QBE Insurance Group Limited · ASX:QBE
QBE Insurance — Debt Investor Presentation (March 2016)
52 slides from QBE Insurance's debt investor presentation, Mar 22, 2016
Slide 1: ASX cover letter: Credit Investor Update
QBE insurance Group Limited ABN 28 008 485 014 Level 27, 8 Chifley Square, SYDNEY NSW 2000 Australia GPO Box 82, Sydney NSW 2001 telephone + 612 9375 4444 » facsimile + 612 9231 6104 www.qbe.com 22 March 2016 The Manager Market Announcements Office ASX Limited Level 4 Exchange Centre 20 Bridge Stree
Slide 2: QBE Insurance Group Credit Investor Update March-April 2016
QBE Insurance Group Credit Investor Update March - April 2016 All figures in US$ unless otherwise stated
Slide 3: Presenter
Presenter Paul Byrne Group Chief Capital Officer Responsible for: • Global Treasury • Group Capital Management & • Ratings Agencies 2 Credit Investor Update
Slide 4: Group Organisation & Overview
Group Organisation & Overview 3 Credit Investor Update Presentation
Slide 5: Company overview
Company overview • QBE is one of the world’s top 20 insurance and reinsurance companies, with operations in 37 countries in all the major insurance markets • Market capitalisation ~A$15 billion • Net assets ~$11 billion(1) • QBE is regulated on a consolidated basis by APRA • Current credit ratings f
Slide 6: Company overview (cont'd)
Company overview (cont’d) QBE is split into different divisions as follows: • North American Operations - general insurance and reinsurance • European Operations - general insurance principally in the UK, mainland Europe and Canada. Our Lloyd’s syndicate writes both general insurance and worldwide r
Slide 7: FY15 Earnings
FY 15 Earnings 6 Credit Investor Update
Slide 8: 2015 financial results summary
2015 financial results summary For the year ended 31 December 2015 2014(1) 2015(2) Change GWP $M 16,332 14,782 10% NEP $M 14,084 12,213 13% Underwriting profit $M 547 731 34% COR % 96.1 94.0 2.1ppt Insurance profit $M 1,074 1,099 2% Insurance profit to NEP % 7.6 9.0 1.4ppt Profit before tax $M 931 9
Slide 9: 2015 achievements – stability and predictability
2015 achievements – stability and predictability • Executed on our plans and met our financial targets Underwriting • Best COR since 2010 excellence • All divisions achieved an underwriting profit • A return to profitable growth • Engineered a significant turnaround in our North American business •
Slide 10: 2015 achievements – quality balance sheet
2015 achievements – quality balance sheet • Restructured and strengthened balance sheet Financial • Improved capital strength recognised by rating agencies strength • S&P capital comfortably AA equivalent (currently A+ stable) • Large risk and catastrophe claims < 9% of NEP Reinsurance • Significant
Slide 11: 2015 divisional results - adjusted
2015 divisional results - adjusted Australia & North New Emerging 2015 America Europe Zealand Markets Equator Re (1) Group GWP ($M) 4,961 4,386 3,787 1,728 1,007 14,782 GEP ($M) 4,930 4,338 3,753 1,687 994 14,606 NEP ($M) 3,666 3,454 3,282 1,436 367 12,213 Net claims ratio (%) 63.4 53.4 62.6 54.8 80
Slide 12: Delivering on our promises
Delivering on our promises Central estimate stability(1) Returned North America and Emerging GWP 2015 versus 2014(2) Markets to underwriting profit(2) 2014 2015 North American ($38M) Operations underwriting profit $30M ($34M) Emerging Markets Operations underwriting profit $11M (1) Refers to statuto
Slide 13: FY15 Balance Sheet
FY 15 Balance Sheet 12 Credit Investor Update
