%
5.5
8.0
-
Investment income
$M
801
1,216
(34)
Amortisation and impairment, pre-tax
$M
1,245
407
206
Net (loss) profit before tax
$M
(448)
941
(148)
Net (loss) profit after income tax
$M
(254)
761
(133)
Amortisation and impairment, net of tax
$M
1,015
281
261
Cash profit
$M
761
1,042
(27)
EPS diluted
US cents
(22.8)
61.6
(137)
Cash EPS
US cents
62.9
89.1
(29)
Dividend per share
AU cents
32.0
50.0
(36)
COR
Insurance profit
Insurance profit to NEP
4 • 2013 results presentation
2013 results compared to 9 December guidance
Summary of major items
2013
9 December
actual
guidance
GWP
$Bn
18.0
18.0
NEP
Prior accident year claims development
(undiscounted)
Net claims ratio
$Bn
15.4
15.2
$M
(1)621
650
%
64.5
~ 64
Combined commission & expense ratio
%
33.3
~ 33.5
COR
%
97.8
97-98
Insurance profit margin
%
5.5
~ 6.0
Amortisation and impairment, pre-tax
$M
1,245
1,250
Net loss before tax
$M
(448)
~ (400)
Net loss after income tax
$M
(254)
~ (250)
Cash profit
$M
761
~ (2)850
PoA
%
90.7
90 or more
Investment yield on policyholders’ funds
%
2.4
slightly > 2.25
(1) Before
$69M adjustment for discount on certain long tail portfolios
foreshadowed one-time FPS charge of $150M pre-tax ($98M after tax) deemed non-cash
(2) Included
5 • 2013 results presentation
Underwriting performance
•
•
Premium income
•
GWP down 2% to $17,975M (stable in constant currency)
Rate increases of around 4%, driven by North America
and Australia
Remediation and FPS led to $715M reduction in North
America
Underwriting result
impacted by prior
accident year claims
and one-off costs
•
•
•
•
•
97.8% COR (2012 97.1%)
Prior accident year central estimate development $621M(1)
Net risk margin strengthening $266M
Operational transformation costs $135M
FPS restructuring, legal and other costs $134M
Insurance profit
•
•
•
•
Insurance profit $841M (2012 $1,262M)
Insurance profit margin 5.5% (2012 8.0%)
Investment margin contribution of 3.3% (2012 5.1%)
Underlying insurance profit margin 10.6%
6 • 2013 results presentation
(1)
Before $69M adjustment for discount on certain long tail portfolios
2013 insurance profit margin analysis
13.0
12.0
(0.3)
11.0
0.9
10.0
1.7
(1.8)
9.0
0.9
0.9
(0.8)
8.0
3.6
7.0
6.0
10.6
5.0
4.0
3.0
5.5
2.0
1.0
0.0
FY13 reported PY development Risk margin (2) Risk-free rates Large risk & cats
margin
(1)
(3)
(4)
(1)
(2)
(3)
(4)
Adverse prior accident year development $552M (P&L impact)
Net risk margin strengthening $266M
Favourable discount rate impact $272M
Large individual risk & catastrophe claims 9.7% (2.3% crop) vs 10.5%
allowance
7 • 2013 results presentation
(5)
(6)
(7)
(8)
Crop (5)
OTP (6)
FPS costs (7)
Investment FY13 underlying
contribution (8)
margin
Crop adjusted from actual 2013 COR 102.8% to budgeted 2014 COR 91%
Operational transformation program (OTP) implementation costs $135M
One-off FPS restructuring, legal and other costs $134M
Investment contribution 3.3% vs 3.0% guidance
North American Operations
2013 result disappointing
•
•
•
•
GWP down 11% due to FPS and remediation
COR 115.8% (2012 106.8%) above 9 Dec guidance of “around 111%”
Prior accident year claims $412M(1) (2012 $316M)
Restructuring and other costs $134M
Thorough examination of
North American reserves
•
•
•
Prior accident year development mainly in closed program portfolio
Thorough and exhaustive review completed and risk margin top up
Stop loss reinsurance purchased for modest premium
Crop and FPS major
underperformance relative to
original guidance
•
•
•
Crop COR 102.8% (2012 102.9%) due to revenue claims
FPS COR of 115.0% (2012 79.7%)
FPS GWP down 37% due to fewer loans tracked
Underlying results
•
•
•
Average premium rate increases of 4% (5% excluding crop and FPS)
Underlying North American COR 97 - 98%
FPS consumer, specialty and major brokers strong 2013 results
