QBE Insurance Group

2019
Annual 
Report

Q B E   I N S U R A N C E   G R O U P   L I M I T E D

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Table of contents

A N N UA L   R E P O R T   2 01 9

SECTION 1

SECTION 3

SECTION 5

Performance overview

Governance

Financial Report

Financial Report contents 

Financial statements 

Notes to the financial 
statements 

Directors’ declaration 

83

84

88

160

SECTION 6

Other information

o
n

Independent auditor’s report 

Shareholder information 

Financial calendar 

10-year history 

Glossary 

161

169

172

173

174

Chairman’s message 

2019 snapshot 

Group Chief Executive  
Officer’s report 

SECTION 2

Business review

Group Chief Financial  
Officer’s report 

Operations overview 

North America business review 

International business review 

Australia Pacific business review 

2

4

6

10 

24

26

28

30

Climate change – our approach 
to risks and opportunities 

Risk – our business 

Board of Directors 

Group Executive Committee 

Corporate governance 
statement 

32

40

44

46

48

SECTION 4

Directors’ Report

Directors’ Report 

Remuneration Report 

56

60

Auditor’s independence declaration  82

QBE Insurance Group Limited  |  ABN 28 008 485 014

All amounts in this report are US dollars unless otherwise stated.

 
 
 
 
 
 
 
 
 
 
 
 
 
2

Chairman's message

Strong foundations 
for a sustainable future

At QBE, our purpose is to give people the 
confidence to achieve their ambitions. 
Around the world, our team of more than 
11,700 people strive every day to meet this 
commitment. We aim to keep the customer 
at the centre of our decision-making as 
we work to deliver insurance and risk 
management solutions that respond to our 
customers' current and emerging needs.

When disaster strikes, our immediate priority 
is the safety, wellbeing and ultimately recovery 
of our customers and the communities 
in which they live. Throughout 2019, our 
customers around the world faced a number 
of challenges, from monsoonal flooding in the 
Queensland city of Townsville to devastating 
wildfires in the US, and unseasonal weather 
conditions which impacted the performance 
of our North American Crop business. 
Through it all, QBE was there to help. 

As 2019 ended and 2020 began, we were 
there too when unprecedented bushfires 
swept across the Australian landscape 
razing homes, businesses and livelihoods. 

The devastation caused by the fires 
is widespread and many QBE customers 
and their communities were impacted. 
I am enormously proud of how QBE 
responded to these events, which Pat 
details in his CEO report on page 6 of this 
Annual Report. Just as we were there in 
the immediate aftermath, we will continue 
to support our customers and bushfire 
communities on the long road to recovery. 

2

Chairman's message

3

Strong foundations 

for a sustainable future

At QBE, our purpose is to give people the 

confidence to achieve their ambitions. 

Around the world, our team of more than 

11,700 people strive every day to meet this 

commitment. We aim to keep the customer 

at the centre of our decision-making as 

we work to deliver insurance and risk 

management solutions that respond to our 

customers' current and emerging needs.

When disaster strikes, our immediate priority 

is the safety, wellbeing and ultimately recovery 

of our customers and the communities 

in which they live. Throughout 2019, our 

customers around the world faced a number 

of challenges, from monsoonal flooding in the 

Queensland city of Townsville to devastating 

wildfires in the US, and unseasonal weather 

conditions which impacted the performance 

of our North American Crop business. 

Through it all, QBE was there to help. 

As 2019 ended and 2020 began, we were 

there too when unprecedented bushfires 

swept across the Australian landscape 

razing homes, businesses and livelihoods. 

The devastation caused by the fires 

is widespread and many QBE customers 

and their communities were impacted. 

I am enormously proud of how QBE 

responded to these events, which Pat 

details in his CEO report on page 6 of this 

Annual Report. Just as we were there in 

the immediate aftermath, we will continue 

to support our customers and bushfire 

communities on the long road to recovery. 

Risk culture

Sustainability

We work in an era of increasing regulatory 
scrutiny for our industry. Across our 
operating divisions – North America, 
International and Australia Pacific 
– we strive to apply the highest possible 
governance standards as we respond 
to changing customer, community and 
stakeholder expectations around the world. 

In our home market of Australia, the 
Royal Commission into Misconduct in the 
Banking, Superannuation and Financial 
Services Industry is leading to a number of 
regulatory and legislative reforms that have 
ramifications for the insurance industry and 
the financial services sector more broadly. 

QBE is pleased to have played 
a constructive role in supporting these 
reforms, while also making a number of 
important changes within our operations 
in response to our own assessment of 
the strengths and areas for improvement 
in our governance, accountability and 
culture frameworks. 

Shareholder returns

Unusually poor weather conditions in parts 
of the US adversely affected the financial 
performance of our North American 
Crop business in 2019. Regrettably, this 
weighed on the Group's underwriting 
result, despite very good pricing 
momentum and a strong investment 
performance in an otherwise challenging 
global interest rate environment. 

The Group statutory net profit after tax of 
$550 million represents a 41% increase on 
2018, while the cash return on equity was 
8.9% 1, up from 8.0% 1 in the prior year. 
The Board has taken this into account 
when determining this year’s final dividend. 
Our dividend policy is intended to reward 
shareholders relative to cash profit, while 
maintaining sufficient capital for future 
investment and growth in the business. 

Accordingly, the Board has declared 
a final dividend of 27 Australian cents 
per share. When combined with the 
25 Australian cents per share dividend 
declared at the half year, this represents 
a 2019 full year dividend of 52 Australian 
cents per share. This compares favourably 
with 50 Australian cents per share paid 
out in 2018 and equates to a payout ratio 
of 65% of adjusted cash profit. 

During 2019, we also purchased an additional 
A$295 million in QBE shares as part of our 
three-year on-market share buyback program. 

As a company that helps people and 
businesses protect themselves from risk, 
QBE is keenly focused on sustainability. 
The identification and management of 
current and emerging environmental, 
social and governance trends is integral 
both to our ability to understand the needs 
of our customers and to ensuring the 
sustainability of our own business. 

In 2019, we further improved our overall 
ranking in the Dow Jones Sustainability Index 
(DJSI)/Corporate Sustainability Assessment 
and maintained our inclusion in the DJSI 
Australia Index. This is positive recognition 
of the work we are doing, and in 2020 
we will maintain our efforts in this area.

Climate change is a global risk that 
has had, and will continue to have, 
ramifications around the world. It is 
a material risk for QBE and across our 
operations, and we have developed 
a detailed approach for how we manage 
climate-related risks. 

In 2019, we continued to deliver on our 
Climate Change Action Plan commitments 
and further enhanced our disclosures, 
in line with the recommendations of the 
Task-force on Climate Related Financial 
Disclosures (TCFD). 

Pleasingly, our focus on climate change 
was recognised by non-profit climate 
research provider, CDP, with QBE’s 
score for corporate transparency and 
action jumping two places to a ‘B’ in 2019. 
An update on our Climate Change Action 
Plan is included on pages 32 to 39 of this 
Annual Report. 

Among the measures introduced in 2019 
was the publication of our energy policy, 
which provides shareholders, customers 
and the wider community with a clear 
explanation of the Group’s approach 
to investing in and underwriting energy 
projects. Due to the high emissions 
intensity of thermal coal, QBE has 
maintained zero direct financial investment 
in thermal coal from 1 July 2019, and we 
have committed to phase out all direct 
insurance services for thermal coal 
customers within the next decade.

I am also pleased to report that in 2019, 
QBE again achieved carbon neutrality and 
we set an ambitious target to use 100% 
renewable electricity across our operations 
by 2025. We are also working closely with 

our customers in a range of sectors around 
the world to support their transition to 
a lower carbon economy.

Earlier this year, QBE launched its first 
disaster relief and climate resilience 
partnerships with two of the world’s leading 
humanitarian agencies, Red Cross and 
Save The Children. These three-year 
partnerships support the rapid mobilisation 
of support for disaster relief activities in 
response to catastrophic events. 

By directing a portion of these funds 
to climate resilience projects, we are also 
supporting the efforts of communities 
to protect themselves from physical risks 
and potentially mitigate future disaster.

Looking ahead

As a global insurer, with operations in 
27 countries around the world, we are 
acutely aware of the challenges and 
uncertainties that tomorrow may bring. 
Global population growth, climate change, 
mass migration of people to cities, 
economic uncertainty, trade disputes and 
protectionism all present challenges for 
our customers and for our business.

At the same time, technological innovation, 
the Internet of Things (IoT), the explosion in 
data and the increasingly sophisticated use 
of analytics all present opportunities for QBE. 

I am confident that, with a highly performing 
team under Pat Regan’s leadership, QBE 
is well placed to take advantage of these 
opportunities and build on the momentum 
we have created in 2019.

Accordingly, I have advised the Board that 
I believe the time is right for me to step 
down as Chairman and from the QBE 
Group Board. Board renewal is important 
to bring fresh ideas and perspectives and 
I am delighted the Board has chosen Mike 
Wilkins to succeed me in the role of Group 
Chairman. Mike is a highly regarded and 
well credentialed director and will bring fresh 
thinking to the direction of your company.

Thank you, our shareholders, for your 
support during my time as Chairman of 
this great company. I feel very privileged 
to have served in this role and I am 
confident that I leave QBE in very capable 
hands. I wish Mike, the Board, Pat and the 
executive team and everyone at QBE all 
the very best for the future. 

W. Marston Becker 
Chairman

1  2019 adjusted cash profit ROE excludes non-cash and material non-recurring items such as restructuring costs, gains (losses) on disposals, the 

impact of the Ogden decision in the UK and discontinued operations. 2018 adjusted cash profit ROE excludes the transaction to reinsure Hong Kong 
construction workers' compensation liabilities.

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4

2019 snapshot  1

Shareholder 
highlights

Financial highlights 3

Net profit after income tax (US$M)

2017

(1,249)

Dividend per share (A¢)

52¢

Dividend payout (A$M)

681

A¢
60

45

30

15

0

4
0 5
5

2
5

0
5

6
2

A$M
1,500

1,125

750

375

0

2015

2016

2017

2018

2019

Dividend per share (A¢)

Dividend payout (A$M)

 4% from 2018

Earnings per share (US¢)

41.8¢

2018  29.0¢

2016
Combined operating ratio 4 (COR) 
2015

2014

2013

97.5% 5

2018  95.7% 6
Gross earned premium 
by class of business

Gross written premium  
by class of business

Adjusted net profit after tax (US$M)

844

687

742

622 5 

(254)

 4% from 2018 6

2019

2018

622

597

2017

(191)

Other

2016

2015

Financial & credit

833

807

Insurance profit and 
underwriting result (US$M)

Accident & health

Insurance profit (US$M)

Marine energy & aviation

(cid:31) Commercial & 

domestic property 
(cid:31) Motor & motor casualty 
(cid:31)  Agriculture 
(cid:31)  Public/product liability 
(cid:31)  Professional indemnity 
(cid:31)  Workers' compensation 
(cid:31)  Marine, energy & aviation 
(cid:31)  Accident & health 
(cid:31)  Financial & credit 
(cid:31)  Other 

2019  2018
%

% 

29.2 

29.2

14.4 

13.7 

11.9 

8.4 

7. 1 

6.6 

5.3 

3.3 

0. 1 

15.7

12.7

11. 1

7.9

7.3

6.6
Insurance
5.2
(loss) profit
Underwriting
0.5
result

3.8

Workers' compensation

708 5 

1
6
8
Professional indemnity

 $153 from 2018 6

Public/product liability

8
0
7

8
2
5

Underwriting  
result 4 (US$M) 

Agriculture

8
1
0
2
Motor & motor casualty

Commercial & domestic property

  Insurance 
profit
  Underwriting 
result

290 5
4%
 $238 from 2018 6
6%

0
9
2

9
1
0
2

Adjusted cash profit return on 
average shareholders’ funds 2

8.9%

2018  8.0%

Net earned premium (US$M)

11,609 

 1% from 2018 7

Net earned premium by type 

facultative 
insurance

92% direct and 
  8% inward 

reinsurance

1	 The	information	in	the	tables	above	is	extracted	or	derived	from	the	Group’s	audited	financial	statements	included	on	pages	84	to	159	of	this	Annual	
Report.	The	Group	Chief	Financial	Officer’s	report	sets	out	further	analysis	of	the	results	to	assist	in	comparison	of	the	Group’s	performance	against	
2019	targets	provided	to	the	market.

2	 2019	adjusted	cash	profit	ROE	excludes	non-cash	and	material	non-recurring	items	such	as	restructuring	costs,	gains	(losses)	on	disposals,	the	

impact	of	the	Ogden	decision	in	the	UK	and	discontinued	operations.	2018	adjusted	cash	profit	ROE	excludes	the	transaction	to	reinsure	Hong	Kong	
construction	workers’	compensation	liabilities.

3	 2018	and	2019	figures	reflect	results	for	continuing	operations	only.