Slide 14: Financial strength and flexibility
Financial strength and flexibility As at 31 December 2014 2015 Summary balance sheet $M $M Reserving • Favourable prior accident year claims Investments and cash 28,583 26,708 development of $147M on an adjusted basis Trade and other receivables 4,748 4,950 ($137M on a statutory basis) • $38M favour
Slide 15: Investment performance by asset class
Investment performance by asset class 14 Credit Investor Update
Slide 16: Cash remittances
Cash remittances 2014 2015 • Final dividend 30 Australian cents per share Group head office cash flow at 31 Dec $M $M • FY15 dividend of 50 Australian cents per share, Opening head office cash balance 164 369 representing a 56% payout ratio on cash profit Total divisional dividend remittances 770 71
Slide 17: Financial strength
Financial strength (1) Indicative APRA PCA calculation at 31 December 2014 updated to be consistent with subsequently finalised APRA returns (2) Indicative APRA PCA multiple (3) Calculated as the ratio of net tangible assets to net earned premium 16 Credit Investor Update
Slide 18: Borrowings
Borrowings Borrowings profile % 2014 2015 Subordinated debt 61 74 Borrowings of $3,529M at 31 Dec 2015 • Weighted average cost of borrowings unchanged at Senior debt 30 17 6.2% Capital securities 9 9 Debt to equity ratio within benchmark range of Repayment profile % 2014 2015 25% - 35% Less than 1 y
Slide 19: APRA PCA calculation
APRA PCA calculation $M 2014 2015 Ordinary share capital and reserves 11,082 10,560 Net surplus relating to insurance liabilities 1,199 711 Regulatory adjustments to Common Equity Tier 1 Capital (5,029) (4,424) Common Equity Tier 1 Capital 7,252 6,847 Additional Tier 1 Capital - Capital securities 2
Slide 20: 2016 Outlook
2016 Outlook 19 Credit Investor Update
Slide 21: Our priorities for 2016
Our priorities for 2016 Performance • Maintain underwriting discipline as challenging markets continue management • Meet or beat our performance targets North American • Further improve profitability in North America Operations • Medium term COR target of 95% or better Cost • $150M(1) of cost saving
Slide 22: 2016 targets
2016 targets Gross written $14.2 – $14.6Bn (1)(2) premium ($14.6 - $15.0Bn at constant currency) Net earned $11.6 – $12.0Bn (1) premium ($11.9 - $12.3Bn at constant currency) Combined operating ratio 94% - 95% (3)(4) Insurance profit margin 8.5% - 10% (3)(4)(5) (1) Premium targets are based on assum
Slide 23: 2016 premium outlook
2016 premium outlook 2015 actual 2016 target 2015 actual 2016 target GWP GWP(1) NEP NEP(1) North America 5.0 4.8 3.7 3.6 Europe 4.4 4.3 3.5 3.4 Australia & New Zealand 3.8 3.5 3.3 3.1 Emerging Markets 1.7 1.8 1.4 1.4 Equator Re 1.0 - 0.4 0.3 Equator Re elimination (1.0) - - - Corporate adjustments (
Slide 24: Questions & Answers
Questions & Answers 23 Credit Investor Update
Slide 25: Contacts
Contacts Paul Byrne Group Chief Capital Officer Telephone: +61 2 9375 4226 Email: [email protected] Ernest Claassen Deputy Global Treasurer - Markets Telephone: + 61 2 9375 4079 Email: [email protected] 24 Credit Investor Update
Slide 26: Important disclaimer
Important disclaimer The information in this presentation provides general information about QBE, including an overview of the results for the year ended 31 December 205. This presentation should be read in conjunction with all information which QBE has lodged with the Australian Securities Exchange
Slide 27: Appendices
Appendices 26 Credit Investor Update
