More annual reports from QBE Insurance Group:
2023 Report2020
Annual
Report
QBE INSURANCE GROUP LIMITED
Table of contents
A N N UA L R E P O R T 2 02 0
Performance overview
Interim Group Chief Executive Officer’s report
SECTION 1
Chair’s message
2020 snapshot
SECTION 2
Operating and financial review
Group Chief Financial Officer’s report
North America business review
International business review
Australia Pacific business review
Climate change – our approach to risks and opportunities
SECTION 3
Governance
Managing risk – our business
Board of Directors
Group Executive Committee
Corporate governance statement
SECTION 4
Directors’ Report
Directors’ Report
Remuneration Report
Auditor’s independence declaration
SECTION 5
Financial Report
Financial Report contents
Financial statements
Notes to the financial statements
Directors’ declaration
Independent auditor’s report
SECTION 6
Other information
Shareholder information
Financial calendar
10-year history
Glossary
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78
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84
156
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165
168
169
170
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QBE Insurance Group Limited | ABN 28 008 485 014
All amounts in this report are US dollars unless otherwise stated.
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Table of contents
A N N UA L R E P O R T 2 02 0
SECTION 1
Performance overview
Chair’s message
2020 snapshot
Interim Group Chief Executive Officer’s report
SECTION 2
Operating and financial review
Group Chief Financial Officer’s report
North America business review
International business review
Australia Pacific business review
SECTION 3
Governance
Climate change – our approach to risks and opportunities
Managing risk – our business
Board of Directors
Group Executive Committee
Corporate governance statement
SECTION 4
Directors’ Report
Directors’ Report
Remuneration Report
Auditor’s independence declaration
SECTION 5
Financial Report
Financial Report contents
Financial statements
Notes to the financial statements
Directors’ declaration
Independent auditor’s report
SECTION 6
Other information
Shareholder information
Financial calendar
10-year history
Glossary
QBE Insurance Group Limited | ABN 28 008 485 014
All amounts in this report are US dollars unless otherwise stated.
2
4
6
10
22
24
26
28
36
38
40
42
50
54
78
79
80
84
156
157
165
168
169
170
2
CHAIR’S MESSAGE
Evolving and transforming
our business
The COVID-19 pandemic coupled with increased catastrophe activity and
a shifting global geopolitical landscape provided a challenging backdrop in
2020. Although the lowest point of the crisis may be behind us, the effects
of the pandemic are likely to reverberate for some time, creating ongoing
uncertainty for our business, our customers and society at large.
The pandemic had far-reaching
consequences beyond the spread of the
disease itself. Global economies face
long-term repercussions with higher
unemployment, equity market volatility
and ongoing downward pressure on
interest rates. Like most industries, the
insurance industry has been impacted
by the pandemic, with higher claims
costs and lower investment returns.
Nonetheless, QBE is well placed
to benefit as economies recover in the
markets in which we operate, and we are
able to leverage our global diversification
and a continuing strong rate environment.
Amid the pandemic, we also saw social
unrest and a year of significantly higher
than normal catastrophe events around
the world, including an extremely active
wildfire season as well as a record number
of named storms in the US, extreme
bushfires and storm activity including hail
damage in Australia, and typhoons in Asia.
Notwithstanding this period of volatility
and unrest, QBE remained focused on
delivering sound underlying performance
as well as supporting the wellbeing and
safety of our people, our customers, our
business partners and the communities
in which we operate. This focus remains
relevant for the here and now as well
as underpinning our plans for the future.
The strength and resilience of our business
are evident in the Group’s underlying
financial performance for the year ended
December 2020. While your Board
recognises the disappointing headline
statutory loss reported for the 2020
financial year, both our capital position
and our underlying business fundamentals
remain strong. Actions taken early on as
the pandemic crisis unfolded stood us in
good stead, ensuring we retained a strong
balance sheet while maintaining underlying
earnings momentum. Further details of our
full year results are explored in the reports
of both the Interim Group Chief Executive
Officer and Group Chief Financial Officer
on subsequent pages.
QBE remains focused on the key drivers
of business performance and the
maintenance of the underlying disciplines
that are fundamental for long-term
success. To this end, cell reviews and
Brilliant Basics remain important, as is our
ongoing operational efficiency program.
3
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In light of the substantial 2020 statutory
to drive these initiatives. Supporting this
to sustainable insurance and investment.
loss, the Board has elected not to
is our global Culture Advisory Group,
The framework further supports the
declare a final dividend. In making the
which will work with our external partners
integration of environmental, social and
decision, we have been conscious of
to help us build on our leadership capability
governance (ESG) considerations into our
maintaining a strong balance sheet which
and identify any gaps and levers to further
core business and increased transparency
provides us with considerable flexibility
enhance our culture.
with our customers.
Looking ahead
We commence the 2021 year with
optimism; however, we acknowledge that
challenges remain from an economic and
industry perspective. While it is unclear
how long it will take for economies and
society more generally to fully recover
from the pandemic, we remain focused
on transforming our business, processes
and technology to deliver better outcomes
for all of our stakeholders.
We will continue to work with governments
and regulators to better prepare for,
and to respond to, low probability,
high impact events like the COVID-19
pandemic. This has prompted a broad
discussion within the industry as to how
we provide appropriate support to our
customers during this extraordinary and
challenging time. QBE remains determined
to play an active and constructive role
in these discussions.
QBE responded decisively in 2020 to
establish solid foundations for the future.
I am very proud of our people who work
every day to deliver outstanding outcomes
for our customers. We have a hardworking
and talented team, a sound balance sheet
and a program of work that allow us to
better serve our customers, shareholders
Given the considerable uncertainty as
a result of the pandemic and its impact
on economies, QBE has determined not
to provide results targets for the 2021
financial year, at this stage. We will
continue to review this decision and
will update the market accordingly.
Mike Wilkins AO
Independent Chair
for future investment in, and growth of,
our business.
Leadership
In 2020, we saw changes to the Group
Executive Committee and this year we
are pleased to announce the appointments
of Fiona Larnach, as our new Group Chief
Risk Officer, and Sue Houghton, as our
new Chief Executive Officer Australia
Pacific. These appointments highlight our
commitment to diversity and in 2021 the
Group Executive Committee will comprise
45% women.
The Board is also committed to ensuring
we continue to invest in our leaders, with
succession planning a key area. In 2021,
we will accelerate our focus on the
development of existing leaders to prepare
them for their next role and invest in the
development of our talent pipeline. Board
renewal is also an important part of setting
QBE up for the future. As such, we were
pleased to welcome Tan Le and Eric Smith
who both joined our Board in September
2020, supporting our digital agenda
and broadening our skills in the North
American insurance market respectively.
During 2020, we also saw the departure
of our Group Chief Executive Officer, Pat
Operating sustainably
Regan, following an external investigation
We continue to integrate sustainability
concerning workplace communications
across all facets of the business.
that the Board concluded did not meet
In a year of major natural disasters
the standards set out in the Group Code
and the COVID-19 pandemic, we have
of Ethics and Conduct. While this was
scaled up our support for our customers
a setback, the fundamentals of the
and communities through disaster
business remain strong and importantly
relief and risk management education.
our strategy and priorities remain
We also became a signatory to the United
unchanged. In October, we announced
Nations Global Compact and are working
that Richard Pryce would assume the
to advance the 10 principles related
role of Interim Group Chief Executive
to human rights, labour, environment
Officer while a search is underway for
and anti-corruption by embedding them
a permanent replacement, providing
into our strategy, culture and day-to-day
important continuity as we execute
operations at QBE.
on our strategic priorities.
Our sustainability scorecard, outlined in
work and dedication of our people. I am
progress against our key sustainability
proud of how our teams have responded
objectives. We also remain committed to
in this time of uncertainty and their ability
advancing the United Nations Sustainable
to continue to deliver the best possible
Development Goals, with a focus on our
outcomes and solutions for our customers.
five priority goals where we can have the
On behalf of the Board, I extend my
greatest impact.
sincere thanks to Richard and the entire
executive team as well as all our people
for their demonstrated adaptability and
flexibility around new ways of working and
their continued commitment to meeting
the needs of our customers and the
communities in which we operate.
Throughout the year, we continued
to deliver against our Climate Change
Action Plan. We have set metrics
and targets to measure and monitor
climate-related risks and opportunities
as outlined in our climate change
disclosures on pages 28 to 35 of this
Following the departure of Pat Regan,
Annual Report. This includes recently
we announced that we would undertake
joining the UN-convened Net-Zero
a review of QBE’s culture. This review will
Asset Owner Alliance and committing
seek to build on the many strong elements
to transition our investment portfolios
of our culture while also identifying the
to net-zero greenhouse gas emissions
target culture that we need for the future.
by 2050. In 2020, we also developed
We remain committed to providing
an environmental and social (E&S) risk
a respectful and inclusive environment
framework which identifies the sectors
for all of our people and continue to build
and issues that present an increased
a stronger, better QBE. With this in mind,
E&S risk to our business, including
we have put in place a series of initiatives
energy and biodiversity, and outlines
that will add to our existing QBE DNA
our approach to managing those risks.
framework. John Green, Deputy Chair
The framework has been developed
and Tan Le, non-executive director, have
to promote informed decision making
been appointed by the Board as sponsors
that is consistent with our commitment
Our business is supported by the hard
our 2020 Sustainability Report, highlights
and communities.
2
3
CHAIR’S MESSAGE
Evolving and transforming
our business
The COVID-19 pandemic coupled with increased catastrophe activity and
a shifting global geopolitical landscape provided a challenging backdrop in
2020. Although the lowest point of the crisis may be behind us, the effects
of the pandemic are likely to reverberate for some time, creating ongoing
uncertainty for our business, our customers and society at large.
The pandemic had far-reaching
wildfire season as well as a record number
statutory loss reported for the 2020
consequences beyond the spread of the
of named storms in the US, extreme
financial year, both our capital position
disease itself. Global economies face
bushfires and storm activity including hail
and our underlying business fundamentals
damage in Australia, and typhoons in Asia.
remain strong. Actions taken early on as
long-term repercussions with higher
unemployment, equity market volatility
and ongoing downward pressure on
interest rates. Like most industries, the
insurance industry has been impacted
by the pandemic, with higher claims
costs and lower investment returns.
Nonetheless, QBE is well placed
to benefit as economies recover in the
markets in which we operate, and we are
able to leverage our global diversification
and a continuing strong rate environment.
Amid the pandemic, we also saw social
unrest and a year of significantly higher
than normal catastrophe events around
the world, including an extremely active
Notwithstanding this period of volatility
and unrest, QBE remained focused on
delivering sound underlying performance
as well as supporting the wellbeing and
safety of our people, our customers, our
business partners and the communities
in which we operate. This focus remains
relevant for the here and now as well
as underpinning our plans for the future.
The strength and resilience of our business
are evident in the Group’s underlying
financial performance for the year ended
December 2020. While your Board
recognises the disappointing headline
the pandemic crisis unfolded stood us in
good stead, ensuring we retained a strong
balance sheet while maintaining underlying
earnings momentum. Further details of our
full year results are explored in the reports
of both the Interim Group Chief Executive
Officer and Group Chief Financial Officer
on subsequent pages.
QBE remains focused on the key drivers
of business performance and the
maintenance of the underlying disciplines
that are fundamental for long-term
success. To this end, cell reviews and
Brilliant Basics remain important, as is our
ongoing operational efficiency program.
In light of the substantial 2020 statutory
loss, the Board has elected not to
declare a final dividend. In making the
decision, we have been conscious of
maintaining a strong balance sheet which
provides us with considerable flexibility
for future investment in, and growth of,
our business.
Leadership
In 2020, we saw changes to the Group
Executive Committee and this year we
are pleased to announce the appointments
of Fiona Larnach, as our new Group Chief
Risk Officer, and Sue Houghton, as our
new Chief Executive Officer Australia
Pacific. These appointments highlight our
commitment to diversity and in 2021 the
Group Executive Committee will comprise
45% women.
During 2020, we also saw the departure
of our Group Chief Executive Officer, Pat
Regan, following an external investigation
concerning workplace communications
that the Board concluded did not meet
the standards set out in the Group Code
of Ethics and Conduct. While this was
a setback, the fundamentals of the
business remain strong and importantly
our strategy and priorities remain
unchanged. In October, we announced
that Richard Pryce would assume the
role of Interim Group Chief Executive
Officer while a search is underway for
a permanent replacement, providing
important continuity as we execute
on our strategic priorities.
Our business is supported by the hard
work and dedication of our people. I am
proud of how our teams have responded
in this time of uncertainty and their ability
to continue to deliver the best possible
outcomes and solutions for our customers.
On behalf of the Board, I extend my
sincere thanks to Richard and the entire
executive team as well as all our people
for their demonstrated adaptability and
flexibility around new ways of working and
their continued commitment to meeting
the needs of our customers and the
communities in which we operate.
Following the departure of Pat Regan,
we announced that we would undertake
a review of QBE’s culture. This review will
seek to build on the many strong elements
of our culture while also identifying the
target culture that we need for the future.
We remain committed to providing
a respectful and inclusive environment
for all of our people and continue to build
a stronger, better QBE. With this in mind,
we have put in place a series of initiatives
that will add to our existing QBE DNA
framework. John Green, Deputy Chair
and Tan Le, non-executive director, have
been appointed by the Board as sponsors
to drive these initiatives. Supporting this
is our global Culture Advisory Group,
which will work with our external partners
to help us build on our leadership capability
and identify any gaps and levers to further
enhance our culture.
to sustainable insurance and investment.
The framework further supports the
integration of environmental, social and
governance (ESG) considerations into our
core business and increased transparency
with our customers.
Looking ahead
We commence the 2021 year with
optimism; however, we acknowledge that
challenges remain from an economic and
industry perspective. While it is unclear
how long it will take for economies and
society more generally to fully recover
from the pandemic, we remain focused
on transforming our business, processes
and technology to deliver better outcomes
for all of our stakeholders.
We will continue to work with governments
and regulators to better prepare for,
and to respond to, low probability,
high impact events like the COVID-19
pandemic. This has prompted a broad
discussion within the industry as to how
we provide appropriate support to our
customers during this extraordinary and
challenging time. QBE remains determined
to play an active and constructive role
in these discussions.