 
 
 
 
 
 
4

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Shareholder 

highlights

Financial highlights 3

Net profit after income tax (US$M)

Operational highlights

Sustainability highlights

1

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Investments and cash at 31 December 2019

70%

Private equity

Average renewal rate increase

Group-wide 8 

Segment

6.3%

North America

International

Australia Pacific

8

2018  5.0%

5.8%

6.0%

7.3%

Retention

78% 

2018  81%

Net investment 
return 4

3.6% 

2018  2.3%

Gross written 
premium growth 7

2% 

2018  3%

Fixed income 
duration

2.6years 

2018  2.1 years

Cash and investments at 31 December 2019 (US$M)

24,374

Investments and cash at 31 December 2019

Private equity

2019  2018
% 
%
(cid:31) Corporate bonds 
54.4 
53. 1
(cid:31) Government bonds 
23.8 
21.7
(cid:31) Short-term money 
4.4 
5.6
Other - growth assets
(cid:31) Infrastructure assets 
3.7
3.7 
(cid:31) Property trusts 
Developed Market Equities
4. 1
3. 1 
(cid:31) Emerging market debt 
1.0
2.3 
High yield debt
(cid:31) Cash and cash equivalents  2.2 
3.8
(cid:31) Infrastructure debt 
Infrastructure debt
2.2
1.6 
(cid:31) High yield debt 
0.4
1.6 
Cash and cash equivalents
(cid:31) Developed Market Equities  1.2 
2.5
(cid:31) Other – growth assets 
0.9 
1.2
Emerging market debt
(cid:31) Private equity 
0.7
0.8 
Property trusts

Renewable 
electricity  
use (%)

Target  
by 2025

100%

Currently 63% 

Climate change 
disclosure

DISCLOSURE  INSIGHT ACTION

Score:  B 

Employment 
engagement (%)

Fostering a culture 
of innovation

Ran a global challenge 
for employees to identify 
sustainable solutions

155

5

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 4% from 2018

Other - growth assets

projects identified

Developed Market Equities

Financial inclusion

High yield debt

Infrastructure debt

Impact investments

Cash and cash equivalents

Emerging market debt

Property trusts

QBE joined the program 
in Australia

Infrastructure assets

Short-term money

Government bonds

Corporate bonds

Premiums4Good: Ethical 
Corporation’s global 
Responsible Business 
Awards – Finalist, 2019

Global disaster relief partnerships

Partnering to 
build resilient 
communities 
and futures

Infrastructure assets

Short-term money

% 
(cid:31) Corporate bonds 
54.4 
4	 Excludes	the	impact	of	changes	in	risk-free	rates	used	to	discount	net	outstanding	claims.
(cid:31) Government bonds 
23.8 
(cid:31) Short-term money 
5	 Excludes	one-off	impact	of	the	Ogden	decision	in	the	UK.
4.4 
(cid:31) Infrastructure assets 
3.7 
6	 Excludes	transaction	to	reinsure	Hong	Kong	construction	workers’	compensation	liabilities.
(cid:31) Property trusts 
3. 1 
(cid:31) Emerging market debt 
2.3 
7	 Constant	currency	basis.
(cid:31) Cash and cash equivalents  2.2 
8	 Excludes	premium	rate	changes	relating	to	Australian	compulsory	third	party	motor	(CTP).
(cid:31) Infrastructure debt 
1.6 
(cid:31) High yield debt 
1.6 
(cid:31) Developed Market Equities  1.2 
(cid:31) Other – growth assets 
0.9 
(cid:31) Private equity 
0.8 

2019  2018
%
53. 1
21.7
5.6
3.7
4. 1
1.0
3.8
2.2
0.4
2.5
1.2
0.7

Government bonds

Corporate bonds

2019 snapshot  1

Dividend per share (A¢)

Combined operating ratio 4 (COR) 

Adjusted net profit after tax (US$M)

52¢

Dividend payout (A$M)

681

4

0 5

5

2

5

0

5

6

2

A¢

60

45

30

15

0

2015

2016

2017

2018

2019

Dividend per share (A¢)

Dividend payout (A$M)

 4% from 2018

A$M

1,500

1,125

750

375

0

Earnings per share (US¢)

41.8¢

2018  29.0¢

2017

2016

2015

2014

2013

97.5% 5

2018  95.7% 6

Gross earned premium 

by class of business

Gross written premium  

by class of business

Insurance profit and 

underwriting result (US$M)

(cid:31) Commercial & 

domestic property 

29.2 

29.2

2019  2018

% 

%

(cid:31) Motor & motor casualty 

(cid:31)  Agriculture 

(cid:31)  Public/product liability 

(cid:31)  Professional indemnity 

(cid:31)  Workers' compensation 

(cid:31)  Marine, energy & aviation 

(cid:31)  Accident & health 

(cid:31)  Financial & credit 

(cid:31)  Other 

15.7

12.7

11. 1

7.9

7.3

6.6

14.4 

13.7 

11.9 

8.4 

7. 1 

6.6 

5.3 

3.3 

Insurance

5.2

(loss) profit

3.8

Underwriting

0. 1 

0.5

result

844

687

742

622

597

(1,249)

2019

2018

2016

2015

622 5 

(254)

 4% from 2018 6

2017

(191)

Other

833

807

Financial & credit

Accident & health

Insurance profit (US$M)

Marine energy & aviation

Workers' compensation

708 5 

 $153 from 2018 6

Professional indemnity

Public/product liability

1

6

8

8

2

5

8

0

7

0

9

2

Agriculture

Underwriting  

result 4 (US$M) 

Motor & motor casualty

8

1

0

2

9

1

0

2

  Insurance 

profit

Commercial & domestic property

  Underwriting 

result

290 5

 $238 from 2018 6

4%

6%

Net earned premium by type 

92% direct and 

insurance

facultative 

  8% inward 

reinsurance

Adjusted cash profit return on 

average shareholders’ funds 2

8.9%

2018  8.0%

Net earned premium (US$M)

11,609 

 1% from 2018 7

1	 The	information	in	the	tables	above	is	extracted	or	derived	from	the	Group’s	audited	financial	statements	included	on	pages	84	to	159	of	this	Annual	

Report.	The	Group	Chief	Financial	Officer’s	report	sets	out	further	analysis	of	the	results	to	assist	in	comparison	of	the	Group’s	performance	against	

2019	targets	provided	to	the	market.

2	 2019	adjusted	cash	profit	ROE	excludes	non-cash	and	material	non-recurring	items	such	as	restructuring	costs,	gains	(losses)	on	disposals,	the	

impact	of	the	Ogden	decision	in	the	UK	and	discontinued	operations.	2018	adjusted	cash	profit	ROE	excludes	the	transaction	to	reinsure	Hong	Kong	

construction	workers’	compensation	liabilities.

3	 2018	and	2019	figures	reflect	results	for	continuing	operations	only.

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
6

Group Chief Executive Officer’s report

Building 
momentum

QBE was founded in 1886 in Townsville, 
Queensland. I’m not sure that anyone then could 
have imagined the kind of world we live in 
today, particularly the level of unpredictability 
facing business and society at large.   

In 2019, we saw low economic growth across most major 
economies but we also saw generally low unemployment and 
stock markets at record highs. Politically we saw trade tensions 
and protectionist policies, however we ended the year with a series 
of trade agreements signed, or in discussion. We also saw central 
banks maintain interest rates at record lows to try to stimulate 
growth – albeit at this stage with mixed success.

This had implications for QBE and for our customers who represent 
almost every facet of the global economy – from big business 
to local stores and from skyscrapers to first homes – and who 
face new risks and opportunities every day. 

Among these is the disruptive influence of technology, which 
is changing almost every aspect of our lives and revolutionising 
traditional business models. Machine learning, artificial intelligence 
and the extraordinary growth in internet enabled devices are leading 
to the creation of whole new industries. 

Just as our customers are exploring ways to integrate these tools 
and technologies into their businesses and lives, we too are 

exploring the enormous opportunities for our 
industry. I have described some of our work 
in this area in 2019, and our ambition for QBE 
for the future, below. 

What we perhaps feel most profoundly 
though, is the challenge that climate change 
presents to our customers and indeed the 
whole economy. Globally, the economic costs 
from natural disasters have now exceeded the 
30‑year average for seven of the last 10 years, 
while the number of extreme weather 
events globally has tripled since the 1980s. 
In 2019 alone, we saw examples of this.

As I write this, Australia is yet again 
experiencing severe weather, floods and 
storms. This includes the recent Australian 
summer which was marked by severe 
weather and unprecedented bushfires that 
had a devastating effect on many of our 
customers and the communities in which 
they live. I want to take this opportunity to 
personally acknowledge the hard work and 
bravery of the firefighters who were at the 
front line of these fires, risking their lives 
to protect others. I am proud to say this 
incredible group of people included some 
QBE employees. 

6

Group Chief Executive Officer’s report

7

Building 

momentum

QBE was founded in 1886 in Townsville, 

Queensland. I’m not sure that anyone then could 

exploring the enormous opportunities for our 

industry. I have described some of our work 

in this area in 2019, and our ambition for QBE 

have imagined the kind of world we live in 

for the future, below. 

today, particularly the level of unpredictability 

facing business and society at large.   

In 2019, we saw low economic growth across most major 

economies but we also saw generally low unemployment and 

stock markets at record highs. Politically we saw trade tensions 

and protectionist policies, however we ended the year with a series 

of trade agreements signed, or in discussion. We also saw central 

banks maintain interest rates at record lows to try to stimulate 

growth – albeit at this stage with mixed success.

This had implications for QBE and for our customers who represent 

almost every facet of the global economy – from big business 

to local stores and from skyscrapers to first homes – and who 

face new risks and opportunities every day. 

Among these is the disruptive influence of technology, which 

is changing almost every aspect of our lives and revolutionising 

traditional business models. Machine learning, artificial intelligence 

and the extraordinary growth in internet enabled devices are leading 

to the creation of whole new industries. 

Just as our customers are exploring ways to integrate these tools 

and technologies into their businesses and lives, we too are 

What we perhaps feel most profoundly 

though, is the challenge that climate change 

presents to our customers and indeed the 

whole economy. Globally, the economic costs 

from natural disasters have now exceeded the 

30‑year average for seven of the last 10 years, 

while the number of extreme weather 

events globally has tripled since the 1980s. 

In 2019 alone, we saw examples of this.

As I write this, Australia is yet again 

experiencing severe weather, floods and 

storms. This includes the recent Australian 

summer which was marked by severe 

weather and unprecedented bushfires that 

had a devastating effect on many of our 

customers and the communities in which 

they live. I want to take this opportunity to 

personally acknowledge the hard work and 

bravery of the firefighters who were at the 

front line of these fires, risking their lives 

to protect others. I am proud to say this 

incredible group of people included some 

QBE employees. 

The obvious link between these events 
and the changing climate brings into sharp 
focus how climate‑related risks are now 
the new normal for our industry. We must 
take action to address these risks in our 
own operations, at the same time as 
supporting our customers to mitigate their 
exposure to climate risks and support the 
transition to a lower carbon economy. 

You will find a summary of QBE’s work in 
this area on page 32 of this Annual Report. 

Our year in review

Despite the economic challenges described 
above, QBE made strong underlying 
progress in 2019. 

Through cell reviews and the Brilliant Basics 
program we have built on the significant 
work undertaken over the last two years 
to simplify the portfolio, modernise our 
business and systematically overhaul our 
underwriting capability and culture.  

This has enabled us to deliver meaningful 
improvement in our operating metrics and 
a solid set of results in 2019. This includes 
a further improvement in the Group’s 
attritional claims ratio, positive premium 
rate momentum and very strong divisional 
performances in our Australia Pacific and 
International businesses. This gives us 
good momentum heading into 2020.

Severe weather in parts of the US, including 
an unusually wet spring, created difficult 
planting conditions for many of our Crop 
customers and this was compounded 
by frost and hail during the growing 
season. This resulted in a Crop combined 
operating ratio of 107.5%, materially 
higher than the 10‑year historical average 
of around 90%, and contributed to a net 
combined operating ratio for the Group 
of 97.5% 1,2,3 – outside our targeted range. 
However, with many of our North American 
casualty portfolios already subject to 
portfolio de‑risking initiatives since 2017, 
the underlying fundamentals of our North 
American business, and the entire Group, 
are strong and we are well placed for 
further improvement. 

science, third party data and artificial 
intelligence (AI) tools being deployed 
across the Group. 

At the same time, the Brilliant Basics 
program continues to grow in influence 
and sophistication as it maintains 
its strong momentum throughout 
the Group. In 2019, we established 
the Office of the Group Chief 
Underwriter, further strengthened our 
underwriting governance, embedded 
global pricing standards and made 
significant improvements to our 
claims handling processes. 

Cell reviews and Brilliant Basics 
underpinned a further 2.7% 4 improvement 
in the Group’s attritional claims ratio 
in 2019. This means that the Group’s 
attritional claims ratio has improved 
by almost 7% 4, since the second half 
of 2017 and we believe there is further 
improvement to come. 

In Australia Pacific, a further 4.2% 5 
improvement in the attritional claims ratio 
helped underpin a very strong result for 
the division, which recorded a combined 
operating ratio of 90.0% 1. This compares 
with 90.3% 1 in 2018 and is despite the 
2.6% higher costs of catastrophes. 
Similarly, in International, a further 3.0% 
improvement in the attritional claims ratio 
contributed to an improved divisional 
combined operating ratio of 95.4% 1. 

We also achieved positive rate 
momentum, with an average renewal 
rate increase of 8.3% 6 in the second half 
of 2019 contributing to a full year Group 
outcome of 6.3% 6. This positions us well 
moving forward.

Importantly, despite the sluggish global 
economic conditions I described earlier, 
our investment returns were above the 
top end of our target range in 2019 and 
we also delivered our cost commitment 
targets, with meaningful efficiency 
initiatives underway across the Group.

Performance against 
our 2019 priorities

Operational highlights

Cell reviews remain core to the Group’s 
strategy and in 2019 they helped 
contribute to a further improvement in the 
quality and consistency of our earnings. 
We continue to evolve cell reviews as 
we take advantage of improved data and 
insights now available to us through data 

The rollout of our global customer 
commitment program, coupled with our 
focus on replicating best practice customer 
programs across the Group, underpinned 
further improvements in our customer 
experience metrics in 2019. These metrics 
are also now routinely integrated into our 
cell review conversations, reflecting the 

importance of customer outcomes in our 
overall performance assessment.

At the same time, our investments in 
technology are also helping deliver better 
customer outcomes, such as our robotic 
claims processes in UK motor and digital 
travel claims in Hong Kong. 

