QBE Insurance Group Limited · ASX:QBE
QBE Insurance — H1 2015 Earnings Presentation
39 slides from QBE Insurance's earnings presentation, Aug 18, 2015
Slide 1: QBE Insurance Group 2015 half year results presentation
QBE Insurance Group 2015 half year results presentation John Neal Group Chief Executive Officer Pat Regan Group Chief Financial Officer Tuesday 18 August 2015 All figures in US$ unless otherwise stated 1
Slide 2: John Neal, Group Chief Executive Officer
John Neal Group Chief Executive Officer 2
Slide 3: 1H15 financial results summary
1H15 financial results summary For the half year ended 30 June 2015 2014(1) 2015(2) Change GWP $M 8,491 8,557 1% NEP $M 6,947 6,084 12% Underwriting profit $M 244 401 64% COR % 96.5 93.4 3.1ppt Insurance profit $M 530 610 15% Insurance profit to NEP % 7.6 10.0 2.4ppt Profit before tax $M 487 595 22%
Slide 4: 1H15 adjusted results highlights
1H15 adjusted results highlights • GWP up 1% (FX and crop broadly offset) Underwriting • Premium rates down 1.6% overall(1) versus expectations of flat performance • COR and insurance margin at top end of target range • New aggregate reinsurance treaty improved COR by 1.1% Reinsurance • Increased us
Slide 5: Five key areas of focus
Five key areas of focus • 93.4% COR - ahead of FY15 target despite increased competition Improving • Underlying attritional claims ratio stable in more challenging market conditions performance • All divisions producing an insurance profit - Europe and Australia standouts • Revised investment strate
Slide 6: Pat Regan, Group Chief Financial Officer
Pat Regan Group Chief Financial Officer 6
Slide 7: 1H15 adjusted profit reconciliation
1H15 adjusted profit reconciliation ADJUSTED REPORTED 30 JUNE 30 JUNE 1H15 2015 2015 1H15 1H14 ARGENTINE HELD FOR WORKERS' SALE & US$M COMP DISPOSALS US$M US$M Gross written premium 8,557 135 – 8,692 8,491 Net earned premium 6,084 145 – 6,229 6,947 Underwriting result 401 (51) (55) 295 244 Net inves
Slide 8: 1H15 divisional results
1H15 divisional results Australia North & New Emerging Equator (1) Group Group 1H15 America Europe Zealand Markets Re (adjusted) (statutory) GWP ($M) 3,109 2,659 1,928 929 976 8,557 8,692 Contribution to Group GWP 36% 31% 22% 11% - 100% - GEP ($M) 2,309 2,112 1,913 864 485 7,148 7,293 NEP ($M) 1,832
Slide 9: 1H14 stat vs. 1H15 adjusted combined operating ratio
1H14 stat vs. 1H15 adjusted combined operating ratio 99.0 97.0 (2.1) 95.0 0.6 (1.5) 1.6 (1.1) 93.0 0.9 (2.7) 0.6 0.6 91.0 96.5 89.0 93.4 87.0 85.0 1H14 statutory Argentine GLRC impact Large risk and Attritional Prior year Discount rate Risk margins Total acquisition CSC & other 1H15 adjusted COR wor
Slide 10: 1H15 adjusted attritional claims ratio analysis
1H15 adjusted attritional claims ratio analysis 30 June 2014 30 June 2015 NEP Attritional NEP Attritional US$M % US$M % Rest of world 6,414 47.1 5,719 47.0 Group large individual & catastrophe risk aggregate (1) – – (112) – US multi-peril crop insurance (2) 145 67.0 216 85.1 Lender-placed insurance
Slide 11: Financial performance - underwriting expenses
Financial performance - underwriting expenses $M 2,800 2,700 152 (179) 2,600 85 (38) 2,500 (103) 103 (64) 2,400 86 2,300 (289) 2,200 2,100 2,357 2,000 2,110 1,900 1,800 FY2012 inc. WC Inflation Investment in Emerging Market Non UW income FX Sale of Argentina Other (Mainly Other cost OTP savings 1H15
Slide 12: Investment performance and strategy
Investment performance and strategy Interest bearing financial assets - Moody’s rating(1) Total investments and cash at 30 June 2015 - $27.9Bn A 37% (FY14 39%) Aaa • Annualised net investment return of 2.9% despite 25% (FY14 26%) volatility in debt and equity markets • Asset duration at 30 June 2015
Slide 13: Financial strength
Financial strength 41.0% 1H14 FY14 1H15 Goodwill and intangibles to equity 40.0% $M $M $M 39.0% Goodwill and intangibles 4,525 3,831 3,751 38.0% Borrowings 4,306 3,581 3,591 37.0% 36.0% Shareholders’ funds 40.3% 11,228 11,030 10,949 35.0% APRA capital base 9,690 9,704 9,804 34.0% 33.0% 34.7% PoA 89.
