QBE Insurance Group Limited · ASX:QBE
QBE Insurance — Shareholder Meeting (April 2011)
70 slides from QBE Insurance's shareholder meeting presentation, Apr 5, 2011
Slide 1: ASX cover letter: 2011 AGM addresses and slides
QBE Insurance Group Limited ABN 28 008 485 014 Head Office 82 Pitt Street SYDNEY NSW 2000 Australia Postal Address Box 82 GPO SYDNEY 2001 5 April 2011 Telephone: +61 (2) 9375 4444 Facsimile: +61 (2) 9231 6104 DX 10171, Sydney Stock Exchange The Manager Company Announcements ASX Limited Level 6 Excha
Slide 2: Chairman's Address 2011 AGM
CHAIRMAN’S ADDRESS 2011 AGM Ladies and Gentlemen: This morning my address is in two parts. In the first part, I will talk about three corporate issues of importance to shareholders. These are: * an overview of the 2010 results, * QBE’s strong financial position and the outlook for this year and beyo
Slide 3: Chairman's address: US dollar reporting and 2010 results
We adopted the US dollar as our presentation currency to provide a more meaningful picture of the Group’s reported earnings. With QBE’s operations spanning 49 countries, around 75% of gross written premium is derived in currencies other than Australian dollars, and around 55% of gross written premiu
Slide 4: Chairman's address: investment yields
We would like to. However, with significant operations in the US, the UK and Europe, regulators in these jurisdictions require QBE to match its policyholder obligations in each country with assets in those currencies. As a result 33% of our investments must be held in US dollars, 15% in sterling, 9%
Slide 5: Chairman's address: share performance and financial position
While these external factors did not work in our favour recently, I want to emphasise that QBE is well positioned to benefit when conditions - particularly the interest rate cycle - return to more normal levels. During this difficult period we have outperformed most of our global competitors, and we
Slide 6: Chairman's address: outlook for 2011
In summary, the quality and extent of QBE’s financial strength is such that the Group is well placed to pursue opportunities likely to emerge from current global economic conditions, as investment markets improve. Let me turn now to the outlook for 2011. We have completed the first quarter and I am
Slide 7: Chairman's address: remuneration
In 2010, QBE’s shareholder wealth fell by 24% after reflecting dividends. By contrast, there was a 60% decrease in the short-term cash incentive paid to the CEO and a 21% decrease in his total remuneration. I believe this shows good alignment of executive and shareholders interests and appropriate r
Slide 8: Chairman's address: flood mapping and insurance
Without proper flood mapping, property development has been allowed in flood-prone areas. It means that many people are unable to obtain flood insurance. For some, the cost of their insurance is unnecessarily high because of the uncertainty of their flood exposure. For others, the existence of diffe
Slide 9: Chairman's address: 125th anniversary and QBE Foundation
To mark our 125th anniversary year, I am very pleased to announce the launch of the QBE Foundation, a corporate responsibility initiative which will formalise QBE’s long and strong record of corporate giving into a structured, Group wide approach. The Foundation will be the avenue to share QBE’s cul
Slide 10: CEO address for the 2011 AGM
CEO ADDRESS FOR THE 2011 ANNUAL GENERAL MEETING Ladies and Gentlemen, As the Chairman has already mentioned, 2010 was another strong year for growth in premium income and underwriting profits but disappointing in terms of lower yields on our investments and our net profit after tax. The technical un
Slide 11: CEO address: premium growth and acquisitions
Gross written premium and net earned premium were slightly ahead of our targets. The combined operating ratio was higher than our target due to the increase in large individual risk and catastrophe claims and the insurance profit margin was below our target range due to the lower interest yields. QB