We are also deploying initiatives to support 
financial wellbeing and enhance the 
accessibility of our products and services, 
for example by simplifying our product 
disclosures. In June, our Australian 
business also joined the Financial 
Inclusion Action Plan (FIAP) program 
– an initiative that promotes economic 
wellbeing, resilience and inclusion. 

We made further investments to 
strengthen our talent, leadership and 
capabilities in risk in 2019, with a heavy 
focus on conduct, risk management and 
governance. Our RISKsight program will 
underpin a stronger risk and compliance 
capability and culture. The rollout of 
this program has already led to the 
development of strengthened risk appetite 
statements and a refresh of our risk policies 
for all risk categories. Risk management 
is embedded in our day‑to‑day operations 
and our recent QBE Voice employee 
survey showed that 88% of our employees 
believe that managing risk is prioritised 
and valued across the business. 

With technology so critical to the future 
of our business, we made further 
progress on our technology roadmap. 
We increased the stability of our existing 
technology environment, automated 
our global infrastructure, upgraded and 
decommissioned end‑of‑life applications 
and provided the critical foundations 
for enhanced digital enablement. We 
have also made substantial investments 
in our cyber security capabilities, 
including the establishment of a Global 
Cyber Security Operations Centre. 

We are streamlining our engagement 
process with start‑ups to create ‘faster 
paths to partnership’, to make QBE 
a partner of choice as we look to create 
new opportunities, while continuing 
to leverage our existing Ventures and 
other strategic partnerships.

As we seek to work in faster and 
more agile ways, we are also creating 
opportunities for our people to develop 
and build the capabilities we will need 
for the future. 

1  Excludes the impact of changes in risk‑free rates used to discount net outstanding claims.
2  Excludes on‑off impact of the Ogden decision in the UK.
3  Continuing operations basis.
4  Excludes Crop and LMI.
5  Excludes LMI.
6  Excludes premium rate changes relating to CTP.

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8

Group Chief Executive Officer’s report

We continue to support a host of flexibility, 
diversity and inclusion initiatives across 
our global operations, including the launch 
of Share the Care in Australia and New 
Zealand, which gives both men and women 
equal opportunity to access parenting leave 
to balance their careers with taking care of 
a family. Across the Group, we have made 
a range of improvements in the available 
tools and benefits for our people to support 
them with a healthy mind whether they are 
at work or at home.

Our efforts to improve the diversity of our 
workforce were again recognised with 
QBE’s inclusion in the 2020 Bloomberg 
Gender Equality Index. Pleasingly, 
we have made good progress towards 
our target of 35% women in senior 

management by 2020, with a further 
increase of 2% to 34% in 2019. 

Finally, I am also pleased to report further 
significant progress in our efforts to 
manage climate related risk and reduce 
our environmental footprint in 2019. We 
have maintained carbon neutrality and we 
are committed to using 100% renewable 
electricity across our global operations 
by the end of 2025. We are already more 
than 60% of the way towards our goal. 

Conclusion

In closing, I would like to thank all of our 
employees around the world for their hard 
work in 2019, as we continue to evolve and 
grow our business and lay the foundations 
for our long‑term sustainable growth. 

I would also like to acknowledge Marty 
Becker’s decision to retire from the QBE 
Board and to express my sincere thanks 
for his wise counsel and friendship during 
our time working together. He has made 
an enormous contribution to QBE in his 
time as Chairman. I wish Marty every 
success for the future and I look forward 
to working with our new Chairman, 
Mike Wilkins, as we continue to build 
the QBE of the future.

Finally, thank you to our customers, 
brokers and shareholders for your 
ongoing support for our great company.

Pat Regan  
Group Chief Executive Officer

Looking ahead

2020 targets

Combined  
operating ratio 1,2

93.5% 
to 
95.5% 

Investment return 1

2.5% 
to 
3.0%

With good progress against our seven priorities in 2019, and with a stronger culture 
and risk management now firmly embedded in our day-to-day operations, we are 
more resilient and better equipped to respond to a changing regulatory environment. 

For 2020, we have developed a new set of priorities that will further concentrate 
our efforts on our key differentiators, helping us build a reputation for value, service, 
claims payment and performance.

We are evolving our business at the same time as technological disruption 
continues to reshape the global economy and revolutionise entire industries. 
We are determined to stay ahead by building best in class AI, data and digital 
capabilities that will enable us to better support our customers in assessing 
and mitigating risk, while delivering every‑day brilliance in underwriting, 
pricing and claims. 

That work is well underway with a number of projects, including those identified 
above, leveraging these enhanced capabilities and already delivering results. 
For example, we piloted a water monitoring technology with various housing 
associations in the UK, to reduce the number of water leak incidents they 
experience across an extensive property portfolio. In North America, we have 
partnered with Roost, a technology company based in Sunnyvale California, 
to offer our customers industry‑leading smart home products that offer 
innovative ways to monitor their home smoke detector and water systems. 

Wherever possible, we will replicate best practice and apply lessons learned 
as we refine and test new customer-focused ideas for the future. 

Above all else, in 2020, we will continue to deliver for our customers and maintain 
our rigorous focus on performance through cell reviews, Brilliant Basics and our 
operational efficiency drive, to harness the momentum we have built and continue 
creating value for our shareholders. 

1  Assumes risk‑free rates as at 31 December 2019.
2  Excludes $30 million one‑off regulatory and other costs and the remaining $52 million of restructuring charges.

8

Group Chief Executive Officer’s report

9

2020
priorities

Performance

Continue to mature our cell review 
process to deliver our target COR. 
Deliver against key sustainability and 
climate commitments. Turn our focus 
to organic growth opportunities.

Brilliant Basics +

Talent & Culture

Execute the next phase of Brilliant 
Basics with a sharper focus on 
delivering for our customers. Leverage 
best in class AI, data, and digital 
capabilities to embed everyday 
brilliance in underwriting 
and pricing and in particular, 
throughout our customer 
claims experience.

Accelerate our talent and leadership 
strategy, building on our DNA to 
empower our people to thrive, now and 
in the future. Continue to enhance our 
performance management 
system, ME@QBE, supporting 
our people and leaders 
in managing career and 
talent development.

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Innovation & Technology

Customer Focus

Enhance our digital and data capability, 
update our IT platforms and accelerate the 
transition to the cloud. Through innovative 
partnerships and QBE Ventures, cultivate 
skills and capabilities for the future and create 
an environment that nurtures innovation 
and continuous improvement.

Expand the breadth and depth of our customer 
focus by embedding our Customer@QBE 
framework, leveraging customer research 
to build deeper industry expertise and 
customer insights. Implement leading digital 
technologies to create seamless end‑to‑end 
experiences for our customers.

We continue to support a host of flexibility, 

management by 2020, with a further 

I would also like to acknowledge Marty 

diversity and inclusion initiatives across 

increase of 2% to 34% in 2019. 

our global operations, including the launch 

of Share the Care in Australia and New 

Zealand, which gives both men and women 

equal opportunity to access parenting leave 

to balance their careers with taking care of 

a family. Across the Group, we have made 

a range of improvements in the available 

tools and benefits for our people to support 

them with a healthy mind whether they are 

at work or at home.

Finally, I am also pleased to report further 

significant progress in our efforts to 

manage climate related risk and reduce 

our environmental footprint in 2019. We 

have maintained carbon neutrality and we 

are committed to using 100% renewable 

electricity across our global operations 

by the end of 2025. We are already more 

than 60% of the way towards our goal. 

Our efforts to improve the diversity of our 

Conclusion

workforce were again recognised with 

In closing, I would like to thank all of our 

QBE’s inclusion in the 2020 Bloomberg 

employees around the world for their hard 

Gender Equality Index. Pleasingly, 

work in 2019, as we continue to evolve and 

we have made good progress towards 

grow our business and lay the foundations 

our target of 35% women in senior 

for our long‑term sustainable growth. 

Becker’s decision to retire from the QBE 

Board and to express my sincere thanks 

for his wise counsel and friendship during 

our time working together. He has made 

an enormous contribution to QBE in his 

time as Chairman. I wish Marty every 

success for the future and I look forward 

to working with our new Chairman, 

Mike Wilkins, as we continue to build 

the QBE of the future.

Finally, thank you to our customers, 

brokers and shareholders for your 

ongoing support for our great company.

Pat Regan  

Group Chief Executive Officer

Looking ahead

2020 targets

Combined  

operating ratio 1,2

93.5% 

to 

95.5% 

Investment return 1

2.5% 

to 

3.0%

With good progress against our seven priorities in 2019, and with a stronger culture 

and risk management now firmly embedded in our day-to-day operations, we are 

more resilient and better equipped to respond to a changing regulatory environment. 

For 2020, we have developed a new set of priorities that will further concentrate 

our efforts on our key differentiators, helping us build a reputation for value, service, 

claims payment and performance.

We are evolving our business at the same time as technological disruption 

continues to reshape the global economy and revolutionise entire industries. 

We are determined to stay ahead by building best in class AI, data and digital 

capabilities that will enable us to better support our customers in assessing 

and mitigating risk, while delivering every‑day brilliance in underwriting, 

pricing and claims. 

That work is well underway with a number of projects, including those identified 

above, leveraging these enhanced capabilities and already delivering results. 

For example, we piloted a water monitoring technology with various housing 

associations in the UK, to reduce the number of water leak incidents they 

experience across an extensive property portfolio. In North America, we have 

partnered with Roost, a technology company based in Sunnyvale California, 

to offer our customers industry‑leading smart home products that offer 

innovative ways to monitor their home smoke detector and water systems. 

Wherever possible, we will replicate best practice and apply lessons learned 

as we refine and test new customer-focused ideas for the future. 

Above all else, in 2020, we will continue to deliver for our customers and maintain 

our rigorous focus on performance through cell reviews, Brilliant Basics and our 

operational efficiency drive, to harness the momentum we have built and continue 

creating value for our shareholders. 

1  Assumes risk‑free rates as at 31 December 2019.

2  Excludes $30 million one‑off regulatory and other costs and the remaining $52 million of restructuring charges.

 
 
 
 
 
 
 
 
 
 
 
 
10

Group Chief Financial Officer’s report

Operating and 
financial review

QBE reported a  combined operating ratio 
of 97.5% 1,2,3, up from 95.7% 1,2,4 in 2018. 

A further improvement in the attritional 
claims ratio was more than offset by 
a severely weather-impacted Crop result 
and an expected increase in the net cost of 
large individual risk and catastrophe claims. 

Strong rate momentum, coupled with 
ongoing progress on Brilliant Basics and 
our operational efficiency drive, bodes 
well for sustainable margin expansion.

General overview

I am pleased with the continued improvement 
in the quality and resilience of our earnings as 
evidenced by a further material improvement in 
the attritional claims ratio, the promising early 
progress on our operational efficiency program 
and the strong pricing momentum underpinned 
by our forensic cell review process.

However, unusually poor weather in the US, 
including an extremely wet spring followed 
by early frost and hail, severely impacted the 
performance of our historically profitable Crop 
business. This weighed on the Group’s result 
and contributed to a combined operating ratio 
of 97.5% 1,2,3 which was above our 2019 target 
range of 94.5%–96.5% 1,2.

1  Excludes the impact of changes in risk‑free rates used to discount net outstanding claims.
2  Continuing operations basis.
3  Excludes one‑off impact of the Ogden decision in the UK.
4  Excludes transaction to reinsure Hong Kong construction workers’ compensation liabilities.

10

Group Chief Financial Officer’s report

11

Operating and 

financial review

QBE reported a  combined operating ratio 

of 97.5% 1,2,3, up from 95.7% 1,2,4 in 2018. 

A further improvement in the attritional 

claims ratio was more than offset by 

a severely weather-impacted Crop result 

and an expected increase in the net cost of 

large individual risk and catastrophe claims. 

Strong rate momentum, coupled with 

ongoing progress on Brilliant Basics and 

our operational efficiency drive, bodes 

well for sustainable margin expansion.

General overview

I am pleased with the continued improvement 

in the quality and resilience of our earnings as 

evidenced by a further material improvement in 

the attritional claims ratio, the promising early 

progress on our operational efficiency program 

and the strong pricing momentum underpinned 

by our forensic cell review process.

However, unusually poor weather in the US, 

including an extremely wet spring followed 

by early frost and hail, severely impacted the 

performance of our historically profitable Crop 

business. This weighed on the Group’s result 

and contributed to a combined operating ratio 

of 97.5% 1,2,3 which was above our 2019 target 

range of 94.5%–96.5% 1,2.

The result was also impacted 
by a strengthening of prior accident year 
claims reserves in specific US and European 
casualty portfolios exposed to heightened 
industry-wide claims inflation. Many of these 
portfolios have been the subject of de‑risking 
initiatives since 2017 and it is encouraging 
that much of the reserve strengthening 
related to underwriting years pre‑dating those 
initiatives. Importantly, reserve strengthening 
in these areas was almost entirely offset by 
a combination of reinsurance recoveries and 
continued favourable reserve development 
elsewhere across the Group. 

In 2019, we reset the Group’s reinsurance 
program which warranted a higher allowance 
for large individual risk and catastrophe 
claims. Pleasingly, we finished the year 
within our overall allowance, albeit with 
large individual risk claims higher than 
expected offset by lower than expected 
catastrophe claims.

Large individual risk claims were higher than 
expected at $955 million, in part reflecting an 
industry‑wide increase in claim frequency and 
severity which is contributing to accelerating 
premium rate increases. Although above 
plan, risk claims are down from 2018 levels 
on a like‑for‑like (reinsurance) basis. 

In addition to premium rate increases, 
the continued and material improvement 
in the attritional claims ratio and early signs 
of a reduction in large individual risk claims 
reflect our ongoing commitment to cell 
reviews and Brilliant Basics.