QBE responded decisively in 2020 to
establish solid foundations for the future.
I am very proud of our people who work
every day to deliver outstanding outcomes
for our customers. We have a hardworking
and talented team, a sound balance sheet
and a program of work that allow us to
better serve our customers, shareholders
and communities.
Given the considerable uncertainty as
a result of the pandemic and its impact
on economies, QBE has determined not
to provide results targets for the 2021
financial year, at this stage. We will
continue to review this decision and
will update the market accordingly.
Mike Wilkins AO
Independent Chair
The Board is also committed to ensuring
we continue to invest in our leaders, with
succession planning a key area. In 2021,
we will accelerate our focus on the
development of existing leaders to prepare
them for their next role and invest in the
development of our talent pipeline. Board
renewal is also an important part of setting
QBE up for the future. As such, we were
pleased to welcome Tan Le and Eric Smith
who both joined our Board in September
2020, supporting our digital agenda
and broadening our skills in the North
American insurance market respectively.
Operating sustainably
We continue to integrate sustainability
across all facets of the business.
In a year of major natural disasters
and the COVID-19 pandemic, we have
scaled up our support for our customers
and communities through disaster
relief and risk management education.
We also became a signatory to the United
Nations Global Compact and are working
to advance the 10 principles related
to human rights, labour, environment
and anti-corruption by embedding them
into our strategy, culture and day-to-day
operations at QBE.
Our sustainability scorecard, outlined in
our 2020 Sustainability Report, highlights
progress against our key sustainability
objectives. We also remain committed to
advancing the United Nations Sustainable
Development Goals, with a focus on our
five priority goals where we can have the
greatest impact.
Throughout the year, we continued
to deliver against our Climate Change
Action Plan. We have set metrics
and targets to measure and monitor
climate-related risks and opportunities
as outlined in our climate change
disclosures on pages 28 to 35 of this
Annual Report. This includes recently
joining the UN-convened Net-Zero
Asset Owner Alliance and committing
to transition our investment portfolios
to net-zero greenhouse gas emissions
by 2050. In 2020, we also developed
an environmental and social (E&S) risk
framework which identifies the sectors
and issues that present an increased
E&S risk to our business, including
energy and biodiversity, and outlines
our approach to managing those risks.
The framework has been developed
to promote informed decision making
that is consistent with our commitment
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4
2020 snapshot 1
Shareholder highlights
Dividend payout (A$M)
59
91% from 2019
4
5
2
5
0
5
6
2
A¢
60
45
30
15
0
A$M
1,500
1,125
750
375
4
0
2016
2017
2018
2019
2020
Dividend per share (A¢)
Dividend payout (A$M)
Adjusted cash (loss) profit return on average
shareholders’ equity 2
(10.9)%
2019 8.9%
Earnings (loss) profit per
share (US¢)
(108.5)
2019 41.8
Dividend per share (A¢)
4
Financial highlights 3
Gross written premium
by class of business (US$M)
Net earned premium (US$M)
Net earned premium by type
14,643
10% from 2019 4,5
(cid:31) Commercial &
domestic property
30.4
29.2
2020 2019
%
%
(cid:31) Agriculture
(cid:31) Motor & motor casualty
(cid:31) Public/product liability
(cid:31) Professional indemnity
(cid:31) Marine, energy & aviation
(cid:31) Workers' compensation
(cid:31) Accident & health
(cid:31) Financial & credit
(cid:31) Other
14.1
12.1
11.9
9.2
8.2
5.8
4.8
3.2
0.3
13.7
14.4
11.9
8.4
6.6
7.1
5.3
3.3
0. 1
4% from 2019 4,5
Accident & health
Insurance profit and
Workers' compensation
underwriting result (US$M)
Marine energy & aviation
11,708
Other
Financial & credit
Marine energy & aviation
Combined operating ratio 6
Professional indemnity
Public/product liability
104.2%
Motor & motor casualty
2019 97.5% 7
Agriculture
Commercial & domestic property
Other
90% direct and
insurance
facultative
Financial & credit
10% inward
Accident & health
reinsurance
Insurance (loss) profit (US$M)
Workers' compensation
Professional indemnity
(727)
Public/product liability
8
0
7
0
9
2
2019 708 7
Agriculture
Motor & motor casualty
Underwriting
(loss) profit 6 (US$M)
Commercial & domestic property
)
7
2
7
(
)
8
8
4
(
9
1
0
2
0
2
0
2
Insurance
(loss) profit
Underwriting
(loss) profit
Net (loss) profit after tax (US$M)
(1,517)
2019 622 7
Insurance
(loss) profit
Underwriting
result
(488)
4%
2019 290 7
6%
Sustainability highlights
Operational highlights 3
Climate action
Joined the
UN‑convened
Net‑Zero Asset
Owner Alliance
our investment portfolio
is targeting net-zero
greenhouse gas
emissions by 2050
CDP climate change
disclosure score
A-
from B in 2019
Operational renewable electricity use
Target by 2025
Currently
100%
97%
2019 63%
Gross written
premium growth 5
Average renewal premium rate increase 8
Premium retention
Group
Segment
10% 4
2019 4%
9.8%
2019 6.3%
North America
International
10.2%
12.8%
Australia Pacific
5.4%
82%
2019 78%
Premiums4Good (US$B)
Building an inclusive workplace and culture
2025 ambition
$2.0B
Total invested
$1.1B
QBE Voice survey result:
Engagement
Insurance Business Asia:
Top insurance workplace
Included as a member of the 2021
Bloomberg Gender‑Equality Index
76%
as at 31 December 2020
2019 70%
1 Financial information in the tables above is extracted or derived from the Group’s audited financial statements included on pages 80 to 164 of this
Annual Report. The Group Chief Financial Officer’s report sets out further analysis of the results.
2 2020 adjusted cash loss return on average shareholders’ equity excludes non-cash and material non-recurring items such as restructuring costs,
losses on disposals, and adjusts for Additional Tier 1 capital (AT1) coupons. 2019 adjusted cash profit return on average shareholders’ equity
excludes restructuring costs, losses on disposals, the impact of the Ogden decision in the UK, and discontinued operations.
Attritional claims ratio 4,9
Group
Segment
44.6%
2019 47.5%
North America
International
Australia Pacific
Large individual
risk claims 4 (US$M)
Catastrophe
claims 4 (US$M)
46.3%
40.2%
49.4%
932
688
2% from 2019
62% from 2019
3 2019 figures reflect results for continuing operations only.
4 Excludes impact of COVID-19.
5 Constant currency basis and excluding impact of 2019 disposals.
6 Excludes the impact of changes in risk-free rates used to discount net outstanding claims.
7 Excludes one-off impact of the Ogden decision in the UK.
8 Excludes premium rate changes relating to North America Crop and/or Australian compulsory third party motor (CTP).
9 Excludes Crop and/or lenders’ mortgage insurance (LMI).
5
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5
2020 snapshot 1
Financial highlights 3
Gross written premium
by class of business (US$M)
Net earned premium (US$M)
Net earned premium by type
Dividend payout (A$M)
Adjusted cash (loss) profit return on average
Shareholder highlights
4
5
2
5
0
5
59
91% from 2019
6
2
A¢
60
45
30
15
0
A$M
1,500
1,125
750
375
4
0
2016
2017
2018
2019
2020
Dividend per share (A¢)
Dividend payout (A$M)
shareholders’ equity 2
(10.9)%
2019 8.9%
Earnings (loss) profit per
Dividend per share (A¢)
share (US¢)
(108.5)
2019 41.8
4
14,643
10% from 2019 4,5
(cid:31) Commercial &
2020 2019
%
%
domestic property
30.4
29.2
(cid:31) Agriculture
(cid:31) Motor & motor casualty
(cid:31) Public/product liability
(cid:31) Professional indemnity
(cid:31) Marine, energy & aviation
(cid:31) Workers' compensation
(cid:31) Accident & health
(cid:31) Financial & credit
(cid:31) Other
14.1
12. 1
11.9
9.2
8.2
5.8
4.8
3.2
0.3
13.7
14.4
11.9
8.4
6.6
7.1
5.3
3.3
0. 1
11,708
Other
Financial & credit
4% from 2019 4,5
Accident & health
Other
Financial & credit
facultative
insurance
90% direct and
10% inward
Accident & health
Marine energy & aviation
reinsurance
Workers' compensation
Insurance profit and
underwriting result (US$M)
Marine energy & aviation
Combined operating ratio 6
Professional indemnity
Public/product liability
104.2%
Motor & motor casualty
2019 97.5% 7
Agriculture
Commercial & domestic property
Net (loss) profit after tax (US$M)
Insurance (loss) profit (US$M)
Workers' compensation
Professional indemnity
(727)
Public/product liability
8
0
7
0
9
2
2019 708 7
Agriculture
Motor & motor casualty
Underwriting
(loss) profit 6 (US$M)
Commercial & domestic property
)
7
2
7
(
)
8
8
4
(
(1,517)
2019 622 7
Insurance
(loss) profit
Underwriting
result
(488)
4%
6%
2019 290 7
9
1
0
2
0
2
0
2
Insurance
(loss) profit
Underwriting
(loss) profit
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Sustainability highlights
Operational highlights 3
'
Climate action
Joined the
UN‑convened
Net‑Zero Asset
Owner Alliance
our investment portfolio
is targeting net-zero
greenhouse gas
emissions by 2050
CDP climate change
disclosure score
A-
from B in 2019
Operational renewable electricity use
Target by 2025
Currently
100%
97%
2019 63%
Gross written
premium growth 5
Average renewal premium rate increase 8
Premium retention
Group
Segment
10% 4
2019 4%
9.8%
2019 6.3%
North America
International
10.2%
12.8%
Australia Pacific
5.4%
82%
2019 78%
5
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Premiums4Good (US$B)
Building an inclusive workplace and culture
QBE Voice survey result:
Engagement
Insurance Business Asia:
Top insurance workplace
Included as a member of the 2021
Bloomberg Gender‑Equality Index
2025 ambition
$2.0B
Total invested
$1.1B
76%
as at 31 December 2020
2019 70%
Attritional claims ratio 4,9
Group
Segment
44.6%
2019 47.5%
North America
International
Australia Pacific
Large individual
risk claims 4 (US$M)
Catastrophe
claims 4 (US$M)
o
n
46.3%
40.2%
49.4%
932
688
2% from 2019
62% from 2019
1 Financial information in the tables above is extracted or derived from the Group’s audited financial statements included on pages 80 to 164 of this
Annual Report. The Group Chief Financial Officer’s report sets out further analysis of the results.
2 2020 adjusted cash loss return on average shareholders’ equity excludes non-cash and material non-recurring items such as restructuring costs,
losses on disposals, and adjusts for Additional Tier 1 capital (AT1) coupons. 2019 adjusted cash profit return on average shareholders’ equity
excludes restructuring costs, losses on disposals, the impact of the Ogden decision in the UK, and discontinued operations.
3 2019 figures reflect results for continuing operations only.
4 Excludes impact of COVID-19.
5 Constant currency basis and excluding impact of 2019 disposals.
6 Excludes the impact of changes in risk-free rates used to discount net outstanding claims.
7 Excludes one-off impact of the Ogden decision in the UK.
8 Excludes premium rate changes relating to North America Crop and/or Australian compulsory third party motor (CTP).
9 Excludes Crop and/or lenders’ mortgage insurance (LMI).
6
INTERIM GROUP CHIEF EXECUTIVE OFFICER’S REPORT
Delivering value for
our customers
The last 12 months have been dominated by COVID-19 and an elevated level of
catastrophe activity, resulting in one of the most challenging years in recent history
for many industries and communities. QBE is no exception, and we navigated multiple
challenges while continuing to support our customers, people and communities.
The impact of COVID-19 has been widespread and unparalleled and, while some
economic uncertainties remain, we commence 2021 with more optimism.
Customer focus
Building a culture of
consistent, proactive and
insightful engagement.
Building better
relationships to generate
sustainable growth.
The insurance industry started 2020
managing the effects of a deep and
protracted soft market which contributed
to claims reserve deficiencies across the
sector. This continued during the year
and, combined with the ongoing effects
of social inflation, is one of the reasons
we are seeing meaningful premium rate
increases in casualty lines, particularly
in the northern hemisphere. We also
witnessed an extreme sequence of
adverse weather events, with an estimated
global insurance industry catastrophe
cost of $97 billion, making 2020 the
fifth‑costliest year since 1970. More
than three quarters of all insured natural
catastrophe losses in 2020 occurred
in the United States which saw a record
30 named storms and approximately
50,000 wildfires burning 8.5 million acres.
Australia was also a major contributor
to the global losses, with extreme
bushfires burning close to 46 million
acres throughout 2019 and 2020,
destroying over 3,500 homes. Australia
also witnessed increased storm activity in
2020 including severe hailstorms. These
events are having an impact on pricing
for property business with the possibility
of further increases if we continue to see
higher than normal catastrophe activity.
Given the acceleration of premium rate
increases in many of our geographies
and products in response to the generally
unfavourable claims environment,
QBE is well positioned to maximise the
opportunity presented by improving
market conditions globally. We have
an excellent range of products across
an extended geographical footprint,
7
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n
to do so and in limited numbers, to allow
The net combined operating ratio
supported by a quality claims service.
adapted the way we operate in response
In addition, our global reinsurance
business, QBE Re, is expected to
to the pandemic to ensure the safety
and wellbeing of our customers, people
grow as reinsurance pricing continues
and communities.
to improve. We continue to invest
in analytical risk selection and pricing
tools that will enable our underwriting
teams to deploy capital in the most
beneficial way for shareholders.
Throughout 2020, our 11,000 strong
workforce moved seamlessly to operate
remotely as various government directives
impacted our ways of working. Despite
these challenges, we continued to deliver
I am also pleased that we were able
on our customer commitments with service
to renew the Group’s 2021 reinsurance
levels remaining relatively unchanged. We
structure broadly in line with the 2020
provided a wide range of additional support
expiring program and at better terms
and financial relief, such as premium
than initially expected.