Slide 12: CEO address: acquisitions and balance sheet
The 2010 acquisitions, together with the two acquisitions announced in 2011 to date, are expected to add close to US$3.4 billion of additional annualised gross written premium. In addition to the acquisitions, we have also announced a unique worldwide reinsurance programme and several transformation
Slide 13: CEO address: the Americas
We have come a long way since we set up our office in New York in 1991. After years of learning the US market, we have completed a number of large acquisitions in the past four years. Since year end, we have announced the initial 10 year distribution agreement with the Bank of America and portfolio
Slide 14: CEO address: Europe and Australia
We are on track with our major transformational project in the UK to consolidate systems and improve efficiencies. We expect to see a 2% improvement in the combined operating ratio in 2012 from the reduction in costs of handling claims and expenses. We continue to make further changes on some of our
Slide 15: CEO address: Asia Pacific and Equator Re
Gross written premium is expected to increase by 11% to $0.7 billion in 2011. Growth will mainly come from our successful initiatives to build stronger relationships with large international brokers. Our captive reinsurer, Equator Reinsurances Limited, is led by Des Fogarty, President. Equator Re pr
Slide 16: CEO address: investments and 2011 expectations
The increased exposure is mainly floating rate notes in AA rated banks. We expect this and other initiatives will improve the gross investment yield in 2011 to between 3.3% and 3.5%. The substantial increase in capital charges to around 40% for holding equities imposed by rating agencies and propose
Slide 17: CEO address: 2011 targets
Our target combined operating ratio is subject to large individual risk and catastrophe claims not exceeding these substantial allowances. Large individual risk and catastrophe claims to date are approximately $650 million or 4.3% of targeted full year net earned premium compared with $390 million o
Slide 18: CEO address: closing remarks
We indicated to the market last year that 2010 was going to be a difficult year, primarily because of the low interest yields and the rising Australian dollar. We have achieved significant growth in underwriting profitability but of course not bottom line profitability, which, we appreciate, means t
Slide 19: QBE Insurance Group 2011 Annual General Meeting
QBE INSURANCE GROUP 2011 annual general meeting 5 April 2011 All amounts in US dollars unless otherwise stated.
Slide 20: Belinda Hutchinson – Chairman
Belinda Hutchinson – Chairman 1 2011 AGM
Slide 21: Chairman's address: topics to be covered
Chairman’s address: topics to be covered Overview of the 2010 results QBE’s strong financial position and outlook QBE’s remuneration report and executive remuneration Key initiatives required by governments and the insurance industry to address flood impacts QBE’s 125th anniversary 2 2011 AGM
Slide 22: Results year ended 31 December 2010
Results year ended 31 December 2010 Results presented in US dollars to provide a more meaningful picture of the company’s reported earnings Around 75% of GWP* is derived in currencies other than A$ including 55% of GWP* written in US dollars * Including Balboa 3 2011 AGM
Slide 23: Results year ended 31 December 2010
Results year ended 31 December 2010 2010 was a challenging year for the global insurance industry: - soft pricing conditions in most markets - higher frequency of catastrophes - continued low investment yields Underwriting profit up 19% to US$1.17Bn (2009: US$981M) Strong COR of 89.7%, outperforming
Slide 24: Net profit after tax down 17% to US$1.28Bn
Net profit after tax down 17% to US$1.28Bn due to lower investment yields and increase in catastrophe claims Significant items impacting reported profit 2010 2009 before tax US$M US$M Lower cash and FI yields (1.3% on US$25Bn) (325) - Increase in large risk and catastrophe claims (381) - GFC credit