Cell reviews provide a direct link and 
alignment between our commercial activity 
and our financial returns, enabling us to 
hold each cell accountable for delivering 
an appropriate return on capital. Remediation 
work over the last two years has materially 
improved the results of cells delivering 
sub‑optimal returns and we believe there 
is further opportunity to optimise our return 
on capital. 

Portfolio rationalisation and 
simplification

During 2019, we completed a number of asset 
sales and portfolio exits that have materially 
reduced complexity and contributed to the 
simplification of QBE. 

These included the sale of our operations 
in Colombia, Indonesia, the Philippines and 
Puerto Rico as well as our travel insurance 
business in Australia and New Zealand and 
our personal lines business in North America.

Total annual gross written and net earned 
premium associated with these sales 
was around $410 million. In 2020, gross 
written and net earned premium will 
be impacted by around $150 million and 
$200 million respectively, reflecting the 
full year impact of the sales.

Operational efficiency program

In December 2018, we announced a three‑year 
operational efficiency program targeting 
gross cost savings of more than $200 million 
by 2021, translating into net cost savings 
of $130 million over the same time horizon, 
after allowing for underlying inflation and 
further investment in technology, digitisation 
and the Brilliant Basics program. 

From a 2018 cost base of $1.8 billion 1,2 and 
an expense ratio of 15.2% 1,2, we are targeting 
an expense ratio of less than 14% by 2021. 

Although only one year into a three‑year 
schedule of work, the efficiency program is 
progressing better than planned. Meaningful 
progress has been achieved in technology 
rationalisation and modernisation as we 
simplify our technology estate. A number 
of other areas contributed to expense savings 
including the sale of our retail personal lines 
business in North America as well as the 
simplification of divisional organisational 
structures, particularly in Australia, New 
Zealand and Global Infrastructure Services. 
We also achieved a meaningful reduction 
in third party consulting and travel costs.

The Brilliant Basics program continues 
to improve our underwriting governance, 
risk selection, pricing tools and claims 
efficiency. This activity is translating into 
better underlying profitability and reduced 
earnings volatility. We now have tightly 
defined risk appetites in place, a clear line 
of sight on the business we are underwriting 
and better science supporting expected 
risk‑adjusted returns. 

As a result of these initiatives, we achieved 
underlying net cost savings of around 
$70 million. 

To support the program and as previously 
advised, we incurred a $43 million 
restructuring charge that was not reported 
as part of the Group’s underwriting result. 

Further restructuring charges of up to 
$52 million are anticipated during 2020. 

1  Excludes the impact of changes in risk‑free rates used to discount net outstanding claims.

2  Continuing operations basis.

3  Excludes one‑off impact of the Ogden decision in the UK.

4  Excludes transaction to reinsure Hong Kong construction workers’ compensation liabilities.

1  Continuing operations basis.
2  Excludes transaction to reinsure Hong Kong construction workers’ compensation liabilities. 
3  Constant currency basis.

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Gross written 
premium 1 (US$M) 

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13,442
 2% from 2018 3

Net earned   
premium 1 (US$M)

11,609
 1% from 2018 3

2019

2018

2017

2016

2015

13,442

11,609

13,657

11,640

13,328

11,351

14,395

11,066

15,092

12,314

Gross written premium (US$M)
Net earned premium (US$M)

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12

Group Chief Financial Officer’s report

2019 full year result

With respect to the 2019 full year result, I would like to discuss three broad areas:
1.  Financial performance
2. 
Investment performance and strategy
3.  Financial strength and capital management

1. Financial performance

QBE reported a statutory net profit after tax of $550 million, up 41% from $390 million in 2018. 

Excluding non-cash and material non-recurring items as reconciled on page 15, the adjusted cash profit was $733 million, up 6% from 
$692 million in the prior year. Adjusted cash profit return on equity was 8.9%, up from 8.0% in 2018.

Including the final dividend of 27 Australian cents per share, the full year dividend of 52 Australian cents per share is up 4% on the 
prior year and equates to an adjusted cash profit payout ratio of 65%.

The Group’s combined operating ratio of 97.5% 1,2,3 was up from 95.7% 1,2,4 in the prior year.

The Group’s attritional claims ratio (excluding Crop and LMI) improved by 2.7% as a result of firming pricing conditions and portfolio 
enhancement driven by cell reviews and the Brilliant Basics program. The underwriting expense ratio improved by 0.6% 4 due to early 
benefits from the Group’s operational efficiency initiatives, coupled with the aforementioned one-off savings. 

These improvements were more than offset by a weather-impacted Crop result, an expected adverse impact from the restructure 
of the Group’s reinsurance program and a reduced level of positive prior accident year claims development as we recognised areas 
of heightened claims inflation in North America and Europe.

Gross written and net earned premium increased by 2% 2,5 and 1% 2,5 respectively, with renewal rate increases partly offset 
by disposals, further contraction in our Australian lenders’ mortgage insurance business (LMI) and targeted portfolio repositioning, 
particularly in North America.

Looking briefly at divisional performance, the key themes to emerge from the 2019 result are set out below.

North America result impacted by Crop underperformance, attritional weather and reserve strengthening 

North America reported a combined operating ratio of 106.5% 1, up from 98.7% 1 in the prior year. The result was adversely affected 
by a weather-impacted Crop result, coupled with adverse prior accident year development including reserve strengthening in specific 
casualty portfolios exposed to heightened industry-wide claims inflation. 

The attritional claims ratio improved slightly despite a heightened level of attritional weather events during the second half.

Impacted by record prevented planting claims following an abnormally wet spring and reduced yields due to an unusually cold and hail 
affected end to the growing season, Crop reported a combined operating ratio of 107.5% (as flagged in our ASX announcement of 18 
December 2019), up materially from the 10 year average combined operating ratio of around 90%. 

Premium rate momentum accelerated during 2019 with North America achieving an average renewal rate increase of 5.8% compared 
with 4.1% in the prior year. Second half renewal rate increases averaged 7.7%, up from 4.1% in the first half.

Solid International result reflecting a lower attritional claims ratio and improved efficiency, partly offset 
by an increase in the cost of large individual risk claims 

International recorded another solid result with the combined operating ratio improving to 95.4% 1,3 from 95.9% 1,4 in the prior year. 
A further 3.0% improvement in the attritional claims ratio, coupled with a 1.3% reduction in the total acquisition cost ratio more than 
offset a largely expected increase in the net cost of large individual risk and catastrophe claims following the renegotiation of the 
Group’s external reinsurance program effective 1 January 2019.

Premium rate momentum accelerated during 2019, especially in the second half of the year, with International achieving an average 
renewal rate increase of 6.0% compared with 4.1% in the prior year. Second half renewal rate increases averaged 9.2%, up from 3.8% 
in the first half.

Strong Australia Pacific result despite adverse catastrophe experience, further moderation in LMI earnings 
and reduced positive prior accident year claims development

Despite adverse catastrophe experience, further moderation in LMI earnings and reduced positive prior accident year claims 
development, Australia Pacific delivered a strong result reporting a combined operating ratio of 90.0% 1 compared with 90.3% 1 
in the prior year. The result included a further 3.6% improvement in the attritional claims ratio (4.2% excluding LMI). 

Premium rate momentum remains strong with renewal rate increases averaging 7.3% 6 compared with 7.1% 6 in 2018.

The combined operating ratio of our LMI business increased to 58.3% 1 from 54.8% 1 in the prior year, primarily due to the impact 
of significant premium contraction on both the net claims and expense ratios. Although lending practices continue to improve and 
arrears rates and new delinquencies fell during the year, total claims costs were broadly unchanged from the prior year as the 
business gradually works through claims relating to the unwind of the mining boom in regional Queensland and Western Australia.

1  Excludes the impact of changes in risk‑free rates used to discount net outstanding claims. 
2  Continuing operations basis.
3  Excludes one‑off impact of the Ogden decision in the UK.
4  Excludes transaction to reinsure Hong Kong construction workers’ compensation liabilities.
5  Constant currency basis.
6  Excludes premium rate changes relating to CTP.

12

Group Chief Financial Officer’s report

13

2. 

Investment performance and strategy

Our investment portfolio delivered a net investment return of 3.6% 1 in 2019, slightly above the upper end of our 3.0%–3.5% target 
range 1 with most asset classes delivering better than expected returns. 

Fixed income assets generated a 3.7% return compared with 1.8% in the prior year, reflecting significant mark-to-market gains from 
lower sovereign bond yields and narrower global credit spreads. The decision to close our balance sheet duration mismatch during 
the year proved beneficial with the $231 million adverse impact of lower risk-free-rates used to discount net outstanding claims 
liabilities more than offset by $265 million of mark-to-market gains on our fixed income portfolio.

In response to falling risk‑free rates, growth asset returns also outperformed, increasing to 11.8% from 6.2% in the prior year. 
Growth assets finished the year at 13.5% of the portfolio, in line with 13.7% at 31 December 2018.

As at 31 December 2019, the running yield of the fixed income portfolio was 1.5%, down from 2.2% at 31 December 2018. 

Going forward and to align more closely with peer reporting, we have reallocated high yield and emerging market debt to fixed income 
from growth assets and have also commenced the deployment of a private credit allocation where the additional illiquidity premium 
offers incremental risk‑adjusted returns. 

Together, these changes are expected to increase our fixed income running yield to around 1.75% once fully implemented.

During 2020, we intend to manage fixed income duration in a range of 2.5–3.0 years and growth asset exposure at around 12.5% 2 
of total cash and investments. Together with a modest allowance for tactical asset allocation outperformance, these portfolio settings 
support our 2020 net investment return target range of 2.5%–3.0% 3.

3. 

Financial strength and capital management

Our capital position remains strong when measured against both regulatory and rating agency capital requirements with the Group’s 
indicative APRA PCA multiple 1.71x at 31 December 2019. Although down from 1.78x at 31 December 2018, the PCA multiple 
remains above the midpoint of the Group’s 1.6–1.8x target PCA range, and the Group retains an excess above Standard & Poor’s 
(S&P) ‘AA’ minimum capital levels. 

The reduction in the Group’s PCA multiple primarily reflects the share buyback and dividends paid during the year (which together 
exceeded net cash profit) coupled with an increase in the asset risk charge due to the material increase in investment funds and 
following the decision to extend asset duration and modestly increase credit risk. An increase in the insurance risk charge due to the 
increase in net outstanding claims liabilities was more than offset by a reduction in the insurance concentration risk charge (ICRC) 
following further enhancements to the Group’s reinsurance protection effective 1 January 2020. 

At 31 December 2019, QBE’s debt to equity ratio was unchanged at 38.0% and slightly above the benchmark range of 25%–35%. 
Retained profit growth coupled with the senior debt repurchased during the year were offset by the share buyback and the adoption 
of AASB 9.

The probability of adequacy (PoA) of outstanding claims was broadly unchanged at 90.0%, the mid‑point of our targeted PoA range 
of 87.5%–92.5%.

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1  Assumes risk‑free rates as at 31 December 2018.
2  From 1 January 2020, growth assets no longer include high yield debt or emerging market debt which is now considered part of our fixed 

income portfolio consistent with peer reporting.
3  Assumes risk‑free rates as at 31 December 2019.

2019 full year result

With respect to the 2019 full year result, I would like to discuss three broad areas:

1.  Financial performance

2. 

Investment performance and strategy

3.  Financial strength and capital management

1. Financial performance

QBE reported a statutory net profit after tax of $550 million, up 41% from $390 million in 2018. 

Excluding non-cash and material non-recurring items as reconciled on page 15, the adjusted cash profit was $733 million, up 6% from 

$692 million in the prior year. Adjusted cash profit return on equity was 8.9%, up from 8.0% in 2018.

Including the final dividend of 27 Australian cents per share, the full year dividend of 52 Australian cents per share is up 4% on the 

prior year and equates to an adjusted cash profit payout ratio of 65%.

The Group’s combined operating ratio of 97.5% 1,2,3 was up from 95.7% 1,2,4 in the prior year.

The Group’s attritional claims ratio (excluding Crop and LMI) improved by 2.7% as a result of firming pricing conditions and portfolio 

enhancement driven by cell reviews and the Brilliant Basics program. The underwriting expense ratio improved by 0.6% 4 due to early 

benefits from the Group’s operational efficiency initiatives, coupled with the aforementioned one-off savings. 

These improvements were more than offset by a weather-impacted Crop result, an expected adverse impact from the restructure 

of the Group’s reinsurance program and a reduced level of positive prior accident year claims development as we recognised areas 

of heightened claims inflation in North America and Europe.

Gross written and net earned premium increased by 2% 2,5 and 1% 2,5 respectively, with renewal rate increases partly offset 

by disposals, further contraction in our Australian lenders’ mortgage insurance business (LMI) and targeted portfolio repositioning, 

particularly in North America.

Looking briefly at divisional performance, the key themes to emerge from the 2019 result are set out below.

North America result impacted by Crop underperformance, attritional weather and reserve strengthening 

North America reported a combined operating ratio of 106.5% 1, up from 98.7% 1 in the prior year. The result was adversely affected 

by a weather-impacted Crop result, coupled with adverse prior accident year development including reserve strengthening in specific 

casualty portfolios exposed to heightened industry-wide claims inflation. 

The attritional claims ratio improved slightly despite a heightened level of attritional weather events during the second half.

Impacted by record prevented planting claims following an abnormally wet spring and reduced yields due to an unusually cold and hail 

affected end to the growing season, Crop reported a combined operating ratio of 107.5% (as flagged in our ASX announcement of 18 

December 2019), up materially from the 10 year average combined operating ratio of around 90%. 

Premium rate momentum accelerated during 2019 with North America achieving an average renewal rate increase of 5.8% compared 

with 4.1% in the prior year. Second half renewal rate increases averaged 7.7%, up from 4.1% in the first half.

