QBE Insurance Group Limited

Hello, and thank you for standing by. Welcome to QBE fiscal year 2025 results conference call. At this time, all participants are in a listen-only mode. After the speaker's presentation, there will be a question and answer session. To ask the question during the session, you will 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. We ask that you limit yourself to one question and one follow-up. I would now like to hand the conference over to Andrew Horton, Group Chief Financial Officer. Sir, you may begin.

Good morning, everyone, and let's begin. I'm here with Chris Gillory, our new Group CFO. Hopefully you've had a chance to take a look at our release this morning. We've had a great year with an ROE just shy of 20%. and we're very proud of these results. Before we begin, 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 recognize 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. Moving to slide four with a snapshot of our result. This is a great summary of our performance. We exceeded all our key guidance and targets this year. Headline GWP growth picked up to 7% and tracked ahead of our guidance for mid single digit growth. We beat our combined ratio guidance again this year with an excellent result of 91.9%. Our catastrophe experience and improvement in our crop business drove the majority of the upside relative to the 92.5% we reiterated in November. Profitability is attractive across the majority of portfolios, and we're confident of sustaining strong underwriting performance. We had an exceptional investment result this year. Our high-quality investment portfolio returned 4.9%, driving another record year of income. Collectively, both post-tax profit of US$2.1 billion and earnings per share were up around 25% for the year, and our return on equity at around 20% is excellent. Capital improved to 1.87 times and remains comfortably above our targets. This leaves us with valuable flexibility to support growth alongside active capital management. In November, we announced our first buyback in several years and we wasted no time in getting started through late December. The final dividend of 78 cents takes the full year dividend to $1.09, which is a 50% payout. It's clear that business is in fantastic health with strength across the board from growth to underwriting, investment to capital. Moving on to slide five. This is a simple summary of our progress in recent years. It's been roughly four years since we refreshed our strategy in late 2021. Since then, we've executed well, driving steady improvement in both financial performance and also the key metrics we track around people, culture and customer. This year, we've extended a strong and consistent track record of growth. Underlying organic volume growth continued at 7% and we have a business that can confidently sustain this trend. We have strong messages on catastrophe costs and reserving. This year, catastrophe costs were $400 million below budget, marking the third consecutive year below allowance. These have not been light-cap years by any means, with 23 and 24 amongst the costliest years on record for the industry. And the $130 billion of insured losses in 2025 was only modestly below last year. I'd also remind you that these aggregate figures mask the fact that the insurance industry is picking up a greater share of industry losses, as reinsurers have moved further away from the action. We had a favourable reserve development this year, and we've spoken about our confidence in more stable and predictable reserving outcomes. Piecing these elements together, the end outcome is a simple picture. Our combined operating ratio has steadily improved, volatility is down, and ROE is up. This is driving strong returns for shareholders. Our TSR is roughly double the local market since we launched our strategy, and we see great opportunity ahead. Before passing to Chris to unpack the result in more detail, for the next few moments, I want to take a step back and share how we're thinking about performance over the medium term. So turning to slide six. This is a summary of how we think about the industry outlook and the five medium-term aspirations we have for QBE. This audience will appreciate the increasing complexity in the world which is resulting in a risk landscape for our customers which is highly complex. Risk awareness is elevated and the role commercial P&C has to play has never been more important. With this complexity, the industry is needed to become more mature and sophisticated. But ultimately, those in the industry who truly understand risk, class of scale, diversified operations are going to be in the driver's seat over coming years. We have great breadth and diversification in the business, with capacity to deploy across all our key markets, spanning insurance and reinsurance. I do think this point is underappreciated, but is going to become more obvious and valued asset for QBE as we continue to execute around these aspirations. Delivering durable growth while sustaining strong margins and returns. So turning to slide seven on growth. The great breadth in our portfolio means there will always be classes we can grow. Looking out over the medium term, there are three overarching pillars to how we think about growth. Firstly, we remain in supportive market conditions. While rates are softening in parts of the portfolio, this is coming from a starting point of very strong rate adequacy. As we look to 2026, over 90% of our portfolio is expected to be at or above rate adequacy, defined by the pricing we need to achieve target returns. This foundation of strong and broadly distributed profitability is an excellent starting point as we look to grow the business. This picture may not be present every year, though with a diversified business, we'll always have flexibility to navigate various product cycles. Touching on some of the structural opportunities over the coming decade. Many of the global investment megatrends on this graphic will give rise to new risks, and in some cases, rapid growth in insurance value pools. We have broad expertise across most specialty and commercial lines with leading underwriters and strong relationships. It's hard for many in the market to match our capacity to deploy collaboratively across three divisions, multiple classes of business, covering both insurance and reinsurance. Lookin should work with our major trading partners to provide innovative solutions and position into these fastest growing economic megatrends. I'll leave you with a handful of data points. We have a leading energy and renewables presence who truly shine when brokers are looking for innovation. Investment in clean energy will be substantial, resulting insurance premiums in the tens of billions of dollars. We're finding our strong position in these segments dovetail nicely into the growing energy requirements supporting artificial intelligence. Alongside this, the construction of data centers will drive significant growth in premium across multiple classes over the next few years. And as the world continues to digitize, cybersecurity