presented by frank o’halloran ceo qbe group 23 february 2006 media/qbe... · presented by frank...

Presented by Frank O’HalloranCEO QBE Group23 February 2006

All amounts in Australian dollars unless otherwise stated.

Comparative numbers for the year ended 31 December 2004 have been restated under Australian equivalents to International Financial Reporting Standards (AIFRS).

2

HighlightsHighlightsyear ended 31 December 2005year ended 31 December 2005

• Record net profit after tax up 27% to $1,091 million (2004: $857 million)• Net profit before tax up 37% to $1,523 million (2004: $1,115 million)• Insurance profit up 39% to $1,288 million (2004: $928 million) or 17.4% of net

earned premium (2004: 13.7%)• Results achieved despite worst year on record for catastrophe losses for the

insurance industry• Cash flow from operations was again very strong at $1,987 million (2004: $2,110

million) - down on last year due to settlement of catastrophe claims• Strong return on equity at 23.9% of average shareholders’ funds (2004: 24.5%)• Earnings per share: 2005 2004

- basic*- up 16% 142.5 ¢ 123.1¢- diluted** - up 20% 130.8 ¢ 109.1¢

* based on shares notified to the Australian Stock Exchange** assumes all hybrid securities are dilutive

3


• Gross written premium up 7% to $9,408 million• Gross written premium growth up 9% adjusted for foreign exchange

movements• Acquisitions in 2005 added around $700 million of annualised gross written

premium • Net earned premium up 9% to $7,386 million• Reinsurance costs decreased from 21% to 19% of gross earned premium

despite additional costs incurred to reinstate protections• Combined operating ratio (COR) improved from 91.2% to 89.1%• All three insurance divisions achieved improved underwriting profits with

CORs ranging from 83.3% to 92.9%• 37 of 41 countries achieved underwriting profits

4


• Gross claims ratio increased from 62.2% to 73.5% mainly as a result of higher catastrophe losses during 2005

• Net claims ratio reduced from 61.3% to 59.9% reflecting the benefit of our reinsurance protections

• Net claims are after increasing risk margins in outstanding claims by 17% to $1,243 million

• Gross and net claims from large catastrophes were $2,080 million and $515 million respectively (2004: $835 million and $320 million) - within the allowances in our 2005 business plan

• Probability of adequacy of outstanding claims of 94% (2004: 94%)• Increase in general provision for doubtful reinsurance recoveries of $76 million

following lower ratings for some reinsurers

* Large catastrophe losses are defined as those with a net cost to QBE in excess of $10 million

5

Insured catastrophe lossesInsured catastrophe lossesOur conservative approach to risk management has again worked for QBE. 2005 was one of the most expensive in history for catastrophe claims.

Total market insured losses* US$ billion

1992 includes hurricane Andrew

* source: Sigma-Swiss Re

1999 frequency of large storms includes Lothar and Martin winter storms

2001 includes September 11 terrorist attacks

2004 includes US hurricanes and Asian tsunami

2005 includes US hurricanes

38

36

37

49

80

6


• Risk profile further reduced with the maximum event retention from our largest realistic disaster scenario at 4.0% of net earned premium (2004: 4.3%)

• Commission ratio decreased from 17.5% to 16.9%, reflecting a change in mix of business and benefits of acquiring Australian underwriting agencies in 2004

• Expense ratio decreased from 12.4% to 12.3% as a result of synergies from acquisitions, offset by higher staff incentives for improved profitability, additional general provision for doubtful debts and one-off costs relating to the restructure of our Australian and European operations

• Bad debt write-offs of $11 million (2004: $8 million) continue to be very low

7

Highlights Highlights year ended 31 December 2005year ended 31 December 2005

• Gross investment income up 32% to $843 million (2004: $637 million)• Gross investment yield before borrowing costs and expenses increased to