Solid International result reflecting a lower attritional claims ratio and improved efficiency, partly offset 

by an increase in the cost of large individual risk claims 

International recorded another solid result with the combined operating ratio improving to 95.4% 1,3 from 95.9% 1,4 in the prior year. 

A further 3.0% improvement in the attritional claims ratio, coupled with a 1.3% reduction in the total acquisition cost ratio more than 

offset a largely expected increase in the net cost of large individual risk and catastrophe claims following the renegotiation of the 

Group’s external reinsurance program effective 1 January 2019.

Premium rate momentum accelerated during 2019, especially in the second half of the year, with International achieving an average 

renewal rate increase of 6.0% compared with 4.1% in the prior year. Second half renewal rate increases averaged 9.2%, up from 3.8% 

in the first half.

Strong Australia Pacific result despite adverse catastrophe experience, further moderation in LMI earnings 

and reduced positive prior accident year claims development

Despite adverse catastrophe experience, further moderation in LMI earnings and reduced positive prior accident year claims 

development, Australia Pacific delivered a strong result reporting a combined operating ratio of 90.0% 1 compared with 90.3% 1 

in the prior year. The result included a further 3.6% improvement in the attritional claims ratio (4.2% excluding LMI). 

Premium rate momentum remains strong with renewal rate increases averaging 7.3% 6 compared with 7.1% 6 in 2018.

The combined operating ratio of our LMI business increased to 58.3% 1 from 54.8% 1 in the prior year, primarily due to the impact 

of significant premium contraction on both the net claims and expense ratios. Although lending practices continue to improve and 

arrears rates and new delinquencies fell during the year, total claims costs were broadly unchanged from the prior year as the 

business gradually works through claims relating to the unwind of the mining boom in regional Queensland and Western Australia.

1  Excludes the impact of changes in risk‑free rates used to discount net outstanding claims. 

2  Continuing operations basis.

3  Excludes one‑off impact of the Ogden decision in the UK.

4  Excludes transaction to reinsure Hong Kong construction workers’ compensation liabilities.

5  Constant currency basis.

6  Excludes premium rate changes relating to CTP.

 
 
 
 
 
 
 
 
 
 
 
 
14

Group Chief Financial Officer’s report

Operating and financial performance

Summary income statement

STATUTORY RESULT

ADJUSTMENTS

ADJUSTED RESULT

FOR THE YEAR ENDED 31 DECEMBER

Gross written premium 
Gross earned premium 
Net earned premium
Net claims expense
Net commission
Underwriting and other expenses
Underwriting result
Net investment income on policyholders’ funds
Insurance profit 
Net investment income on shareholders’ funds
Financing and other costs
(Losses) gains on sale of entities and businesses
Unrealised losses on assets held for sale
Share of net losses of associates
Restructuring and related expenses 
Amortisation and impairment of intangibles 
Profit before income tax from continuing 
operations
Income tax expense
Profit after income tax from continuing 
operations
Loss after income tax from discontinued 
operations
Non‑controlling interests
Net profit after income tax

2019
US$M

13,442 
13,257 
11,609 
(8,102)
(1,819)
(1,690)
(2) 
649 
647 
387 
(257)
(8)
–
(3)
(43)
(51)

672
(104)

568

(21)
3
550

2018
US$M

13,657 
13,601 
11,640 
(7,405)
(1,957)
(1,798)
480 
346 
826 
201 
(305)
12
(25)
(2) 
–
(80)

627 
(72)

555 

(177)
12 
390 

2019
US$M

2018
US$M

– 
– 
– 
61 
– 
– 
61 
– 
61 
– 
– 
– 
–
–
– 
– 

61 
(10) 

51 

– 
– 
51 

– 
– 
190 
(166)
6 
5 
35 
– 
35 
– 
– 
– 
–
–
– 
– 

35 
(5)

30 

– 
– 
30 

2019 1
US$M

13,442 
13,257 
11,609 
(8,041)
(1,819)
(1,690)
59 
649 
708 
387 
(257)
(8)
–
(3)
(43)
(51)

733
(114)

619

(21)
3
601

2018 2
US$M

13,657 
13,601 
11,830 
(7,571)
(1,951)
(1,793)
515 
346 
861 
201 
(305)
12
(25)
(2) 
–
(80)

662 
(77)

585 

(177)
12 
420 

1  Excludes one‑off impact of the Ogden decision in the UK.
2  Excludes transaction to reinsure Hong Kong construction workers’ compensation liabilities.

Overview of the 2019 result

The Group reported a 2019 statutory net profit after tax of $550 million compared with $390 million in the prior year. Continuing 
operations reported a statutory net profit after tax of $568 million compared with $555 million in the prior year, with the improvement 
primarily due to significantly stronger investment returns which more than offset the reduced underwriting result due to a severely 
weather-impacted North American Crop result. Discontinued operations reported a statutory net loss after tax of $21 million compared 
with a $177 million loss in the prior year, including a $10 million non-cash foreign currency translation reserve reclassification.

The Group’s effective tax rate was 15% compared with 11% in the prior year, with the increase reflecting the mix of corporate tax 
rates in the jurisdictions in which QBE operates and the utilisation of previously unrecognised tax losses in the US.

Excluding non-cash and material non-recurring items as reconciled on the opposite page, the adjusted cash profit was $733 million, 
up 6% from $692 million in the prior year. Adjusted cash profit return on equity was 8.9%, up from 8.0% in 2018.

The preceding table shows the statutory result excluding items which materially distort key performance indicators. 

The 2019 adjusted result in the preceding table excludes a $61 million increase in the Group’s net central estimate of outstanding 
claims reflecting the reduction in statutory discount rates applicable to UK personal injury liabilities (the Ogden decision) with 
an associated $10 million tax impact.

The 2018 adjusted result excludes the one‑off transaction to reinsure Hong Kong construction workers’ compensation liabilities 
which reduced net earned premium by $190 million and net claims expense by $166 million, whilst adversely impacting commission 
and underwriting expenses by $6 million and $5 million respectively. The transaction impacts year‑on‑year comparison of net earned 
premium and underwriting ratios, depressing the net claims ratio and inflating the combined commission and expense ratio.

The underwriting results in the preceding table are presented on a continuing operations basis with the results of our Latin America 
Operations presented separately as discontinued operations for both the current and prior year. 

Further details of the Group’s disposal activities and discontinued operations are set out in note 7.1 to the financial statements.

Unless otherwise stated, the commentary following refers to the Group’s result on the adjusted basis described above.

14

Group Chief Financial Officer’s report

15

STATUTORY RESULT

ADJUSTMENTS

ADJUSTED RESULT

Operating and financial performance

Summary income statement

FOR THE YEAR ENDED 31 DECEMBER

Gross written premium 

Gross earned premium 

Net earned premium

Net claims expense

Net commission

Underwriting and other expenses

Underwriting result

Net investment income on policyholders’ funds

Insurance profit 

Net investment income on shareholders’ funds

Financing and other costs

(Losses) gains on sale of entities and businesses

Unrealised losses on assets held for sale

Share of net losses of associates

Restructuring and related expenses 

Amortisation and impairment of intangibles 

Profit before income tax from continuing 

operations

Income tax expense

Profit after income tax from continuing 

Loss after income tax from discontinued 

operations

operations

Non‑controlling interests

Net profit after income tax

2019

US$M

13,442 

13,257 

11,609 

(8,102)

(1,819)

(1,690)

(2) 

649 

647 

387 

(257)

(8)

–

(3)

(43)

(51)

672

(104)

568

(21)

3

550

2018

US$M

13,657 

13,601 

11,640 

(7,405)

(1,957)

(1,798)

480 

346 

826 

201 

(305)

12

(25)

(2) 

–

(80)

627 

(72)

555 

(177)

12 

390 

2019

US$M

– 

– 

– 

– 

– 

61 

61 

– 

61 

– 

– 

– 

–

–

– 

– 

61 

(10) 

51 

– 

– 

51 

1  Excludes one‑off impact of the Ogden decision in the UK.

2  Excludes transaction to reinsure Hong Kong construction workers’ compensation liabilities.

Overview of the 2019 result

2018

US$M

– 

– 

190 

(166)

6 

5 

35 

– 

35 

– 

– 

– 

–

–

– 

– 

35 

(5)

30 

– 

– 

30 

2019 1

US$M

13,442 

13,257 

11,609 

(8,041)

(1,819)

(1,690)

59 

649 

708 

387 

(257)

(8)

–

(3)

(43)

(51)

733

(114)

619

(21)

3

601

2018 2

US$M

13,657 

13,601 

11,830 

(7,571)

(1,951)

(1,793)

515 

346 

861 

201 

(305)

12

(25)

(2) 

–

(80)

662 

(77)

585 

(177)

12 

420 

The Group reported a 2019 statutory net profit after tax of $550 million compared with $390 million in the prior year. Continuing 

operations reported a statutory net profit after tax of $568 million compared with $555 million in the prior year, with the improvement 

primarily due to significantly stronger investment returns which more than offset the reduced underwriting result due to a severely 

weather-impacted North American Crop result. Discontinued operations reported a statutory net loss after tax of $21 million compared 

with a $177 million loss in the prior year, including a $10 million non-cash foreign currency translation reserve reclassification.

The Group’s effective tax rate was 15% compared with 11% in the prior year, with the increase reflecting the mix of corporate tax 

rates in the jurisdictions in which QBE operates and the utilisation of previously unrecognised tax losses in the US.

Excluding non-cash and material non-recurring items as reconciled on the opposite page, the adjusted cash profit was $733 million, 

up 6% from $692 million in the prior year. Adjusted cash profit return on equity was 8.9%, up from 8.0% in 2018.

The preceding table shows the statutory result excluding items which materially distort key performance indicators. 

The 2019 adjusted result in the preceding table excludes a $61 million increase in the Group’s net central estimate of outstanding 

claims reflecting the reduction in statutory discount rates applicable to UK personal injury liabilities (the Ogden decision) with 

an associated $10 million tax impact.

The 2018 adjusted result excludes the one‑off transaction to reinsure Hong Kong construction workers’ compensation liabilities 

which reduced net earned premium by $190 million and net claims expense by $166 million, whilst adversely impacting commission 

and underwriting expenses by $6 million and $5 million respectively. The transaction impacts year‑on‑year comparison of net earned 

premium and underwriting ratios, depressing the net claims ratio and inflating the combined commission and expense ratio.

The underwriting results in the preceding table are presented on a continuing operations basis with the results of our Latin America 

Operations presented separately as discontinued operations for both the current and prior year. 

Further details of the Group’s disposal activities and discontinued operations are set out in note 7.1 to the financial statements.

Unless otherwise stated, the commentary following refers to the Group’s result on the adjusted basis described above.

The Group reported a 2019 profit after tax from continuing operations of $619 million, up 6% from $585 million in the prior year, 
primarily reflecting significantly stronger investment returns which more than offset reduced underwriting profits as a result 
of a severely weather-impacted North American Crop result.

On a constant currency basis, gross written premium increased by 2% reflecting premium rate driven growth largely offset 
by divestments, further LMI contraction and targeted portfolio repositioning in North America. On the same basis, net earned 
premium increased by 1% relative to the prior year assisted by reduced reinsurance costs.

The combined operating ratio increased to 97.5% 1 compared with 95.7% 1 in the prior year. A further material improvement in the 
attritional claims ratio (excluding Crop and LMI), coupled with efficiency gains, was more than offset by significantly reduced Crop 
profitability, a reduced level of positive prior accident year claims development and an expected increase in the net cost of large 
individual risk and catastrophe claims following the restructure of the Group’s reinsurance program. 

The current accident year combined operating ratio increased to 97.3% 1 from 96.5% 1 in 2018. 

The net return on investments backing policyholders’ funds increased to 4.5% from 2.3% in the prior year. Fixed income returns were 
especially strong reflecting mark-to-market gains on sovereign and corporate bonds driven by significantly lower global risk-free rates 
and a narrowing of credit spreads. Growth asset returns were also extremely strong, supported by lower global risk‑free rates.

The Group reported an insurance profit of $708 million, down from $861 million in the prior year, largely reflecting the Crop-impacted 
underwriting result. The insurance profit margin decreased to 6.1% from 7.3% in the prior year. 

Consistent with the increase in investment income on policyholders’ funds, net investment income on shareholders’ funds was also 
significantly higher at $387 million compared with $201 million in 2018.

Despite the first-time inclusion of lease liability interest charges associated with implementation of AASB 16, financing and other 
costs reduced materially to $257 million from $305 million in the prior year reflecting the non-recurrence of costs associated with 
foreign exchange contracts and other one‑off costs.

1  Excludes the impact of changes in risk‑free rates used to discount net outstanding claims.

Reconciliation of cash profit 1

FOR THE YEAR ENDED 31 DECEMBER

Net profit after tax
Amortisation and impairment of intangibles after tax 2
Reclassification of foreign currency translation reserve after tax (FCTR) 3
Net cash profit after tax
Restructuring and related expenses after tax
Net loss (profit) on disposals after tax
Ogden decision after tax
Transaction to reinsure Hong Kong construction workers’ compensation liabilities after tax
Loss from discontinued operations after tax (excluding reclassification of FCTR)
Adjusted net cash profit after tax

Return on average shareholders’ funds – adjusted cash basis (%) 
Basic earnings per share – cash basis (US cents)
Dividend payout ratio (percentage of adjusted cash profit) 4

2019
US$M

550
71
16 
637
32 
8
51
–
5
733

8.9
48.4
65%

2018
US$M

390
108
217
715
– 
(13)
–
30
(40)
692

8.0 
53.1
72%

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1  Cash profit is presented on a statutory basis.
2  $43 million of pre‑tax amortisation expense is included in underwriting expenses (2018 $33 million).
3  The sale of operations in Colombia, Indonesia and Philippines gave rise to a foreign currency translation reserve (FCTR) reclassification 
charge (out of equity into profit or loss). This is a non-cash item and does not impact shareholders’ funds or QBE’s regulatory or rating 
agency capital base. Refer note 7.1.1 for further details.

