QBE Insurance Group Limited

Good day and thank you for standing by. Welcome to QBE FY24 results. At this time, all participants are in listen-only mode. After the speaker's presentation, there will be a question and answer session. To ask a question during the session, you'll need to press star 11 on your telephone. You will then hear an automated message advising your hand is raised. To withdraw your question, please press star 11 again. Please be advised that today's conference is being recorded. I would now like to hand the conference over to your speaker today, Chief Executive Officer Andrew Horton. Please go ahead.

Good morning and thank you for joining us today. I'll start by acknowledging the traditional owners of the many lands on which we meet today. For me, this is the Gadigal lands of the Eora Nation and recognise their continuing connection to land, waters and culture. I pay my respects to the elders past and present and I extend this respect to any First Nations people joining us today. Now, three years on from the launch of our new purpose, vision, and strategic priorities, I think these are excellent results and showcase the benefit from our focus on improved and more consistent performance. So let's move to slide four. We entered 2024 with the simple ambition to beat our plan for the year and continue to grow our business. On both fronts, I think we've done a great job. Headline growth of 3% includes a drag from exited lines and crop. Excluding this, we delivered underlying growth of around 9%. Markets remain attractive for us, and we see another great opportunity for growth in 2025. Our combined operating ratio of 93.1% improved by around two points, and importantly, we beat our plan for the year of around 93.5%. The result holds plenty of proof points in our strive for greater consistency, which I'll touch on shortly. We had a record investment result with a total income of around $1.5 billion, representing a return of almost 5%. And collectively, our return on equity of 18.2% was excellent, and QB's highest in well over a decade. Once again, we started a new year with financial markets calibrated to a higher for longer interest rate outlook, and this should support another year of excellent returns. Our balance sheet is in great shape, and we've announced a final dividend of 63 cents. This brings the full year dividend to 87 cents, which is 40% higher than the prior year and represents a full year payout ratio of 50%. Let's turn to slide five. I wanted to start today with a recap of the journey we've been on. Three years ago, at the beginning of 2022, we launched our new purpose, vision and strategic priorities. Our strategy was underpinned by a desire to become a more consistent organization, more consistent in how we interact with our people, partners, and customers, and in turn, more consistent in our financial performance. We also had to do a better job at operating as one cohesive enterprise, better leveraging our unique international position and scale. Three years on, I think we've executed well. This slide outlines some of the most important initiatives which have played a role in de-risking and reshaping our portfolio, reducing volatility, and improving performance in North America. Right through this period, we've also grown our business, consistently delivering mid-single-digit X-rate growth. We have the breadth, both by region and product, to be capable of delivering mid-single digit volume growth sustainably. Our ability to execute on these initiatives and improve performance would not have been possible without the greater alignment, stability, and collaboration we enjoy across the enterprise today. Our teams are engaged and motivated, and we're building a culture defined by performance, innovation, and exceptional customer service. As I outlined at our half-year result, we feel 2024 has been an important transition year for QBE. In recent years, our strategy and focus held a heavy bias towards portfolio optimization initiatives, including a number of portfolio exits, reserve transactions, and actions to reduce property exposure. As we enter the new year, we feel our underwriting portfolio is in great health and balance. With the vast majority of our business performing well, we should be able to spend more of our time planning for the future rather than addressing problems created in the past. This is reinvigorating for our people. It's more enjoyable to be modernizing and growing our business than being preoccupied with remediation. So then what does the next few years for QBE look like and what do we want to be known for? Firstly, we're a uniquely positioned international carrier with strong presence and relationships across all key markets and platforms. This lends us a level of portfolio diversification, which now in better balance, will drive more stable and predictable underwriting performance. We want to keep growing and effectively build on this better base. With numerous opportunities to deepen our core franchises, expand into adjacent markets, and innovate around new product and risk, we have the right ingredients to develop sustainable mid-single-digit volume growth. We're now deeper into a number of important work streams on our operating model, efficiency and effectiveness. Alongside growth, efficiency will be a primary focus for the year