Slide 25: Investment performance
Investment performance QBE currently manages around US$26Bn in investment assets Conservative strategy of investing in high quality, mostly cash and fixed interest securities with duration of around 6 months QBE must match its policyholder obligations in each country with assets in those currencies
Slide 26: Returns to shareholders
Returns to shareholders Overall return on average shareholders’ funds was 13.1% (2009: 18.0%) Basic earnings per share reduced to 123 cents per share (2009: 152 cents per share) Directors declared a final dividend of 66 Australian cents per share Total dividend per share for the year of 128 Australi
Slide 27: QBE share price performance
QBE share price performance An investment in QBE recorded a decrease in 2010 of 24.3%. Over the longer term, QBE shares have generated a compound average annual growth rate of 11.2% over 10 years and 16.1% over 20 years and outperformed the Australian All Ordinaries Accumulation index. 8 2011 AGM
Slide 28: Strong balance sheet and outlook
Strong balance sheet and outlook Capital management strategy designed to meet requirements of all external stakeholders and to ensure returns to shareholders are maximised $2.2Bn capital in excess of regulatory minimum requirement as at 31 December 2010 Regulatory capital is above our target of >1.5
Slide 29: Balance sheet flexibility
Balance sheet flexibility Total borrowings at end of 2010 slightly over US$3.2Bn (2009: US$2.7Bn) Ratio of borrowings to shareholders’ equity was 31.5% (2009: 29.1%) Lower weighted average annual cost of borrowings 5.3% (2009: 6.8%) Around 74% of borrowings repayable between 1 to 5 years Flexibility
Slide 30: 2011 outlook: subject to the usual caveats
2011 outlook: subject to the usual caveats Targeted full year insurance profit margin of 15% - 18% Expect insurance profit before tax to grow by at least 30% in 2011 We anticipate maintaining our dividend in 2011 We remain confident about the medium and long-term outlook 11 2011 AGM
Slide 31: Remuneration report
Remuneration report We have responded to shareholders’ feedback on prior Remuneration Reports Incentives targeted to attract, motivate and retain quality employees Alignment of annual incentive awards with the creation of shareholder wealth, both in the short and long term Substantially reduced shor
Slide 32: Remuneration report
Remuneration report There was a 60% decrease in the short-term cash incentive paid to the CEO and a 21% decrease in his total remuneration Our minimum return on equity criteria for remuneration purposes are far more stringent than most of our peers Weighted average return on equity over the past 5 y
Slide 33: External issues: increase in catastrophe claims in 2011
External issues: increase in catastrophe claims in 2011 An earthquake and tsunami in Japan, the Christchurch earthquake and the Australian storms have resulted in a tragic loss of life and significant property damage Issues relating to flooding in Australia are of concern to the insurance industry,
Slide 34: 125 year anniversary
125 year anniversary In October 2011, QBE will celebrate 125 years since its foundation in North Queensland 15 2011 AGM
Slide 35: QBE Foundation
QBE Foundation A corporate responsibility initiative which will formalise QBE’s long and strong record of corporate giving into a structured, Group wide approach Many QBE employees around the world support various charities in their communities through personal funding and fundraising and volunteeri
Slide 36: Frank O'Halloran – Chief Executive Officer
Frank O’Halloran – Chief Executive Officer 17 2011 AGM
Slide 37: Historical combined operating ratios by division
Historical combined operating ratios by division: a track record of success COR 2010 2009 2008 2007 2006 2005 % % % % % % Australian operations 89.2 89.0 90.6 82.9 82.9 83.6 Asia Pacific 86.7 88.1 82.9 82.7 82.7 82.3 European operations 90.5 91.3 85.6 84.8 86.1 92.1 the Americas 89.7 89.7 93.6 93.6
Slide 38: Market leading underwriting results and return on equity