•
•
•
•
Necessary remediation plans in place
Significant cost out and efficiency drive underway
Strategic reset as US Commercial Specialty insurer
Recruited highly experienced local leadership
Moving forward
8 • 2013 results presentation
(1) $265M
net of quota share to Equator Re
Overview of 2013 divisional results
2013
Group
North
America
Latin
America
Europe
Australia &
New
Zealand
Asia
Pacific
Equator
Re
GWP ($M)
17,975
5,854
1,380
5,225
4,786
730
3,295
GEP ($M)
17,889
6,107
1,342
5,195
4,602
643
3,361
NEP ($M)
15,396
3,051
1,208
3,609
3,971
500
3,057
Claims ratio (%)
64.5
78.7
61.8
62.0
58.3
42.4
66.2
Commission
ratio (%)
16.8
4.4
21.7
18.1
14.9
21.8
27.0
Expense ratio
(%)
16.5
32.7
16.1
16.0
14.2
19.8
3.6
COR (%)
97.8
115.8
99.6
96.1
87.4
84.0
96.8
Insurance profit
margin (%)
5.5
(14.6)
8.2
5.3
18.8
17.4
5.2
9 • 2013 results presentation
Capital, funding and
investments
10 •
Balance sheet
As at 31 Dec
Summary balance sheet
Investments and cash
2013
$M
2012 Shareholders’ equity down, mainly due
$M to FX (stronger US$)
•
30,619
31,525
Trade and other receivables
5,119
5,232
Intangibles
4,480
6,054
Other assets
1,371
954
Assets
41,589
43,765
Insurance liabilities, net
24,171
24,365
4,571
4,932
Borrowings
Other liabilities
•
•
•
foreign exchange
net loss after tax
dividends paid (net)
conversion of hybrid debt
Intangibles
•
•
identifiable, 74% subject to amortisation
goodwill
•
•
central estimate
risk margins up 17%
3,051
Liabilities
31,186
32,348
Net assets
10,403
11,417 Probability of adequacy
•
47
59
•
•
Shareholders’ funds
11 • 2013 results presentation
10,356
11,358
579
3,901
4,480
Net outstanding claims
2,444
Non-controlling interests
($M)
(1,022)
(254)
(224)
498
up from 87.5% in 2012
above 90% for first time since 2007
risk margins 9.4% of central estimate
(2012 7.8%)
16,643
1,565
18,208
90.7%
Capital levels
Regulatory capital
$M
2013
2012
5,624
5,663
Tier 1 capital
6,715
6,657
Tier 2 capital
2,240
2,231
Total capital base
8,955
8,888
1.59
1.57
114%
112%
2013
2012
Net assets
10,403
11,417
Intangibles
(4,480)
(6,054)
Net tangible assets
5,923
5,363
Borrowings
4,571
4,932
10,494
10,295
APRA Prescribed Capital Amount (PCA)
PCA multiple
CET1(1) ratio (APRA requirement >60%)
Capital
Total capitalisation
(1) Common Equity Tier 1
12 • 2013 results presentation
$M
Key capital ratios up slightly
Insurer financial strength ratings
affirmed
• S&P “A+”
• AM Best “A”
Earnings stability expected to resolve
negative outlook
NTA up 10% (24% in constant currency)
Borrowings
Borrowings profile as at 31 December
%
2013
2012
Subordinated debt
50
47
Senior debt
43
29
Hybrid securities
-
18
Capital securities
7
6
• Capital initiatives
-
Redemption and conversion of remaining
SCS resulted in $498M of ordinary share
issuance
-
$500M issue of Tier 2 convertible subdebt (APRA tier 2 and S&P compliant)
• Borrowings fell by $361M mainly due to
redemption and conversion of SCS partially
offset by issuance of tier 2 convertible
Repayment profile
%
• Debt/equity ratio
2013
2012
Less than 1 year
10
24
-
“<45%” benchmark
1 – 5 years
51
35
-
More than 5 years
39
41
above year end target of “40% or less”
due to second half loss and FX
44.1%
43.4%
-
targeting <40% by end 2014
Debt/equity ratio
13 • 2013 results presentation
Investments
•
Equities 0.9%
(2012 0.4%)
Properties 0.1%
(2012 0.1%)
Short term
money 21.3%
(2012 25.9%)
Corporate
bonds 47.3%
(2012 41.7%)
14 • 2013 results presentation
Cash 4.0%
(2012 6.4%)
$30.6Bn (2012 $31.5Bn)
–
gross yield 2.7% (2012 4.3%)
Fixed interest and cash high liquidity
provided modest capital gains
•
Fixed interest portfolios
•
Property trust
1.0%
(2012 0.2%)
–
•
Infrastructure
debt 0.8%
(2012 0%)
Government
bonds 24.6%
(2012 25.3%)
Total investments and cash
–