4  Dividend payout ratio is calculated as the total A$ dividend divided by adjusted cash profit converted to A$ at the period average rate 

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of exchange.

 
 
 
 
 
 
 
 
 
 
 
 
16

Group Chief Financial Officer’s report

Premium income

Gross written premium fell 2% to $13,442 million from $13,657 million in the prior year.

On an average basis and compared with 2018, the Australian dollar, sterling and euro depreciated against the US dollar by 7%, 
4% and 5% respectively. Currency movements adversely impacted gross written premium by $434 million relative to the prior year.

Gross written premium increased 2% on a constant currency basis reflecting premium rate driven growth in International (despite 
remediation led contraction in Asia) and Australia Pacific, largely offset by the impact of divestments and targeted portfolio 
repositioning, particularly in North America. Excluding divestments, underlying growth was 4% on a constant currency basis. 

The Group achieved an average renewal rate increase of 6.3% 1 compared with 4.7% 1 in the first half of 2019 and 5.0% 1 in 2018. 
Premium rate momentum accelerated during 2019, especially in International (particularly Europe) and North America.

North America reported a 2% reduction in gross written premium. An average renewal rate increase of 5.8% compared with 4.1% 
in the prior year was more than offset by the divestment of the personal lines business and premium contraction due to targeted 
repositioning of the corporate and excess & surplus (E&S) lines portfolios. Adjusting for disposals, underlying growth was around 3% 
due primarily to strong service-driven growth in Crop. 

International reported gross written premium growth of 1% (up 4% on a constant currency basis), underpinned by an average renewal 
rate increase of 6.0% compared with 4.1% in the prior year. European Operations’ achieved an average renewal rate increase of 6.3% 
compared with 4.4% in 2018 while Asia achieved an average renewal rate increase of 3.5% compared with 0.7% in the prior year. 
Reflecting the improved pricing environment and emerging new business opportunities, European Operations achieved gross written 
premium growth of 5% on a constant currency basis which was partly offset by a further 4% contraction in Asia reflecting disposals 
coupled with further remediation initiatives that are now largely complete. 

Australia Pacific reported a 4% reduction in gross written premium (up 3% on a constant currency basis). An average renewal rate 
increase of 7.3% 1 compared with 7.1% 1 in the prior year was more than offset by the sale of the travel insurance business, a further 
contraction in LMI premium due to the slowdown in home lending and some normalisation of market share in South Australian CTP 
following the opening of the scheme to competition from 1 July 2019. Adjusting for the disposal of the travel insurance business, 
underlying premium growth was around 3%. 

Net earned premium fell 2% to $11,609 million from $11,830 million in the prior year but was up 1% on a constant currency basis 
assisted by reduced reinsurance costs following the restructure of the Group’s reinsurance program, effective 1 January 2019.

1  Excludes premium rate changes relating to CTP.

Underwriting performance

Key ratios – Group

FOR THE YEAR ENDED 31 DECEMBER

Net claims ratio
Net commission ratio
Expense ratio
Combined operating ratio
Adjusted combined operating ratio 3
Insurance profit margin

2019

2018

STATUTORY
%

ADJUSTED 1
%

STATUTORY
%

ADJUSTED 2
%

69.8
15.6
14.6
100.0
98.0
5.6

69.3
15.6
14.6
99.5
97.5
6.1

63.6
16.9
15.4
95.9
96.0
7.1

64.0
16.4
15.2
95.6
95.7
7.3

1  Excludes one‑off impact of the Ogden decision in the UK.
2  Excludes transaction to reinsure Hong Kong construction workers’ compensation liabilities.
3  Excludes the impact of changes in risk‑free rates used to discount net outstanding claims.

16

Group Chief Financial Officer’s report

17

Premium income

Gross written premium fell 2% to $13,442 million from $13,657 million in the prior year.

On an average basis and compared with 2018, the Australian dollar, sterling and euro depreciated against the US dollar by 7%, 

4% and 5% respectively. Currency movements adversely impacted gross written premium by $434 million relative to the prior year.

Gross written premium increased 2% on a constant currency basis reflecting premium rate driven growth in International (despite 

remediation led contraction in Asia) and Australia Pacific, largely offset by the impact of divestments and targeted portfolio 

repositioning, particularly in North America. Excluding divestments, underlying growth was 4% on a constant currency basis. 

The Group achieved an average renewal rate increase of 6.3% 1 compared with 4.7% 1 in the first half of 2019 and 5.0% 1 in 2018. 

Premium rate momentum accelerated during 2019, especially in International (particularly Europe) and North America.

North America reported a 2% reduction in gross written premium. An average renewal rate increase of 5.8% compared with 4.1% 

in the prior year was more than offset by the divestment of the personal lines business and premium contraction due to targeted 

repositioning of the corporate and excess & surplus (E&S) lines portfolios. Adjusting for disposals, underlying growth was around 3% 

due primarily to strong service-driven growth in Crop. 

International reported gross written premium growth of 1% (up 4% on a constant currency basis), underpinned by an average renewal 

rate increase of 6.0% compared with 4.1% in the prior year. European Operations’ achieved an average renewal rate increase of 6.3% 

compared with 4.4% in 2018 while Asia achieved an average renewal rate increase of 3.5% compared with 0.7% in the prior year. 

Reflecting the improved pricing environment and emerging new business opportunities, European Operations achieved gross written 

premium growth of 5% on a constant currency basis which was partly offset by a further 4% contraction in Asia reflecting disposals 

coupled with further remediation initiatives that are now largely complete. 

Australia Pacific reported a 4% reduction in gross written premium (up 3% on a constant currency basis). An average renewal rate 

increase of 7.3% 1 compared with 7.1% 1 in the prior year was more than offset by the sale of the travel insurance business, a further 

contraction in LMI premium due to the slowdown in home lending and some normalisation of market share in South Australian CTP 

following the opening of the scheme to competition from 1 July 2019. Adjusting for the disposal of the travel insurance business, 

underlying premium growth was around 3%. 

Net earned premium fell 2% to $11,609 million from $11,830 million in the prior year but was up 1% on a constant currency basis 

assisted by reduced reinsurance costs following the restructure of the Group’s reinsurance program, effective 1 January 2019.

1  Excludes premium rate changes relating to CTP.

Underwriting performance

Key ratios – Group

FOR THE YEAR ENDED 31 DECEMBER

Net claims ratio

Net commission ratio

Expense ratio

Combined operating ratio

Adjusted combined operating ratio 3

Insurance profit margin

2019

2018

STATUTORY

ADJUSTED 1

STATUTORY

ADJUSTED 2

%

69.8

15.6

14.6

100.0

98.0

5.6

%

69.3

15.6

14.6

99.5

97.5

6.1

%

63.6

16.9

15.4

95.9

96.0

7.1

%

64.0

16.4

15.2

95.6

95.7

7.3

1  Excludes one‑off impact of the Ogden decision in the UK.

2  Excludes transaction to reinsure Hong Kong construction workers’ compensation liabilities.

3  Excludes the impact of changes in risk‑free rates used to discount net outstanding claims.

Divisional performance

Contributions by region

FOR THE YEAR ENDED 31 DECEMBER

North America
International 2,3
Australia Pacific 
Corporate adjustments
Group adjusted
Risk‑free rate impact
Ogden adjustment
Reinsurance transaction 
Group statutory
Direct and facultative
Inward reinsurance
Group statutory

GROSS WRITTEN 
PREMIUM

NET EARNED  
PREMIUM

COMBINED OPERATING 
RATIO

INSURANCE PROFIT 
BEFORE INCOME TAX

2019
US$M

4,637
4,924
3,920
(39)
13,442
–
–
–
13,442
12,263
1,179
13,442

2018
US$M

4,711
4,876
4,104
(34)
13,657
–
–
–
13,657
12,599
1,058
13,657

2019
US$M

3,942
4,089
3,568
10
11,609
–
–
–
11,609
10,641
968
11,609

2018
US$M

3,796
4,224
3,758
52
11,830
–
–
(190)
11,640
10,708
932
11,640

2019
%
106.5 1
95.4 1
90.0 1
–
97.5 1
2.0
0.5
–
100.0
99.7
103.7
100.0

2018
%
98.7 1
95.9 1
90.3 1
– 
95.7 1
(0.1)
– 
0.3
95.9
96.4
89.8
95.9

2019
US$M

2018
US$M

(187)
391
487
17
708
–
(61)
–
647
629
18
647

146
284
498
(67)
861
–
–
(35)
826
703
123
826

1  Excludes the impact of changes in risk‑free rates used to discount net outstanding claims.
2  Excludes one‑off impact of the Ogden decision in the UK.
3  Excludes transaction to reinsure Hong Kong construction workers’ compensation liabilities.

Incurred claims

The Group’s net claims ratio increased to 69.3% from 64.0% in the prior year, in part reflecting a material reduction in risk-free rates 
used to discount net outstanding claims liabilities. Risk‑free rate movements aside, a further improvement in the underlying attritional 
claims ratio was partly offset by reduced profitability in Crop insurance and a largely expected increase in the net cost of large 
individual risk and catastrophe claims following the restructure of the Group’s reinsurance program coupled with a reduced level 
of positive prior accident year claims development.

The table below provides a summary of the major components of the net claims ratio.

FOR THE YEAR ENDED 31 DECEMBER

Attritional claims
Large individual risk and catastrophe claims
Impact of reinsurance transaction
Claims settlement costs
Claims discount
Net incurred central estimate claims ratio (current accident year)
Changes in undiscounted prior accident year central estimate
Impact of Ogden
Impact of reinsurance transaction
Impact of changes in risk‑free rates
Movement in risk margins
Other (including unwind of prior year discount)
Net incurred claims ratio (current financial year)

2019

2018

STATUTORY
%

ADJUSTED 1
%

STATUTORY
%

ADJUSTED 2
%

52.5
11.9
–
3.3
(1.4)
66.3
(0.8)
0.5
–
2.0
(0.2)
2.0
69.8

52.5
11.9
–
3.3
(1.4)
66.3
(0.8)
–
–
2.0
(0.2)
2.0
69.3

53.2 
10.0 
(0.1) 
3.3 
(2.0)
64.4 
(1.0)
–
(1.3)
(0.1)
0.1 
1.5 
63.6

52.3 
9.8 
– 
3.3 
(2.0)
63.4 
(1.0)
–
–
(0.1)
0.1 
1.6 
64.0 

1  Excludes one‑off impact of the Ogden decision in the UK.
2  Excludes transaction to reinsure Hong Kong construction workers’ compensation liabilities.

As set out in the table overleaf, excluding Crop insurance and LMI, the attritional claims ratio reduced to 47.5% from 50.2% in the prior 
year, reflecting improvement in International and Australia Pacific.

Excluding Crop insurance, North America’s attritional claims ratio improved 0.1% relative to the prior year. Benefits from underwriting 
and pricing initiatives as well as the sale of the personal lines (independent agency) business were largely offset by non‑catastrophe 
weather experience which impacted the affiliated and program property portfolios during the second half of the year. 

International’s attritional claims ratio improved 3.0% relative to the prior period reflecting favourable pricing conditions coupled with 
significantly reduced reinsurance expense and business mix changes.

Excluding LMI, Australia Pacific’s attritional claims ratio improved by 4.2% with improvement observed across all portfolios except for 
engineering and personal accident. 

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18

Group Chief Financial Officer’s report

Analysis of attritional claims ratio

FOR THE YEAR ENDED 31 DECEMBER

Rest of portfolio
Crop insurance
LMI

QBE Group adjusted

2019

2018

NEP 
US$M

10,251
1,197
161

11,609

ATTRITIONAL 
%

47.5
97.7
34.8

52.5

NEP 
US$M

10,662 
980 
188 

11,830 

ATTRITIONAL 
%

50.2 
78.8 
30.9 

52.3 

Large individual risk and catastrophe claims net of reinsurance are summarised in the table below.

Large individual risk and catastrophe claims

FOR THE YEAR ENDED 31 DECEMBER

Total catastrophe claims
Total large individual risk claims
Total large individual risk and catastrophe claims

2019

US$M

426
955
1,381

% OF NEP

3.7
8.2
11.9

2018

US$M

523
640
1,163

% OF NEP

4.4
5.4
9.8

The increase in the total net cost of large individual risk and catastrophe claims was broadly in line with expectations following 
changes to the Group’s reinsurance, effective 1 January 2019.

The net cost of catastrophe claims reduced to $426 million or 3.7% of net earned premium compared with $523 million or 4.4% 
in the prior year. This was below our annual allowance with adverse catastrophe experience in Australia Pacific more than offset 
by relatively benign experience in International and, to a lesser degree, North America.

The net cost of large individual risk claims increased to $955 million or 8.2% of net earned premium from $640 million or 5.4% in the 
prior year. While down from 2018 on a like‑for‑like (reinsurance) basis, the net cost was nevertheless above our annual allowance 
largely reflecting higher than expected activity in International.

Weighted average risk‑free rates

As summarised in the table below, the currency weighted average risk‑free rate used to discount net outstanding claims liabilities 
decreased to 1.05% at 31 December 2019 from 1.66% at 31 December 2018. Risk‑free rates reduced appreciably across all currencies.