Sustainability
The frequency of weather events in 2020
continued to remind us of the challenge
that climate change presents and the
need for an ongoing focus on managing
climate‑related risks. We recognise the
important part we play in our customers’
lives when such events occur and we are
working closely with governments, the
insurance industry and the community
to address or mitigate some of the
issues through disaster relief and risk
management education. We continue
to advance our Climate Change Action
Plan and have set metrics and targets
to measure and monitor climate‑related
risks and opportunities as outlined in our
climate disclosures on pages 28 to 35
of this Annual Report.
rebates and payment holidays, and
continue to pay legitimate claims as quickly
as possible. In 2020, we paid $101 million
of COVID‑19 related claims. We also put
in place a range of initiatives that helped
alleviate financial pressures to support
our customers throughout the period.
The safety of our people remains
paramount. At the start of the pandemic,
we successfully set up our people to work
remotely. We are starting to return to
offices in certain locations where it is safe
for social distancing. We continue to
support our people in these new ways
of working and offer a range of benefits
and support, including a regular check
in through our Group‑wide wellbeing
survey, wellbeing‑focused activities
and access to the employee assistance
programs. We know that 2020 was
a challenging year for our people,
We were pleased to join the UN‑convened
impacted as they were by the pandemic
Net‑Zero Asset Owners Alliance, further
supporting the transition to a lower carbon
and changes in the Group’s senior
leadership as outlined in the Chair’s
economy, and we became a signatory
to the United Nations Global Compact.
We are also working closely with many
of our customers as they manage their
transition towards clean energy. One
message on pages 2 to 3. We are working
with our Board sponsors to build on our
QBE DNA with the Culture Accelerator
framework now underway, to ensure we
continue to provide a safe, respectful and
example of this is the support we provided
inclusive environment for our people.
through insurance of the Dogger Bank
wind farm project off the north east coast
of England. This joint venture by two of our
customers resulted in the world’s largest
offshore wind farm with capacity to power
up to 4.5 million homes. In Europe, we
have increased our renewable energy book
of business by around 50% to $33 million.
Supporting our customers,
people and communities
At QBE, we recognise the significant
hardship many of our customers and
communities are facing, and we have
Through the pandemic, the QBE
Foundation has remained active in
supporting the communities in which
we work, partnering with impactful
not‑for‑profit organisations around the
world to safeguard vulnerable communities,
enabling financial resilience and
strengthening their health and wellbeing.
We responded proactively to the
challenges presented by COVID‑19,
pivoting where required to support our
existing partners, Red Cross and
Save the Children, as they experienced
increased demand for their services and
a reduction in funding and donations.
Financial performance
As the pandemic emerged, we took
pre‑emptive action to strengthen our
capital position, executing a capital plan
to protect the balance sheet against
potential downside scenarios. This action
enables us to take advantage of profitable
growth opportunities as they arise, as well
as supporting our target regulatory capital
range and reducing gearing.
In December 2020, we updated the market
of our revised 2020 result expectations
and subsequently announced a full year
statutory loss of $1,517 million, a result
we all recognise as disappointing and
well below expectations. In addition
to a disappointing underwriting
performance, the result was impacted
by significantly reduced investment
income and a number of material one‑off
and/or non‑cash charges including an
impairment of goodwill and deferred tax
assets in North America as well as IT
and real estate related charges.
increased to 104.2% 1 from 97.5% 1,2,3
in 2019, largely as a result of material
COVID‑19 related costs, adverse prior
accident year claims development
(including the impact of social inflation)
and elevated catastrophe claims.
As is explained in more detail in the Group
Chief Financial Officer’s report, despite
the poor headline underwriting result the
underlying current accident year combined
operating ratio improved to 94.0% 4,5 from
98.4% 2,3,5 in 2019. This was primarily
due to a further material improvement
in our attritional claims ratio and a modest
improvement in our large individual risk
claims ratio, and reflects significant
premium rate increases.
Gross written premium increased 10% 4,6
year‑on‑year, underpinned by an average
renewal premium rate increase of 9.8% 7,
particularly in our North America and
International divisions where we saw
premium rates accelerate further during
the second half of 2020.
After a significant first half investment loss,
our investment return rebounded strongly
in the second half of the year with credit
spread losses fully recovered by year end.
We intend to retain a conservative asset
allocation while there remains significant
ongoing economic uncertainty associated
with the pandemic.
1 Excludes 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 Continuing operations basis.
4 Excludes impact of COVID‑19.
5 Normalised for above plan catastrophe claims and changes in risk margin increase.
6 Constant currency basis and excludes impact of 2019 disposals.
7 Excludes premium rate changes relating to North America Crop and/or Australian CTP.
6
7
INTERIM GROUP CHIEF EXECUTIVE OFFICER’S REPORT
Delivering value for
our customers
The last 12 months have been dominated by COVID-19 and an elevated level of
catastrophe activity, resulting in one of the most challenging years in recent history
for many industries and communities. QBE is no exception, and we navigated multiple
challenges while continuing to support our customers, people and communities.
The impact of COVID-19 has been widespread and unparalleled and, while some
economic uncertainties remain, we commence 2021 with more optimism.
Customer focus
Building a culture of
consistent, proactive and
insightful engagement.
Building better
relationships to generate
sustainable growth.
The insurance industry started 2020
Australia was also a major contributor
managing the effects of a deep and
to the global losses, with extreme
protracted soft market which contributed
bushfires burning close to 46 million
to claims reserve deficiencies across the
acres throughout 2019 and 2020,
sector. This continued during the year
and, combined with the ongoing effects
of social inflation, is one of the reasons
we are seeing meaningful premium rate
increases in casualty lines, particularly
in the northern hemisphere. We also
witnessed an extreme sequence of
destroying over 3,500 homes. Australia
also witnessed increased storm activity in
2020 including severe hailstorms. These
events are having an impact on pricing
for property business with the possibility
of further increases if we continue to see
higher than normal catastrophe activity.
adverse weather events, with an estimated
global insurance industry catastrophe
cost of $97 billion, making 2020 the
fifth‑costliest year since 1970. More
Given the acceleration of premium rate
increases in many of our geographies
and products in response to the generally
unfavourable claims environment,
than three quarters of all insured natural
QBE is well positioned to maximise the
catastrophe losses in 2020 occurred
opportunity presented by improving
in the United States which saw a record
market conditions globally. We have
30 named storms and approximately
an excellent range of products across
50,000 wildfires burning 8.5 million acres.
an extended geographical footprint,
supported by a quality claims service.
In addition, our global reinsurance
business, QBE Re, is expected to
grow as reinsurance pricing continues
to improve. We continue to invest
in analytical risk selection and pricing
tools that will enable our underwriting
teams to deploy capital in the most
beneficial way for shareholders.
I am also pleased that we were able
to renew the Group’s 2021 reinsurance
structure broadly in line with the 2020
expiring program and at better terms
than initially expected.
Sustainability
The frequency of weather events in 2020
continued to remind us of the challenge
that climate change presents and the
need for an ongoing focus on managing
climate‑related risks. We recognise the
important part we play in our customers’
lives when such events occur and we are
working closely with governments, the
insurance industry and the community
to address or mitigate some of the
issues through disaster relief and risk
management education. We continue
to advance our Climate Change Action
Plan and have set metrics and targets
to measure and monitor climate‑related
risks and opportunities as outlined in our
climate disclosures on pages 28 to 35
of this Annual Report.
We were pleased to join the UN‑convened
Net‑Zero Asset Owners Alliance, further
supporting the transition to a lower carbon
economy, and we became a signatory
to the United Nations Global Compact.
We are also working closely with many
of our customers as they manage their
transition towards clean energy. One
example of this is the support we provided
through insurance of the Dogger Bank
wind farm project off the north east coast
of England. This joint venture by two of our
customers resulted in the world’s largest
offshore wind farm with capacity to power
up to 4.5 million homes. In Europe, we
have increased our renewable energy book
of business by around 50% to $33 million.
Supporting our customers,
people and communities
At QBE, we recognise the significant
hardship many of our customers and
communities are facing, and we have
adapted the way we operate in response
to the pandemic to ensure the safety
and wellbeing of our customers, people
and communities.
Throughout 2020, our 11,000 strong
workforce moved seamlessly to operate
remotely as various government directives
impacted our ways of working. Despite
these challenges, we continued to deliver
on our customer commitments with service
levels remaining relatively unchanged. We
provided a wide range of additional support
and financial relief, such as premium
rebates and payment holidays, and
continue to pay legitimate claims as quickly
as possible. In 2020, we paid $101 million
of COVID‑19 related claims. We also put
in place a range of initiatives that helped
alleviate financial pressures to support
our customers throughout the period.
The safety of our people remains
paramount. At the start of the pandemic,
we successfully set up our people to work
remotely. We are starting to return to
offices in certain locations where it is safe
to do so and in limited numbers, to allow
for social distancing. We continue to
support our people in these new ways
of working and offer a range of benefits
and support, including a regular check
in through our Group‑wide wellbeing
survey, wellbeing‑focused activities
and access to the employee assistance
programs. We know that 2020 was
a challenging year for our people,
impacted as they were by the pandemic
and changes in the Group’s senior
leadership as outlined in the Chair’s
message on pages 2 to 3. We are working
with our Board sponsors to build on our
QBE DNA with the Culture Accelerator
framework now underway, to ensure we
continue to provide a safe, respectful and
inclusive environment for our people.
Through the pandemic, the QBE
Foundation has remained active in
supporting the communities in which
we work, partnering with impactful
not‑for‑profit organisations around the
world to safeguard vulnerable communities,
enabling financial resilience and
strengthening their health and wellbeing.
We responded proactively to the
challenges presented by COVID‑19,
pivoting where required to support our
existing partners, Red Cross and
Save the Children, as they experienced
increased demand for their services and
a reduction in funding and donations.
Financial performance
As the pandemic emerged, we took
pre‑emptive action to strengthen our
capital position, executing a capital plan
to protect the balance sheet against
potential downside scenarios. This action
enables us to take advantage of profitable
growth opportunities as they arise, as well
as supporting our target regulatory capital
range and reducing gearing.
In December 2020, we updated the market
of our revised 2020 result expectations
and subsequently announced a full year
statutory loss of $1,517 million, a result
we all recognise as disappointing and
well below expectations. In addition
to a disappointing underwriting
performance, the result was impacted
by significantly reduced investment
income and a number of material one‑off
and/or non‑cash charges including an
impairment of goodwill and deferred tax
assets in North America as well as IT
and real estate related charges.
The net combined operating ratio
increased to 104.2% 1 from 97.5% 1,2,3
in 2019, largely as a result of material
COVID‑19 related costs, adverse prior
accident year claims development
(including the impact of social inflation)
and elevated catastrophe claims.
As is explained in more detail in the Group
Chief Financial Officer’s report, despite
the poor headline underwriting result the
underlying current accident year combined
operating ratio improved to 94.0% 4,5 from
98.4% 2,3,5 in 2019. This was primarily
due to a further material improvement
in our attritional claims ratio and a modest
improvement in our large individual risk
claims ratio, and reflects significant
premium rate increases.
Gross written premium increased 10% 4,6
year‑on‑year, underpinned by an average
renewal premium rate increase of 9.8% 7,
particularly in our North America and
International divisions where we saw
premium rates accelerate further during
the second half of 2020.
After a significant first half investment loss,
our investment return rebounded strongly
in the second half of the year with credit
spread losses fully recovered by year end.
We intend to retain a conservative asset
allocation while there remains significant
ongoing economic uncertainty associated
with the pandemic.
1 Excludes 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 Continuing operations basis.
4 Excludes impact of COVID‑19.
5 Normalised for above plan catastrophe claims and changes in risk margin increase.
6 Constant currency basis and excludes impact of 2019 disposals.
7 Excludes premium rate changes relating to North America Crop and/or Australian CTP.
A
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8
Strategic focus
Modernisation
In 2021, we will remain focused
on creating a customer‑centric business
that is more digitally enabled and
supported by a modern technology
infrastructure. We are streamlining
and modernising our technology estate
to better support the evolving needs
of our customers, people and business.
As we do this, we are mindful of our digital
customer interactions and are further
automating underwriting, distribution
and claims processes, and introducing
analytical tools. Internally, we are looking
at digitisation and process automation
to improve performance, drive efficiency
and reduce risk.
Talent & culture
We will accelerate our talent and
leadership strategy, developing our
future cohort of leaders and preparing
them for bigger and more complex
roles. We are concurrently focused
on deepening our talent pool, with
continued succession planning to build
our future talent pipeline.
We will focus on enhancing our culture
and reinforcing a positive risk culture
through the Culture Accelerator, building
upon our existing DNA values given
their strong resonance with our people.
Through this, we are seeking to create
an environment where people always
know and feel that it is safe to speak up,
and where we welcome and embrace
diversity in all of its many forms.
All of our activities throughout 2021 and
the longer term are anchored around our
four strategic priorities: performance,
customer focus, modernisation and talent
& culture, underpinned by our DNA.
Performance
In 2018, we laid the foundations for our cell
review and Brilliant Basics programs, both
of which are now well embedded throughout
QBE. Recognising that there is still more
work to be done to improve the performance
of some portfolios, we are evolving and
reinvigorating the cell review process with
a greater focus on speedy execution and
portfolio optimisation. In Brilliant Basics,
we continue to invest in enhancing our
capabilities in pricing, risk selection and
claims management across QBE. As a key
Brilliant Basics initiative, we are accelerating
the completion of the remaining phases
of work associated with our global property
pricing project. We are focused on targeted
and sustainable growth and maximising the
benefits of the favourable rate environment,
underpinned by strong performance
discipline built through cell reviews and
Brilliant Basics. We also remain committed
to delivering on our climate‑related and
sustainability targets.
Customer focus
Central to our overall strategy is an
imperative to better understand our
customers, their industries and needs,
and to embed a culture of consistent,
proactive and insightful customer
engagement. To support this, we officially
launched Customer@QBE in 2020.