average duration 0.51 years
–
average credit maturity 2.26 years
Further portfolio diversity
–
small exposure to unlisted property
and infrastructure
–
modest exposure to equity markets
provided returns from strong market
gains throughout the year
–
apart from strategic holdings in equities
($133M) investment pool is pro rated
between policyholders’ and
shareholders’ funds
Reinsurance and
outlook
15 •
2014 reinsurance program
Core reinsurance program
•
•
•
•
•
•
•
Enhanced catastrophe
protection
•
•
Refer slides 36 and 37 for further detail
16 • 2013 results presentation
Multi-year program renewed
Two thirds acquired on a two year basis and the
remainder renewed annually
Enhanced, high quality security
Diversified panel of reinsurers
Risk adjusted cost reduction of $200M+
Enhanced coverage and broader event definitions
Restructured Group and Equator Re aggregate
protections permit $100M higher catastrophe occurrence
retention
Structural changes should result in no additional volatility
and have a positive P&L impact
Innovative catastrophe bond provides $250M cover for
defined US and Australian perils
Outlook 2014
Premium rates
•
•
Market conditions stable
Expect premium rate increases of 2.5% overall
Premium targets
•
•
•
GWP $16.8Bn to $17.3Bn
NEP $14.7Bn to $15.2Bn
No material acquisitions planned
Claims ratio
•
•
Large individual risk and catastrophe allowance of 10.5%
Improvement in underlying attritional claims ratio expected to
continue
•
Target commission and expense ratio <32% driven by
operational transformation program benefits
Insurance profit margin of
around 10.0%
•
•
COR around 93.0%
Net investment contribution of around 3%
Dividend policy
•
Dividend payout of up to 50% of cash profit
Expenses and commission
17 • 2013 results presentation
Closing remarks
Tough actions in 2013
•
•
•
•
Highly experienced leadership now in place
Claims provisions substantially strengthened
Top line sacrificed for future sustainable profitability
Operational transformational program setting platform for
lower operating costs
Strong fundamentals
underpin 2014 targets
•
•
•
•
2013 accident year COR 92.5% encouraging
Improved reserving certainty – PoA 90%+
Overall premium rate increases expected to counter inflation
North American business targeting significant margin
improvement across 2014 - 2016
•
Further improvement in regulatory and rating agencies
capital position expected
Targeting significantly lower gearing over the medium term
Appropriate dividend policy
Focus on financial
strength
Earnings predictability
18 • 2013 results presentation
•
•
•
Stabilise earnings in 2014 to position the company for
profitable growth
Questions
19 •
Important disclaimer
The information in this presentation provides an overview of the results for the year ended 31 December 2013.
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 available from either the ASX website www.asx. com.au or QBE’s website
www.qbe.com.
Prior to making a decision in relation to QBE’s securities, products or services, investors, potential investors and customers must
undertake their own due diligence as to the merits and risks associated with that decision, which includes obtaining independent
financial, legal and tax advice on their personal circumstances.
This presentation contains certain "forward-looking statements“ for the purposes of the U.S. Private Securities Litigation Reform
Act of 1995. The words "anticipate", “believe", "expect", "project", "forecast", "estimate", "likely", "intend", "should", "could", "may",
"target", "plan" and other similar expressions are intended to identify forward-looking statements. Indications of, and guidance on,
future earnings and financial position and performance are also forward-looking statements.