ahead, and this work will unlock significant value. And finally, we want to be known for being highly disciplined in how we allocate and manage capital. We'll spend more time on each of these topics throughout the morning, starting with a closer look at our underwriting portfolio on slide six. This chart provides a view of our underwriting result, broken down by our key business focus areas, being commercial and specialty insurance, plus our reinsurance business, QBE RE. We also hold two leading positions in two non-PNC classes, crop insurance in North America and lenders mortgage insurance here in Australia. And finally, we have a consumer lines presence also here in Australia. The progression in this chart highlights the greater breadth of performance across our business. In years past, our earnings mix was overly reliant on a smaller number of profitable sales. With the vast majority of our business now generating performance at or above target, our earnings are in better balance. This improved earnings quality, combined with disciplined capital allocation and our unique diversification, provides a solid platform for sustainable performance. Moving to the chart on the right, which we shared at the half year. This chart shows the proportion of our premium by those cells posting an underwriting profit versus those underperforming cells with a combined ratio above 100. It provides a different lens to many of the themes I just touched on, showing the greater breadth and diversification in our earnings, with our underwriting result being driven by a much broader mix of cells. While supportive markets have helped this trend, internal initiatives have arguably been more important. In my experience, poor-performing insurance businesses can have a vastly disproportionate impact on your results relative to the better ones. We spent many years focused on remediation, more consistent underwriting, performance, discipline, and volatility. I think we've also shown good decisiveness in exiting a number of portfolios and established a good process for addressing underperforming sales. The benefits from these actions will be lasting, and this picture will continue to improve, particularly as the residual impact from non-core lines is nearing completion. So turning to slide seven. So putting some numbers to the story, how did this all play out in 2024? The three key drivers of our combined operating ratio all showed improvement versus the prior year, and most importantly, greater resilience. Starting with catastrophe costs, we came in comfortably below allowance, marking the third consecutive year where natural catastrophe costs have trended at or below budget, noting that 2022 included a provision for the conflict in Ukraine. With around $150 billion in global insured losses for 2024, one of the highest on record, we feel pleased with this result. our efforts to reduce catastrophe volatility are now clearly translating into a more favorable balance of risks in this space. Turning to reserving, our central estimate reserves were stable in 2024. This is the output of high-quality underwriting, a number of reserve transactions to re-insure our most problematic reserves, and more consistent reserving across the group. This comes in a year where many of our peers have had meaningful casualty-reserving challenges, particularly in North America. For our North American division in 2024, we had releases across most core lines. Finally, on ex-cat claims, excluding crop, our ex-cat claims ratio has steadily improved, and I think we've navigated well through a difficult inflationary environment. Taken collectively, I think this year's underwriting performance provides a strong marker on the execution of our strategy and transformation which our business has undertaken. We beat our plan for the first time in many years, had strong growth in book value per share, and our ROE of 18% is QBE's highest in well over a decade. Before moving on, while a lot worked well this year, our performance in crop clearly missed the mark. I'm frustrated as our result this year suggests we're out of balance and yet we have everything necessary to achieve balance and should be doing better. This will be a key focus for the year ahead and Inder will give some more context shortly. Let's move to slide eight. We've been talking at these briefings more regularly around our ambition for sustainable growth. I think the chart on the left highlights we've been quietly building a solid track record. We ultimately have all the right ingredients to be capable of sustaining this trend and want to deliver consistent volume growth around the mid-single digits. In the very near term, while there will be greater competition in some lines this year, rate adequacy is excellent across our portfolio and markets remain quite supportive. One of the most enjoyable parts of 2024 was having more time as a management team to focus on growth. with really good alignment across the enterprise on our best opportunities and a better linked investment to support these priority businesses. Our diversification should be a source of competitive advantage, both in terms of managing volatility, but also in terms of achieving steady growth. At our core, we are a commercial and specialty insurer and reinsurer. This slide shows that growth across each of these segments has