Slide 28: Appendix 1: FY15 Earnings
Appendix 1: FY 15 Earnings 27 Credit Investor Update
Slide 29: 2015 adjusted profit reconciliation
2015 adjusted profit reconciliation ADJUSTED REPORTED 31 DEC 31 DEC 2015 2015 2015 2015 2014 ARGENTINE DISPOSALS WORKERS' ($M) COMP ($M) ($M) Gross written premium 14,782 179 131 15,092 16,332 Net earned premium 12,213 178 (77) 12,314 14,084 Underwriting result 731 (61) (41) 629 547 Net investment i
Slide 30: North America
North America 2014 2015 • First underwriting profit since 2011 Gross written premium $M 5,310 4,961 • Premium rate increase of 0.4% on average, reflecting increased market competition, particularly in property Gross earned premium $M 5,457 4,930 • Excluding $383M of M&LS GWP, top-line fell due to: N
Slide 31: Europe
Europe 2014(1) 2015 • Premium rates down 3.2% on average as market Gross written premium $M 4,526 4,386 pressures continue Gross earned premium $M • GWP up 5% on a constant currency basis, despite 4,805 4,338 competitive market headwinds Net earned premium $M 3,929 3,454 • NEP down 5% on a constant
Slide 32: Australia & New Zealand
Australia & New Zealand 2014 2015 • Premium rates fell by ~2.4%, with a decrease of 2% Gross written premium $M 4,392 3,787 in Australia and 7.3% in New Zealand • GWP down 14% in USD but up 3% on a constant Gross earned premium $M 4,386 3,753 currency basis • Traditional commercial portfolio grew by
Slide 33: Asia Pacific
Asia Pacific(1) 2014 2015 Gross written premium $M 785 759 • Heightened competition across the region; premium rate reductions averaged 3.4% Gross earned premium $M 720 737 • GWP up 3% on a constant currency basis, with double-digit growth in Indonesia, Macau, Malaysia, Philippines and Vietnam Net e
Slide 34: Latin America
Latin America(1) (2)2014 2015 • GWP and NEP grew by 13% and 12% Gross written premium $M 1,394 969 respectively on a constant currency basis • Focus shifted to corporate, specialty and SME Gross earned premium $M 1,222 950 post sale of Argentine workers’ compensation • Colombian SOAT remediation con
Slide 35: Equator Re
Equator Re 2014 2015 • GWP up 57% due to Equator Re providing higher Gross written premium $M 642 1,007 limits on divisional treaties with Equator Re now purchasing the Group’s per risk and catastrophe treaties for its own account Gross earned premium $M 764 994 • NEP down due to reduction in underl
Slide 36: 2015 expense ratio versus 2014
2015 expense ratio versus 2014 35 Credit Investor Update
Slide 37: Financial performance – underwriting expenses
Financial performance – underwriting expenses 36 Credit Investor Update
Slide 38: 2015 statutory claims ratio analysis
2015 statutory claims ratio analysis 2014 2015 1H14 (1)2H14 (1)FY14 1H15 2H15 FY15 NEP $M 6,947 7,499 14,446 6,229 6,085 12,314 Attritional % (2)49.8 (2)51.6 (2)50.7 54.2 49.5 51.9 Large individual risk and catastrophes % (3)9.9 (3)12.3 (3)11.2 8.9 8.5 8.7 Claims settlement costs % 2.5 2.9 2.7 2.8 3
Slide 39: 2015 adjusted attritional claims ratio analysis
2015 adjusted attritional claims ratio analysis 2014 2015 NEP Attritional NEP Attritional US$M % US$M % Rest of world 12,701 47.0 11,571 48.1 Group large individual & catastrophe risk aggregate (1) - - (289) - US multi-peril crop insurance (2) 965 93.6 556 69.0 Lender-placed insurance (3) 544 43.6 3
Slide 40: 10 year annual history
10 year annual history OPERATING CASH PROFIT PROFIT (LOSS) (BEFORE GROSS NET COMBINED AFTER TAX AND AMORTISATION WRITTEN EARNED UNDERWRITING OPERATING MINORITIES OF INTANGIBLES TOTAL S/H YEAR ENDED PREMIUM PREMIUM PROFIT RATIO (AASB 1023) AND GOODWILL) ASSETS FUNDS 31 DEC $M $M $M % $M $M $M $M 2004