moves higher as a risk for companies of all sizes, while AI liability will be of increasing focus. Cyber premiums around $15 billion today are expected to increase towards $30 billion at the end of this decade. Growing mobility demands will result in more boats, planes, and trucks, while infrastructure investments support growing and urbanizing populations will be substantial. So plenty of areas where premium growth will substantially outpace the general economy and were well placed to capture a sensible share in the context of a well-balanced portfolio. The final pillar speaks to some topical trends in the industry. Firstly, surrounding a structural increase in market facilitation. We have a leading portfolio solutions franchise which has been around for roughly two decades. We've seen and participated in the complete journey of this burgeoning market and learnt a lot along the way. Today, our portfolio solutions team manage about 20 different facilities and we lead two of the world's largest. Facilitation is only going to increase as it represents a more efficient option for the customer and broker and if structured correctly, strong performance for the carrier. In and around each of the investment megatrends just touched on, there are facilities already being developed and as a market leader, we'll get the first look. As more business gets facilitized, it will come at the expense of those without a strong market proposition or genuine underwriting expertise. This will ultimately consolidate capacity toward market leaders. Finally, on AI, we continue to build, deploy, and partner to enhance many aspects of our business. AI will allow us to boost underwriting productivity, unlock sharper risk insights and become a more efficient and effective business. We have a significant amount of proprietary data and market insights, which have been built through market leading franchises in operation for many decades. AI can help us to better unlock and leverage these data assets and further enhance our market position. So let's turn to slide eight. This slide brings many of these points together, detailing our new medium term outlook. Our financial outlook has been primarily based around a single year ahead with both premium growth and the combined ratio. With where we stand today, having restored performance and pivoted the business as an organization, our strategic focus is much longer dated. The quality of our earnings is substantially improved with better breadth, stability, and visibility. Our planning is more medium term, and we organize ourselves around a much clearer view of value creation for the enterprise. So we want to start sharing some of that with you and begin translating our medium term plans into our guidance. To get ahead of the obvious question, medium term for us here means the next three years. So starting with growth, we see a continuation of mid-single digit GWP growth over the medium term. Where we can do better and deploy capital at strong returns, we'll always hold the preference to grow the business. Over the medium term, we see our group ROE trending in the 15% plus range. This assumes an effective tax rate of around 25% and an investment return sustained in the 3% plus range, which is essentially what futures predict today. Underpinning the outlook is a view that combined ratios are fairly sustainable around current levels. We spoke in August about the breadth in our business with 50 plus sales, which aggregate up to around 14 underwriting pools. Each have different P&L characteristics, different claims drivers, different capital requirements, and different dimensions across combined ratio and investment income. How effective we are as capital allocators will be a key driver of our performance as we look to deploy our capital to optimize risk-adjusted returns and drive value. With 2025 marking QBE's fourth consecutive double-digit ROE, on the right-hand side, you can see the extent to which we've driven compelling value for our shareholders. As we continue to execute over the medium term, we should be able to extend this picture where 15% plus ROE profile will continue to deliver great value for shareholders. Before moving on, I want to emphasize that this is not signaling any relaxation of our focus on combined ratio. It will always be a key metric for QBE. But ultimately, we manage the business to a view of return on equity, and the combined ratio is really an output of our portfolio mix. So moving to slide nine. Having discussed growth and returns, this slide gives some color on how capital fits into the picture. We shared our capital allocation framework last year. It's relatively straightforward. We have an aspiration to grow the business, provided we can achieve adequate returns. All our pricing models and view of rate adequacy is calibrated to an ROE hurdle, which works out to roughly one and a half times our weighted average cost of capital. This is a hurdle, not a ceiling, which many parts of the portfolio are comfortably clearing. Just delivered an ROE of almost 20% and see returns holding over the hurdle over the medium term. We have a 40 to 60% dividend payout ratio, which should be highly dependable through market and economic cycles. And finally, we have additional levers to distribute surface capital beyond the dividend as needed, as we recently highlighted with the buyback announcement. Had a small window in December to start buying before the close period and completed around 90 million of the total. I want to build a track record of following through on these announcements and moving through them with some pace. So looking ahead, the simple outlook of mid-single digit growth alongside returns of 15% plus ROE suggests a very healthy picture for capital. They'll have ample flexibility to support growth and likely see ongoing surplus capital generation on top. To ensure we optimise returns, we'll look to return any surplus. This will be an annual assessment as we exit the year where we have full visibility of our current period profits and growth plans for the year ahead. The final message on this slide relates to alternative capital. We've historically had limited alternative capital in our business. As these markets and investors have evolved, we do see opportunities from both a cost of capital and capital efficiency perspective. This can be an important lever for us as we strive for sustainable mid-teen returns, particularly where we can build long-term strategic partnerships. I'm going to stop here and pass to Chris to take you through the financials, and I should take a moment to welcome him this morning. As you know, we placed a great deal of emphasis on consistency and stability of management in recent years. We've been focused on building greater talent depth and genuine succession pathways. I'm proud that we've been able to announce Chris into his new role in such quick time. He's a highly experienced and talented executive, and having operated through a number of key roles for QB in the past decade, will no doubt settle him well and become a great asset for us. So over to you, Chris.

