1 John Neal – Group Chief Executive Officer Neil Drabsch – Group Chief Financial Officer Colin Fagen – Chief Executive Officer, Australian & NZ Operations Tuesday 2 July 2013 QBE Insurance Group Global Operational Transformation Program All figures in US$ unless otherwise stated
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1
John Neal – Group Chief Executive Officer
Neil Drabsch – Group Chief Financial Officer
Colin Fagen – Chief Executive Officer, Australian & NZ Operations
Tuesday 2 July 2013
QBE Insurance Group Global Operational Transformation Program
All figures in US$ unless otherwise stated
2 2
Agenda
1. Introduction and overview of value creation model JN
2. Operational excellence – global reach and scale JN
3. Australian Operations case study CF
4. Financial strength and flexibility ND
5. Closing remarks JN
6. Q & A JN/ND/CF
QBE Insurance Group - Global Operational Transformation Program - 2 July 2013
3 3
Introduction and overview of value creation model
John Neal – Group Chief Executive Officer
QBE Insurance Group - Global Operational Transformation Program - 2 July 2013
4 4
In February we rolled out our refreshed vision
QBE has a vision to be the most
successful global insurer and reinsurer in
the eyes of our customers, our people,
our shareholders and the community
QBE Insurance Group - Global Operational Transformation Program - 2 July 2013
5 5
Value creation model
Confidence in immediate (FY13)
business plans
Leveraging the value
opportunities of our global
business
Implementing Group wide
programs of change to improve
performance
QBE Insurance Group - Global Operational Transformation Program - 2 July 2013
6 6
Operational excellence: global reach and scale
John Neal – Group Chief Executive Officer
QBE Insurance Group - Global Operational Transformation Program - 2 July 2013
7 7
Operational excellence: delivering a repeatable,
globally scalable engine for growth
2. STANDARDISATION
Adopt the one best QBE
way of working globally
and consolidate for scale
in the right location
3. ONGOING
EXCELLENCE
(scalability)
Use our global scale to
learn, innovate and
continuously improve
1. SIMPLIFICATION
Simplify how we do
things today, both across
and within divisions
QBE Insurance Group - Global Operational Transformation Program - 2 July 2013
• A simplified and unified operating
model
• Roles clearly defined and
accountabilities understood
• Process improvement, reduction in
administrative activities and improved
documentation
• Greater repeatability, consistency and
higher quality outcomes
• Core teams of skilled staff carrying out
high-value tasks
• Establishing platform for QBE as
employer of choice
• Acquisition ready – streamlined back
office model will fast track integration
Our recently
established
Group Shared
Services Centre
(GSSC) is integral
to operational
transformation
8 8
Key objectives of GSSC establishment
Cost Effectiveness
1. Optimise resource cost model
2. Standardise - drive economies
of scale
3. Reduce rework 1. Create scale
2. More easily absorb transaction
volume growth
Service Quality
1. Improve performance management
2. Improve process control
3. Improve turnaround time
4. Reduce leakage
5. Facilitate continuous improvement
Acquisition Integration
1. Centralised and standardised
processing
2. Simplified acquisition integration
Business Growth
QBE Insurance Group - Global Operational Transformation Program - 2 July 2013
9 9
Why Manila? Why a captive model?
• Philippines is now the #1 location for voice services*
• Cost competitiveness
• Robust and reliable infrastructure
• Government support and public-private partnership
• Proven capability
Why Manila?
• 100% tertiary educated
• 95% hold an undergraduate degree
• 30% have post graduate qualifications
• Minimum of 2 years relevant post
graduate work experience
• 34 years of age
• Commutes >1 hour to work each day Captive
• The business establishes its own
dedicated subsidiary and ownership of
all assets and staff is retained
• Low operational risk and medium
scalability
Third Party Provider
• An entire process or services is moved
out of its organisation and managed by a
third party service provider
• High scalability and operational risk
Build, Operate, Transfer
• The outsource provider helps the client
set up the centre from start to finish.
Management is transferred to the client
once the centre is established
• Medium to high operational risk and
medium scalability
Virtual Captive
• An entity is formed with a split in
investment, revenues and control
between client and provider
• Medium operational risk and medium to
high scalability
e.g. QBE model
Captive models have historically been
favoured to maximise managerial control
and ownership by the wider organisation
An average GSSC recruit
Why a captive model?