Weighted average risk‑free rates 1

CURRENCY 

31 DECEMBER
2019 

30 JUNE
2019

31 DECEMBER
2018

30 JUNE
2018

Australian dollar
US dollar
Sterling
Euro
Group weighted
Estimated impact of discount rate (charge) benefit

%

%

%

%

%

$M

1.11
1.95
0.80
(0.08)
1.05
(231)

1.14
2.09
0.80
(0.22)
1.10
(231)

2.06
2.74
1.08
0.23
1.66
13

2.29
2.80
1.10
0.30
1.77
40

1  Continuing operations basis.

The significant reduction in risk-free rates gave rise to a $231 million underwriting charge that increased the net claims ratio by 
2.0% compared with a $13 million benefit in the prior year that reduced the net claims ratio by 0.1%. Given the longer weighted 
average term to settlement of our euro denominated net claims liabilities, the fall in euro risk‑free rates during the period contributed 
disproportionately to the overall impact of lower weighted average risk‑free rates on the Group’s underwriting result.

The $231 million impact on the underwriting result was more than offset by a corresponding $265 million gain in the value of fixed 
interest securities. 

Prior accident year claims development

The result included $96 million of positive prior accident year claims development that benefited the claims ratio by 0.8% compared 
with $113 million or 1.0% in the prior year.

The claims development includes $32 million of positive prior accident year claims development pertaining to North American Crop 
insurance that is matched by additional premium cessions under the MPCI scheme and an $86 million benefit in International due 
to the impact of adjusting the UK periodic payment order rate that is matched by a reduced discount benefit. 

Excluding these items, prior accident year claims development is better stated at $22 million adverse or 0.2% of net earned premium 
compared with $92 million or 0.8% of positive development in the prior year:
• North America recorded $112 million of adverse development compared with $7 million in the prior year. This reflected a reduced 
level of positive development in Crop (that was not matched by additional premium cessions under the MPCI scheme), adverse 
development in assumed reinsurance (casualty and multi-line), corporate commercial, E&S lines and specialty programs;

• International recorded $14 million of adverse development compared with $25 million in the prior year, reflecting substantial reserve 
strengthening in financial lines and direct and facultative property, largely offset by reinsurance recoveries and positive development 
in liability, reinsurance, marine and Asia; and

• Australia Pacific reported $104 million of positive development compared with $129 million in the prior year, largely reflecting 

favourable claim development on NSW CTP coupled with lower than expected average claim size following privatisation of the 
SA CTP market, albeit partly offset by minor adverse development in householders, public liability, engineering and New Zealand. 

 
 
 
 
18

Group Chief Financial Officer’s report

19

Analysis of attritional claims ratio

FOR THE YEAR ENDED 31 DECEMBER

Rest of portfolio

Crop insurance

LMI

QBE Group adjusted

Large individual risk and catastrophe claims

FOR THE YEAR ENDED 31 DECEMBER

Total catastrophe claims

Total large individual risk claims

Total large individual risk and catastrophe claims

2019

2018

ATTRITIONAL 

ATTRITIONAL 

NEP 

US$M

10,251

1,197

161

11,609

%

47.5

97.7

34.8

52.5

NEP 

US$M

10,662 

980 

188 

11,830 

%

50.2 

78.8 

30.9 

52.3 

2019

US$M

426

955

1,381

% OF NEP

3.7

8.2

11.9

2018

US$M

523

640

1,163

% OF NEP

4.4

5.4

9.8

Large individual risk and catastrophe claims net of reinsurance are summarised in the table below.

The increase in the total net cost of large individual risk and catastrophe claims was broadly in line with expectations following 

changes to the Group’s reinsurance, effective 1 January 2019.

The net cost of catastrophe claims reduced to $426 million or 3.7% of net earned premium compared with $523 million or 4.4% 

in the prior year. This was below our annual allowance with adverse catastrophe experience in Australia Pacific more than offset 

by relatively benign experience in International and, to a lesser degree, North America.

The net cost of large individual risk claims increased to $955 million or 8.2% of net earned premium from $640 million or 5.4% in the 

prior year. While down from 2018 on a like‑for‑like (reinsurance) basis, the net cost was nevertheless above our annual allowance 

largely reflecting higher than expected activity in International.

Weighted average risk‑free rates

As summarised in the table below, the currency weighted average risk‑free rate used to discount net outstanding claims liabilities 

decreased to 1.05% at 31 December 2019 from 1.66% at 31 December 2018. Risk‑free rates reduced appreciably across all currencies.

Weighted average risk‑free rates 1

CURRENCY 

Australian dollar

US dollar

Sterling

Euro

Group weighted

Estimated impact of discount rate (charge) benefit

1  Continuing operations basis.

31 DECEMBER

30 JUNE

31 DECEMBER

30 JUNE

%

%

%

%

%

$M

2019 

1.11

1.95

0.80

(0.08)

1.05

(231)

2019

1.14

2.09

0.80

(0.22)

1.10

(231)

2018

2.06

2.74

1.08

0.23

1.66

13

2018

2.29

2.80

1.10

0.30

1.77

40

The significant reduction in risk-free rates gave rise to a $231 million underwriting charge that increased the net claims ratio by 

2.0% compared with a $13 million benefit in the prior year that reduced the net claims ratio by 0.1%. Given the longer weighted 

average term to settlement of our euro denominated net claims liabilities, the fall in euro risk‑free rates during the period contributed 

disproportionately to the overall impact of lower weighted average risk‑free rates on the Group’s underwriting result.

The $231 million impact on the underwriting result was more than offset by a corresponding $265 million gain in the value of fixed 

interest securities. 

Prior accident year claims development

with $113 million or 1.0% in the prior year.

The result included $96 million of positive prior accident year claims development that benefited the claims ratio by 0.8% compared 

The claims development includes $32 million of positive prior accident year claims development pertaining to North American Crop 

insurance that is matched by additional premium cessions under the MPCI scheme and an $86 million benefit in International due 

to the impact of adjusting the UK periodic payment order rate that is matched by a reduced discount benefit. 

Excluding these items, prior accident year claims development is better stated at $22 million adverse or 0.2% of net earned premium 

compared with $92 million or 0.8% of positive development in the prior year:

• North America recorded $112 million of adverse development compared with $7 million in the prior year. This reflected a reduced 

level of positive development in Crop (that was not matched by additional premium cessions under the MPCI scheme), adverse 

development in assumed reinsurance (casualty and multi-line), corporate commercial, E&S lines and specialty programs;

• International recorded $14 million of adverse development compared with $25 million in the prior year, reflecting substantial reserve 

strengthening in financial lines and direct and facultative property, largely offset by reinsurance recoveries and positive development 

in liability, reinsurance, marine and Asia; and

• Australia Pacific reported $104 million of positive development compared with $129 million in the prior year, largely reflecting 

favourable claim development on NSW CTP coupled with lower than expected average claim size following privatisation of the 

SA CTP market, albeit partly offset by minor adverse development in householders, public liability, engineering and New Zealand. 

Commission and expenses

The Group’s combined commission and expense ratio reduced to 30.2% from 31.6% in the prior year.

The commission ratio improved to 15.6% from 16.4% in the prior year. International’s commission ratio fell significantly due to reduced 
reinsurance spend and actions to reduce commissions in the London Market and UK business units. North America and Australia 
Pacific also reported a modest improvement in their commission ratios, which also benefited from reduced reinsurance costs. 

The Group’s expense ratio improved to 14.6% from 15.2% in the prior year, reflecting a material cost and operating leverage driven 
improvement in North America partly offset by a modest increase in both International and Australia Pacific. International’s expense 
ratio increased as a result of higher incentive payments, irrecoverable VAT associated with Brexit and reduced net earned premium. 
The increase in Australia Pacific was primarily due to a further reduction in builders’ warranty fee income and a transitional excess 
profits and losses (TEPL) accrual with respect to NSW CTP scheme outperformance. 

The Group’s 2019 expense ratio is broadly in line with our expectations and we remain on track to deliver in accordance with previously 
advised commitments in relation to the three-year efficiency program.

Income tax expense

i
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The Group’s income tax expense of $114 million equated to an effective tax rate of 16% compared with tax expense of $77 million 
or 12% in the prior year. The low effective tax rate in 2019 reflects the mix of corporate tax rates in the countries where we operate, 
with profits in North America and Bermuda continuing to benefit from the utilisation of previously unrecognised tax losses.

During 2019, QBE paid $52 million in corporate income tax to tax authorities globally, including $6 million in Australia. Income tax 
payments in Australia benefit our dividend franking account, the balance of which stood at A$87 million as at 31 December 2019. 

The Group is therefore capable of fully franking dividends of A$204 million. The dividend franking percentage is expected to remain 
at 30% for the 2020 interim dividend. 

Balance sheet

Capital management summary

Key financial strength ratios

AS AT 31 DECEMBER

Debt to equity 
Debt to tangible equity 
PCA multiple 1,2
Premium solvency 3
Probability of adequacy of outstanding claims

BENCHMARK

25% to 35%

1.6x to 1.8x

87.5% to 92.5%

2019

38.0%
57.7%
1.71x
46.2%
90.0%

2018

38.0%
57.1%
1.78x
47.3%
90.1%

1  Prior year APRA PCA calculation has been restated to be consistent with APRA returns finalised subsequent to year end. 
2  Indicative APRA PCA calculation at 31 December 2019.
3  Premium solvency ratio is calculated as the ratio of net tangible assets to adjusted net earned premium.

The Group’s indicative APRA PCA multiple of 1.71x remains above the midpoint of the Group’s 1.6–1.8x target PCA range while the 
Group retains an excess above S&P ‘AA’ minimum capital levels. 

PCA summary

AS AT 31 DECEMBER

QBE’s regulatory capital base
APRA’s Prescribed Capital Amount (PCA)
PCA multiple

2019 1
US$M

8,502
4,965
1.71x

o
n

2018 2
US$M

8,762
4,931
1.78x

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1  Indicative APRA PCA calculation at 31 December 2019.
2  Prior year APRA PCA calculation has been restated to be consistent with APRA returns finalised subsequent to year end.

The PCA multiple is down from the December 2018 multiple of 1.78x, reflecting the following:

• the share buyback and dividends paid during the year (which together exceeded net cash profit); 

• a higher asset risk charge due to the material increase in investment funds and following the decision to extend asset duration 

and modestly increase credit risk;  

• a higher insurance risk charge due to the increase in net outstanding claims liabilities; partly offset by

• a reduction in the insurance concentration risk charge (ICRC) as a result of further enhancements to the Group’s reinsurance 

protection, effective 1 January 2020.

During 2020, we intend maintaining our PCA within a target range of 1.6–1.8x.

Debt to equity (gearing) was 38.0% at 31 December 2019, unchanged from the prior year. An ongoing focus on reducing gearing 
toward the Board’s target range of 25%–35% resulted in further liability management activity, the benefit of which was offset by the 
adoption of AASB 9.

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
20

Group Chief Financial Officer’s report

During 2019, the major rating agencies revised their outlooks as follows:

• On 11 April 2019, Moody’s revised the Group’s outlook from “negative” to “stable” and affirmed the ‘A3‘ issuer credit rating (ICR) 

on QBE Insurance Group Limited (the parent entity) as well as the ‘A1’ insurer financial strength (IFS) ratings of QBE’s main 
operating entities.

• On 30 May 2019, S&P affirmed the ‘A-’ long-term ICR on the parent entity and the ‘A+’ IFS ratings on the Group’s core and highly 

strategic operating entities. The outlook across all entities remained “stable”.

• On 18 June 2019, Fitch downgraded LMI’s IFS rating to ‘A+’ from ‘AA-‘ following a sector-wide reassessment by the agency. 

The outlook remained “stable”.

• On 5 July 2019, A.M. Best affirmed the long term ICR of the parent entity and its main operating subsidiaries at ‘bbb+’ and ‘a+’ 

respectively and the IFS of the main operating subsidiaries at ‘A’ while affirming the outlook of the Group at “stable”.

• On 12 July 2019, Fitch affirmed the long-term issuer default rating (IDR) at ‘A-‘ on the parent entity and the IFS ratings of its 

subsidiaries at ‘A+’. The outlook across all entities remained “stable”.

• On 25 July 2019 and following a rating methodology change, S&P downgraded LMI to ‘A’ from ‘A+’. The outlook remained “stable”. 

LMI Asia was placed on CreditWatch Negative, with its rating unchanged at ‘A’.

• On 31 July 2019 and following a rating methodology change, S&P affirmed QBE’s core subsidiaries at ‘A+’, outlook “stable”.

• On 19 September 2019, LMI Asia’s rating was affirmed at ‘A’, with CreditWatch removed and a “stable” outlook.

In August 2017, the Group commenced a three‑year cumulative on‑market share buyback program of up to A$1 billion, with a target 
of not more than A$333 million to be purchased in any one calendar year. During 2019, QBE purchased A$295 million of QBE 
shares resulting in the cancellation of 23.9 million shares or 1.8% of issued capital. Since commencement of the buyback, QBE has 
purchased A$767 million of QBE shares resulting in the cancellation of 68.1 million shares or 5.0% of issued capital.

Capital summary

AS AT 31 DECEMBER

Net assets
Less: intangible assets
Net tangible assets
Add: borrowings 
Total tangible capitalisation

Borrowings

2019
US$M

8,153
(2,791)
5,362
3,095
8,457

2018
US$M

8,400
(2,800)
5,600
3,188
8,788

As at 31 December 2019, total borrowings were $3,095 million, down $93 million or 3% from $3,188 million at 31 December 2018. 
In March 2019, the Group undertook a tender offer for the buyback of senior unsecured debt securities due 21 October 2022, 
which resulted in the purchase and cancellation of $195 million of senior debt.

The debt buyback undertaken during the year was partly offset by the adoption of AASB 9, effective 1 January 2019 which gave rise 
to the immediate derecognition of $83 million of capitalised debt exchange premiums, with a corresponding increase in the carrying 
value of borrowings and decrease in opening retained earnings. The decrease in retained earnings will be offset by reduced financing 
costs going forward, including a $14 million saving in financing costs in the current year.