Thank you, Andrew, and good morning, everyone. It really is a privilege for me to be speaking for the first time today as Group CFO. As Andrew mentioned, I've been lucky enough to be with QBE for around 12 years now across actuarial leadership, divisional CFO roles, and most recently leading QB RE. Across those roles, two things have consistently stood out, the depth of our talent and the strength of our culture. And it's that foundation that I believe that underpins the performance we're sharing with you today. Turning first to slide 11, 2025 was an excellent year. We exceeded plans and delivered QBE's strongest return on equity in many years. Gross written premium grew 7% to $24 billion, around 8% if we exclude crop and exits. The combined ratio improved to 91.9%. That's more than a point better than last year and comfortably ahead of our outlook of 92.5%. This result is underpinned by both prudent reserving and a continued focus on portfolio optimisation. Investment income was around $1.6 billion, delivering a return of 4.9%. The net impact from ALM activities was again broadly neutral, and our tax rate for the year was 24%, modestly better than our natural tax rate of around 25%, and that's driven by the mix of our earnings tilting towards our North American tax group. Profit for the year was a record $2.1 billion, earnings per share grew around 25%, and our ROE has increased to 19.8%. Our capital position also remains very strong, with a PCA multiple of 1.87. Our final dividend of 78 Australian cents takes the full year dividend to 109 cents, up 25%. The payout ratio remains at 50%, a level we see as sustainable. Above this level, it's likely that we'll continue to use buybacks to distribute surplus capital. We've also increased the franking rate of the final dividend to 30%, which we expect to maintain going forwards. Turning now to slide 12. Headline GWP growth of 7% exceeds our mid-single-digit outlook, with underlying growth close to 8% if we exclude exits. This is a fall four points higher than headline growth in 2024 and highlights the impressive momentum we continue to see across the business. Growth continues to be skewed to the Northern Hemisphere, led by reinsurance, accident and health, portfolio solutions, and targeted adjacencies in North America. Australia Pacific was broadly stable, but the story here is momentum which improved through the second half, with a return to X rate growth that we expect to continue into 2026. We enter 2025 with a clear set of initiatives to restore growth in AUSPAC, including new partnerships, distribution improvements and a more dynamic approach to pricing. It's been great to see the outcome of execution as these actions gain traction. A brief comment on our crop business and its impact on net insurance revenue. Crop GWP increased 11% to $4.3 billion. However, given our focus on portfolio optimisation, net insurance revenue actually declined by 6% over the period. This is because we've increased sessions to the federal reinsurance pool, materially reducing exposure to those states we regard as underperforming, including California and Texas. This does, however, weigh on group net insurance revenue growth in 2025, but in 2026, I'm pleased to say that group GWP growth and net insurance revenue growth should be much more closely aligned. Before moving on, it's worth remembering that our X rate growth here includes both volume and exposure adjustments, and these exposure adjustments play an important role in managing inflation. Our underwriters generally adjust on sums insured for property lines, on wage rolls or turnover for workers' compensation and liability lines, and in the case of energy and marine lines, premiums often adjust off commodity prices. Turning to slide 13 for a little more on the group's underwriting performance. Underwriting performance was excellent, with a combined ratio of 91.9%. Catastrophe costs were... around $750 million, which is well below allowance. But this is a pleasing outcome in a year where industry losses have been pegged at $130 billion, including a challenging year here in Australia for the devastating California wildfires. We share catastrophe costs at our November update, and losses have increased only modestly from this level. I do think that highlights the quality of the portfolio given the challenges observed here through the Australian summer. I'd also remind you that if we cast our mind back to the first half, we would comfortably lower our catastrophe budget then in what was actually the most expensive first half on record for the insurance industry. Turning now to... ...reserving. I do believe we're now starting to see the impact of our more prudent reserving strategy that Andrew and Inder have outlined over recent years. During 2025, we recognised a modest central estimate release of $40 million, and that's our first full-year release in several years, driven by short-tail lines plus LMI and CTP, while retaining prudence against more uncertain longer-tail lines. Our reserve strength and resilience has steadily improved over recent years, and I'm confident we're exiting 2025 with group reserves in the strongest position we've held for many years. Importantly, these charts also highlight the extent to which we're managing to multiple pricing cycles. This diversification provides a meaningful lever through which QBE can manage the overall