Delivery Models
QBE Insurance Group - Global Operational Transformation Program - 2 July 2013
*Source: Annual IBM Global Location Trends Report, January 2011
10 10
Operational transformation initiatives will deliver annual
run-rate benefits of at least $250M by the end of FY15
-156 -140 -14
25
190 240
225 250
US$ 300M
0
100
200
-200
-100
FY14 FY15 FY13
COST AND BENEFIT IMPACT (P&L)
85
Implementation and restructuring costs
Cost savings (earned in year)
Cost savings (run-rate at year end)
• Total project cost revised
downwards $20M but increased
expense in FY13
• Excludes estimated global claims
procurement run-rate savings of
at least $90M by FY15
QBE Insurance Group - Global Operational Transformation Program - 2 July 2013
11 11
Overview of $250M transformation program savings
by functional work streams
Operations
IT
Finance
Claims
Non-claims
procurement
• Clear and distinct roles, responsibilities and metrics for front, middle and back office functions
• Productivity and process improvement via centralisation of roles in GSSC
• Cross-divisional IT management and architecture functions
• Consolidate two data centres per division
• Enhance service through process simplification and automation via outsourced delivery centres
• Significant portion of global workload via GSSC
• Review of current processes to eliminate waste
• Consolidation, standardisation and process improvement
• Easier and faster group wide financial reporting
• Codify processes and roles and improve process design/productivity
• Back office claims roles moving offshore
• Establishing expert team to manage complex claims within divisions
• Blend of GSSC and outsourcing arrangements for NA
• Implement Group wide strategic sourcing and procurement capability
• Establish global category management with global accountability
• Work with business units to deliver savings whilst maintaining quality
HR
• Deliver target operating model and develop centres of excellence
• Outsourced payroll for AO and EO
• Move administrative processes to the GSSC
• Remaining business partners in divisions delivering improved service
QBE Insurance Group - Global Operational Transformation Program - 2 July 2013
12 12
Global procurement initiatives: ranked by value and
degree of complexity
QBE Insurance Group - Global Operational Transformation Program - 2 July 2013 * Included within $250m GOTP savings on slide 10
13 13
Transformation timeline
FY13 FY14 FY15
AO
• On track for majority
completion by 1Q14
EO
• Planning in progress
• Commence 2Q14 and complete by 2Q15
QBE Insurance Group - Global Operational Transformation Program - 2 July 2013
AO
NA EO
GSSC
• Established in
Manila
NA
• Plan completed June
• Commence 4Q13
• Complete majority of activity by 2Q15
Other divisions
Further iterations
14 14
Australia & New Zealand
QBE Insurance Group - Global Operational Transformation Program - 2 July 2013
Colin Fagen – Chief Executive Officer, Australian & NZ operations
15 15
Key objectives of GSSC establishment for Australia
Cost Effectiveness
1. Optimise resource cost model
2. Standardise - drive economies
of scale
3. Reduce rework 1. Create scale
2. More easily absorb transaction
volume growth
Service Quality
1. Improve performance management
2. Improve process control
3. Improve turnaround time
4. Reduce leakage
5. Facilitate continuous improvement
Acquisition Integration
1. Centralised and standardised
processing
2. Simplified acquisition integration
Business Growth
QBE Insurance Group - Global Operational Transformation Program - 2 July 2013
16 16
Australia will deliver annual run-rate benefits of at least
$85M by the end of FY15
-55 -29 -2
12
78 84 29
84 85
-60
40
FY15 FY14 FY13
COST AND BENEFIT IMPACT (P&L)
Excludes claims procurement
Implementation and restructuring costs
Cost savings (earned in year)
Cost savings (run-rate at year end)
QBE Insurance Group - Global Operational Transformation Program - 2 July 2013
17 17
Jan 13 Feb 13 Mar 13 Apr 13 May 13 Jun 13 Jul 13 Aug 13 Sep 13 Oct 13 Nov 13 Dec 13
Finance
HR
Claims
Operations
IT
Non-claims
procurement
Planning
Legend
Transition to GSSC / third party
Australia’s transformation: all streams on track to deliver
$6M
$36M
$6M
$15M
$5M
$17M
$85M savings
by FY15
QBE Insurance Group - Global Operational Transformation Program - 2 July 2013
• PCA multiple expected to be within our targeted range of 1.55-1.80x APRA requirement at 30 June 2013
• APRA conglomerates capital standard not expected to have any impact and QBE currently not being considered a Level 3 group
• Uncertainty surrounding revised S&P model resolved
• Insurer financial strength rating affirmed at „A+‟ and outlook revised to „stable‟ from „negative‟
• Issuer credit rating revised down to „A-‟ from „A‟ as expected
• Initiatives to optimise liability management
• Reduce borrowings
• Take advantage of current low interest rates
QBE Insurance Group - Global Operational Transformation Program - 2 July 2013
30 30
Financial strength and flexibility: liability management
• $220M of sub-debt repaid at first call date on 1 July 2013
• $600M 5 year 2.4% pa coupon senior debt issue completed in April