been fairly consistent, which represent around 85% of our premium base. This has been a function of deepening our core franchises, leveraging existing capability and relationships to build presence in adjacencies and the launch of new products. As we look forward, we have great opportunities in each of these categories. In a number of our core franchises, we've been investing in data and technology to improve straight-through processing, partner connectivity and customer experience. We think these investments will drive differentiating capability with industry-leading tools and efficiency. We have a great brand, culture, and much improved stability in our key markets. Underwriters want to work for QBE, and we've had great success standing up new teams, particularly where we can boost our profile in adjacent lines. In international, we've added capability in QBE RE and European specialties, North America within construction, healthcare, and large casualty, and in OSPAC, we've expanded in construction, engineering, and education. This year, we'll add capability in U.S. E&S property, global cyber, and write more business directly out of Bermuda. We've also laid foundations to build a more targeted multinational offering, bringing together the skills and relationships we have across the enterprise. Finally, we want to foster an innovative underwriting culture and are known for our ability to solve complex problems. We've had great success playing a lead role in a number of broker facilities and have just last month announced a partnership with Key, an algorithmic Lloyds underwriting platform. Digital and algorithmic underwriting models have been around for many years in various formats, and where we can take Key partnership roles, I think they have a role to play in a well-diversified portfolio. Across the entirety of our growth strategy, our still relatively new head of distribution, Julie Minor, will add to these initiatives through driving greater strategic alignment with our trading partners. Julie will also lead our new customer strategic priority, where through better segmenting of our customers by account size and the build of greater customer analytics and sales data, ensure we better serve the unique needs of our customers. In QBE's recent history, this will be the first time where I've had an enterprise distribution and customer strategy which has been long overdue. So moving on to slide nine. As we look out over the medium term, we want to be known for being disciplined and transparent in our approach to capital allocation and capital management. We have a diverse international portfolio with products following different cycles. As such, capital allocation will be a key driver of our returns and value creation, and we're now in a better position to drive performance through more active portfolio management. We've included our capital allocation framework here. It's quite simple. We have an aspiration to grow X rate at around the mid-single digits. All our pricing models are calibrated to achieve a target return on capital, which works out to roughly one and a half times our weighted average cost of capital. These are very attractive financial returns, and understandably, we will always look to reinvest back into the business and grow, provided we can achieve our pricing targets. We have a 40 to 60 percent dividend payout ratio, which should be highly dependable through market and economic cycles. And finally, we have additional levers to distribute surplus capital beyond the dividend as needed. As I flagged in the past, inorganic opportunities are not a major focus for us. We typically approach capital allocation and budgeting through our annual planning process. As we look to 2025, markets are very supportive, and growth remains our primary focus. Having just delivered an 18% ROE, capital flexibility is important, and if we can find the right opportunities, I'd love to beat our growth plans for the year. Over the medium term, however, with our capital in a very strong position, we intend to return any surplus capital if opportunities for reinvestment and growth are not there. We'll consider the mix of any distribution between the ordinary dividend and additional capital management as we go. Looking forward, we also expect our organic capital generation should improve. While our capital position has continued to improve both in quantum and quality, our net organic capital generation has been limited until very recently. Through recent years, there's been a significant strain on our business from higher inflation in our reserves and associated premium rate increases. There's also been a strain on capital associated with re-risking our investment portfolio. As such, other initiatives like asset diversements and LPTs have been important in supporting growth and our overall capital position. From here, we'd expect the strain from inflation to moderate, and we're now essentially at our target investment mix. So to conclude on the two charts here, the messages are fairly simple. The returns we're generating at the moment are excellent and there's great momentum in the business. Over the near term, we'll continue to weigh up the scope for returning surplus capital with what remain attractive markets for growth and keep you posted as our thoughts evolve. With that, I'll now pass to Inder.