Slide 14: Financial achievements and priorities
Financial achievements and priorities • Business remediation largely complete • Portfolio changes have improved profitability Driving financial performance • Confidence in claims reserves and earnings stability • Re-engineered reinsurance protection • Strong underwriting discipline in competitive ma
Slide 15: Outlook
Outlook John Neal Group Chief Executive Officer 15
Slide 16: 2015 outlook unchanged
2015 outlook unchanged Gross written premium(1) $15.2 – 15.6Bn (2) (outlook unchanged when adjusted for FX and M&LS) (Previous target range $15.5 - $15.9Bn) Net earned premium(1) $12.3 – 12.7Bn (2)(outlook unchanged when adjusted for FX and M&LS) (Previous target range $12.6 - $13.0Bn) Combined oper
Slide 17: Focus for the remainder of 2015
Focus for the remainder of 2015 • Key targets for FY15 reaffirmed - growth and profitability momentum in 2015 • Underwriting discipline always a priority Profitable growth • Claims reserves stable • Group Chief Strategy Officer focus on organic growth and cost optimisation • New capital and gearing
Slide 18: QBE strategic imperatives
QBE strategic imperatives Macro themes Engines for growth Enabling capabilities Digitalisation and customer Digitally enabled SME and Reduce cost and sophistication Bancassurance solutions operational excellence New world order - the rise of Emerging Markets Market-leading finance, data Emerging Mar
Slide 19: Questions
Questions 19
Slide 20: Important disclaimer
Important disclaimer The information in this presentation provides an overview of the results for the half year ended 30 June 2015. This presentation should be read in conjunction with all information which QBE has lodged with the Australian Securities Exchange (“ASX”). Copies of those lodgements ar
Slide 21: Appendices
Appendices 21 2015 half year results presentation
Slide 22: Appendices
Appendices 1. Claims ratio analysis 2. Discount rates 3. Divisional premium outlook 4. Foreign exchange rates 5. Divisional results breakdown 6. Balance sheet 7. APRA PCA calculation 8. Borrowings 9. Investments 10. Reinsurance 22 2015 half year results presentation
Slide 23: 1H15 statutory claims ratio analysis
1H15 statutory claims ratio analysis 1H14 (1)2H14 (1)FY14 1H15 NEP $M 6,947 7,499 14,446 6,229 Attritional % (2)49.8 (2)51.6 (2)50.7 54.2 Large individual risk and catastrophes % 9.9 12.3 11.2 (3)8.9 Claims settlement costs % 2.5 2.9 2.7 2.8 Discount % (4.6) (3.1) (3.8) (6.6) Accident year claims ra
Slide 24: 1H15 adjusted claims ratio analysis
1H15 adjusted claims ratio analysis 1H14 1H14 1H15 1H15 Statutory Adjusted Statutory Adjusted % % % % Attritional claims 49.8 47.5 54.2 49.1 Large individual risk and catastrophe claims 9.9 10.1 8.9 9.1 Claims settlement costs 2.5 2.5 2.8 3.0 Claims discount (4.6) (2.5) (6.6) (1.9) Net incurred clai
Slide 25: 1H15 movement in weighted average discount rates
1H15 movement in weighted average discount rates Weighted average risk-free discount rates on outstanding claims % Currency 30 June 2014 31 Dec 2014 30 June 2015 Australian dollar 3.12 2.46 2.43 US dollar 1.42 1.33 1.59 Sterling 2.02 1.30 1.53 Euro 1.19 0.58 0.75 Group weighted average (ex Argentine
Slide 26: 2015 premium outlook
2015 premium outlook GWP in local GWP target NEP in local NEP target Full year 2015 currency Bn $USBn(1) currency Bn $USBn(1) North America 4.9 4.9 3.7 3.7 Europe 2.9 4.5 2.2 3.4 Australia & New Zealand 5.1 3.8 4.4 3.3 Emerging Markets 2.0 2.0 1.6 1.6 Equator Re 1.0 1.0 0.4 0.4 Equator Re eliminatio
Slide 27: FX rates versus US$
FX rates versus US$ 2015 June 2014 December 2014 June 2015 assumed Closing rate Average Closing rate Average Closing Average Average rate rate rate rate rate AUD 0.94 0.91 0.82 0.90 0.77 0.78 0.75 GBP 1.71 1.67 1.56 1.65 1.57 1.53 1.53 EUR 1.37 1.37 1.21 1.32 1.11 1.12 1.12 ARS 0.12 0.13 0.12 0.12 0
Slide 28: North America