Customer@QBE is our global approach
to delivering value for our customers
in a responsible and accountable way
through a focus on three key elements:
mindset (how we think about our
customers), insights (the knowledge
we have about our customers combined
with our insurance expertise) and
delivery (what and how we deliver to our
customers). Our focus for 2021 is to create
and embed a consistent customer mindset
to support an understanding of our
customers, how we can add the greatest
value to them and how we can build
a solid pipeline. By helping our customers
manage risk well, we manage risk well.
Conclusion
I am proud of the support
we provided our customers,
people and the communities
during a difficult year. I would
like to thank our teams around
the world for their dedication,
resilience and hard work.
I would also like to thank
our customers, brokers and
partners for their loyalty and
ongoing support of QBE.
As we saw in 2020, we
are able to adapt quickly
in a dynamic environment
and, while our operating
environment remains
uncertain, we are even more
committed and focused
on delivering our strategic
priorities; we remain confident
in the strength of our business,
our franchise and our people.
We are well positioned
to maximise many of the
opportunities created by the
currently favourable trading
environment. While the value
of insurance in managing
or transferring risk has
never been more evident,
we must ensure we receive
an appropriate return
for the risk we take.
Richard Pryce
Interim Group Chief
Executive Officer
9
A
Q
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a
l
R
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p
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r
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2
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2
0
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4
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p
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s
'
5
R
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p
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i
n
a
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c
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a
l
6
i
O
t
h
e
r
n
f
o
r
m
a
t
i
o
n
2021
Strategic priorities
Performance
Customer Focus
Evolve and reinvigorate cell
reviews and Brilliant Basics+ to
further enhance performance
discipline and drive portfolio
optimisation
Targeted, sustainable, profitable
growth, maximising the
favourable rate environment
Deliver against our sustainability
and climate commitments
Continued focus on
shareholder returns
Deliver value and exceed
customer expectations through
Customer@QBE
Better understanding of our
customers’ industries and needs
Embed a culture of proactive,
insightful customer engagement
Fully embed the use of Salesforce
and related analytical tools across
the business, central to all our
customer activity
Modernisation
Talent & Culture
Deliver on our program
of work to accelerate our
technology infrastructure
modernisation
Continued automation across
underwriting, distribution and
claims to support the evolving
needs of our customers
and partners
Accelerate adoption of
machine learning models
across pricing and claims
Enhance the QBE culture and
reinforce a positive risk culture
by building on the QBE DNA
through the Culture Accelerator
Accelerate our talent and leadership
strategy by developing our people
and building a diverse talent pipeline
Focus on embedding performance
through ME@QBE and retaining
and motivating people through
our Reward approach
Define our future ways
of working
8
9
Strategic focus
Modernisation
All of our activities throughout 2021 and
the longer term are anchored around our
four strategic priorities: performance,
customer focus, modernisation and talent
& culture, underpinned by our DNA.
Performance
In 2018, we laid the foundations for our cell
review and Brilliant Basics programs, both
of which are now well embedded throughout
QBE. Recognising that there is still more
work to be done to improve the performance
of some portfolios, we are evolving and
reinvigorating the cell review process with
a greater focus on speedy execution and
portfolio optimisation. In Brilliant Basics,
we continue to invest in enhancing our
capabilities in pricing, risk selection and
claims management across QBE. As a key
Brilliant Basics initiative, we are accelerating
the completion of the remaining phases
of work associated with our global property
pricing project. We are focused on targeted
and sustainable growth and maximising the
benefits of the favourable rate environment,
underpinned by strong performance
discipline built through cell reviews and
Brilliant Basics. We also remain committed
to delivering on our climate‑related and
sustainability targets.
Customer focus
Central to our overall strategy is an
imperative to better understand our
In 2021, we will remain focused
on creating a customer‑centric business
that is more digitally enabled and
supported by a modern technology
infrastructure. We are streamlining
and modernising our technology estate
to better support the evolving needs
of our customers, people and business.
As we do this, we are mindful of our digital
customer interactions and are further
automating underwriting, distribution
and claims processes, and introducing
analytical tools. Internally, we are looking
at digitisation and process automation
to improve performance, drive efficiency
and reduce risk.
Talent & culture
We will accelerate our talent and
leadership strategy, developing our
future cohort of leaders and preparing
them for bigger and more complex
roles. We are concurrently focused
on deepening our talent pool, with
continued succession planning to build
our future talent pipeline.
We will focus on enhancing our culture
and reinforcing a positive risk culture
through the Culture Accelerator, building
upon our existing DNA values given
their strong resonance with our people.
Through this, we are seeking to create
an environment where people always
know and feel that it is safe to speak up,
customers, their industries and needs,
and where we welcome and embrace
and to embed a culture of consistent,
diversity in all of its many forms.
proactive and insightful customer
engagement. To support this, we officially
launched Customer@QBE in 2020.
Customer@QBE is our global approach
to delivering value for our customers
in a responsible and accountable way
through a focus on three key elements:
mindset (how we think about our
customers), insights (the knowledge
we have about our customers combined
with our insurance expertise) and
delivery (what and how we deliver to our
customers). Our focus for 2021 is to create
and embed a consistent customer mindset
to support an understanding of our
customers, how we can add the greatest
value to them and how we can build
a solid pipeline. By helping our customers
manage risk well, we manage risk well.
Conclusion
I am proud of the support
we provided our customers,
people and the communities
during a difficult year. I would
like to thank our teams around
the world for their dedication,
resilience and hard work.
I would also like to thank
our customers, brokers and
partners for their loyalty and
ongoing support of QBE.
As we saw in 2020, we
are able to adapt quickly
in a dynamic environment
and, while our operating
environment remains
uncertain, we are even more
committed and focused
on delivering our strategic
priorities; we remain confident
in the strength of our business,
our franchise and our people.
We are well positioned
to maximise many of the
opportunities created by the
currently favourable trading
environment. While the value
of insurance in managing
or transferring risk has
never been more evident,
we must ensure we receive
an appropriate return
for the risk we take.
Richard Pryce
Interim Group Chief
Executive Officer
2021
Strategic priorities
Performance
Customer Focus
Evolve and reinvigorate cell
reviews and Brilliant Basics+ to
further enhance performance
discipline and drive portfolio
optimisation
Targeted, sustainable, profitable
growth, maximising the
favourable rate environment
Deliver against our sustainability
and climate commitments
Continued focus on
shareholder returns
Deliver value and exceed
customer expectations through
Customer@QBE
Better understanding of our
customers’ industries and needs
Embed a culture of proactive,
insightful customer engagement
Fully embed the use of Salesforce
and related analytical tools across
the business, central to all our
customer activity
Modernisation
Talent & Culture
Deliver on our program
of work to accelerate our
technology infrastructure
modernisation
Continued automation across
underwriting, distribution and
claims to support the evolving
needs of our customers
and partners
Accelerate adoption of
machine learning models
across pricing and claims
Enhance the QBE culture and
reinforce a positive risk culture
by building on the QBE DNA
through the Culture Accelerator
Accelerate our talent and leadership
strategy by developing our people
and building a diverse talent pipeline
Focus on embedding performance
through ME@QBE and retaining
and motivating people through
our Reward approach
Define our future ways
of working
A
n
n
u
a
l
R
e
p
o
r
t
2
0
2
0
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B
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6
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r
n
f
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r
m
a
t
i
o
n
10
Operating and
financial review
Group Chief Financial
Officer’s report
2020 proved to be a very
challenging year and we
are disappointed with our
financial result. In addition
to COVID-19, the result was
impacted by above average
catastrophe claims and
prior accident year claims
development. However, we
enter 2021 with confidence
and are well placed to
maximise opportunities in the
best global insurance trading
conditions in over a decade.
Normalised for above plan catastrophe
experience and excluding COVID-19 and
the increase in risk margins, the current
accident year combined operating ratio
improved to 94.0% from 98.4% in 2019.
This is a pleasing uplift in underlying
profitability and is primarily due to a further
2.9% 6 improvement in the attritional
claims ratio and a modest improvement
in the large individual risk claims ratio.
Given market conditions, it was pleasing
to renew the Group’s main reinsurance
program broadly in line with the 2020
expiring program and on terms in line with
or better than expectations. As noted at
the time, following heightened catastrophe
experience we have increased our
catastrophe allowance to provide greater
confidence in our 2021 earnings profile.
As discussed on page 12, our operational
efficiency program is running ahead
of schedule and we are now entering
the next phase of our efficiency journey.
Gross written premium (US$M)
Financial performance
QBE reported a statutory net loss after
tax of $1,517 million compared with
a $550 million profit in 2019.
The disappointing result reflects
a deterioration in the underwriting result
coupled with a significant reduction
in investment income, an impairment
of goodwill and deferred tax assets
in North America and write-downs
related to rationalisation of legacy IT
platforms and our real estate footprint.
Gross written premium increased
10% 1,2 due to strong premium rate
increases, improved premium retention
and new business growth, especially
in North America and International.
The combined operating ratio increased
to 104.2% 3 from 97.5% 3,4 in 2019,
reflecting COVID-19 impacts, adverse
prior accident year claims development
and elevated catastrophe claims.
14,643
10% from 2019 1,2
Net earned premium (US$M)
11,708
4% from 2019 1,2
Combined operating ratio 3
104.2%
2019 97.5% 4
Net (loss) profit
after tax (US$M)
(1,517)
2019 622 4,5
1 Constant currency basis and excluding impact of 2019 disposals.
2 Excludes impact of COVID-19.
3 Excludes impact of changes in risk-free rates used to discount net outstanding claims.
4 Excludes one-off impact of the Ogden decision in the UK.
5 Continuing operations basis.
6 Excludes Crop and/or LMI.
11
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2
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6
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f
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m
a
t
i
o
n
Financial strength and
capital management
The onset of COVID-19 in early 2020
triggered widespread dislocation in social,
economic and investment market conditions.
In response, QBE executed a capital plan
to raise $813 million of ordinary equity
and $500 million of Additional Tier 1
capital, and reduced risk by repositioning
the investment portfolio and purchasing
additional reinsurance. These initiatives
were executed in April and May 2020.
The Group also issued A$500 million
of capital-qualifying Tier 2 subordinated
debt in August to finance the redemption
of A$200 million of Tier 2 subordinated
debt in September and $200 million of
subordinated Tier 2 debt in March 2021.
At 31 December 2020, QBE’s APRA
PCA multiple was 1.72x, slightly above
the midpoint of the Group’s 1.6–1.8x
target range.
The PCA multiple is largely unchanged
from 2019, reflecting the benefit of the
capital actions largely offset by the loss
for the year, balance sheet growth and
dividends paid during calendar year 2020.
Allowing for subordinated debt to be
gearing was 32.4%, down significantly from
38.0% at 31 December 2019 and within the
Group’s benchmark range of 25–35%.
On the same basis, pro forma Group
Head Office liquidity was $1.2 billion.
The probability of adequacy (PoA) of net
outstanding claims increased to 92.5%,
the top end of our 87.5–92.5% target
range, reflecting a $344 million risk margin
strengthening, including $300 million
directly related to COVID-19 uncertainty.
Investment performance and strategy
Investment market volatility heavily
impacted investment returns during the
first half of 2020. A strong second half
recovery contributed to a 2020 investment
return of 0.9%, reflecting falling bond
yields and the resilience of our real assets
(property and infrastructure).
The portfolio remains conservatively
positioned with only 7% in growth assets,
comprised of real assets, coupled with
a small amount of gold and private equity.
Reflecting very strong premium rate
momentum, we intend to maintain a cautious
asset allocation in the near term as we see
better opportunities for capital deployment
redeemed in March of 2021, pro forma
across the Group’s underwriting business.
1 Divisional split excludes Corporate and other.
2 Constant currency basis and excludes impact of 2019 disposals.
3 Excludes impact of COVID-19.
Summary income statement and underwriting performance
Gross written
premium 1 (US$M)
14,643
North America
International
4,744
5,845
Australia Pacific 4,079
Gross written
premium growth 2,3
10%
North America
International
Australia Pacific
13%
12%
6%
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 (loss) profit
Net investment income on shareholders’ funds
Financing and other costs
Loss on sale of entities and businesses
Share of net loss of associates
Restructuring and related expenses
Amortisation and impairment of intangibles
(Loss) profit before income tax from continuing operations
Income tax expense
(Loss) profit after income tax from continuing operations
Loss after income tax from discontinued operations
Non-controlling interests
Net (loss) profit after income tax
KEY RATIOS
Net claims ratio
Net commission ratio
Expense ratio
Combined operating ratio
Adjusted combined operating ratio 2
Insurance (loss) profit margin
STATUTORY RESULT
ADJUSTMENTS
ADJUSTED RESULT
2020
US$M
2019
US$M
2020
US$M
14,643
14,008
11,708
(8,934)
(1,891)
(1,752)
(869)
142
(727)
84
(252)
(2)
(5)
(104)
(466)
(1,472)
(39)
(1,511)
–
(6)
(1,517)
%
76.3
16.1
15.0
107.4
104.2
(6.2)
2019
US$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)
550
3
%
69.8
15.6
14.6
100.0
98.0
5.6
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
61
61
–
61
–
–
–
–
–
–
–
–
–
–
–
61
(10)
51
–
–
51
2020
US$M
14,643
14,008
11,708
(8,934)
(1,891)
(1,752)
(869)
142
(727)
84
(252)
(2)
(5)
(104)
(466)
(1,472)
(39)
(1,511)
–
(6)
(1,517)
%
76.3
16.1
15.0
107.4
104.2
(6.2)
2019 1
US$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)
601
3
%
69.3
15.6
14.6
99.5
97.5
6.1
1 Excludes one-off impact of the Ogden decision in the UK.
2 Excludes impact of changes in risk-free rates used to discount net outstanding claims.
10
11
Operating and
financial review
Financial strength and
capital management
The onset of COVID-19 in early 2020
triggered widespread dislocation in social,
economic and investment market conditions.
In response, QBE executed a capital plan
to raise $813 million of ordinary equity
and $500 million of Additional Tier 1
capital, and reduced risk by repositioning
the investment portfolio and purchasing
additional reinsurance. These initiatives
were executed in April and May 2020.