5.2% (2004: 4.8%)• Investment income includes realised and unrealised gains on equities of $129

million (2004: gains of $101 million) • Net investment income increased 38% to $718 million with a net yield of 5.0%

(2004: $519 million and 4.4%)• Income tax expense increased from 23% of profit before tax to 28% as a result

of higher profits in Australia, the US and the UK• Locked in a substantial portion of our equity gains in August and September

through sale of equities and use of derivatives

8

A$ in 2005A$ in 2005

0.5

0.55

0.6

0.65

0.7

0.75

0.8

0.85

Jan-03 Mar-03 Jun-03 Dec-03 Mar-04 Jun-04 Dec-04 Mar-05 Sep-05

Changes in major currencies - 2005

2005 closing rate:US$ + 6.7%£ sterling (- 4.3%)€ euro (- 6.9%)

Dec-05

% in parentheses indicate extent of stronger A$

• Gross written premium growth reduced by2% due to impact of fx

• FX management includes $6.8 billion in exchange forwards to match currencies

• Net income statement and FCTR fx lossof $1 million in 2005

2005 cumulative average rate:US$ (- 3.0%)£ sterling (- 3.7%)€ euro (- 3.1%)

9

Shareholder returnsShareholder returnsyear ended 31 December 2005year ended 31 December 2005

• Final dividend 38.0¢ per share, 50% franked (2004: 30.0¢, 50% franked)

– Ex dividend date 6 March 2006– Record date 10 March 2006– Payment date 29 March 2006

• Total dividend payout $556 million, up 42% from 2004• Shares on issue* increased to 794 million (2004 : 745 million) of which 28

million shares were due to conversion of hybrid securities• Dividend reinvestment plans continue but discount rate of 2.5% suspended

as advised in August 2005

* notified to Australian Stock Exchange

10

Dividend performanceDividend performanceyear ended 31 December 2005year ended 31 December 2005

080

160240320400480560640

1996 1998 2000 2002 2004

Payo

ut $

M

Dividend - cents per shareFinalInterim

26.520.8 24.0 32.5 31.0 30.0

35.042.0

54.0

71.0

Compound annual average growth in dividend payout over 10 years was 13%

2005

11

Worldwide operationsWorldwide operationsHALF YEAR FULL YEAR

Jun 2005 Dec 2005 Dec 2005 Dec 2004

Gross written premium $M 5,123 4,285 9,408 8,766Gross earned premium $M 4,331 4,840 9,171 8,571Net earned premium $M 3,506 3,880 7,386 6,781Claims ratio % 61.0 58.9 59.9 61.3Commission ratio % 17.0 16.8 16.9 17.5Expense ratio % 12.3 12.3 12.3 12.4Combined operating ratio % 90.3 88.0 89.1 91.2Underwriting profit $M 339 469 808 597Investment income – policyholders’ funds $M 246 234 480 331Insurance profit $M 585 703 1,288 928Insurance profit % to NEP 16.7 18.1 17.4 13.7Investment income - shareholders’ funds $M 123 115 238 188Amortisation of intangibles/impairment of goodwill and intangibles (1) (2) (3) (1)Net profit before tax $M 707 816 1,523 1,115

12

Worldwide operationsWorldwide operationsyear ended 31 December 2005year ended 31 December 2005

GWP Growth CORNet profitafter tax

2005$M

2005%

2005%

2004%

2005$M

2004$M

Australia 2,431 16 83.6 89.7 360 254Asia Pacific Central Europe 691 3 82.3 86.4 103 62QBE Insurance (Europe) 2,558 11 90.0 95.6 314 183Lloyd’s division 2,236 (3) 94.5 91.6 213 239the Americas 1,492 8 92.9 93.5 62 44Equator Re 353 27 89.8 68.8 39 75Elimination – internal reinsurance (353) - - - - -Group 9,408 7 89.1 91.2 1,091 857

General insurance 7,291 9 85.5 89.4 981 719Inward reinsurance* 2,117 3 101.9 97.1 110 138Group 9,408 7 89.1 91.2 1,091 857