Such forward-looking statements are not guarantees of future performance and involve known and unknown risks, uncertainties
and other factors, many of which are beyond the control of QBE that may cause actual results to differ materially from those either
expressed or implied in such statements. There can be no assurance that actual outcomes will not differ materially from these
statements. You are cautioned not to place undue reliance on forward-looking statements. Such forward-looking statements only
speak as of the date of this presentation and QBE assumes no obligation to update such information.
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 rates; no material change to key inflation and economic growth forecasts; recoveries from our strong
reinsurance panel; and no substantial change in regulation. Should one or more of these assumptions prove incorrect, actual
results may differ materially from the expectations described in this presentation.
20 • 2013 results presentation
Appendices
1.
2.
3.
4.
5.
6.
7.
8.
9.
Claims ratio analysis
Risk margin analysis
Discount rates
Major impacts of COR by division
Divisional results summary
2014 reinsurance program enhancements
Investments
Regulatory capital
2014 premium outlook
21 • 2013 results presentation
2013 claims incurred
Other
PY central estimate development
Discount - current accident year
Claims settlement costs
Large individual risk and catastrophe claims
Attritional claims
• Catastrophe experience
–
4.5% versus 6.1% in 2012
80
64.5%
66.0%
70
1.7
60
2.6
3.6
3.6
9.7
1.9
• Large individual risk losses
–
2.9
–
10.4
50
–
5.2% versus 4.3% in 2012
higher than expected but within
tolerances
2H13 experience more normal
40
• Attritional claims ratio
30
–
49.6
49.4
-2.7
-2.2
20
10
0
2013
-10
22 • 2013 results presentation
2012
–
49.6% versus 49.4% in 2012
48.2% (ex crop and FPS) versus
49.8% in 2012
2013 accident year central estimate claims ratio
2013
1H
NEP
2012
FY
1H
8,063 15,396
7,359
2H
2H
FY
$M
7,333
Attritional(1)
%
49.4
49.7
49.6
48.5
50.2
49.4
Large individual risk and catastrophes
%
8.3
11.0
9.7
8.0
12.5
10.4
Claims settlement costs
%
2.2
2.9
2.6
2.0
1.9
1.9
Discount
%
(2.5)
(2.7)
(2.7)
(2.1)
(2.3)
(2.2)
Accident year claims ratio
%
57.4
60.9
59.2
56.4
62.3
59.5
PY central estimate development
%
2.4
4.6
3.6
1.6
4.1
2.9
%
(0.4)
3.5
1.7
3.6
3.5
3.6
%
59.4
69.0
64.5
61.6
69.9
66.0
Other (including release of prior year
discount and movement in risk
margins)
Financial year claims ratio
(1)
Assumes attritional claims ratio of 67% for US crop. Refer slide 26 for further detail.
23 • 2013 results presentation
8,439 15,798
2013 accident year results
2013
2012
2011
Net central estimate claims ratio (pre risk margins)
%
59.2
59.5
65.3
Commissions
%
16.8
16.2
14.9
Expenses
%
16.5
14.9
13.7
Central estimate COR
%
92.5
90.6
93.9
$M
1,159
1,485
937
%
7.5
9.4
6.1
Accident year underwriting profit
Accident year underwriting profit margin
•
•
2013 accident year COR 92.5% encouraging
24 • 2013 results presentation
Claims ratio trending favourably
Expense ratio temporarily inflated
one-off costs
material net investment in
operational transformation
reduction in NEP
2013 insurance profit
2013
2012
2011
Ins.
profit
$M margin
%
Ins.
profit
$M margin
%
Ins.