The Group also issued A$500 million
of capital-qualifying Tier 2 subordinated
debt in August to finance the redemption
of A$200 million of Tier 2 subordinated
debt in September and $200 million of
subordinated Tier 2 debt in March 2021.
At 31 December 2020, QBE’s APRA
PCA multiple was 1.72x, slightly above
the midpoint of the Group’s 1.6–1.8x
target range.
The PCA multiple is largely unchanged
from 2019, reflecting the benefit of the
capital actions largely offset by the loss
for the year, balance sheet growth and
dividends paid during calendar year 2020.
Allowing for subordinated debt to be
redeemed in March of 2021, pro forma
gearing was 32.4%, down significantly from
38.0% at 31 December 2019 and within the
Group’s benchmark range of 25–35%.
On the same basis, pro forma Group
Head Office liquidity was $1.2 billion.
The probability of adequacy (PoA) of net
outstanding claims increased to 92.5%,
the top end of our 87.5–92.5% target
range, reflecting a $344 million risk margin
strengthening, including $300 million
directly related to COVID-19 uncertainty.
Investment performance and strategy
Investment market volatility heavily
impacted investment returns during the
first half of 2020. A strong second half
recovery contributed to a 2020 investment
return of 0.9%, reflecting falling bond
yields and the resilience of our real assets
(property and infrastructure).
The portfolio remains conservatively
positioned with only 7% in growth assets,
comprised of real assets, coupled with
a small amount of gold and private equity.
Reflecting very strong premium rate
momentum, we intend to maintain a cautious
asset allocation in the near term as we see
better opportunities for capital deployment
across the Group’s underwriting business.
1 Divisional split excludes Corporate and other.
2 Constant currency basis and excludes impact of 2019 disposals.
3 Excludes impact of COVID-19.
Gross written
premium 1 (US$M)
14,643
4,744
North America
International
5,845
Australia Pacific 4,079
Gross written
premium growth 2,3
10%
North America
International
Australia Pacific
13%
12%
6%
Group Chief Financial
Officer’s report
2020 proved to be a very
challenging year and we
are disappointed with our
financial result. In addition
to COVID-19, the result was
impacted by above average
catastrophe claims and
prior accident year claims
development. However, we
enter 2021 with confidence
and are well placed to
maximise opportunities in the
best global insurance trading
conditions in over a decade.
A
n
n
u
a
l
R
e
p
o
r
t
2
0
2
0
Q
B
E
I
n
s
u
r
a
n
c
e
G
r
o
u
p
1
o
v
e
r
v
i
e
w
P
e
r
f
o
r
m
a
n
c
e
2
O
p
e
r
a
t
i
n
g
a
n
d
fi
n
a
n
c
i
a
l
r
e
v
i
e
w
3
G
o
v
e
r
n
a
n
c
e
4
R
e
p
o
r
t
D
i
r
e
c
t
o
r
s
Summary income statement and underwriting performance
'
Gross written premium (US$M)
Financial performance
14,643
10% from 2019 1,2
Net earned premium (US$M)
11,708
4% from 2019 1,2
Combined operating ratio 3
104.2%
2019 97.5% 4
Net (loss) profit
after tax (US$M)
(1,517)
2019 622 4,5
QBE reported a statutory net loss after
tax of $1,517 million compared with
a $550 million profit in 2019.
The disappointing result reflects
a deterioration in the underwriting result
coupled with a significant reduction
in investment income, an impairment
of goodwill and deferred tax assets
in North America and write-downs
related to rationalisation of legacy IT
platforms and our real estate footprint.
Gross written premium increased
10% 1,2 due to strong premium rate
increases, improved premium retention
and new business growth, especially
in North America and International.
The combined operating ratio increased
to 104.2% 3 from 97.5% 3,4 in 2019,
reflecting COVID-19 impacts, adverse
prior accident year claims development
and elevated catastrophe claims.
Normalised for above plan catastrophe
experience and excluding COVID-19 and
the increase in risk margins, the current
accident year combined operating ratio
improved to 94.0% from 98.4% in 2019.
This is a pleasing uplift in underlying
profitability and is primarily due to a further
2.9% 6 improvement in the attritional
claims ratio and a modest improvement
in the large individual risk claims ratio.
Given market conditions, it was pleasing
to renew the Group’s main reinsurance
program broadly in line with the 2020
expiring program and on terms in line with
or better than expectations. As noted at
the time, following heightened catastrophe
experience we have increased our
catastrophe allowance to provide greater
confidence in our 2021 earnings profile.
As discussed on page 12, our operational
efficiency program is running ahead
of schedule and we are now entering
the next phase of our efficiency journey.
1 Constant currency basis and excluding impact of 2019 disposals.
2 Excludes impact of COVID-19.
3 Excludes impact of changes in risk-free rates used to discount net outstanding claims.
4 Excludes one-off impact of the Ogden decision in the UK.
5 Continuing operations basis.
6 Excludes Crop and/or LMI.
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 (loss) profit
Net investment income on shareholders’ funds
Financing and other costs
Loss on sale of entities and businesses
Share of net loss of associates
Restructuring and related expenses
Amortisation and impairment of intangibles
(Loss) profit before income tax from continuing operations
Income tax expense
(Loss) profit after income tax from continuing operations
Loss after income tax from discontinued operations
Non-controlling interests
Net (loss) profit after income tax
KEY RATIOS
Net claims ratio
Net commission ratio
Expense ratio
Combined operating ratio
Adjusted combined operating ratio 2
Insurance (loss) profit margin
STATUTORY RESULT
ADJUSTMENTS
ADJUSTED RESULT
2020
US$M
14,643
14,008
11,708
(8,934)
(1,891)
(1,752)
(869)
142
(727)
84
(252)
(2)
(5)
(104)
(466)
(1,472)
(39)
(1,511)
–
(6)
(1,517)
%
76.3
16.1
15.0
107.4
104.2
(6.2)
2019
US$M
13,442
13,257
11,609
(8,102)
(1,819)
(1,690)
(2)
649
647
387
(257)
(8)
(3)
(43)
(51)
672
(104)
568
(21)
3
550
%
69.8
15.6
14.6
100.0
98.0
5.6
2020
US$M
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
2019
US$M
–
–
–
61
–
–
61
–
61
–
–
–
–
–
–
61
(10)
51
–
–
51
2020
US$M
14,643
14,008
11,708
(8,934)
(1,891)
(1,752)
(869)
142
(727)
84
(252)
(2)
(5)
(104)
(466)
(1,472)
(39)
(1,511)
–
(6)
(1,517)
%
76.3
16.1
15.0
107.4
104.2
(6.2)
2019 1
US$M
13,442
13,257
11,609
(8,041)
(1,819)
(1,690)
59
649
708
387
(257)
(8)
(3)
(43)
(51)
733
(114)
619
(21)
3
601
%
69.3
15.6
14.6
99.5
97.5
6.1
1 Excludes one-off impact of the Ogden decision in the UK.
2 Excludes impact of changes in risk-free rates used to discount net outstanding claims.
5
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6
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12
COVID-19 impact
2020 impact (US$M)
655
Premium
Acquisition costs
Claims
Risk margins
77
18
260
300
COVID-19 was declared a pandemic by
the World Health Organisation in March
2020. The virus itself, and the measures
to contain its spread have had a profound
impact on the global economy which
resulted in extreme investment market
volatility and coordinated action by central
banks to dramatically reduce interest rates.
The Group estimates the ultimate net cost
(including risk margin) of COVID-19 to be
around $785 million pre-tax, comprising
the $655 million 2020 charge coupled with
an allowance for a further $130 million
of potential net claims that could emerge
over the next 12 to 18 months, primarily
in trade credit, casualty lines and LMI.
In addition to materially impacting
QBE’s investment returns, COVID-19
impacted the Group’s underwriting
result by $655 million.
Significant risk margins and extensive
reinsurance protections, particularly
for business interruption insurance,
give us confidence in this estimate.
COVID-19 underwriting result impacts
FOR THE YEAR ENDED 31 DECEMBER
Gross written premium
Gross earned premium
Net earned premium
Net claims expense
Net commission
Underwriting and other expenses
Underwriting result
2020
STATUTORY
RESULT
US$M
14,643
14,008
11,708
(8,934)
(1,891)
(1,752)
(869)
NORTH
AMERICA
US$M
INTER-
NATIONAL
US$M
AUSTRALIA
PACIFIC
US$M
CORPORATE
& OTHER
US$M
COVID-19
TOTAL
US$M
(31)
(31)
(31)
(57)
6
(13)
(95)
(11)
(11)
(46)
(123)
3
7
(159)
–
–
(1)
(163)
–
(17)
(181)
–
–
1
(217)
–
(4)
(220)
(42)
(42)
(77)
(560)
9
(27)
(655)
2020
ADJUSTED
EX-COVID
US$M
14,685
14,050
11,785
(8,374)
(1,900)
(1,725)
(214)
Operational efficiency
Underwriting and other
expenses (US$M)
1,725 1
2% from 2019
Expense ratio
14.6% 1
Unchanged from 2019
In December 2018, QBE announced
a three-year operational efficiency program
targeting gross cost savings of $200 million
by 2021, translating into net savings
of $130 million after allowing for inflation
and further investment in technology,
digitisation and Brilliant Basics.
As a result of these initiatives, we have
now achieved recurring net cost savings
of around $125 million. To support the
program and as previously foreshadowed,
we incurred a $41 million restructuring
charge that was not reported as part
of the Group’s underwriting expenses.
From a 2018 cost base of $1.8 billion 2 and
an expense ratio of 15.2% 2, we are targeting
an expense ratio of “less than 14%” by 2021.
Two years into a three-year schedule
of work, the program has progressed
ahead of plan. Meaningful progress has
been made in technology rationalisation
and modernisation as we simplify our
technology estate. Additional savings were
realised from the disposal of the retail
personal lines business in North America,
operating model efficiencies across
Australia, New Zealand and Asia, and
further reductions in third party consulting,
travel and other discretionary costs.
Excluding $47 million of elevated risk and
regulatory costs as well as a $61 million
NSW CTP profit normalisation charge,
but adjusting for well below plan variable
remuneration costs and other one-off
net savings, run-rate costs are estimated
at $1,690 million which equates to
an underlying expense ratio of 14.3%.
We have commenced the next phase
of our operational efficiency program
focused on IT modernisation and are
targeting an expense ratio of 13% by 2023.
To support the program, we will incur
a restructuring charge of $150 million
to be expensed over three years.
13
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Segment performance
Gross written premium
North America
by segment 1,2 (US$M)
14,685
4,775
5,856
4,079
Net earned premium
by segment 1,2 (US$M)
11,785
3,351
4,812
3,626
98.6%
112.7%
91.3%
92.8%
North America
International
Australia Pacific
Combined operating
ratio by segment 1,3
International
North America reported a combined
operating ratio of 115.7% 3, up from
105.6% 3,4 in 2019, due to COVID-19 costs,
elevated catastrophe claims and adverse
prior accident year claims development.
Excluding COVID-19, the current
accident year combined operating ratio
was unchanged at 103.7%. While the
attritional claims ratio improved,
significant catastrophe claims and a Crop
result well below average contributed
to a disappointing underwriting loss.
Premium rate momentum accelerated
in 2020, with North America achieving
an annual average renewal rate increase
of 10.2% 4 compared with 5.7% 4,5 in 2019,
which contributed to underlying gross
written premium growth of 13% 6.
International recorded a very strong
underlying result.
Despite material COVID-19 related
costs and a modest amount of adverse
prior accident year claims development,
the combined operating ratio improved
to 94.5% 3 from 96.8% 3,4,7 in 2019.
Excluding COVID-19, the current accident
year combined operating ratio improved
to 89.6% from 95.4% 4,7 in the prior year,
largely reflecting a further significant
Premium rate momentum accelerated
across 2020, with International achieving
an annual average renewal premium rate
increase of 12.8% compared with 6.0% 4
in 2019, which contributed to underlying
gross written premium growth of 12% 6.
Australia Pacific
Australia Pacific reported a combined
operating ratio of 97.8% 3, up from
90.0% 3 in 2019, largely due to COVID-19
claims costs, a reduced level of positive
prior accident year claims development
and adverse catastrophe experience.
Excluding COVID-19, the current accident
year combined operating ratio increased
marginally to 93.3% from 92.9% in
the prior year. This included a further
improvement in the attritional claims ratio
which was more than offset by adverse
catastrophe experience and an increase
in the expense ratio due to heightened risk
and regulatory costs, as well as a material
NSW CTP profit normalisation charge.
Premium rate momentum slowed in 2020
following the decision to suspend rate
increases (as a COVID-19 relief measure)
in certain classes of business during 2Q20
and 3Q20. Australia Pacific achieved
an annual average renewal premium rate
increase of 5.4% 5 compared with 7.3%
5 in 2019, which supported underlying
gross written premium growth of 6% 6.
improvement in the attritional claims ratio
Australia Pacific reinstated premium rate
and favourable catastrophe experience.
increases effective 1 October 2020.
1 Excludes impact of COVID-19.
2 Divisional split excludes Corporate and other.
3 Excludes impact of changes in risk-free rates used to discount net outstanding claims.
4 Restated for transfer of North America’s inward reinsurance business to International.
5 Excludes premium rate changes relating to North America Crop and/or Australian CTP.
6 Constant currency basis and excluding impact of 2019 disposals.
7 Excludes one-off impact of the Ogden decision in the UK.
GROSS WRITTEN
PREMIUM
NET EARNED
PREMIUM
COMBINED OPERATING
RATIO
INSURANCE (LOSS)
PROFIT BEFORE
INCOME TAX
2020
US$M
4,775
5,856
4,079
(25)
(42)
–
–
2019
US$M
4,361
5,200
3,920
(39)
–
–
–
2020
US$M
3,351
4,812
3,626
(4)
(77)
–
–
2019
US$M
3,692
4,339
3,568
10
–
–
–
14,685
13,442
11,785
11,609
14,643
13,226
1,417
14,643
13,442
12,263
1,179
13,442
11,708
10,508
1,200
11,708
11,609
10,641
968
11,609
2020
%
112.7 3
91.3 3
92.8 3
–
98.6 3
3.2
5.6
–
107.4
107.2
109.1
107.4
2019
%
105.6 3
96.8 3,4
90.0 3
–
97.5 3,4
2.0
–
0.5
100.0
99.7
103.7
100.0
2020
US$M
(488)
265
252
(101)
(72)
–
–
(655)
(727)
(633)
(94)
(727)
2019
US$M
(137)
341 4
487
17
708 4
–
–
(61)
647
629
18
647
FOR THE YEAR ENDED 31 DECEMBER
Corporate and other adjustments 1
North America 1,2
International 1,2
Australia Pacific 1
Group adjusted 1
Risk-free rate impact
COVID-19 impact
Ogden decision impact
Group statutory
Direct and facultative
Inward reinsurance
Group statutory
1 Excludes impact of COVID-19.
1 Excludes impact of COVID-19.
2 Continuing operations basis.
2 The 2019 results have been restated to reflect the transfer of North America’s inward reinsurance business to QBE Re, part of International.