Market leading underwriting results and return on equity Average combined operating ratio Average return on equity Combined Operating Ratio Return on Equity Weighted Weighted Rank Company 2006 2007 2008 2009 2010 Average Rank Company 2006 2007 2008 2009 2010 Average % % % % % % % % % % % % 1 Partner
Slide 39: Summary of 2010 financial results
Summary of 2010 financial results For the year ended 31 December 2010 2009 % change GWP US$M 13,629 11,239 21 NEP US$M 11,362 9,446 20 Underwriting profit US$M 1,168 981 19 COR % 89.7 89.6 - Insurance profit US$M 1,703 1,609 6 Insurance profit to NEP % 15.0 17.0 - Investment income (including FX gai
Slide 40: Acquisition strategy: history of growth and profit
Acquisition strategy: history of growth and profit 48 acquisitions GWP U/W NEP COR profit Ins. EPS on announced between US$M US$M % US$M profit ins. profit 2005 and 2010 US$M US cents including: 2005 FY 7,171 5,630 89.1 616 982 128 - Americas: Colombia, National Farmers’ Union, One-Beacon, Praetoria
Slide 41: Acquisitions: seven acquisitions converted in 2010
Acquisitions: converted seven acquisitions in 2010 meeting criteria including EPS accretion in year one Cost Additional US$M annualised 2010 acquisitions GWP US$M NAU Country – US multi peril crop insurer 573 900 CNA Argentina – workers’ compensation insurer 66 135 Secura NV – Belgian based speciali
Slide 42: Acquisitions and profit generating initiatives
Acquisitions and profit generating initiatives 2009 and 2010 acquisitions produced insurance profits before tax better than expected Acquisitions in 2010 and 2011 to date will add close to US$3.4Bn of additional annualised GWP We also announced our unique worldwide reinsurance programme and transfor
Slide 43: Strong balance sheet
Strong balance sheet Quality, short duration, liquid investment portfolio Reduced equity exposure – now 2% of the total portfolio Stable quality receivables and insurance recoveries with highly rated reinsurers Total insurance liabilities are at a probability of adequacy in excess of 95% Our ratio o
Slide 44: John Rumpler – President & CEO, QBE the Americas
John Rumpler – President & CEO, QBE the Americas 25 2011 AGM
Slide 45: the Americas
the Americas 2010 2009 Gross written premium US$M 5,165 4,001 Gross earned premium US$M 5,117 3,939 Net earned premium US$M 3,009 2,527 Claims ratio % 61.6 61.3 Commission ratio % 11.5 14.1 Expense ratio % 16.6 14.3 Combined operating ratio % 89.7 89.7 Insurance profit margin % 13.7 14.6 For 2010, o
Slide 46: Steven Burns – CEO, QBE Europe
Steven Burns – CEO, QBE Europe 27 2011 AGM
Slide 47: European operations
European operations 2010 2009 Gross written premium US$M 4,156 3,961 Gross earned premium US$M 4,008 3,892 Net earned premium US$M 2,593 2,534 Claims ratio % 57.7 61.6 Commission ratio % 16.9 16.6 Expense ratio % 15.9 13.1 Combined operating ratio % 90.5 91.3 Insurance profit margin % 14.5 15.7 For
Slide 48: Vince McLenaghan – CEO, Australia Asia Pacific
Vince McLenaghan – CEO, Australia Asia Pacific 29 2011 AGM
Slide 49: Australian operations
Australian operations 2010 2009 Gross written premium US$M 3,707 2,728 Gross earned premium US$M 3,720 2,588 Net earned premium US$M 3,033 2,138 Claims ratio % 60.9 60.7 Commission ratio % 10.4 11.2 Expense ratio % 17.9 17.1 Combined operating ratio % 89.2 89.0 Insurance profit margin % 17.0 21.6 Fo
Slide 50: Mike Goodwin – CEO, QBE Asia Pacific
Mike Goodwin – CEO, QBE Asia Pacific 31 2011 AGM
Slide 51: Asia Pacific operations
Asia Pacific operations 2010 2009 Gross written premium US$M 601 549 Gross earned premium US$M 587 524 Net earned premium US$M 420 372 Claims ratio % 45.7 46.5 Commission ratio % 20.0 20.7 Expense ratio % 21.0 20.9 Combined operating ratio % 86.7 88.1 Insurance profit margin % 18.3 14.8 Outstanding
Slide 52: Des Fogarty – President, Equator Re
Des Fogarty – President, Equator Re 33 2011 AGM
Slide 53: Equator Re – captive reinsurer