* Inward reinsurance reduced as a proportion of GWP 22.5% compared with 23.4% in 2004. Excluding facultative reinsurance,inward reinsurance business is 16.2% (2004: 18.2%) of GWP

13

Transition to AIFRS resulted in a net $388 million reduction in Transition to AIFRS resulted in a net $388 million reduction in opening opening shareholdersshareholders’’ equityequity

ACCOUNTING STANDARD CHANGE IMPACT

AASB 119: Employee benefits Deficits and surpluses on defined benefit superannuation plans to be included on the balance sheet

Total equity reduced by $142 million after tax at 31 December 2004

AASB 2: Share-based payment Employee loans and related shares issued are no longer included on the balance sheet

Share capital reduced by $90 million at 31 December 2004, which will be reinstated when loans are repaid

Expensing of share options on employee incentive arrangements through the income statement

Total impact on equity was minimal at 31 December 2004. Ongoing annual charge to the income statement

AASB 3: Business combinationsAASB 136: Impairment of assets

Reclassification of goodwill and intangibles. Amortisation of goodwill replaced by impairment testing.

Total equity reduced by $49 million after tax at 31 December 2004 for impairment

AASB 1023: General insurance contracts

Claims provision to be discounted at risk free rate Total equity reduced by $64 million after tax at 31 December 2004

Significant increases in disclosure Significant increase in time and cost of compliance

AASB 139: Financial instruments: recognition and measurement

Hedge effectiveness testing Potential volatility in income statement if a hedge fails the effectiveness test or if a component of a hedge is ineffective

AASB 121: The effects of changes in foreign exchange rates

A Lloyd’s corporate vehicle is now treated as a single entity with one functional currency. Non-monetary assets and liabilities, including unearned premium and deferred insurance costs, are carried on the balance sheet at the rates of exchange at the transaction dates

Total equity reduced by $8 million after tax as at 31 December 2004

14

Geographical diversificationGeographical diversificationGross earned premium Gross earned premium –– year ended 31 December 2005year ended 31 December 2005

Lloyd’s division25% (26%)

Australia26% (25%)

Pacific Asia Central Europe7% (8%)

the Americas16% (16%)

QBE Insurance (Europe)

26% (25%)

Note: 2004 comparatives in parentheses

15

Worldwide portfolio mixWorldwide portfolio mixGross earned premium Gross earned premium –– year ended 31 December 2005year ended 31 December 2005

Property28.7% (29.9%)

Accident and health6.2% (6.1%)

Motor and motor casualty13.7% (12.3%)

Other2.7% (1.8%)

Liability21.9% (21.8%)

Financial andcredit

2.5% (2.4%)

Workers’compensation

8.9% (9.6%)

Professionalindemnity

9.1% (9.5%)

Marine and aviation6.3% (6.6%)

Short tail 52% (53%); Long tail 48% (47%) Note: 2004 comparatives in parentheses

16

Balance sheetBalance sheet31 Dec 2005

$M31 Dec 2004

$MASSETS

Investments and cash 17,597 14,975Receivables 3,689 3,224Recoveries on outstanding claims 4,213 3,143Deferred insurance costs 1,446 1,358Intangibles 1,382 1,039ABC investments pledged for funds at Lloyd’s 1,032 998Fixed and other assets 306 299

TOTAL ASSETS 29,665 25,036LIABILITIES

Outstanding claims 15,083 12,605Unearned premium 4,287 3,948Non interest bearing liabilities 2,130 1,805ABC securities for funds at Lloyd’s 1,015 968Other creditors and provisions 1,991 1,618