3 Excludes impact of changes in risk-free rates used to discount net outstanding claims.
4 Excludes one-off impact of the Ogden decision in the UK.
12
COVID-19 impact
Segment performance
2020 impact (US$M)
655
Premium
Acquisition costs
Claims
Risk margins
77
18
260
300
COVID-19 was declared a pandemic by
The Group estimates the ultimate net cost
the World Health Organisation in March
(including risk margin) of COVID-19 to be
2020. The virus itself, and the measures
around $785 million pre-tax, comprising
to contain its spread have had a profound
the $655 million 2020 charge coupled with
impact on the global economy which
an allowance for a further $130 million
resulted in extreme investment market
of potential net claims that could emerge
volatility and coordinated action by central
over the next 12 to 18 months, primarily
banks to dramatically reduce interest rates.
in trade credit, casualty lines and LMI.
In addition to materially impacting
Significant risk margins and extensive
QBE’s investment returns, COVID-19
reinsurance protections, particularly
impacted the Group’s underwriting
result by $655 million.
for business interruption insurance,
give us confidence in this estimate.
COVID-19 underwriting result impacts
FOR THE YEAR ENDED 31 DECEMBER
2020
STATUTORY
Gross written premium
Gross earned premium
Net earned premium
Net claims expense
Net commission
Underwriting and other expenses
Underwriting result
RESULT
US$M
14,643
14,008
11,708
(8,934)
(1,891)
(1,752)
(869)
NORTH
AMERICA
US$M
INTER-
NATIONAL
US$M
AUSTRALIA
PACIFIC
CORPORATE
& OTHER
US$M
US$M
COVID-19
TOTAL
US$M
(31)
(31)
(31)
(57)
6
(13)
(95)
(11)
(11)
(46)
(123)
3
7
(159)
–
–
(1)
(163)
–
(17)
(181)
–
–
1
(217)
–
(4)
(220)
2020
ADJUSTED
EX-COVID
US$M
14,685
14,050
11,785
(8,374)
(1,900)
(1,725)
(214)
(42)
(42)
(77)
(560)
9
(27)
(655)
Operational efficiency
Underwriting and other
expenses (US$M)
1,725 1
2% from 2019
Expense ratio
14.6% 1
Unchanged from 2019
In December 2018, QBE announced
As a result of these initiatives, we have
a three-year operational efficiency program
now achieved recurring net cost savings
targeting gross cost savings of $200 million
of around $125 million. To support the
by 2021, translating into net savings
program and as previously foreshadowed,
of $130 million after allowing for inflation
we incurred a $41 million restructuring
and further investment in technology,
charge that was not reported as part
digitisation and Brilliant Basics.
of the Group’s underwriting expenses.
From a 2018 cost base of $1.8 billion 2 and
Excluding $47 million of elevated risk and
an expense ratio of 15.2% 2, we are targeting
regulatory costs as well as a $61 million
an expense ratio of “less than 14%” by 2021.
NSW CTP profit normalisation charge,
Two years into a three-year schedule
of work, the program has progressed
ahead of plan. Meaningful progress has
been made in technology rationalisation
and modernisation as we simplify our
but adjusting for well below plan variable
remuneration costs and other one-off
net savings, run-rate costs are estimated
at $1,690 million which equates to
an underlying expense ratio of 14.3%.
technology estate. Additional savings were
We have commenced the next phase
realised from the disposal of the retail
of our operational efficiency program
personal lines business in North America,
focused on IT modernisation and are
operating model efficiencies across
targeting an expense ratio of 13% by 2023.
Australia, New Zealand and Asia, and
To support the program, we will incur
further reductions in third party consulting,
a restructuring charge of $150 million
travel and other discretionary costs.
to be expensed over three years.
Gross written premium
by segment 1,2 (US$M)
14,685
4,775
5,856
4,079
Net earned premium
by segment 1,2 (US$M)
11,785
3,351
4,812
3,626
Combined operating
ratio by segment 1,3
98.6%
112.7%
91.3%
92.8%
North America
International
Australia Pacific
FOR THE YEAR ENDED 31 DECEMBER
North America 1,2
International 1,2
Australia Pacific 1
Corporate and other adjustments 1
Group adjusted 1
Risk-free rate impact
COVID-19 impact
Ogden decision impact
Group statutory
Direct and facultative
Inward reinsurance
Group statutory
North America
North America reported a combined
operating ratio of 115.7% 3, up from
105.6% 3,4 in 2019, due to COVID-19 costs,
elevated catastrophe claims and adverse
prior accident year claims development.
Excluding COVID-19, the current
accident year combined operating ratio
was unchanged at 103.7%. While the
attritional claims ratio improved,
significant catastrophe claims and a Crop
result well below average contributed
to a disappointing underwriting loss.
Premium rate momentum accelerated
in 2020, with North America achieving
an annual average renewal rate increase
of 10.2% 4 compared with 5.7% 4,5 in 2019,
which contributed to underlying gross
written premium growth of 13% 6.
International
International recorded a very strong
underlying result.
Despite material COVID-19 related
costs and a modest amount of adverse
prior accident year claims development,
the combined operating ratio improved
to 94.5% 3 from 96.8% 3,4,7 in 2019.
Excluding COVID-19, the current accident
year combined operating ratio improved
to 89.6% from 95.4% 4,7 in the prior year,
largely reflecting a further significant
improvement in the attritional claims ratio
and favourable catastrophe experience.
Premium rate momentum accelerated
across 2020, with International achieving
an annual average renewal premium rate
increase of 12.8% compared with 6.0% 4
in 2019, which contributed to underlying
gross written premium growth of 12% 6.
Australia Pacific
Australia Pacific reported a combined
operating ratio of 97.8% 3, up from
90.0% 3 in 2019, largely due to COVID-19
claims costs, a reduced level of positive
prior accident year claims development
and adverse catastrophe experience.
Excluding COVID-19, the current accident
year combined operating ratio increased
marginally to 93.3% from 92.9% in
the prior year. This included a further
improvement in the attritional claims ratio
which was more than offset by adverse
catastrophe experience and an increase
in the expense ratio due to heightened risk
and regulatory costs, as well as a material
NSW CTP profit normalisation charge.
Premium rate momentum slowed in 2020
following the decision to suspend rate
increases (as a COVID-19 relief measure)
in certain classes of business during 2Q20
and 3Q20. Australia Pacific achieved
an annual average renewal premium rate
increase of 5.4% 5 compared with 7.3%
5 in 2019, which supported underlying
gross written premium growth of 6% 6.
Australia Pacific reinstated premium rate
increases effective 1 October 2020.
1 Excludes impact of COVID-19.
2 Divisional split excludes Corporate and other.
3 Excludes impact of changes in risk-free rates used to discount net outstanding claims.
4 Restated for transfer of North America’s inward reinsurance business to International.
5 Excludes premium rate changes relating to North America Crop and/or Australian CTP.
6 Constant currency basis and excluding impact of 2019 disposals.
7 Excludes one-off impact of the Ogden decision in the UK.
GROSS WRITTEN
PREMIUM
NET EARNED
PREMIUM
COMBINED OPERATING
RATIO
2020
US$M
4,775
5,856
4,079
(25)
14,685
–
(42)
–
14,643
13,226
1,417
14,643
2019
US$M
4,361
5,200
3,920
(39)
13,442
–
–
–
13,442
12,263
1,179
13,442
2020
US$M
3,351
4,812
3,626
(4)
11,785
–
(77)
–
11,708
10,508
1,200
11,708
2019
US$M
3,692
4,339
3,568
10
11,609
–
–
–
11,609
10,641
968
11,609
2020
%
112.7 3
91.3 3
92.8 3
–
98.6 3
3.2
5.6
–
107.4
107.2
109.1
107.4
2019
%
105.6 3
96.8 3,4
90.0 3
–
97.5 3,4
2.0
–
0.5
100.0
99.7
103.7
100.0
INSURANCE (LOSS)
PROFIT BEFORE
INCOME TAX
2020
US$M
2019
US$M
(488)
265
252
(101)
(72)
–
(655)
–
(727)
(633)
(94)
(727)
(137)
341 4
487
17
708 4
–
–
(61)
647
629
18
647
1 Excludes impact of COVID-19.
2 Continuing operations basis.
1 Excludes impact of COVID-19.
2 The 2019 results have been restated to reflect the transfer of North America’s inward reinsurance business to QBE Re, part of International.
3 Excludes impact of changes in risk-free rates used to discount net outstanding claims.
4 Excludes one-off impact of the Ogden decision in the UK.
13
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14
Cash profit and dividends
Premium income
Reconciliation of cash profit
FOR THE YEAR ENDED 31 DECEMBER
Net (loss) profit after tax
Amortisation and impairment of intangibles after tax 1
Write-off of deferred tax assets
Write-off of capitalised IT assets
Reclassification of foreign currency translation reserve after tax 2
Net cash (loss) profit after tax
Restructuring and related expenses after tax
Net loss on disposals after tax
Additional Tier 1 capital coupon accrual 3
Ogden decision after tax
Loss from discontinued operations after tax (excluding reclassification of FCTR)
Adjusted net cash (loss) profit after tax
Return on average shareholders’ equity – adjusted cash basis (%)
Basic (loss) earnings per share – cash basis (US cents)
Dividend payout ratio (percentage of adjusted cash profit) 4
2020
US$M
(1,517)
455
120
27
–
(915)
75
2
(25)
–
–
(863)
(10.9)
(64.1)
N/A
2019
US$M
550
71
–
–
16
637
32
8
–
51
5
733
8.9
48.4
65%
1 $50 million of pre-tax amortisation expense is included in underwriting expenses (2019 $43 million).
2 The sale of certain operations gave rise to a foreign currency translation reserve (FCTR) reclassification charge which was a non-cash item
and did not impact shareholders’ equity or QBE’s regulatory or rating agency capital base.
3 Additional Tier 1 capital pays distributions out of after tax profits and thus impacts adjusted cash profit for the purposes of assessing ordinary
dividend capacity.
4 Dividend payout ratio is calculated as the total AUD dividend divided by adjusted cash profit converted to AUD at the period average rate of exchange.
Dividends per share (A¢)
Dividends
Our dividend policy is designed to ensure
that we reward shareholders relative
to adjusted cash profit and maintain
sufficient capital for future investment
and growth of the business.
In light of the substantial 2020 statutory
loss, the Board has elected not to declare
a final dividend.
The combined 2020 interim and final
dividend of 4 Australian cents per share
is down substantially from 52 Australian
cents per share in 2019.
Subject to global economic conditions not
deteriorating materially, the Board expects
to resume dividend payments – up to 65%
of adjusted cash profit – in conjunction
with the 2021 interim result.
4
4.0
2020
2019
2018
2017
2016
26
52
50
54
Dividend payout (A$M)
59
Statutory result versus management result
In order to more directly compare Group
and divisional underwriting results with
the prior year, the Group’s underwriting
results are tabled on page 12 including
and excluding the estimated impact
of COVID-19.
While QBE has separately identified
obvious COVID-19 underwriting revenue
and expense impacts, there will be other
less significant impacts, both positive and
negative, that are not readily identifiable
or quantifiable.
Similarly, the underwriting results in the
standalone divisional result commentaries
are disclosed on the same basis.
The 2019 adjusted result in the summary
income statement on page 11 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 $10 million tax impact.
Unless otherwise stated, the commentary
following refers to the Group’s result
on an ex-COVID-19 and adjusted basis
as described above.
15
A
Q
n
n
u
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l
R
e
p
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2
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2
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B
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I
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s
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5
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6
i
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r
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f
o
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m
a
t
i
o
n
Gross written
premium (US$M)
14,685
10% from 2019 1
Net earned
premium (US$M)
11,785
4% from 2019 1
Average renewal
premium rate
increase 2
Group
+9.8%
North America
International
Australia Pacific
+10.2%
+12.8%
+5.4%
North America
Australia Pacific
North America reported a 9% increase
Australia Pacific reported a 6% 1 increase
in gross written premium, underpinned by
in gross written premium reflecting an
an average renewal premium rate increase
of 10.2% 2 compared with 5.7% 2,3 in 2019.
average renewal premium rate increase
of 5.4% 2 compared with 7.3% 2 in 2019.
Adjusting for the disposal of the personal
lines business in 2019, underlying
growth was 13%, reflecting premium rate
increases coupled with strong growth
in Crop, property programs and Accident
& Health (A&H).
International
Rate-driven growth was offset by
moderation in CTP, the 2019 sale of the
travel insurance business and the impact
of the economic slowdown on the Pacific
Islands business. Excluding CTP and
travel insurance, underlying growth was
around 8% reflecting growth in strata,
LMI, householders and New Zealand.
International reported a 12% 1 uplift in gross
written premium, underpinned by an average
renewal premium rate increase of 12.8%
compared with 6.0% 3 in 2019.
European operations achieved gross
written premium growth of 14% 1 reflecting
accelerating pricing momentum and
emerging new business opportunities,
particularly in International Markets, QBE
Re and Continental European insurance.
Growth in European operations was
partly offset by a 7% 1 contraction in
Asia, primarily due to COVID-19 impacts,
particularly in travel insurance, trade credit
and marine cargo insurance.