underwriting cycle. This picture results in an overall rate increase of around 1% for the year. If we exclude property business and Lloyds, the rate increase is actually closer to 4%, which has been fairly steady throughout the year. Premium rate adequacy remains comfortably in excessive targets across the group, and as Andrew touched on, is broadly distributed across the business as we look to 2026. The expense ratio was 12.4%, while absorbing an elevated investment envelope of around $300 million. These investments are supporting modernisation, including the migration of Australia Pacific portfolios onto our new cloud-based Guidewire platform. Importantly, expense growth has moderated meaningfully, now at 5% from closer to 10% over the past few periods, as they're starting to drive greater efficiencies. Highlighted another way, in 2025, headline GWP growth was 7%, which contrasts favourably with a headcount reduction of 1% over the same period. Efficiency, along with capital allocation, is going to be a major focus for me, and we've got a meaningful opportunity as we drive greater benefits from recent investments, embed the deployment of AI, and work ruthlessly to eradicate process inefficiency. Looking ahead, we expect an expense rate around 12% in 2026, and for that to glide lower over the medium term. Turning now to slide 14, with some more information on the performance of each of our divisions. Pleasingly, all three divisions have delivered margin expansion. Under Judy's leadership, North America improved by over a point, despite pressure in accident and health and aviation. Starting with our crop business, this business delivered a result of 88%. That's our strongest performance in seven years. The positive performance reflects, in part, the early benefits of the strategic overhaul we've highlighted throughout the year. We reset our leadership team, recalibrated our utilization of the federal fund, and repositioned our private products portfolio. Further benefit from these actions is anticipated in 2026. Alongside the benefits from internal actions, the portfolio was supported by better than average yields in a number of our key Midwest states, including the Dakotas, Iowa, Illinois, and Nebraska. Our commercialized business in North America has also performed well. However, as flagged earlier, our specialty business has been impacted by claims activity in ANH and aviation, resulting in a combined operating ratio of over 100% for our US specialty business. I'd like to say some more on accident and health. This is an excellent business in a growing sector of the economy with strong market position, good track record, and a highly attractive through cycle return on capital. We write close to a billion dollars in premium, And this year we did see a lift in claims severity on account of rising treatment costs, medical advancements and the demand for new drugs. The team has responded quickly through rate, policy terms and attachment points. Around 70% of the book renews at 1 January and we achieved a rate increase north of 20% in addition to tightening terms. We'll continue to monitor loss trend and we'll take whatever action necessary to return this book to profitability. Moving now to international, it's been another year of impressive performance for Jason's business, with growth across all segments and a combined ratio of 88.5%. We did benefit from CAP running below allowance, which offset some reserve strengthening in certain liability marine portfolios, as called out of the half. Given two of our more cycle-exposed segments, namely Lloyds and Reinsurance, reside in international, it's sensible to say a little more on rate here. Rate for international was fairly flat for the year, where our UK, Europe and reinsurance businesses saw rates in the low to mid single digits, this was partly offset by some softening in our Lloyds portfolio. Putting this in some context, however, since 2018, our Lloyds business has benefited from cumulative rate change to 2025 of around 60%. This contrasts with the rate reduction around 3% at the 1-1 renewals last month. Similarly, for QB RE, rates were down 1% at 1-1, where we renew over half the book, but that contrasts with cumulative rate increases around 65% since 2017. We do see it as a positive that competition is largely restricted to rate, while discipline remains around terms and conditions. For both QBRE and Lloyds, terms and conditions, attachment points, how we selectively deploy capital year on year, and how we leverage faculty reinsurance are frequently more important than rate when it comes to delivering performance. Finally, on Australia Pacific, Sue's business has had an excellent year, with the combined ratio improving significantly, supported by favourable reserve development across 15 of our 20 cells, along with easing inflation. The impressive performance is, despite catastrophe costs, running modestly over budget, in what we know was an active catastrophe year. Overall, rate increases tracked in the low single digits, fairly stable, and what we reported at the half year. And looking ahead, we'll benefit from substantial CTP rate increases put through in recent months, including around 15% in New South Wales. Turning now to our investment results on slide 15. Our investment portfolio delivered another record result with income of around $1.63 billion, representing a return of