TOTAL LIABILITIES 24,506 20,944NET ASSETS 5,159 4,092EQUITY

Equity attributable to shareholders 5,093 4,032Minority interest 66 60

TOTAL EQUITY 5,159 4,092

17

Net invested fundsNet invested funds

31 Dec 2005 31 Dec 2004

$M % $M %

Investment properties 33 0.2 32 0.2Total investments and cash 17,597 100.0 14,975 100.0Borrowings (2,130) (1,805)Net invested funds 15,467 13,170

Cash 1,061 6.0 1,121 7.5Short term money 8,292 47.1 5,482 36.6Fixed interest securities and other 7,537 42.9 6,957 46.5Equities 674 3.8 1,383 9.2

18

Balance sheetBalance sheet31 December 200531 December 2005

• Net invested funds increased 17% to $15.5 billion due to strong operational cash flow and acquisitions

• Over 85% of fixed interest and cash is rated Aa3 or better • Approximately 99% of investments are highly liquid • We continue to adopt a conservative approach to our fixed interest

portfolios, which average 0.6 years duration at balance date (December 2004: 0.6 years)

• Fixed interest duration currently 0.8 years• Equity investments may increase to 10% of total investments and cash,

subject to market conditions

19

Currency mixCurrency mixyear ended 31 December 2005year ended 31 December 2005

Market value of total investments and cash

2005 $17,597 million (2004: $14,975m)Market value of equities

2005 $674 million (2004: $1,383m)

Australian dollar53.8% (36.7%)

US dollar2.2% (22.8%)

Other6.9% (12.3%)

Sterling37.1% (28.2%)

Australian dollar30.2% (28.0%)

US dollar23.3% (25.5%)Other

12.7% (12.4%)

Sterling33.8% (34.1%)

20


• Receivables over 90 days decreased with conservative provision held for doubtful premium debtors

• Reinsurance recoveries on outstanding claims increased from $3.1 billion to $4.2 billion due to significant recoveries from current year catastrophe claims - includes claims incurred but not reported of $1.6 billion (2004: $1.4 billion)

• Provision for doubtful debts increased to $291 million (2004: $200 million) -increase of $91 million represents general provision, primarily covering exposure to reinsurers

• Intangibles increased $343 million to $1,382 million from acquisitions

21


• Borrowings* to shareholders’ funds 41.8% (2004: 44.8%)• Borrowings increased $325 million to $2,130 million principally from a $400

million short term loan partly offset by conversion of hybrid securities• Weighted average cost of borrowings at 31 December was 5.2% per annum

(2004: 4.9%)• Debt is 38% short term, 32% long term subordinated debt and 30% hybrid

securities

* excludes ABC investments pledged for funds at Lloyd’s

22

Outstanding claims provisionOutstanding claims provision

QBE’s record of claims development demonstrates our prudent management of claims

Prior year release - net undiscounted A$M 618 140 44 12 162Total net outstanding claims (discounted) A$M 10,870 9,462 7,595 7,994 6,789

Risk margin over central estimate A$M 1,243 1,058 750 656 483

Risk margin as percentage of central estimate % 12.9 12.6 10.8 8.9 7.1

Probability of adequacy of net outstanding claims % 94 94 91 86 85

2005 2004 2003 2002 2001

23

Claims developmentClaims developmentutilisation of prior year releaseutilisation of prior year release

$MPrior year release - net undiscounted 618

2005 accident year

Undiscounted risk marginIncrease in general provision for doubtful reinsurance recoveries and additional claims settlement costs

493

140

633

24

Claims developmentClaims developmentdiscounted (note 9)discounted (note 9)

2005 accident

year$M

Claims ratio

% to NEP

2005 all years

$M

Claims ratio

% to NEPNet earned premium 7,386 7,386

Net discounted claims incurredCentral estimate 4,204 56.9 4,232 57.3

Increase in risk margin 445 6.0 185 2.6Net discounted claims incurred (note 9) 4,649 62.9 4,417 59.9

• Future years may benefit from release of margins and any excess central estimate as the ultimate claims cost becomes more certain

25

Outstanding claims provisionOutstanding claims provisionGroup reserve adequacyGroup reserve adequacy

• Outstanding claims at 94% probability of adequacy (“POA”) – at high end of internal target range of 85% to 94%

• Outstanding claims POA sensitivity POA change

- Risk margin - $100 million = -1.5%- Interest rates - 1% = -4.7%- Inflation rate -1% = +4.7%

• No material exposure to asbestos related claims, which are less than 2% of net central estimate - overall experience during 2005 was better than expected. Survival ratio now over 50 times.