Equator Re – captive reinsurer 2010 2009 Gross written premium US$M 2,479 1,994 Gross earned premium US$M 2,363 1,918 Net earned premium US$M 2,307 1,875 Claims ratio % 61.4 59.4 Commission ratio % 24.9 23.5 Expense ratio % 3.8 5.3 Combined operating ratio % 90.1 88.2 Insurance profit margin % 14.0
Slide 54: Gary Brader – Chief investment officer
Gary Brader – Chief investment officer 35 2011 AGM
Slide 55: Investments now US$26Bn in over 250 portfolios
Investments now US$26Bn held in over 250 portfolios in 49 countries Insurance liabilities are matched with investments in the same currency to mitigate FX exposures and comply with local regulations – around 60% held in US dollars, sterling and euros where prevailing interest rates are low Gross yie
Slide 56: Expectations for 2011
Expectations for 2011 QBE’s businesses and balance sheet in great shape with excess capital and expected retained profits to support more than 10% per annum growth in premium income Majority of products and businesses exceed our 15% minimum return on allocated capital – remedial action in place for
Slide 57: Expectations for 2011
Expectations for 2011 Target for 2011 is a COR of 87% to 90% – includes an allowance of 9.0% of NEP or $1.35Bn for large individual risk and catastrophe claims and further aggregate reinsurance protections of US$350M Large individual risk and catastrophe claims to date are approximately US$650M or 4
Slide 58: Expectations for 2011
Expectations for 2011 Strong positive impacts on QBE profitability and the PoA of insurance liabilities from the inevitable rise in interest rates Weighted average yields for our investment portfolios if all invested in AAA cash at end 2010 was 1.9% compared with 4.8% in 2007 A 1% overall increase i
Slide 59: QBE's position in the market
QBE’s position in the market In the top 20 insurance and reinsurance businesses around the world as measured by NEP In the top five in terms of underwriting profitability and ROE Strong culture of leadership, business acumen and integrity QBE culture is supported by a successful programme developed
Slide 60: Thank you to QBE Group staff worldwide
Thank you to QBE Group staff worldwide Over 14,500 staff in 49 countries the Americas 6,088 Australia 4,337 Europe 2,759 Asia Pacific 1,307 Group 88 Investments 70 Equator Re 21 41 2011 AGM
Slide 61: QBE Group head office management
QBE Group head office management 42 2011 AGM
Slide 62: 2011 AGM
43 2011 AGM ®
Slide 63: Results of proxy voting
Results of proxy voting A total of 6,390 proxy forms were received – the respective votes have been accumulated and summarised by Link Market Services Limited as set out below: Resolution For Open Against Abstain 2 567,651,508 4,514,701 8,972,326 1,433,861 3 555,279,830 2,820,973 20,220,243 2,583,90
Slide 64: Item 1: annual financial report
Item 1: To receive and consider the annual financial report and the reports of the directors and of the auditors of the Company for the year ended 31 December 2010 45 2011 AGM
Slide 65: Item 2: adopt the remuneration report
Item 2: To adopt the remuneration report 46 2011 AGM
Slide 66: Item 3: conditional rights for the CEO
Item 3: To approve the grant of conditional rights over the Company’s ordinary shares under the 2010 QBE Incentive Scheme and 2010 Long Term Incentive plan to the Chief Executive Officer 47 2011 AGM
Slide 67: CEO conditional rights
CEO conditional rights The CEO’s 2010 incentives are based on the achievement of a 15.9% ROE using QBE’s seven year spread basis of accounting This award reflects QBE’s performance at the lower end of the target range (minimum ROE of 14% and maximum ROE of 21%) Conditional A$ rights number Short ter
Slide 68: Item 4: QBE shares under incentive schemes
Item 4: Approval to provide QBE shares under the QBE Incentive Scheme and Long Term Incentive Scheme 49 2011 AGM
Slide 69: Item 5: re-elect Mr C L A Irby as a director
Item 5: To re-elect Mr C L A Irby as a director 50 2011 AGM
Slide 70: QBE Insurance Group www.qbe.com
QBE INSURANCE GROUP www.qbe.com 2011 AGM
QBE Insurance Group — Shareholder Meeting (April 2011) on 6ix