Thank you, Andrew, and good morning all. It's pleasing to deliver another year of strong financial performance. In 2024, we beat our underwriting plan, continued to drive profitable growth, delivered an exceptional return on equity of 18%, and on any measure, our balance sheet is in the best health it's ever been. As Andrew referenced, the initiatives to rebalance and de-risk our business have given us a really solid foundation on which to sustain strong financial performance over the medium term. I'll start with an overview of our result on slide 11. GWP of $22.4 billion was up 3% over the prior period, though closer to 9% excluding crop and business exits. The combined ratio improved by roughly two points to 93.1% on more stable reserve development and lower catastrophe costs. The investment portfolio delivered an annualized return of almost 5%, supported by strong performance in both core fixed income and risk assets. The result includes a restructure charge of $147 million. This includes two key components. Firstly, we flagged a restructure charge of around $100 million for costs associated with the exit of North America middle market. Secondly, in August, we announced a transaction to reinsure 1.6 billion reserves with an upfront cost of around $80 million. Middle market reserves were roughly half of this transaction, and we recorded $40 million of this cost in the restructuring line with the remainder absorbed in the group combined operating ratio. Our tax rate was 22%, slightly lower than the blend of corporate tax rates across our business, as improved profitability in North America has allowed us to recognize previously off-balance sheet tax assets. These tax assets have now been fully recognized, and as we look forward, the group's tax rate is likely to reflect the blend of corporate tax rates across our business, and we expect this to be around the mid-20% range over the medium term. Adjusted net profit was 1.73 billion, up almost 30%, resulting in a group return on equity of 18.2%. Our capital position remains very strong with the PCA multiple at 1.86 times. The Board has declared a dividend of 63 Australian cents per share, taking the full-year dividend to 87 cents, which equates to a full-year payout of 50%. Turning to growth on slide 12. Headline growth of 3% was in line with our guidance. Excluding the impact of crop, growth was 5%. And on further excluding the impact of portfolio exits, growth was closer to 9%. This represents further compound rate increases of around 6% and X rate growth on the same basis of 5%. As Andrew referenced, we are now building a track record of consistent mid-single digit X rate growth. To support this momentum, we are investing in initiatives to deepen our core franchises, grow our presence in adjacent, under-penetrated segments, and capitalize on current market opportunities. A brief comment on the portfolio exits this year. The middle market runoff has tracked ahead of expectations, with GWP decreasing from 500 million in 2023 to around 200 million in 2024. We also exited domestic third-party property relationships amounting to around $200 million. As a result, the total drag from exited portfolios in 2024 was around $600 million, amounting to around a three-point impact on the Group's premium growth rate. The drag from exited portfolios will moderate from here. Our portfolio is in good health and balance, We have sound remediation plans in place for those remaining underperforming portfolios. Turning now to slide 13 for some comments on our underwriting performance. We've delivered a very strong underwriting result of $1.2 billion in 2024, and we see further scope to drive improvement in 2025. Premium rate increases were supported through the year at around 6%, albeit, as we've previously flagged, the rate of rate increase continues to moderate. These rate trends reflect lower claims inflation, strong rate adequacy across most lines, and lower increases in property classes following the substantial hardening in 2023. In the middle of the slide, we've included a view of our premium rate increase by business segment. It gives some clear insight into what we're observing across the group. Following quite substantial rate increases in recent years, rates have been moderating in specialty classes, particularly within financial lines, and more recently in a number of Lloyd's portfolios. Profitability is strong in the majority of these lines, and we are continuing to see some lift in competition. As we look forward, technical rate adequacy remains attractive across most specialty classes, and there are meaningful opportunities for targeted growth. Conversely, you can see that rates across commercial lines have been more steady. Our presence in this segment has a bias towards small and medium-sized businesses in large, mature markets where we hold strong shares. Pricing cycles tend to have less amplitude in these markets, and rates will continue to reflect challenges associated with inflation in motor, construction costs, and the ever-present risks around social inflation. Our combined operating ratio of 93.1% was better than our plan for the year of 93.5%. Catastrophe costs of around $1.05 billion were comfortably within our allowance for the year of $1.28 billion. This marks the third consecutive year where natural catastrophe costs have tracked at or below budget, which speaks to the progress we've made in reducing volatility across our portfolio. It's important to note that 2024 was one of the more costly loss years on record, with industry catastrophe losses of around $150 billion. This included an active