• QBE Insurance Australia outstanding claims provision includes risk margin of $348 million or 20.5% of central estimate (adjusted for inter company liabilities)

26

Capital adequacy31 December 2005

• QBE estimates the Group capital adequacy multiple at 1.9 times the minimum requirement* (2004: 1.8 times)

• Hybrid securities expected to convert and subordinated debt are included as tier 2 capital for determining the Group’s capital adequacy multiple

• Australian regulator (APRA) has not yet defined capital requirements for non-operating holding companies

• Capital base includes a provision for the final dividend net of reinvestment

* using APRA’s risk weighted capital adequacy model for Australian licensed insurers

27

Capital adequacyCapital adequacy31 Dec 2005

$M31 Dec 2004

$MTier 1Share capital*Reserves and retained earningsExcess risk marginTax on excess risk marginFinal dividendDeductions, mainly intangibles

3,2631,8561,411(423)(196)

(1,382)

2,8701,2041,020(306)(107)

(1,039)4,529 3,642

Tier 2Subordinated debtHybrid securities

668222

645354

890 999Capital base 5,419 4,641

Group MCR 2,846 2,555Capital adequacy multiple 1.9 1.8

* notified to Australian Stock Exchange

28

Australia Pacific Asia Central Europe Australia Pacific Asia Central Europe (APACE)(APACE)year ended 31 December 2005year ended 31 December 2005

AUSTRALIA PACE TOTAL APACE

2005 2004 2005 2004 2005 2004

Gross written premium $M 2,431 2,102 691 672 3,122 2,774Gross earned premium $M 2,405 2,114 688 684 3,093 2,798Net earned premium $M 2,015 1,763 536 514 2,551 2,277Claims ratio % 56.1 61.4 40.8 43.6 52.9 57.4

Commission ratio % 12.7 13.8 18.7 18.1 14.0 14.8Expense ratio % 14.8 14.5 22.8 24.7 16.4 16.8Combined operating ratio % 83.6 89.7 82.3 86.4 83.3 89.0Insurance margin % 24.2 16.1 22.2 17.9 23.8 16.5

Gross written premium up 16% due to acquisition of ING’s 50% share in the QBE Mercantile Mutual joint venture in June 2004

29

APACEAPACEyear ended 31 December 2005year ended 31 December 2005

Australia• Net claims ratio reduced from 61.4% to 56.1% as a result of a lower frequency of

claims and favourable development of prior year claims• Successfully integrated QBE Mercantile Mutual joint venture - achieved $40 million of

synergies and targeting further $30 million annualised savings by 2007• Aviation, professional liability, workers compensation, general liability, property, credit

and surety, commercial packages, compulsory third party and Western QBE all improved profitability

• Commission ratio down due to change in mix of business and benefit of acquiring underwriting agencies in 2004

• Expense ratio up from 14.5% to 14.8% mainly due to one-off restructure costs and higher IT, statutory charges and compliance costs

• Received National Insurance Brokers’ General Insurer of the Year award for fourth successive year

30

APACEAPACEyear ended 31 December 2005year ended 31 December 2005

Pacific Asia Central Europe• Outstanding underwriting result with combined operating ratio of 82.3%

(2004: 86.4%) due to improvement in premium rates and policy terms and conditions over recent years

• Premium growth affected by stronger Australian dollar, a slight reduction in overall premium rates and increased competition

• Claims ratio decreased from 43.6% to 40.8% - frequency of claims at historically low level