• Proceeds largely used to repay/repurchase SCS
• Majority of SCS repaid or repurchased
• $234M put option exercised
• $317M repurchased via tender including the issue of 20.9M ordinary shares bolstering T1 capital
• $223M redemption value outstanding at 30 June 2013 (excluding QBE owned)
• Potential SCS dilution fallen from 80M shares at 31 December 2012 to 52M shares at 30 June 2013
• On target for debt to equity to be less than 40% by 31 December 2013
QBE Insurance Group - Global Operational Transformation Program - 2 July 2013
31 31
Financial strength and flexibility: non-core asset sales
and other initiatives
• Non-core asset sales with cumulative sale proceeds of around $80M expected by year end including
• Australian broker/agency – NCIB (subject to Steadfast IPO) and Invivo
• Majority stake in QBE Macedonia
• Other initiatives being considered
• Further sale of non-core assets
• Commutation and sale of run-off portfolios
• Purchase of additional reinsurance
QBE Insurance Group - Global Operational Transformation Program - 2 July 2013
32 32
Summary and 1H13 update
John Neal – Group Chief Executive Officer
QBE Insurance Group - Global Operational Transformation Program - 2 July 2013
33 33
Summary and 1H13 update
Reflect on work done to date
Demonstrated successes
Roadblocks identified and remediated
Renewed Executive level bench strength
Platform for growth and accelerated synergies from future acquisitions
Building towards our goal of being a truly global organisation
QBE Insurance Group - Global Operational Transformation Program - 2 July 2013
34 34
Summary and 1H13 update
• Premium rate increases in line with expectations at +5% overall
• Annualised first half investment yield expected to be in line with FY13 guidance of
approximately 2.25%
• Sustained A$ weakness is positive for A$ earnings but adversely impacts reported
US$ premium and earnings
• Large individual risk and catastrophe losses are expected to be within our allowances
of 9.5% of NEP (ex crop)
• Relatively quiet period for catastrophe incidence (but main risk resides in 2H)
• Slightly higher than usual incidence of large individual risk losses
• Currency weighted average discount rate has increased since 31 Dec 2012 with
expected positive impact on central estimate of outstanding claims at 30 June 2013
• Balance sheet strengthened through capital initiatives
QBE Insurance Group - Global Operational Transformation Program - 2 July 2013
35 35
Important disclaimer The information in this presentation provides an overview of QBE‟s global operational transformation program. This presentation should be read in conjunction with all information which QBE has lodged with the Australian Securities Exchange (“ASX”). Copies of those lodgements are available from either the ASX website www.asx. com.au or QBE‟s website www.qbe.com. Prior to making a decision in relation to QBE‟s securities, products or services, investors, potential investors and customers must undertake their own due diligence as to the merits and risks associated with that decision, which includes obtaining independent financial, legal and tax advice on their personal circumstances.
This presentation contains certain "forward-looking statements“ for the purposes of the U.S. Private Securities Litigation Reform Act of 1995. The words "anticipate", “believe", "expect", "project", "forecast", "estimate", "likely", "intend", "should", "could", "may", "target", "plan" and other similar expressions are intended to identify forward-looking statements. Indications of, and guidance on, future earnings and financial position and performance are also forward-looking statements. Such forward-looking statements are not guarantees of future performance and involve known and unknown risks, uncertainties and other factors, many of which are beyond the control of QBE that may cause actual results to differ materially from those expressed or implied in such statements. There can be no assurance that actual outcomes will not differ materially from these statements. You are cautioned not to place undue reliance on forward-looking statements. Such forward-looking statements only speak as of the date of this presentation and QBE assumes no obligation to update such information. Any forward-looking statements assume large individual risk and catastrophe claims do not exceed the significant allowance in our business plans; no overall reduction in premium rates; no significant fall in equity markets and interest rates; no major movement in budgeted foreign exchange rates; no material change to key inflation and economic growth forecasts; recoveries from our strong reinsurance panel; and no substantial change in regulation. Should one or more of these assumptions prove incorrect, actual results may differ materially from the expectations described in this presentation. Comments on 1H13 are based on estimates at this date and subject to completing the consolidation process and management, actuarial and external auditors‟ review.
QBE Insurance Group - Global Operational Transformation Program - 2 July 2013