profit
$M margin
%
Central est. accident year underwriting profit
1,159
7.5
1,485
9.4
937
6.1
PY central estimate development
(552)
(3.6)
(464)
(2.9)
64
0.4
Release of discount and other from prior years
net of movement in risk margins
(266)
(1.7)
(568)
(3.6)
(507)
(3.3)
Reported underwriting profit
341
2.2
453
2.9
494
3.2
Investment income on policyholders’ funds
500
3.2
809
5.1
591
3.9
Reported insurance profit
841
5.5
1,262
8.0
1,085
7.1
25 • 2013 results presentation
2013 attritional claims ratio analysis
1H13
NEP Attritional
2H13
NEP Attritional
6,638
49.1%
6,600
47.3%
13,238
48.2%
Crop
139
67.0%
1,002
67.0%
1,141
67.0%
FPS
556
49.1%
461
48.2%
1,017
48.7%
7,333
49.4%
8,063
49.8%
15,396
49.6%
Rest of World
Group
FY13
NEP Attritional
1H12
NEP Attritional
2H12
NEP Attritional
6,313
50.5%
6,795
49.2%
13,108
49.8%
Crop
177
67.0%
926
67.0%
1,103
67.0%
FPS
869
30.4%
718
37.5%
1,587
33.6%
7,359
48.5%
8,439
50.2%
15,798
49.4%
Rest of World
Group
26 • 2013 results presentation
FY12
NEP Attritional
2013 risk margin analysis
1800.0
1600.0
140
1400.0
(42)
68
22
(5)
25
8
16
1200.0
1000.0
800.0
1,565
1,333
600.0
400.0
200.0
0.0
FY12 risk
margin
27 • 2013 results presentation
FX
North America
Latin America
Europe
Australia & New
Zealand
Asia Pacific
Equator Re
Other
FY13 risk
margin
2013 movement in weighted average discount rates
Weighted average risk-free discount
rates on outstanding claims %
Currency
Australian dollar
US dollar
Sterling
Euro
Argentine peso
Group weighted average
Estimated impact of discount rate movement
(1) Depreciation
$M
31 Dec 2013
30 June 2013
31 Dec 2012
3.52
1.53
2.06
1.74
3.27
1.30
1.66
1.67
3.04
0.87
1.27
1.26
19.06(1)
2.77(1)
19.56
2.67
17.78
2.16
272
177
(102)
of the Argentine peso reduced the weighted contribution of the high Argentine risk-free rates to
the overall weighted average discount rate
28 • 2013 results presentation
2013 major COR impacts by division
2013
Group
North
America
Latin
America
Australia &
New
Zealand
Europe
Asia Pacific
Equator Re
NEP ($M)
15,396
3,051
1,208
3,609
3,971
500
3,057
COR (%)
97.8
115.8
99.6
96.1
87.4
84.0
96.8
Ins. profit margin (%)
5.5
(14.6)
8.2
5.3
18.8
17.4
5.2
Discount ($M)
272
48
12
111
30
2
69
PY development(1) ($M)
(552)
(265)
(59)
(27)
-
20
(221)
Net risk margins ($M)
(266)
(68)
(16)
(140)
(22)
5
(25)
OTP ($M)
(135)
(67)
-
(29)
(39)
-
-
Crop(2) ($M)
(135)
(81)
-
-
-
-
(54)
FPS costs(3) ($M)
(134)
(134)
-
-
-
-
-
Large risk & cats ($M)(4)
123
24
(5)
(5)
56
(7)
60
Total adjustment ($M)
(827)
(543)
(68)
(90)
25
20
(171)
Adjusted COR %
92.5
98.0
94.0
93.6
88.0
88.0
91.2
Normalisation adj.
(1) After
$69M adjustment for discount on certain long tail portfolios
adjusted from actual 2013 COR of 102.8% to budgeted 2014 COR of 91%
(3) Includes restructuring costs, asset write-downs, NYDFS fine and related legal costs
(4) Divisional allocations indicative only
(2) Crop
29 • 2013 results presentation
North America
2013
2012
• Premium rate increases averaged 4% (5%
excluding crop and FPS)
Gross written premium
$M
5,854
6,569 • Premium income down 11% due to FPS (client loan
Gross earned premium
$M
6,107
6,978
Net earned premium
$M
3,051
3,501
–
$412M of PY development ($265M post Equator
Re) of which $366M was program related
Claims ratio
%
78.7
77.6
–
Commission ratio
%
4.4
6.3
Crop COR of 102.8% due to revenue claims as a
result of commodity price declines and
disappointing yields
–
$68M risk margin strengthening
–
$67M operational transformation costs
–
$134M of one-off charges in FPS
–
$1,197M amortisation/impairment charges
sales and industry consolidation) and further
remediation of the middle markets business
• 2013 result affected by:
Expense ratio
%
32.7
22.9
Combined operating
ratio
%
115.8
106.8
Insurance profit margin
%
(14.6)
(4.9) • Significant focus on reducing expense ratio through
Return on allocated
capital (1)
%
(10.7)
1.9 • New senior leadership including CEO, CFO, Chief
premium generation and cost reduction initiatives
Claims Officer, Chief Actuary, Chief Information
Officer, Head of P&C and Head of Specialty
• 2014 GWP forecast of $5.5Bn - $5.7Bn and NEP
forecast $2.8Bn
(1)
ROAC based on the management result before internal reinsurance to Equator Re using the capital allocated to
the division. All other numbers and ratios are net of internal reinsurance to Equator Re.