Reinsurance expense
Reinsurance expense increased 40%
to $2,300 million from $1,648 million in 2019.
Additional Crop quota share reinsurance,
and significantly reduced MPCI recoveries
relative to the especially poor Crop result
in 2019, increased reinsurance expense
by $438 million relative to 2019.
Reinsurance expense was also impacted by
the North America peak zone catastrophe
buydown announced in April 2020 as well
as growth in portfolios protected by quota
share reinsurance, including Equator Re,
and additional facultative and retrocession
purchases, particularly in International.
1 Constant currency basis and excludes impact of 2019 disposals.
2 Excludes premium rate changes relating to North America Crop and/or Australian CTP.
3 Restated for transfer of North America’s inward reinsurance business to International.
Underwriting expenses, commission and tax
Expense ratio
14.6%
2019 14.6%
Net commission ratio
16.1%
2019 15.6%
Tax rate
(3)%
2019 16%
The Group’s expense ratio was stable
due to strong growth in higher commission
Underwriting and
other expenses
at 14.6%.
Improvement in International was offset
by deterioration in North America and
Australia Pacific, the latter reflecting
a material NSW CTP profit normalisation
charge. While North America reduced
costs in absolute terms, the expense ratio
was impacted by a greater reduction in
net earned premium due to the sale of the
retail personal lines business and material
de-risking (reinsurance) initiatives.
As discussed on page 12, run-rate
costs are $1,690 million which equates
rates are higher due to the specialised
nature of the business. At the same time,
International’s commission ratio increased
London Market Specialty business where
rate increases were especially strong.
Income tax expense
The effective statutory tax rate of negative
3% compares with 16% in the prior year
and is distorted by a $120 million write-off
of deferred tax assets and impairment
of goodwill in North America of which only
a portion was tax effected. The tax rate
otherwise reflects the mix of corporate tax
rates in the countries where we operate,
with limitations on recognition of losses
to an underlying expense ratio of 14.3%.
in North America and Bermuda.
Net commission
The commission ratio increased to 16.1%
from 15.6% in 2019, in part due to relative
growth in International where commission
The dividend franking account balance
stood at A$71 million as at 31 December
2020, enabling the Group to fully frank
A$165 million of dividends.
14
15
Cash profit and dividends
Premium income
Reconciliation of cash profit
FOR THE YEAR ENDED 31 DECEMBER
Net (loss) profit after tax
Amortisation and impairment of intangibles after tax 1
Write-off of deferred tax assets
Write-off of capitalised IT assets
Reclassification of foreign currency translation reserve after tax 2
Net cash (loss) profit after tax
Restructuring and related expenses after tax
Net loss on disposals after tax
Additional Tier 1 capital coupon accrual 3
Ogden decision after tax
Loss from discontinued operations after tax (excluding reclassification of FCTR)
Adjusted net cash (loss) profit after tax
Return on average shareholders’ equity – adjusted cash basis (%)
Basic (loss) earnings per share – cash basis (US cents)
Dividend payout ratio (percentage of adjusted cash profit) 4
2020
US$M
(1,517)
455
120
27
–
(915)
75
(25)
2
–
–
(863)
(10.9)
(64.1)
N/A
2019
US$M
550
71
–
–
16
637
32
8
–
51
5
733
8.9
48.4
65%
1 $50 million of pre-tax amortisation expense is included in underwriting expenses (2019 $43 million).
2 The sale of certain operations gave rise to a foreign currency translation reserve (FCTR) reclassification charge which was a non-cash item
and did not impact shareholders’ equity or QBE’s regulatory or rating agency capital base.
3 Additional Tier 1 capital pays distributions out of after tax profits and thus impacts adjusted cash profit for the purposes of assessing ordinary
dividend capacity.
4 Dividend payout ratio is calculated as the total AUD dividend divided by adjusted cash profit converted to AUD at the period average rate of exchange.
Dividends per share (A¢)
Dividends
Our dividend policy is designed to ensure
The combined 2020 interim and final
that we reward shareholders relative
dividend of 4 Australian cents per share
to adjusted cash profit and maintain
is down substantially from 52 Australian
sufficient capital for future investment
cents per share in 2019.
and growth of the business.
In light of the substantial 2020 statutory
deteriorating materially, the Board expects
loss, the Board has elected not to declare
to resume dividend payments – up to 65%
Subject to global economic conditions not
a final dividend.
of adjusted cash profit – in conjunction
with the 2021 interim result.
4.0
4
2020
2019
2018
2017
2016
59
26
52
50
54
Dividend payout (A$M)
Statutory result versus management result
In order to more directly compare Group
While QBE has separately identified
reflecting the reduction in statutory
and divisional underwriting results with
obvious COVID-19 underwriting revenue
discount rates applicable to UK personal
the prior year, the Group’s underwriting
and expense impacts, there will be other
injury liabilities (the Ogden decision) with
results are tabled on page 12 including
less significant impacts, both positive and
an associated $10 million tax impact.
and excluding the estimated impact
negative, that are not readily identifiable
of COVID-19.
or quantifiable.
Unless otherwise stated, the commentary
following refers to the Group’s result
Similarly, the underwriting results in the
The 2019 adjusted result in the summary
on an ex-COVID-19 and adjusted basis
standalone divisional result commentaries
income statement on page 11 excludes
as described above.
are disclosed on the same basis.
a $61 million increase in the Group’s net
central estimate of outstanding claims
Gross written
premium (US$M)
14,685
10% from 2019 1
Net earned
premium (US$M)
11,785
4% from 2019 1
Average renewal
premium rate
increase 2
Group
+9.8%
North America
International
Australia Pacific
+10.2%
+12.8%
+5.4%
North America
Australia Pacific
North America reported a 9% increase
in gross written premium, underpinned by
an average renewal premium rate increase
of 10.2% 2 compared with 5.7% 2,3 in 2019.
Australia Pacific reported a 6% 1 increase
in gross written premium reflecting an
average renewal premium rate increase
of 5.4% 2 compared with 7.3% 2 in 2019.
Adjusting for the disposal of the personal
lines business in 2019, underlying
growth was 13%, reflecting premium rate
increases coupled with strong growth
in Crop, property programs and Accident
& Health (A&H).
International
Rate-driven growth was offset by
moderation in CTP, the 2019 sale of the
travel insurance business and the impact
of the economic slowdown on the Pacific
Islands business. Excluding CTP and
travel insurance, underlying growth was
around 8% reflecting growth in strata,
LMI, householders and New Zealand.
International reported a 12% 1 uplift in gross
written premium, underpinned by an average
renewal premium rate increase of 12.8%
compared with 6.0% 3 in 2019.
European operations achieved gross
written premium growth of 14% 1 reflecting
accelerating pricing momentum and
emerging new business opportunities,
particularly in International Markets, QBE
Re and Continental European insurance.
Growth in European operations was
partly offset by a 7% 1 contraction in
Asia, primarily due to COVID-19 impacts,
particularly in travel insurance, trade credit
and marine cargo insurance.
Reinsurance expense
Reinsurance expense increased 40%
to $2,300 million from $1,648 million in 2019.
Additional Crop quota share reinsurance,
and significantly reduced MPCI recoveries
relative to the especially poor Crop result
in 2019, increased reinsurance expense
by $438 million relative to 2019.
Reinsurance expense was also impacted by
the North America peak zone catastrophe
buydown announced in April 2020 as well
as growth in portfolios protected by quota
share reinsurance, including Equator Re,
and additional facultative and retrocession
purchases, particularly in International.
1 Constant currency basis and excludes impact of 2019 disposals.
2 Excludes premium rate changes relating to North America Crop and/or Australian CTP.
3 Restated for transfer of North America’s inward reinsurance business to International.
Underwriting expenses, commission and tax
Expense ratio
14.6%
2019 14.6%
Net commission ratio
16.1%
2019 15.6%
Tax rate
(3)%
2019 16%
Underwriting and
other expenses
The Group’s expense ratio was stable
at 14.6%.
Improvement in International was offset
by deterioration in North America and
Australia Pacific, the latter reflecting
a material NSW CTP profit normalisation
charge. While North America reduced
costs in absolute terms, the expense ratio
was impacted by a greater reduction in
net earned premium due to the sale of the
retail personal lines business and material
de-risking (reinsurance) initiatives.
As discussed on page 12, run-rate
costs are $1,690 million which equates
to an underlying expense ratio of 14.3%.
Net commission
The commission ratio increased to 16.1%
from 15.6% in 2019, in part due to relative
growth in International where commission
rates are higher due to the specialised
nature of the business. At the same time,
International’s commission ratio increased
due to strong growth in higher commission
London Market Specialty business where
rate increases were especially strong.
Income tax expense
The effective statutory tax rate of negative
3% compares with 16% in the prior year
and is distorted by a $120 million write-off
of deferred tax assets and impairment
of goodwill in North America of which only
a portion was tax effected. The tax rate
otherwise reflects the mix of corporate tax
rates in the countries where we operate,
with limitations on recognition of losses
in North America and Bermuda.
The dividend franking account balance
stood at A$71 million as at 31 December
2020, enabling the Group to fully frank
A$165 million of dividends.
A
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2
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16
Claims
Attritional claims ratio 1
Incurred claims
Attritional claims ratio
44.6%
46.3%
40.2%
49.4%
Large individual risk
claims ratio
7.9%
8.3%
10.9%
3.5%
Catastrophe claims ratio
5.8%
4.3%
7.1%
6.7%
North America
International
Australia Pacific
The Group’s net claims ratio increased
to 71.1% from 69.3% 2 in 2019, largely
reflecting a further material reduction
in risk-free rates used to discount net
outstanding claims liabilities.
Excluding Crop and LMI, the attritional
claims ratio improved a further 2.9%
to 44.6% from 47.5% in the prior year,
reflecting improvement across all divisions
but especially International.
Risk-free rate movements aside,
a further significant improvement
in the attritional claims ratio and
a modest reduction in the large
individual risk claims ratio were more
than offset by a material increase
in catastrophe claims coupled
with adverse prior accident year
claims development.
The additional Crop quota share
and North American catastrophe
reinsurance adversely impacted
the net claims ratio (especially the
large individual risk and catastrophe
claims ratios) relative to the prior
year by reducing net earned premium
by $325 million.
The major components of the
net claims ratio are summarised
in the table below.
Excluding Crop, North America’s attritional
claims ratio improved 2.4% relative
to the prior year. The benefit of earned
rate increases, as well as the sale of the
retail (independent agency) personal
lines business, were partly offset by the
adoption of more prudent current accident
year actuarial assumptions, increased
reinsurance spend to reduce North
America peak zone catastrophe exposure
and strong growth in A&H, which operates
on a materially higher attritional claims
ratio than the portfolio average.
International’s attritional claims ratio improved
4.0% relative to the prior year, reflecting an
increasingly favourable pricing landscape.
Excluding LMI, Australia Pacific’s
attritional claims ratio reduced by a further
1.7%, with improvement observed across
most portfolios except for householders
which was impacted by adverse weather.
1 Excludes Crop and/or LMI.
2 Excludes one-off impact of the Ogden decision in the UK.
Weighted average risk‑free rates
Net incurred claims
FOR THE YEAR ENDED 31 DECEMBER
2020
2019
Attritional claims
Large individual risk and catastrophe claims
Claims settlement costs
Claims discount
Net incurred central estimate claims ratio
(current accident year)
Changes in undiscounted prior accident year
central estimate
Impact of Ogden decision
Impact of changes in risk-free rates
Movement in risk margins
Other (including unwind of prior year discount)
Net claims ratio
1 Excludes one-off impact of the Ogden decision in the UK.
Attritional claims ratio
STATUTORY
%
EX-COVID
%
STATUTORY
%
ADJUSTED 1
%
47.8
16.0
3.5
(0.3)
67.0
3.1
–
3.3
2.9
–
76.3
47.6
13.7
3.5
(0.3)
64.5
2.9
–
3.2
0.4
0.1
71.1
52.5
11.9
3.3
(1.4)
66.3
(0.8)
0.5
2.0
(0.2)
2.0
69.8
52.5
11.9
3.3
(1.4)
66.3
(0.8)
–
2.0
(0.2)
2.0
69.3
FOR THE YEAR ENDED 31 DECEMBER
2020
2019
Rest of portfolio
Crop insurance
LMI
QBE Group adjusted
NEP
US$M
10,760
876
149
11,785
ATTRITIONAL
%
44.6
86.8
32.9
47.6
NEP
US$M
10,251
1,197
161
11,609
ATTRITIONAL
%
47.5
97.7
34.8
52.5
17
A
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p
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t
2
0
2
0
B
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s
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1
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2
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a
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3
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4
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D
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'
5
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F
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a
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i
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6
i
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h
e
r
n
f
o
r
m
a
t
i
o
n
Total catastrophe
claims (US$M)
688
5.8% of NEP
2019 426
Total large individual
risk claims (US$M)
932
7.9% of NEP
2019 955
Total large individual
risk and catastrophe
claims (US$M)
1,620
13.7% of NEP
2019 1,381
Prior accident year
claims development
(US$M)
(366)
2020
2019
2018
2017
2016
(366)
(22)
92
17
366
Large individual risk
and catastrophe claims
Weighted average
risk‑free rates
The net cost of catastrophe claims
As summarised in the table below,
increased to $688 million or 5.8% of net
the currency weighted average risk-free
earned premium compared with 3.7%
rate used to discount net outstanding
in 2019. This was $134 million or 1.1%
claims liabilities decreased to 0.30%
above our allowance reflecting particularly
at 31 December 2020 from 1.05%
adverse experience in Australia due
at 31 December 2019.
Risk-free rates decreased appreciably
across all currencies resulting in
a $381 million underwriting charge that
increased the net claims ratio by 3.2%
compared with a $231 million charge
in 2019 that increased the net claims
ratio by 2.0%.
The $381 million adverse risk-free
rate impact on the underwriting result
was more than offset by a $481 million
benefit in investment income due to the
maintenance of a surplus duration position
for the first half of 2020.
to widespread bushfires and significant
Australian east coast hail and storm
claims, coupled with a record number
of Atlantic hurricanes. Catastrophe
experience was better than expected
in International, albeit worse than the
especially benign prior year.