• 21 out of 24 ongoing operations recorded underwriting profits• Sold small life business in Slovakia

31

European operationsEuropean operationsyear ended 31 December 2005year ended 31 December 2005

QBE INSURANCE(EUROPE)

LIMIT TOTAL EUROPEAN OPERATIONS

2005 2004 2005 2004 2005 2004Gross written premium $M 2,558 2,301 2,236 2,309 4,794 4,610Gross earned premium $M 2,370 2,154 2,273 2,265 4,643 4,419Net earned premium $M 1,954 1,787 1,743 1,720 3,697 3,507Claims ratio % 62.3 67.3 63.6 59.3 62.9 63.4Commission ratio% 15.3 15.5 20.3 21.0 17.7 18.2Expense ratio % 12.4 12.8 10.6 11.3 11.5 12.1Combined operating ratio% 90.0 95.6 94.5 91.6 92.1 93.7Insurance margin % 16.8 9.6 12.4 13.9 14.7 11.7

Gross written premium up 8% in local currency due to acquisitions and higher premiums for inward reinsurance. On translation to Australian dollars, gross written premium up 4%.

32

European operationsEuropean operationsyear ended 31 December 2005year ended 31 December 2005

• Combined operating ratio improved to 92.1% (2004: 93.7%) despite marine, energy and property catastrophe losses

• Limit’s COR of 94.5% reflects greater exposure to catastrophe losses• Expense ratio decreased from 12.1% to 11.5% due to higher profit commission

from syndicate 386 external capital providers, partly offset by property relocation costs

• Completed acquisition of:- MiniBus Plus underwriting agency and commercial motor business - Greenhill underwriting agency

• Sold Garwyn non-core loss adjusting business• QBE Group acquisition of British Marine specialist small tonnage marine

business will benefit 2006 premium• Positive 1 January 2006 renewals – overall premium rates expected to rise by

5% in 2006

33

the Americasthe Americasyear ended 31 December 2005year ended 31 December 2005

2005 2004

Gross written premium $M 1,492 1,382

Gross earned premium $M 1,435 1,354

Net earned premium $M 843 766

Claims ratio %

Commission ratio %

Expense ratio %

Combined operating ratio %

Insurance margin %

Gross written premium up 8%. Premium growth up 11% in local currency. Inward reinsurance reduced from 33% to 29% of gross written premium.

60.0 59.3

25.5 27.0

7.4 7.2

92.9 93.5

10.3 7.0

34

the Americasthe Americasyear ended 31 December 2005year ended 31 December 2005

• US based primary insurance business grew in line with our strategy of diversification, particularly for programme business

• 71% of total reinsurance cost of $592 million is proportional reinsurance on programme business

• COR improved to 92.9% (2004: 93.5%) despite the worst year on record for catastrophes – includes upgrade of some prior year claims

• Higher US$ fixed interest and cash yields benefited insurance profit• All operations reported improved results • General insurance now represents 71% of total GWP compared with 67% last

year, reflecting our strategy of focusing on general insurance business and acquisitions

• Acquired general insurance businesses in Colombia and Colorado• Positive January 2006 renewals – overall premium rates better than plan

35

Captive insurer Captive insurer –– Equator ReEquator Re• Equator Re provides internal excess of loss protections, below group

retentions, to the various operating subsidiaries• Also participates on a number of the Group’s reinsurance protections

placed with external reinsurers• Also, Equator Re acquires additional excess of loss protections and other

covers• Underwriting profit of $30 million (2004: $72 million) - lower profit due to

higher catastrophe losses• In 2006, Equator Re will write additional proportional reinsurance from the

divisions. Net exposures to be substantially unchanged.