U.S. hurricane season and a higher frequency of secondary perils. The XCAT claims ratio increased on a headline basis, though on excluding current year risk adjustment and crop, improved by around 1%. Claims inflation moderated slightly to around 5%, While this was in line with our expectations at an aggregate level, trends remain heavily nuanced by class and by region, with a number of short tail lines in Australia still working through persistency challenges. Overall reserve development was again favorable, and we were particularly pleased with the stable development around our central estimate reserving bases. Over the period, we saw releases in a number of North American short tail classes, including crop, as well as CTP and LMI in Australia. These were broadly offset by reserves strengthening in certain international liability and reinsurance lines. A brief comment on some of the recent industry events making headlines. Our thoughts are with those impacted by the tragic fires which occurred in California last month. Our teams have been working tirelessly to support our customers. We are still assessing our group net exposure to this event, but currently estimate this to be around 200 million, predominantly through certain North American portfolios, as well as within the Lloyds Property Book and also within our reinsurance business, QB RE. Moving to expenses, our expense ratio increased to 12.2%, primarily reflecting higher change spent to support our modernisation programs. This elevated level of change spent will continue in 2025 and we expect the expense ratio to remain in the 12% to 12.5% range again this year. Andrew noted earlier that we see significant opportunity to become a more efficient and effective organization, and this together with the benefits from our modernization programs should support a lower expense ratio over the medium term. Turning now to slide 14 for some color on divisional performance. We're very pleased to report that each of our three divisions delivered a year-on-year improvement in underwriting results. In North America, our combined ratio improved to 98.9, despite the drag from non-core lines and from crop. Disappointingly, the crop combined ratio of around 99% was worse than we anticipated at our trading update in November. Although the harvest ran early, it did not translate into earlier claims notifications, and we underestimated the impact from drought and commodity price weakness in a handful of states. We also experienced some late season weather on our private hail book. We're frustrated with the outcome and have initiated a series of actions to improve performance. When we disaggregate our performance by state, it's clear that we have the opportunity to improve. We have the tools and diversification in our premium base to support better balance and more consistent results. We've recently strengthened our crop leadership team with the appointment of a new CFO and head of marketing, and are razor-focused on restoring our industry-leading performance in crop. Turning to international, where performance was excellent. The combined ratio of 88.7%, improved by around one point, supported by strong momentum and favorable catastrophe experience. We've spent a lot of time discussing actions to reduce property cat volatility in North America and in OSPAC. International has also been actively focused on property de-risking, particularly in QB RE, and has significantly reshaped and improved its portfolio. The benefit of that work is clear in these results. QB RE delivered a strong result in a heavy-cat year and avoided many of the secondary perils we would have historically paid claims on. Our London, UK, and European property books also performed well. The higher XCAT claims ratio included a strain from large loss activity, including exposure of around 70 million to the Baltimore Bridge event. The combined ratio in Australia Pacific improved by around 1.5 points to 92%. Catastrophe costs tracked broadly to plan following a more benign second half. The XCAT claims ratio deteriorated by around 1 point or half a point, excluding risk adjustment. While recent rate increases are supporting performance improvement across the majority of lines, inflation challenges persist in motor and property, and we've also seen higher claims frequency in New South Wales CTP. Turning now to slide 15 to give you some additional color on North America. This slide provides a view of core and non-core segment performance consistent with our disclosure in prior periods. Starting with core performance on the left, we've continued to execute well on our growth strategy. Excluding crop, GWP growth of 13% was driven by rate increases of around 7% and X-rate growth of around 10%. X-rate growth was fairly comparable in both commercial and specialty segments, supported by ongoing momentum in larger franchises such as Accident Health and a growing contribution from newer businesses like Specialty Casualty, Healthcare and Construction. The overall core segment combined ratio of 94% was consistent with performance in recent years. This was supported by strong results in commercial and specialty, partly assisted by reserve releases in some short-tail lines, but also impacted by the poor crop result I just referenced. In commercial, we were particularly pleased with the performance of our property programs book, given the heavy remediation work we've done in recent years, including significant improvement in pricing and terms. Our cat experience in 2024 was encouraging in this regard. Our share of hurricanes Milton and Helene was substantially lower