Gross interest expense on long term borrowings for the year was $195 million, down from $205 million in the prior year. The average 
annualised cash cost of borrowings at 31 December 2019 was 6.3%, down slightly from 6.4% at 31 December 2018, reflecting the 
buyback of the remaining senior debt (which had a lower coupon compared with the Group’s remaining capital qualifying debt) more 
than offset by reduced capitalised debt exchange premium amortisation following the adoption of AASB 9.

As at 31 December 2019, virtually all the Group’s debt counted towards regulatory capital. This is up from 94% as at 31 December 
2018, reflecting the buyback and cancellation of almost all the remaining non-qualifying senior unsecured debt during the half.

Borrowings maturity 1

AS AT 31 DECEMBER

Less than one year
One to five years
More than five years

1  Based on first call date.

Borrowings profile

AS AT 31 DECEMBER

Senior debt
Subordinated debt
Additional tier 1 securities

Further details of borrowings are set out in note 5.1 to the financial statements.

2019
%

5 
56
39

2019
%

–
87
13

2018
%

– 
42
58

2018
%

6
81
13

 
20

Group Chief Financial Officer’s report

21

During 2019, the major rating agencies revised their outlooks as follows:

Net outstanding claims liabilities

AS AT 31 DECEMBER

Net central estimate 
Risk margin 
Net outstanding claims

Probability of adequacy of outstanding claims (PoA)
Weighted average discount rate
Weighted average term to settlement (years) 

2019
US$M

13,675
1,136
14,811

%

90.0
1.1
3.6

2018
US$M

12,870
1,158
14,028

%

90.1
1.7
3.3

2017
US$M

14,029 
1,239 
15,268

%

90.0
1.7
3.1

2016
US$M

12,693 
1,088 
13,781

%

89.5
1.5
2.9

2015
US$M

14,119 
1,260 
15,379

%

89.0
1.9
3.0

Net outstanding claims liabilities are discounted using sovereign bond rates as a proxy for risk‑free interest rates and not the actual 
earning rate on our investments.

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At 31 December 2019, risk margins in net outstanding claims were $1,136 million or 8.3% of the net central estimate of outstanding 
claims compared with $1,158 million or 9.0% of the net central estimate at 31 December 2018. Excluding foreign exchange 
movements, risk margins decreased $23 million during the year compared with a $12 million increase in the prior year.

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The PoA is broadly unchanged at 90.0%. The reduction in risk margin as a percentage of the net central estimate of outstanding 
claims is supported by a decrease in the coefficient of variation, which reflects reduced reserve uncertainty as a result of the Ogden 
decision, the stability of our current Crop reserves on a net of reinsurance basis and the insights we have drawn from Brilliant Basics 
pricing and claims initiatives as part of our reserving process, particularly in North America.

Intangible assets

The carrying value of identifiable intangibles and goodwill at 31 December 2019 was $2,791 million, down from $2,800 million 
at 31 December 2018.

During the year, the carrying value of intangibles reduced by only $9 million primarily due to the net amortisation and impairment 
expense of $94 million which more than offset net additions in the period, being mainly the capitalisation of software in relation 
to various information technology projects.

At 31 December 2019, QBE reviewed all material intangibles for indicators of impairment, consistent with the Group’s policy and 
the requirements of the relevant accounting standard. No material impairment was identified.

Investment performance and strategy

Our investment portfolio delivered a net investment return of 4.6% in 2019, up materially from 2.2% in the prior year. Excluding the 
impact of lower risk‑free rates during the year, the net investment return was 3.6% slightly above the upper end of our 3.0%–3.5% 
target return range. Most asset classes delivered better than expected returns following especially volatile markets in the final quarter 
of 2018. 

Despite progressively falling yields across the year, fixed income assets generated a 3.7% return compared with 1.8% in 2018, 
reflecting significant mark-to-market gains as a result of lower risk-free rates and credit spread tightening. The decision to close our 
balance sheet duration mismatch during the year proved beneficial with the $231 million adverse impact of lower risk-free-rates used 
to discount net outstanding claims liabilities more than offset by $265 million of mark-to-market gains on our fixed income portfolio.

Growth asset returns were also very strong, achieving an overall return of 11.8%, substantially above expectations and the prior year 
return of 6.2%. Equity markets were particularly buoyant delivering significantly higher than expected investment income; returns 
on our infrastructure assets were above expectations; and unlisted property exposures were in line with expectations.

As at 31 December 2019, the running yield of the fixed income portfolio was 1.5%, down from 2.2% at 31 December 2018. This reflects 
the significant bond market rally and credit spread narrowing experienced during the year, partly offset by a slightly increased 
exposure to credit. Fixed income portfolio duration at the balance date was 2.6 years and growth asset exposure was 13.5% of total 
cash and investments.

Going forward and to align more closely with peer reporting, we have reallocated high yield and emerging market debt to fixed income 
from growth assets and have also commenced the deployment of a private credit allocation where the additional illiquidity premium 
offers incremental risk‑adjusted returns. 

Together, these changes are expected to increase our fixed income running yield to around 1.75% once fully implemented.

Closing total cash and investments was $24,374 million, up 6% from $22,887 million at 31 December 2018, partly reflecting an 
increase in reinsurance recovery collections pertaining to the group aggregate reinsurance that was in place during 2015–2019. 

During 2020, we intend to manage fixed income duration in a range of 2.5–3.0 years, target growth assets at around 12.5% 1 of total 
cash and investments and modestly raise our exposure to lower rated and less liquid credit. Together with a modest allowance for 
tactical asset allocation outperformance, these portfolio settings support a 2020 target net investment return of 2.5%–3.0% 2. 

1  From 1 January 2020, growth assets no longer include high yield debt or emerging market debt which is now considered part of our fixed 

income portfolio consistent with peer reporting.
2  Assumes risk‑free rates as at 31 December 2019.

• On 11 April 2019, Moody’s revised the Group’s outlook from “negative” to “stable” and affirmed the ‘A3‘ issuer credit rating (ICR) 

on QBE Insurance Group Limited (the parent entity) as well as the ‘A1’ insurer financial strength (IFS) ratings of QBE’s main 

operating entities.

• On 30 May 2019, S&P affirmed the ‘A-’ long-term ICR on the parent entity and the ‘A+’ IFS ratings on the Group’s core and highly 

strategic operating entities. The outlook across all entities remained “stable”.

• On 18 June 2019, Fitch downgraded LMI’s IFS rating to ‘A+’ from ‘AA-‘ following a sector-wide reassessment by the agency. 

The outlook remained “stable”.

• On 5 July 2019, A.M. Best affirmed the long term ICR of the parent entity and its main operating subsidiaries at ‘bbb+’ and ‘a+’ 

respectively and the IFS of the main operating subsidiaries at ‘A’ while affirming the outlook of the Group at “stable”.

• On 12 July 2019, Fitch affirmed the long-term issuer default rating (IDR) at ‘A-‘ on the parent entity and the IFS ratings of its 

subsidiaries at ‘A+’. The outlook across all entities remained “stable”.

• On 25 July 2019 and following a rating methodology change, S&P downgraded LMI to ‘A’ from ‘A+’. The outlook remained “stable”. 

LMI Asia was placed on CreditWatch Negative, with its rating unchanged at ‘A’.

• On 31 July 2019 and following a rating methodology change, S&P affirmed QBE’s core subsidiaries at ‘A+’, outlook “stable”.

• On 19 September 2019, LMI Asia’s rating was affirmed at ‘A’, with CreditWatch removed and a “stable” outlook.

In August 2017, the Group commenced a three‑year cumulative on‑market share buyback program of up to A$1 billion, with a target 

of not more than A$333 million to be purchased in any one calendar year. During 2019, QBE purchased A$295 million of QBE 

shares resulting in the cancellation of 23.9 million shares or 1.8% of issued capital. Since commencement of the buyback, QBE has 

purchased A$767 million of QBE shares resulting in the cancellation of 68.1 million shares or 5.0% of issued capital.

As at 31 December 2019, total borrowings were $3,095 million, down $93 million or 3% from $3,188 million at 31 December 2018. 

In March 2019, the Group undertook a tender offer for the buyback of senior unsecured debt securities due 21 October 2022, 

which resulted in the purchase and cancellation of $195 million of senior debt.

The debt buyback undertaken during the year was partly offset by the adoption of AASB 9, effective 1 January 2019 which gave rise 

to the immediate derecognition of $83 million of capitalised debt exchange premiums, with a corresponding increase in the carrying 

value of borrowings and decrease in opening retained earnings. The decrease in retained earnings will be offset by reduced financing 

costs going forward, including a $14 million saving in financing costs in the current year.

Gross interest expense on long term borrowings for the year was $195 million, down from $205 million in the prior year. The average 

annualised cash cost of borrowings at 31 December 2019 was 6.3%, down slightly from 6.4% at 31 December 2018, reflecting the 

buyback of the remaining senior debt (which had a lower coupon compared with the Group’s remaining capital qualifying debt) more 

than offset by reduced capitalised debt exchange premium amortisation following the adoption of AASB 9.

As at 31 December 2019, virtually all the Group’s debt counted towards regulatory capital. This is up from 94% as at 31 December 

2018, reflecting the buyback and cancellation of almost all the remaining non-qualifying senior unsecured debt during the half.

Capital summary

AS AT 31 DECEMBER

Net assets

Less: intangible assets

Net tangible assets

Add: borrowings 

Total tangible capitalisation

Borrowings

Borrowings maturity 1

AS AT 31 DECEMBER

Less than one year

One to five years

More than five years

1  Based on first call date.

Borrowings profile

AS AT 31 DECEMBER

Senior debt

Subordinated debt

Additional tier 1 securities

2019

US$M

8,153

(2,791)

5,362

3,095

8,457

2018

US$M

8,400

(2,800)

5,600

3,188

8,788

2019

%

5 

56

39

2019

%

–

87

13

2018

%

– 

42

58

2018

%

6

81

13

Further details of borrowings are set out in note 5.1 to the financial statements.

 
 
 
 
 
 
 
 
 
 
 
 
 
 
22

Group Chief Financial Officer’s report

Total net investment income

POLICYHOLDERS’ FUNDS

SHAREHOLDERS’ FUNDS

TOTAL

FOR THE YEAR ENDED 31 DECEMBER

2019
US$M

2018
US$M

2019
US$M

2018
US$M

Fixed interest, short‑term money and 
cash income
Income on growth assets
Gross investment income 1
Investment expenses
Net investment income
Foreign exchange (loss) gain
Other (expenses) income
Net investment and other income

481
212
693
(11)
682
(23)
(10)
649

245
111
356
(11)
345
1
–
346

272
129
401
(6)
395
–
(8)
387

142
60
202
(6)
196
– 
5
201

2019
US$M

753
341
1,094
(17)
1,077
(23)
(18)
1,036

1  Includes fair value gains on investments of $492 million (2018 $143 million losses) comprising gains on investments supporting 
policyholders’ funds of $309 million (2018 $87 million losses) and shareholders’ funds of $183 million (2018 $56 million losses).

Annualised gross and net investment yield

YIELD ON INVESTMENT ASSETS 
BACKING POLICYHOLDERS’ FUNDS

YIELD ON INVESTMENT ASSETS 
BACKING SHAREHOLDERS’ FUNDS

TOTAL

FOR THE YEAR ENDED 31 DECEMBER

Gross investment yield 1
Net investment yield 2
Net investment and other 
income yield 3

2019 
%

4.6
4.5

4.3

2018 
%

2.3
2.3

2.3

2019 
%

4.7
4.6

4.5

2018 
%

2.3
2.2

2.2

2019 
%

4.6
4.6

4.4

2018
US$M

387
171
558
(17)
541
1
5
547

2018 
%

2.3
2.2

2.3

1  Gross investment yield is calculated with reference to gross investment income as a percentage of average investment assets backing 

policyholders’ or shareholders’ funds as appropriate.

2  Net investment yield is calculated with reference to gross investment income less investment expenses as a percentage of average 

investment assets backing policyholders’ or shareholders’ funds as appropriate.

3  Net investment and other income yield is calculated with reference to net investment and other net income as a percentage of average 

investment assets backing policyholders’ or shareholders’ funds as appropriate.

Total cash and investments

AS AT 31 DECEMBER

Cash and cash equivalents
Short‑term money
Government bonds
Corporate bonds
Infrastructure debt
Developed market equity
Emerging market equity
Emerging market debt
High yield debt
Unlisted property trusts
Infrastructure assets
Private equity
Alternatives
Investment properties
Total investments and cash

INVESTMENT ASSETS BACKING 
POLICYHOLDERS’ FUNDS

INVESTMENT ASSETS BACKING 
SHAREHOLDERS’ FUNDS

TOTAL

2019
US$M

359
699
3,811
8,698
253
150
71
363
263
469
592
133
60
24
15,945

2018
US$M

536
796
3,089
7,540
308
324 
180
145
50
567
528
99
–
22
14,184

2019
US$M

188
367
2,002
4,570
133
131
37
191
138
247
311
70
31
13
8,429

2018
US$M

327
487
1,886
4,604
187
241
109
89
31
346
323
60
–
13
8,703

2019
US$M

547
1,066
5,813
13,268
386
281
108
554
401
716
903
203
91
37
24,374

2018
US$M

863
1,283
4,975
12,144
495
565
289
234
81
913
851
159
–
35
22,887

22

Group Chief Financial Officer’s report

23

Total net investment income

Interest bearing financial assets – S&P security grading

POLICYHOLDERS’ FUNDS

SHAREHOLDERS’ FUNDS

TOTAL

AS AT 31 DECEMBER

S&P rating
AAA
AA
A