36

Investment incomeInvestment income

2005 $M

2004 $M

Dividends 41 52Interest 567 483Other income 8 14Realised gains (losses) on fixed interest securities 61 (31)Unrealised gains on fixed interest securities 26 18

Unrealised gains on equities 35 47Realised gain on the sale of controlled entities 11 -

Exchange gains 3 51Borrowing costs (96) (94)Other expenses (15) (32)

Realised gains on equities 94 54

Gross investment income 843 637

Net cost of ABCs (17) (43)Net investment income 718 519

37

Investment incomeInvestment incomeyear ended 31 December 2005year ended 31 December 2005

• Fixed interest and equity returns well ahead of absolute return targets• Short duration fixed interest strategy successful in maximising yields and

reducing volatility from market value movements• Net realised and unrealised equity gains of $129 million before tax (2004:

$101 million gains)• Strong cash flow and acquisitions have resulted in a 17% increase in net

invested funds to $15.5 billion (2004: $13.2 billion)• Listed equity holdings 3.7% of total investments and cash (2004: 8.9%)• Substantial portion of equity gains locked in during August/September 2005

through use of derivatives

38

Comparison of cash yieldComparison of cash yieldversus actual yieldsversus actual yields

Average AAA cash

yields%

Actual yields achieved by

QBE%

Investment mix at 31 December 2005

Portfolio mix by

currency%

Current AAA cash

rate %

2001 4.6 5.5

2005 4.2 5.0 Weighted average yield 100.0 4.5

Australian dollar 30.2 5.52002 3.4 2.7 US dollar 23.3 4.52003 3.1 4.6 Sterling 33.8 4.52004 3.4 4.4 Other 12.7 2.3

39

Financial modelFinancial model

2003 2004(2) 2005COR 93.8% 91.2% 89.1%Period premiums held (1) 1.3 yrs 1.4 yrs 1.5 yrsYield on insurance funds (1) 3.2% 3.5% 4.3%Insurance profit/NEP 10.4% 13.7% 17.4%Solvency ratio (1) 52.0% 51.5% 61.8%Insurance profit/shareholders’ funds (1) 20.0% 26.6% 28.2%Investment yield on shareholders’ funds (1) 4.3% 4.9% 5.1%Pre-tax profit/shareholders’ funds 24.3% 31.5% 33.2%Tax 24.6% 22.5% 27.9%ROE (1) 18.3% 24.5% 23.9%

(1) Average during the period – solvency ratio includes intangibles(2) Restated for AIFRS

40

Major initiatives in 2005Major initiatives in 2005• Acquisitions of around $700 million of annualised gross written premium

Major acquisitions2006 expected gross written

premium$M

Central de Seguros in Colombia 95National Farmers Union Property and Casualty in the US 240Greenhill underwriting agency operations in France, Germany and Spain 50MiniBus Plus underwriting agency in the UK 100British Marine 180

• Commenced writing builders’ warranty and medical malpractice business in Australia following changes by governments to improve claims experience for insurers and affordability of insurance for consumers

• Acquired the wholly owned business of Allianz in Vietnam• Acquired National Credit Insurance Brokers in Australia and New Zealand and Austral

Mercantile Collections in Australia to support our trade credit operations

41

Business strategy and 2006 targetsBusiness strategy and 2006 targetsSubject 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, we expect to:

• Achieve an insurance margin of 16% to 17% • Increase profit after tax and diluted EPS by more than 10% • Achieve gross written and net earned premium growth of 10% and 12.5%

respectively• 2005 acquisitions will provide a further $600 million gross written premium in

2006• Achieve overall premium rate increases of around 4%

- increases at 1 January 2006 renewal met expectations- rates still strong for most portfolios and claims frequency expected

to remain low- Australian premium rates likely to be down on average by 5%

42

Business strategy and 2006 targetsBusiness strategy and 2006 targets

• Achieve organic growth slightly in excess of lapsed business, supported by increased customer retention

• Maintain improved insurance policy terms and conditions• Positive insurance conditions lasting longer than previous cycles and expected

to remain strong through 2006, helped by 2005 catastrophes• Allowances for large losses and catastrophes of around 14% of net earned

premium in 2006 business plans exceed amounts incurred in each of the past eight years