than comparable events in recent years, and overall catastrophe costs for the core segment accounted for only 30% of North America's total cat costs. Turning now to the performance of the non-core segment. This was broadly in line with expectations with a loss of around $220 million. The main driver here was the exposure to convective storms in the first half, with some additional impact from the hurricanes I just referenced in the second half. By way of a quick recap, North America contributed the majority of ceded reserves in the 1.6 billion reserve transaction we did last October. This included all middle market reserves and all remaining non-core long-tail lines. The two large reserve transactions we have completed over the last 24 months have been incredibly important for us. particularly given the current social inflation challenges in casualty classes we're seeing across the industry. As we look to 2025, we expect the GWP drag from remaining middle market and Westwood homeowners books to be around $250 million, with a negligible amount in 2026. We will have around $300 million in non-core net insurance revenue in 2025, with a small amount left in 2026. The outlook for the non-core segment in 2025 remains an underwriting loss of around 100 million, and this is in line with our previous guidance. Moving now to slide 16, a brief word on our recent reinsurance renewal. Our key catastrophe and risk covers for 2025 remain fairly consistent, and we continue to enjoy strong support from our reinsurance partners. Pleasingly, we were able to reduce the attachment point of our main catastrophe cover from 400 million to 300 million for North American, Australian and New Zealand events, and to just 200 million for the rest of the world. The prior attachment point of 400 million had been in place for many years. Our ability to reduce this for 2025 speaks to our substantial reduction in cat exposure in recent years, particularly in the US and in Australia, and the overall improvement in the quality of the cat exposure that we write. We've spoken to you at length about our portfolio remediation actions, and it's pleasing to have this progress validated by our reinsurance partners. This means our catastrophe retentions were reduced by over 50 million for peak perils, as highlighted on the right. Taking all this into consideration, we have set our catastrophe allowance for 2025 at $1.16 billion. This is calibrated to a probability of sufficiency around the 80th centile, which is very consistent with our approach in recent years. The reduction in the absolute CAT allowance from $1.28 billion is explained in large part by the runoff of non-core lines, which carried meaningful CAT budgets. We've again included our as-if analysis here in the chart on the bottom right-hand side. This overlays our 2025 reinsurance program across our historic CAD experience. And as you can see, this year's allowance would have proven adequate in eight of the last 10 years. Moving to an update on our investment portfolio in slide 17. Our investment book delivered a record year with total investment income of almost $1.5 billion, representing an annualized return of almost 5%. The fixed income return was fairly stable, around 4.6%, and our risk asset portfolio performed well, particularly given some of the challenges in the unlisted property sector. The core fixed income yield exited the year at 4.3%, and it continues to hover around this level in early 2025. Our risk asset portfolio now represents around 14% of total assets, broadly in line with our target allocation. A brief reminder on the evolution of our strategy for the core fixed income portfolio, which we outlined last August. To better hedge some of the interest rate sensitivity that exists in our registry capital, we've built a portfolio of fixed income securities that will follow fair value accounting with mark-to-market impacts being recorded with inequity or other comprehensive income. This portfolio has now reached around $3 to $3.5 billion, where it should remain broadly stable. These securities have a longer average duration than the remaining $23 billion core fixed income book, which has raised total duration to around 2.4 years currently. Moving now to slide 18. We've spoken about the improved quality and resilience of our earnings, and the same themes clearly extend to our balance sheet. On any metric, our balance sheet is in great health, giving us ample flexibility to support organic growth. Our registry capital position ended the year at 1.86 times, up around four points. This was predominantly driven by an increase in our core equity tier one ratio to 1.31 times as the quality of our capital continues to improve. Following the payment of the final dividend, we entered the new year with a pro forma PCA position of 1.77 times. Debt to total capital continued to reduce and is now a fraction below 20%. It's pleasing that both S&P and Fitch recently revised their outlook on QBE from stable to positive, reflecting improvement in our earnings quality and operating outlook. Before closing, I wanted to flag the recent and successful launch of QBE's first catastrophe bond. The deal secures around $250 million of catastrophe coverage, which will support growth and diversify our access to alternative pools of capital. As a business, our presence and partnership with alternative forms of insurance capital is limited, but with a unique international presence which spans almost all classes of business, we see great opportunity to bring additional diversification to our capital strategy. I'll pause here and hand back to Andrew.