30 • 2013 results presentation
Latin America
2013
2012
• GWP up 13%, largely due to full year impact of the
HSBC LBA acquisition
Gross written premium
$M
1,380
1,223
• Organic GWP growth was 10% in constant currency,
after pullback in Colombian SOAT business
Gross earned premium
$M
1,342
1,170
• Higher claims ratio impacted by:
$M
1,208
1,018
Claims ratio
%
61.8
55.7
Commission ratio
%
21.7
22.2
Net earned premium
–
$59M of adverse prior accident year development,
largely due to higher court prescribed interest rate
for Argentine workers’ compensation settlements
and increase in the average settlement for litigated
claims as well as adverse development in
Colombian SOAT business
–
Expense ratio
%
16.1
16.8
$13M Argentine floods and $9M impact from
Ecuadorian financial guarantee business which is
no longer underwritten
Combined operating
ratio
Insurance profit
margin
Return on allocated
capital (1)
%
99.6
94.7
%
8.2
11.9
• Combined commission and expense ratio down from
2012 due to integration synergies and expense
reductions in Ecuador and Puerto Rico
%
15.4
17.5
(1) ROAC
• 2014 GWP and NEP forecasts of $1.2Bn and $1.0Bn
respectively (assuming an average ARS:US$
exchange rate of 8.5)
based on the management result before internal reinsurance to Equator Re using the capital allocated to the
division. All other numbers and ratios are net of internal reinsurance to Equator Re.
31 • 2013 results presentation
Europe
2013
2012
Gross written premium
$M
5,225
5,077
Gross earned premium
$M
5,195
4,854
Net earned premium
$M
3,609
3,331
Claims ratio
%
62.0
62.4
Commission ratio
%
18.1
17.0
Expense ratio
%
16.0
15.2
Combined operating
ratio
Insurance profit
margin
Return on allocated
capital (1)
%
96.1
94.6
%
5.3
9.8
%
14.6
18.1
(1)
• GWP up 4% or £130M in local currency although
US$ premium income up only 3% due to
strengthening of the US dollar
• Modest renewed rate increases overall of 1.5%
though motor, credit and marine saw above
average increases of 5-7%
• Claims ratio improved slightly, albeit attritional
claims and an increase in large risk claims offset
benefits of a relatively benign catastrophe year
• $111M favourable discount rate impact
• Commission ratio up due to changes in business
mix and reinsurance reinstatement costs
• Expense ratio increased slightly due to $29M
operational transformation costs
• 2014 forecast GWP $4.6Bn and NEP $3.6Bn,
reflecting portfolio closures, market withdrawals
and asset sales (including several central and
eastern European businesses) coupled with
ongoing and challenging market conditions
ROAC based on the management result before internal reinsurance to Equator Re using the capital allocated to the
division. All other numbers and ratios are net of internal reinsurance to Equator Re.
32 • 2013 results presentation
Australia & New Zealand
2013
2012
• GWP up 4% in local currency (up 6% adjusted for
FSL) but fell in US$ due to weaker AUD
Gross written premium
$M
4,786
4,987
• Average premium rates increase of 5.6% with
retention slightly stronger at 83% (2012 80%)
Gross earned premium
$M
4,602
4,794
Net earned premium
$M
3,971
4,123
• Improved claims ratio reflects lower attritional
claims ratio due to sustained rate increases,
disciplined underwriting controls and risk selection
60.3
• Large individual risk and catastrophe claims costs
were above prior year but within expectations
Claims ratio
%
58.3
Commission ratio
%
14.9
13.5
Expense ratio
%
14.2
16.8
Combined operating
ratio
%
87.4
90.6
Insurance profit
margin
Return on allocated
capital (1)
%
18.8
18.9
%
22.4
21.3
• Commission ratio increased by 1.4% due to change
in business mix and lower agency commission
income
• Expense ratio 2.6% lower due to cost optimisation
and enhanced efficiencies from centralising the
support services
• OTP successfully implemented with significant
operating efficiencies expected to emerge in 2014
and beyond.