Slide 41: Appendix 2: FY15 Balance Sheet
Appendix 2: FY 15 Balance Sheet 40 Credit Investor Update
Slide 42: Currency mix of investments
Currency mix of investments Currency breakdown by market value of total investments and cash • Currency mix matches policyholder funds • Diverse currency exposure creating a natural hedge against currency fluctuation Other, 10% (FY14: 10%) EUR, 8% (FY14: 7%) USD, 31% (FY14: 32%) GBP, 21% (FY14: 19%)
Slide 43: Borrowings maturity
Borrowings maturity $M 1st call date maturity ladder 1,600 1,479 1,400 1,200 1,000 800 695 599 600 400 300 300 145 200 11 - 2016 2017 2018 2019 2020 2021 2022 2023 2024 2025 $M Contractual maturity ladder 1,600 1,479 1,400 1,200 1,000 800 695 599 600 400 300 300 145 200 11 - 2018 2040 2041 2044 2045
Slide 44: APRA capital requirements
APRA capital requirements • Institutions must have in place a documented Internal Capital Adequacy Assessment process ‘ICAAP’ APRA Prudential • CET1 must be > 60% of PCA Standard – Capital • Tier 1 must be > 80% of PCA Adequacy • Compulsory annual disclosure of CET1, Additional Tier 1 and Tier 2 cap
Slide 45: Australian insurance regulatory requirement
Australian insurance regulatory requirement Capital Base / Tiers of Capital Point of Non-Viability Loss Absorption All Additional Tier 1 and Tier 2 must include loss Common Additional absorption provisions (via conversion or write-down) Tier 2 Equity Tier 1 Tier 1 upon a non-viability trigger even
Slide 46: Appendix 3: Rates
Appendix 3: Rates 45 Credit Investor Update
Slide 47: FX rates versus US$
FX rates versus US$ 2016 December 2014 June 2015 December 2015 forecast Closing rate Average rate Closing rate Average rate Closing rate Average rate Average rate AUD 0.82 0.90 0.77 0.78 0.73 0.75 0.70 GBP 1.56 1.65 1.57 1.53 1.47 1.53 1.44 EUR 1.21 1.32 1.11 1.12 1.09 1.11 1.09 ARS 0.12 0.12 0.11 0
Slide 48: 2015 movement in weighted average discount rates
2015 movement in weighted average discount rates Weighted average risk-free discount rates on outstanding claims % Currency 31 Dec 2014 30 June 2015 31 Dec 2015 Australian dollar 2.46 2.43 2.37 US dollar 1.33 1.59 1.80 Sterling 1.30 1.53 1.47 Euro 0.58 0.75 0.59 Group weighted average (ex Argentine
Slide 49: Appendix 4: Other
Appendix 4: Other 48 Credit Investor Update
Slide 50: Overview of QBE entities
Overview of QBE entities QBE Division QBE Insurance Group Limited Australia Emerging Markets Net assets $10,560M(1) North America Equator Europe QBE Insurance Holdings QBE Life QBE QBE Asia Investments QBE European QBE Emerging QBE AAP Holdings Pacific N America Operations Plc Markets Holdings Holdi
Slide 51: Global regulatory environment
Global regulatory environment QBE is directly regulated in over 40 jurisdictions, including 30 with differing capital requirements and is regulated on a Group basis by APRA Locally authorised Principle office (underwriting) Licensed (inc Lloyd’s) Local representative office Underwriting may be possi
Slide 52: Glossary of common terms
Glossary of common terms • APRA: Australian Prudential & Regulatory Authority • COR: Combined operating ratio • DRP: Dividend reinvestment plan • EPS: Earning per share • GEP: Gross earned premium • GLRC: Group large risk and catastrophe programme • GSSC: Global Shared Service Centre • GWP: Gross wr
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