EL&C Baillieu Research 19 August 2019

QBE Group QBE

Company Snapshot Company Snapshot is designed to provide Profile: QBE Insurance Group (QBE) is a global insurance and information on a stock’s core operations, company headquartered in . It writes both commercial and personal summarise its key financial information, and insurance products, ranging from speciality insurance products offered in the present its earnings and dividend track record. United States to home, motor and compulsory third party insurance in Australia. It does not contain an investment recommendation, valuation or price target. History: In October 1886, the North Queensland Insurance Company Limited (QI) was established. In 1921, the Bankers’ and Traders’ Insurance Company (B&T) was established. In 1959, both QI and B&T purchased 40% of The Equitable Probate The information in this snapshot is not and Company. In 1973, QI and B&T merged to form QBE intended to constitute personal advice and is Insurance. In February 2019, QBE completed the sale of its Colombian operations. general in nature. There has been no In May, it completed the sale of its operations in Indonesia and the Philippines as consideration of the investment objectives, well as the Australian and NZ business. It finalised the sale of its financial situation or particular needs of any Puerto Rico operations and the North American Farmers Union in August 2019. particular person or entity, and the recipient of this information must not rely on the Earnings composition: $US420m (51%) of the FY18 insurance profit was generated veracity of the information in making any by Australian & New Zealand Operations. European Operations reported $US311m investment decisions. (38%), North American Operations produced $US221m (27%) and Equator Re delivered $US85m (10%). Asia Pacific Operations reported a loss of $US47m (-6%) and the Corporate and Other segment reported a loss of $US164m (-20%). Most recent result – 1H19: Adjusted insurance profit increased 3.8% on the prior corresponding period (pcp) to $US495m. Adjusted profit after tax rose 35% to US$531m. This was primarily driven by significantly stronger investment returns. Premium rates excluding CTP changes increased 4.7%. The adjusted combined operating ratio (which measures the expenses and claims costs relative to premiums earned during the period) improved to 95.2%, from 95.8% in the pcp (a lower rate is better). This was aided by improved attritional claims (claims that are less than $US2.5m in size) performance, offset by performance in Crop and Lenders . QBE’s insurance margin (which is the insurance profit as a percentage of net earned premium) increased to 8.7%, from 8.2% in the pcp. A dividend of A$0.25 was declared, up 14% on the pcp. Company outlook: QBE is continuing to dispose of renewal rights in relation to its North American personal lines business. QBE is targeting a combined operating ratio of 94.5-96.5% in FY19. It also has an investment return target of 3-3.5%.

Fig.1: QBE – cash earnings per share (US$ cents) Fig.2: QBE – dividend per share (A$ cents)

Source: Company reports Source: Company reports

baillieu.com.au E.L. & C. Baillieu Limited ABN 74 006 519 393 Please read the disclaimer at the end of this report 1 EL&C Baillieu Research 19 August 2019

Company snapshot Group net earned premium and insurance profit

Fig.3: QBE – net earned premium (US$bn) Fig.4: QBE – insurance profit (US$bn)

Source: Company reports Source: Company reports

Divisional description and revenue model

• General insurance companies earn profits through writing insurance policies and For QBE, the most relevant successfully managing risk to ensure that the premiums collected are sufficient to meet measure of earnings is its the claims expenses. If more premiums are collected than claims paid, the insurer is insurance profit making a profit. Insurers also earn returns by investing the reserves held to pay out claims.

• Australian & New Zealand Operations (51% of FY18 insurance profit): QBE sells commercial insurance products and has targeted offers in personal lines such as home, motor and compulsory third party (CTP).

• European Operations (38%): QBE writes general insurance policies in the UK, Europe and Canada and through QBE’s Lloyd’s syndicates.

• North American Operations (27%): In North America, QBE operates four major divisions providing various specialised insurance and reinsurance products: 1) Specialty & Commercial – which include Accident & Health, Aviation, Inland Marine, Professional Lines, Speciality Programs, Surety, Trade Credit and Transactional Liability; 2) Alternative Markets; 3) Crop; and 4) Reinsurance.

• Asia Pacific Operations (-6%): QBE operates in key markets such as Hong Kong, Singapore, Malaysia, Vietnam and the Pacific Islands.

• Other: Equator Re, QBE’s internal reinsurer which provides reinsurance to its internal divisions in conjunction with its external reinsurance programs, reported a profit of $US85m (10%).

Fig.5: QBE – insurance profit by division US$ (FY18) Fig.6: QBE – insurance margin

Source: Company reports Source: Company reports.

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Gross earned premium

Fig.7: QBE – gross earned premium by class (FY18) Fig.8: QBE – gross earned premium by division (FY18)

Source: Company reports. GWP – Gross Written Premium Source: Company reports. GWP – Gross Written Premium

Investment assets and loss, expense, commission and combined ratios

Fig.9: QBE – investment assets (FY18) Fig.10: QBE – key ratios

Source: Company reports. GWP – Gross Written Premium Source: Company reports

Performance Summary

Fig.11: QBE – net profit after tax (US$m) Fig.12: QBE – return on equity

Source: Company reports Source: Company reports

baillieu.com.au E.L. & C. Baillieu Limited ABN 74 006 519 393 Please read the disclaimer at the end of this report 3 EL&C Baillieu Research 19 August 2019

Share price and valuation

Fig.13: QBE – Share price (A$)

Source: Bloomberg

Fig.14: QBE – One-year forward price to earnings ratio (consensus estimates)

Source: Bloomberg

Fig.15: QBE – One-year forward dividend yield (consensus estimates)

Source: Bloomberg

baillieu.com.au E.L. & C. Baillieu Limited ABN 74 006 519 393 Please read the disclaimer at the end of this report 4 EL&C Baillieu Research 19 August 2019

E.L. & C. Baillieu Limited This document has been prepared and issued by: ABN 74 006 519 393 E.L. & C. Baillieu Limited Australian Financial Service Licence No. 245421 ABN 74 006 519 393 Participant of ASX Group Participant of NSX Ltd Australian Financial Service Licence No. 245421 Participant of ASX Group www.baillieu.com.au Participant of NSX Ltd

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