• Modest premium rate increases expected in 2014,
in line with inflation
• 2014 outlook GWP $4.8Bn and NEP $3.9Bn
(1) ROAC
based on the management result before internal reinsurance to Equator Re using the capital allocated
to the division. All other numbers and ratios are net of internal reinsurance to Equator Re.
33 • 2013 results presentation
Asia Pacific
2013
2012
Gross written premium
$M
730
578
Gross earned premium
$M
643
545
Net earned premium
$M
500
415
Claims ratio
%
42.4
42.4
Commission ratio
%
21.8
22.7
Expense ratio
%
19.8
20.7
Combined operating
ratio
Insurance profit
margin
Return on allocated
capital (1)
%
84.0
85.8
%
17.4
15.9
%
19.6
23.7
(1) ROAC
• GWP and NEP up 26% and 20% respectively, due to
full year impact of Hang Seng acquisition, strong
organic growth in Hong Kong, Singapore and Malaysia
• Asian Operations contributed $606M of GWP, up 30%
on 2012, and the Pacific operations contributed $124M
of GWP, up 10% on 2012
• Claims ratio stable – relatively benign catastrophe
experience offset by higher frequency of <$2.5M risk
claims which impacted the attritional claims ratio
• Combined commission and expense ratio improved by
1.8%, mainly due to scale efficiencies from premium
growth and reduced profit commissions in Indonesia,
Singapore and Hong Kong
• The Asia Pacific profitable growth strategy will continue
in 2014 - 2015, with an expected investment of around
$40M to build front line underwriting, technology and
infrastructure
• 2014 GWP forecast of $820M and NEP forecast $600M
based on the management result before internal reinsurance to Equator Re using the capital allocated to
the division. All other numbers and ratios are net of internal reinsurance to Equator Re.
34 • 2013 results presentation
Equator Re
Gross written premium
$M
Gross earned premium
$M
Net earned premium
Claims ratio
2013
2012
3,295
3,710
• GWP down 11% due to decline in the North American
portfolios and higher divisional catastrophe and risk
excess retentions
3,712
• NEP fell by 10% due to a higher allocation of Group’s
reinsurance spend and reduced quota share income
3,361
$M
3,057
3,410
%
66.2
70.5
Commission ratio
%
27.0
26.2
Expense ratio
%
3.6
3.0
Combined operating
ratio
%
96.8
99.7
Insurance profit
margin
%
5.2
4.1
35 • 2013 results presentation
• Improved claims ratio due to favourable catastrophe
experience (including higher divisional retentions) and
$69M discount rate movement offset by $221M
adverse prior accident year development (mainly in
North America) and $25M risk margin top-up
• Combined commission and expense ratio slightly
higher due to business mix (increased proportional
covers) and marginally higher expenses with the
increased presence in Bermuda
• 2014 outlook GWP $3.2Bn and NEP $3.0Bn
• $100M increase in Group retention retained by
Equator Re with impact on profit (and profit volatility)
more than offset by $100M+ premium saving and
revised aggregate covers
Reinsurance: 2014 worldwide cat XoL
(1) Worldwide cat XoL reinsurance covers all QBE business except inwards reinsurance (Lloyd's syndicate 566), marine and energy (Lloyd’s syndicate 1036), QBE LMI, FPS (with lenders-placed
covered by a separate FPS treaty) and crop, all of which have their own reinsurance protection
(2) GACC - Group Aggregate Catastrophe Cover includes all classes that apply to the WW cat XL but also inwards reinsurance (Lloyd's syndicate 566), marine and energy (Lloyd's syndicate 1036)
and FPS ie excludes crop and inwards retro only
(3) Equator Re aggregate cover inures to the benefit of the GACC. The first $250m of loss to Equator Re erodes both the Equator Re aggregate and GACC deductibles but the next $225m loss to