North America • Re-set of North America as a commercial specialty insurer largely complete with the announcement of the sale of 1H14 1H15 Mortgage and Lender Services business Gross written premium $M 2,472 3,109 • Both GWP and NEP up substantially from 1H14 primarily reflecting a one-off improvemen
Slide 29: Europe
Europe • GWP up 7% on a constant currency basis: 1H14 1H15 – portfolio remediation and disposals all completed during 2013 through to 2015 Gross written premium $M 2,705 2,659 – significant improvement in renewal retention • NEP down 18% (11% on a constant currency basis) Gross earned premium $M 2,4
Slide 30: Australia & New Zealand
Australia & New Zealand • GWP down 1% in AUD (albeit down 15% in USD), 1H14 1H15 primarily due to lower LMI GWP • NEP up 2% on a constant currency basis, mainly due to Gross written premium $M 2,275 1,928 the LMI premium earnings pattern • Premium rates down on average around 2%, Gross earned premiu
Slide 31: Asia Pacific
Asia Pacific 1H14 1H15 • GWP and NEP grew 13% on a constant currency basis despite 3.5% average premium 394 424 rate reductions across the region Gross written premium $M • Notwithstanding the significant impact of Gross earned premium $M 346 368 Cyclone Pam, Asia Pacific recording a strong underwri
Slide 32: Latin America
Latin America • GWP and NEP grew by 15% on a constant 1H14 1H15 currency basis with growth in Argentina, Chile and Brazil exceeding 25% Gross written premium $M 502 505 • Remediation progressing to plan in Argentina, Gross earned premium $M 509 496 Columbia and Chile • Materially improved net claims
Slide 33: Equator Re
Equator Re • GWP up 61%, driven by Equator Re providing higher 1H14 1H15 limits on divisional property and casualty per risk and catastrophe treaty reinsurance as at 1 January 2015 Gross written premium $M 607 976 • Claims ratio substantially improved to 58.2% (1H14 95.4%) Gross earned premium $M 40
Slide 34: Financial strength and flexibility
Financial strength and flexibility As at 31 Dec 30 June 2014 2015 Reserving Summary balance sheet $M $M • Favourable prior accident year claims Investments and cash 28,583 27,903 development of $69M on a statutory basis ($79M on an adjusted basis) Trade and other receivables 4,748 5,767 • $45M favou
Slide 35: APRA PCA calculation
APRA PCA calculation $M FY14 1H15 Ordinary share capital and reserves 11,082 11,005 Net surplus relating to insurance liabilities 1,199 1,029 Regulatory adjustments to Common Equity Tier 1 Capital (5,029) (4,657) Common Equity Tier 1 Capital 7,252 7,377 Additional Tier 1 Capital - Capital securities
Slide 36: Borrowings
Borrowings Borrowings profile % FY14 1H15 Borrowings of $3,591M at 1H15 Subordinated debt 61 61 • Weighted average cost of borrowings Senior debt 30 30 unchanged at 6.2% Capital securities 9 9 • Central cash $616M at 30 June 2015 Debt to equity ratio within benchmark range of 25% - 35% • Gearing sli
Slide 37: Investments in corporate bonds: fixed and floating rate
Investments in corporate bonds: fixed and floating rate 31 Dec 14 30 June 15 COUNTRY US$M % US$M % Australia 4,433 36.1 4,114 31.0 USA 1,925 15.7 2,478 18.6 UK 710 5.8 1,011 7.6 Japan 1,198 9.8 1,335 10.0 Canada 817 6.7 1,000 7.5 ROW other 1,917 15.7 1,643 12.4 Germany 192 1.6 602 4.5 France 125 1.0
Slide 38: Investments in sovereign / supra-national bonds
Investments in sovereign / supra-national bonds 31 Dec 14 30 June 15 COUNTRY US$M % US$M % Australia 367 7.6 534 12.3 USA 2,315 48.0 2,102 48.4 UK 191 4.0 201 4.6 Canada 293 6.1 261 6.0 ROW other 948 19.7 852 19.6 Germany 428 8.9 254 5.8 France 96 2.0 132 3.0 Netherlands 135 2.8 - - Eurozone other 4
Slide 39: QBE 2015 global reinsurance program
QBE 2015 global reinsurance program Risk XL Cat XL Large Risk and Catastrophe Reinstatements Worldwide Risk XL and Cat XL A$250M xs A$4B A$250M xs A$4B 1) Covers all QBE business except inwards ANZ Only ANZ Only reinsurance (QBE Re), Marine and Energy (Lloyd’s Syndicate 1036), QBE LMI and Crop, all