• Large losses and catastrophes are defined as net claims to QBE above $2.5 million

43


• Continue to amend risk profile of insurance business including maximum event retention and to improve reward on significant catastrophe risks

• Reduce reinsurance costs to around 17% of gross earned premium• Decrease combined commission and expense ratio slightly in 2006, with further

reductions in 2007 and 2008 from synergies on restructures and acquisitions• Target tax expense rate of around 27% of net profit before tax • Continue low risk strategy for investments - target gross investment yield of

slightly in excess of 5%, assuming a 5% capital appreciation on equities• Increase net invested funds to around $18 billion by 31 December 2006 from

strong cash flow and acquisitions

44


• Maintain Group capital adequacy multiple at more than 1.5 times minimum capital requirement

• Maintain borrowing and capital adequacy ratios within S&P AA rating category• Continue to maximise opportunities

- increase customer retention- continue successful acquisition strategy - a number of opportunities in

overseas markets currently being investigated- not currently in discussions with any major Australian competitor- use any excess capital for acquisition initiatives

• Continue to invest in our people

45

Executive changesExecutive changes

• Gayle Tollifson, Chief risk officer will retire in July 2006 after 12 years of service and will be succeeded by George Thwaites, formerly CFO of Pacific Asia Central Europe

• Raymond Jones, previously CEO of Australian operations for 11 years now Group general manager, business development will retire on 31 October 2006

46

2006 projected gross written premium2006 projected gross written premium

$A BnAustralia 2.6

(24 countries)QBE Insurance (Europe) – £1.1 billion 2.6

Pacific Asia Central Europe 0.7

the Americas – US$1.6 billion 2.1 Limit – £1.0 billion 2.3

10.3*

* Assumes A$ to US$0.77 and A$ to £0.43

47

Growth and insurance marginGrowth and insurance marginGross written

premiumA$M

COR%

Insurance profit

%

Insurance profit A$M

1996 1,561 99.3 8.4 101

1997 2,054 99.5 7.2 116

1998 2,409 100.3 7.7 147

1999 2,877 103.9 2.5 56

2000 4,406 102.5 5.4 186

2001 6,793 109.6 (2.6) (119)

2002 7,723 97.7 7.2 406

2003 8,350 93.8 10.4 627

2004 8,766 91.2 13.7 928

2005 9,408* 89.1 17.4 1,288

2006 target 10,300 16.0 to 17.0

* $7 billion overseas

48

History of growth gross and net earned premiumHistory of growth gross and net earned premiumyear ended 31 December 2005year ended 31 December 2005

0

2

4

6

8

10

1996 1998 2000 2002 2004

$ Bn

GEP $9.2 GEP $9.2 BnBn

NEP $7.4 NEP $7.4 BnBn

Compound average growth rates over last 10 years:- gross earned premium 20.0%- net earned premium 19.9%

2005

49

Historical share price performanceHistorical share price performanceAn investment in QBE has outperformed the Australian All Ordinaries Index

and inflation with a growth rate of 27.7% in 2005, and a compound average annual growth rate 14.9% over five years, 17.4% over 10 years and 19.5% over 20 years

QBE Historical Share Price Performance - Last 20 Years

0.00

5.00

10.00

15.00

20.00

25.00

30.00

35.00

40.00

Dec-85 Dec-87 Dec-89 Dec-91 Dec-93 Dec-95 Dec-97 Dec-99 Dec-01 Dec-03 Dec-05

QB

E Sh

are

Pric

e (A

$)

QBE Share Price Performance

QBE Share Price Performance Including Reinvestment ofDividendsASX All Ordinaries Accumulation Index

Index

50

InternetInternet

www.qbe.com

presented by frank o’halloran ceo qbe group 23 february 2006 media/qbe... · presented by frank...

Documents