Equator Re is ceded to Equator Re Aggregate reinsurers not GACC. Equator Re aggregate cover includes all classes that apply to the WW cat XL but also inwards reinsurance (Lloyd's syndicate
566), marine and energy (Lloyd's syndicate 1036) and FPS ie excludes crop and inwards retro only
(4) US wind retention is $400m including FPS
(5) Pre quota share to Equator Re ie management versus legal entity basis
36 • 2013 results presentation
Reinsurance: 2014 worldwide risk XoL
(1) Worldwide risk XoL reinsurance covers all QBE business except inwards reinsurance, marine and energy (Lloyd’s syndicate 1036), QBE LMI, FPS (with lenders-placed
covered by a separate FPS treaty) and crop, all of which have their own reinsurance protection
(2) Natural Catastrophe cover included in the Risk
37 • 2013 results presentation
Investments in corporate bonds: fixed and floating rate
COUNTRY
31 Dec 13
US$M
%
31 Dec 12
US$M
%
Australia
USA
UK
Japan
Canada
ROW other
6,213
1,859
931
1,044
772
2,629
42.8
12.8
6.4
7.2
5.3
18.1
6,786
1,358
947
227
216
2,210
51.9
10.4
7.2
1.7
1.7
16.9
199
130
729
17
14,523
1.4
0.9
5.0
0.1
100.0
259
87
989
6
13,085
1.9
0.7
7.6
100.0
Germany
France
Netherlands
GIIPS
Eurozone other
TOTAL(1)
(1)
Includes accrued interest
Data includes treasury and SBD (Lloyd’s Deposits) and excludes Group Eliminations (QBE securities)
Country exposures are based on Country of Ultimate Counter-party (UCP)
GIIPS exposure consisted of UCP located in Spain (held by Latin American Operations)
EuroZone exposure consisted of UCP in Belgium, Finland & Luxembourg
38 • 2013 results presentation
Investments in sovereign / supra-national bonds
31 Dec 13
US$M
%
31 Dec 12
US$M
%
519
6.1
324
3.2
3,667
43.1
4,308
42.6
UK
914
10.7
1,662
16.4
Canada
405
4.8
464
4.6
1,711
20.1
1,632
16.1
Germany
462
5.4
625
6.2
France
380
4.5
615
6.1
Netherlands
243
2.9
50
0.5
Eurozone other
205
2.4
442
4.3
8,506
100.0
10,122
100.0
COUNTRY
Australia
USA
ROW other
TOTAL(1)
(1)
Includes accrued interest
Data includes treasury and SBD (Lloyd’s Deposits) and excludes Group Eliminations (QBE securities)
Country exposures are based on Country of Ultimate Counter-party (UCP)
GIIPS exposure consisted of UCP located in Spain (held by Latin American Operations)
EuroZone exposure consisted of UCP in Belgium, Finland & Luxembourg
39 • 2013 results presentation
APRA LAGIC calculation
$M
2013
2012
10,403
11,417
1,352
1,045
(5,330)
(6,121)
290
316
6,715
6,657
Subordinated debt and hybrid securities
2,240
2,231
Total capital base
8,955
8,888
Insurance risk charge
3,374
3,451
Insurance concentration risk charge
1,171
1,180
Asset risk charge
1,384
1,187
606
651
Less: Aggregation benefit
(911)
(806)
APRA’s Prescribed Capital Amount (PCA)
5,624
5,663
1.59
1.57
114%
112%
Tier 1
Ordinary share capital and reserves
Net surplus relating to insurance liabilities
Deductions
Capital securities
Tier 2
Operational risk charge
PCA multiple
CET1 (1) ratio (APRA requirement >60%)
(1)
40 • 2013 results presentation
Common Equity Tier 1
2014 premium outlook
Full year 2014
GWP in local
currency Bn
GWP guidance
$USBn (1)
NEP in local
currency Bn
NEP guidance
$USBn (1)
5.5 - 5.7
2.8
2.8
North America
5.5 - 5.7
Latin America
1.2
1.2
1.0
1.0
Europe
2.9
4.6
2.3
3.6
Australia & New Zealand
5.3
4.8
4.3
3.9
Asia Pacific
0.8
0.8
0.6
0.6
Equator Re
3.2
3.2
3.0
3.0
Equator Re
(3.2)
(3.2)
-
-
Group total
(1)
16.8 - 17.3
Based on projected exchange rates of – A$/US$0.91, £/US$1.59 and US$/ARS8.5
41 • 2013 results presentation
14.7 - 15.2

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