around 4.9%. Risk assets returned almost 10%, while fixed income yields exited the year at approximately 3.7%. and for reference, futures markets currently imply the fixed income yield will exit 2026 at around 3.8%. Investment fund increased by 17% this year, with roughly a third of that attributable to the weakening US dollar. Our assets and liabilities are, however, well insulated from FX, and while funds under management have increased, so too have our claims reserves. Similarly, the increased prescribed capital amount associated with higher fund and reserves is absorbed by an increase in available capital, resulting in negligible impacts on the PCA multiple. There remains a modest FX gain of $24 million in the group P&L, and that's reported within the expenses and other line shown here in this table. Investment mix shifted slightly with risk assets of 15% of the portfolio. The OCI fixed income book now stands at around $3.5 billion, or 12% of our overall core fixed income portfolio. Moving now to slide 16 and an update on reinsurance. We achieved another strong and importantly sustainable reinsurance outcome. Our diversification by region and class of business means we have a highly sought-after proposition in the market. Given the support of our strong reinsurer relationships, we were again able to reduce the attachment point of our CAP programme now to $250 million. That's a reduction of almost 40% in just two years. And this is at a time where in the market more generally, attachment points and terms and conditions are rarely moving. Ultimately, we see this as strong external validation of our approach to portfolio management and the initiatives we've executed to reduce problematic exposures. The lower cap retentions have allowed us to modestly reduce the cap budget to $1.13 billion, whilst maintaining sufficiency around the 80th percentile. Whilst the allowance has been trending lower, group property premiums have been fairly stable. And the chart here summarises catastrophe experience for our North American division and helps illustrate the improvements in our catastrophe portfolio. You may recall that historically this division had driven much of our cap volatility. It's a simple picture highlighting the impact of portfolio remediation led by Peter and Julie, including the exit of multiple programmes, the middle market business and our consumer portfolios. Despite these exits, our share of regional property premium is down only modestly, in contrast to a much more significant fall in our share of property losses. Finally, on reinsurance, I did want to expand on Andrew's earlier comments about alternative capital. Following the launch of QB Re's first cap bond in 2025, the 2026 bond has broadened coverage to the whole group, attaching now at $800 million. The bond provides greater certainty around the availability of capacity, whilst also reducing our overall cost of capital. We also launched a casualty sidecar on the QB Re casualty portfolio. As you know, you can think of the mechanics of a sidecar as similar to that of a quota share, and we've effectively quota shared around one third of the casualty reinsurance portfolio for the 2025 underwriting year. In effect, this allows QBE to swap underwriting risk for fee income, enabling us to recycle capital, manage reserve risk, and ultimately support more capital-efficient growth. These are early transactions as we build our profile in these markets, but I do see this space as an important lever for QBE as we calibrate the business to deliver sustainable mid-teen returns. Turning now to my final slide, slide 17, I'm fortunate to be inheriting a balance sheet in excellent health. We received credit rating upgrades from both S&P and Fitch, moving to AA- for the first time. The year-end PCA multiple has increased to 1.87, and following payment to the final dividend and adjusting for the buyback, the pro forma PCA reduces to 1.73. Alongside our 50% payout ratio, the buyback brings our total shareholder distributions to around 65% for this year's profits. And turning finally to funding, we retired our Tier 1 notes, effectively replacing this funding with Tier 2 issuance. This reduces our cost to capital and leaves us with significant flexibility to engage these markets opportunistically if we were to need to in the future. This does mean that our debt to capital increased by around 4 points to 24%, but we expect gearing will glide back toward the middle of our target range over the medium term. It's been a pleasure to have the opportunity to present what I believe are a very positive set of results today. But before passing back to Andrew, I wanted to briefly touch on a small transaction we announced earlier in the day. We've agreed terms to sell and exit our global trade credit and surety business, chiefly composed of our Australian and UK trade credit operations. While this business has performed well over an extended period underpinned by an excellent team, we recognise its leverage to macroeconomic settings. The exit will allow us to recycle capital into our core focus areas where we see a greater opportunity for long-term growth. Total premium is under consideration, around $200 million, and we're planning the close later in the year. The modest upfront proceeds and capital released will add to today's messages around capital strength. I'll pause here and hand back to Andrew.