The net cost of large individual risk claims
reduced to $932 million or 7.9% of net
earned premium from 8.2% in the prior year.
This is a pleasing outcome with significant
improvement in International partly offset
by higher than expected claims severity
in North America aviation and NSW CTP.
The 2021 catastrophe allowance is $685
million, up from $554 million in 2020, reflecting
a small increase in aggregate due to growth,
the impact of changes to our reinsurance
structure and our prudent response to
the elevated level of catastrophe claims
in more recent years.
CURRENCY
31 DECEMBER
30 JUNE
31 DECEMBER
Australian dollar
US dollar
Sterling
Euro
Group weighted
%
%
%
%
%
Estimated risk-free rate charge US$M
2020
0.41
0.82
0.07
(0.59)
0.30
(381)
2020
0.50
0.69
0.16
(0.34)
0.31
(335)
2019
1.11
1.95
0.80
(0.08)
1.05
(231)
Prior accident year claims development
Excluding $20 million of positive prior
International reported $80 million
accident year claims development
pertaining to North America Crop
of adverse development, primarily
reflecting development on the
insurance that is matched by additional
North America inward reinsurance
premium cessions under the MPCI
business (now part of QBE Re), 2019
scheme, adverse prior accident year
Japanese typhoons and higher than
claims development was $366 million
anticipated claims inflation in European
or 3.1% of net earned premium, compared
financial lines.
with $22 million or 0.2% in the prior year.
Australia Pacific reported $18 million
Disappointingly, North America reported
of positive prior accident year claims
$305 million of adverse development
development. Favourable development
spanning the closed excess and surplus
in NSW CTP, commercial property and
lines (E&S) portfolio, aviation, industry-wide
workers’ compensation was partly offset
development on Hurricane Irma and an
by modest development in householders,
additional explicit allowance to address
liability classes and in New Zealand.
systemic risks including social inflation
and higher severity trends in casualty lines.
16
Claims
Attritional claims ratio 1
Incurred claims
Attritional claims ratio
44.6%
46.3%
40.2%
49.4%
Large individual risk
claims ratio
7.9%
8.3%
10.9%
3.5%
The Group’s net claims ratio increased
Excluding Crop and LMI, the attritional
to 71.1% from 69.3% 2 in 2019, largely
claims ratio improved a further 2.9%
reflecting a further material reduction
to 44.6% from 47.5% in the prior year,
in risk-free rates used to discount net
reflecting improvement across all divisions
outstanding claims liabilities.
but especially International.
Risk-free rate movements aside,
a further significant improvement
in the attritional claims ratio and
a modest reduction in the large
Excluding Crop, North America’s attritional
claims ratio improved 2.4% relative
to the prior year. The benefit of earned
rate increases, as well as the sale of the
individual risk claims ratio were more
retail (independent agency) personal
than offset by a material increase
in catastrophe claims coupled
with adverse prior accident year
claims development.
The additional Crop quota share
and North American catastrophe
reinsurance adversely impacted
the net claims ratio (especially the
lines business, were partly offset by the
adoption of more prudent current accident
year actuarial assumptions, increased
reinsurance spend to reduce North
America peak zone catastrophe exposure
and strong growth in A&H, which operates
on a materially higher attritional claims
ratio than the portfolio average.
Catastrophe claims ratio
large individual risk and catastrophe
International’s attritional claims ratio improved
claims ratios) relative to the prior
4.0% relative to the prior year, reflecting an
year by reducing net earned premium
increasingly favourable pricing landscape.
by $325 million.
The major components of the
net claims ratio are summarised
in the table below.
Excluding LMI, Australia Pacific’s
attritional claims ratio reduced by a further
1.7%, with improvement observed across
most portfolios except for householders
which was impacted by adverse weather.
1 Excludes Crop and/or LMI.
2 Excludes one-off impact of the Ogden decision in the UK.
5.8%
4.3%
7.1%
6.7%
North America
International
Australia Pacific
Net incurred claims
FOR THE YEAR ENDED 31 DECEMBER
2020
2019
STATUTORY
EX-COVID
STATUTORY
ADJUSTED 1
Attritional claims
Large individual risk and catastrophe claims
Claims settlement costs
Claims discount
Net incurred central estimate claims ratio
(current accident year)
Changes in undiscounted prior accident year
central estimate
Impact of Ogden decision
Impact of changes in risk-free rates
Movement in risk margins
Other (including unwind of prior year discount)
Net claims ratio
1 Excludes one-off impact of the Ogden decision in the UK.
Attritional claims ratio
Rest of portfolio
Crop insurance
LMI
QBE Group adjusted
%
47.8
16.0
3.5
(0.3)
67.0
3.1
–
3.3
2.9
–
76.3
NEP
US$M
10,760
876
149
11,785
%
47.6
13.7
3.5
(0.3)
64.5
2.9
–
3.2
0.4
0.1
71.1
%
44.6
86.8
32.9
47.6
%
52.5
11.9
3.3
(1.4)
66.3
(0.8)
0.5
2.0
(0.2)
2.0
69.8
NEP
US$M
10,251
1,197
161
11,609
%
52.5
11.9
3.3
(1.4)
66.3
(0.8)
–
2.0
(0.2)
2.0
69.3
%
47.5
97.7
34.8
52.5
FOR THE YEAR ENDED 31 DECEMBER
2020
2019
ATTRITIONAL
ATTRITIONAL
Large individual risk
and catastrophe claims
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 0.30%
at 31 December 2020 from 1.05%
at 31 December 2019.
Risk-free rates decreased appreciably
across all currencies resulting in
a $381 million underwriting charge that
increased the net claims ratio by 3.2%
compared with a $231 million charge
in 2019 that increased the net claims
ratio by 2.0%.
The $381 million adverse risk-free
rate impact on the underwriting result
was more than offset by a $481 million
benefit in investment income due to the
maintenance of a surplus duration position
for the first half of 2020.
The net cost of catastrophe claims
increased to $688 million or 5.8% of net
earned premium compared with 3.7%
in 2019. This was $134 million or 1.1%
above our allowance reflecting particularly
adverse experience in Australia due
to widespread bushfires and significant
Australian east coast hail and storm
claims, coupled with a record number
of Atlantic hurricanes. Catastrophe
experience was better than expected
in International, albeit worse than the
especially benign prior year.
The net cost of large individual risk claims
reduced to $932 million or 7.9% of net
earned premium from 8.2% in the prior year.
This is a pleasing outcome with significant
improvement in International partly offset
by higher than expected claims severity
in North America aviation and NSW CTP.
The 2021 catastrophe allowance is $685
million, up from $554 million in 2020, reflecting
a small increase in aggregate due to growth,
the impact of changes to our reinsurance
structure and our prudent response to
the elevated level of catastrophe claims
in more recent years.
Weighted average risk‑free rates
CURRENCY
31 DECEMBER
2020
30 JUNE
2020
31 DECEMBER
2019
Total catastrophe
claims (US$M)
688
5.8% of NEP
2019 426
Total large individual
risk claims (US$M)
932
7.9% of NEP
2019 955
Total large individual
risk and catastrophe
claims (US$M)
1,620
13.7% of NEP
2019 1,381
%
Australian dollar
US dollar
Sterling
Euro
Group weighted
%
Estimated risk-free rate charge US$M
%
%
%
0.41
0.82
0.07
(0.59)
0.30
(381)
0.50
0.69
0.16
(0.34)
0.31
(335)
1.11
1.95
0.80
(0.08)
1.05
(231)
Prior accident year claims development
Excluding $20 million of positive prior
accident year claims development
pertaining to North America Crop
insurance that is matched by additional
premium cessions under the MPCI
scheme, adverse prior accident year
claims development was $366 million
or 3.1% of net earned premium, compared
with $22 million or 0.2% in the prior year.
Disappointingly, North America reported
$305 million of adverse development
spanning the closed excess and surplus
lines (E&S) portfolio, aviation, industry-wide
development on Hurricane Irma and an
additional explicit allowance to address
systemic risks including social inflation
and higher severity trends in casualty lines.
International reported $80 million
of adverse development, primarily
reflecting development on the
North America inward reinsurance
business (now part of QBE Re), 2019
Japanese typhoons and higher than
anticipated claims inflation in European
financial lines.
Australia Pacific reported $18 million
of positive prior accident year claims
development. Favourable development
in NSW CTP, commercial property and
workers’ compensation was partly offset
by modest development in householders,
liability classes and in New Zealand.
Prior accident year
claims development
(US$M)
(366)
2020
2019
2018
2017
2016
(366)
(22)
92
17
366
17
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18
Balance sheet and capital management
PCA multiple
Capital management
Prescribed capital amount
Net outstanding claims
Borrowings
Total borrowings (US$M)
1.72x
2019 1.71x
Target PCA multiple
1.6–1.8x
Debt to equity
32.4% 1
2019 38.0%
Target debt to equity
25–35%
The PCA multiple increased marginally
to 1.72x at 31 December 2020 from
1.71x at 31 December 2019, reflecting:
• execution of the capital actions
announced on 14 April 2020;
• a reduced insurance concentration
risk charge (ICRC) mainly due to the
purchase of additional catastrophe
reinsurance protection for the North
America region; largely offset by
• the full year cash operating loss and
payment of the 2019 final and 2020
interim dividends;
• a higher insurance risk charge due
to an increase in outstanding claims
and premium liabilities as a result
of lower risk-free rates, prior accident
year claims development and an
allowance for significant COVID-19
claims within outstanding claims and
premium liabilities; and
• a higher asset risk charge reflecting the
material increase in investment assets
which more than offset the benefit
of de-risking initiatives.
The $200 million subordinated debt
redemption to be completed in March
2021, does not materially impact the PCA
multiple as only $37 million was regulatory
capital qualifying at the balance date.
During 2020, QBE undertook significant
capital management initiatives including:
• a $750 million equity raising
via an institutional placement
at A$8.25 per share;
• a $63 million equity raising via
a Share Purchase Plan for retail
investors at A$7.51 per share;
• a $500 million AT1 securities
issuance; and
• net A$300 million of Tier 2
subordinated debt issuance.
In May 2020, QBE issued $500 million
of perpetual fixed rate resetting capital
notes that are AT1 qualifying under
APRA’s capital adequacy framework.
The notes are classified as equity, pay
franked after tax distributions and do not
impact the weighted average number of
shares for earnings per share calculations
(since the notes are written off in whole
or in part if APRA determines QBE is,
or would become, non-viable).
Together with the reclassified 2017
perpetual fixed rate capital notes, the
annual after tax distribution on QBE’s
AT1 capital will be $50 million, while
the reclassification of the 2017 notes
will result in annual financing and other
costs reducing by $21 million.
Allowing for subordinated debt to be
repaid in March 2021, pro forma gearing
was 32.4%, down significantly from
38.0% at 31 December 2019 and within
the Group’s internal benchmark range
of 25–35%.
1 Pro forma adjusting for $200 million pre-funded debt repayment to be completed in March 2021.
Capitalisation and capital metrics
AS AT 31 DECEMBER
Net assets
Less: intangible assets
Net tangible assets
Add: borrowings
Total tangible capitalisation
Debt to equity 1
Debt to tangible equity 1
Premium solvency 2
QBE's regulatory capital base
APRA's PCA
PCA multiple 3
US$M
US$M
US$M
US$M
US$M
%
%
%
US$M
US$M
BENCHMARK
25–35
1.6–1.8x
2020
8,492
(2,534)
5,958
2,955
8,913
32.4
46.2
50.6
9,348
5,436
1.72x
2019
8,153
(2,791)
5,362
3,095
8,457
38.0
57.7
46.2
8,502
4,966
1.71x
1 Pro forma adjusting for $200 million pre-funded debt repayment to be completed in March 2021.
2 The ratio of net tangible assets to adjusted net earned premium.
3 Indicative APRA PCA calculation at 31 December 2020.
19
A
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n
2,955 1
Less than one year
One to five years
More than five years
200
1,848
907
Borrowings profile
2,955
Senior debt 2
Subordinated debt
–
100%
2,107
North America
International
Australia Pacific
358
546
1,203
Net outstanding claims liabilities are
As at 31 December 2020, total borrowings
discounted using sovereign bond rates as
were $2,955 million, down $140 million
a proxy for risk-free interest rates and not
from $3,095 million at 31 December 2019.
the actual earning rate on our investments.
In July 2020, the Group reclassified $400
At 31 December 2020, risk margins in
million of perpetual fixed rate capital notes
net outstanding claims were $1,537 million
out of borrowings into equity following
or 9.7% of the net central estimate of
a successful consent solicitation to amend
outstanding claims compared with $1,136
the terms of the capital notes.
million or 8.3% of the net central estimate
at 31 December 2019. Excluding foreign
exchange movements, risk margins
increased $344 million in 2020 compared
with a $23 million decrease in 2019.
In August 2020, the Group issued A$500
million of subordinated notes to pre-fund
the redemption of A$200 million of
subordinated notes in September 2020
and $200 million of subordinated notes
The PoA of net outstanding claims
in March 2021.
increased to 92.5% from 90.0%
at 31 December 2019, primarily due
to a $300 million uplift in risk margins
reflecting heightened reserve uncertainty
arising from COVID-19, particularly with
respect to business interruption claims.
Gross interest expense on long-term
borrowings for the year was $185 million,
down from $195 million in the prior year.
The average annualised cash cost
of borrowings at 31 December 2020
was 6.1%, down slightly from 6.3%
AS AT 31 DECEMBER
2020
2019
as at 31 December 2019.
Net central estimate US$M 15,797 13,675
Risk margin
US$M 1,537 1,136
Net outstanding claims US$M 17,334 14,811
PoA
Risk margins to
central estimate
%
%
92.5
90.0
9.7
8.3
As at 31 December 2020, all but $169 million
of the Group’s borrowings continued
to count towards regulatory capital.
1 Based on first call date.
2 Senior debt outstanding at 31 December 2020 is $6 million.
The carrying value of identifiable
As at 31 December 2020, QBE recognised
intangibles and goodwill at 31 December
a North America goodwill impairment
2020 was $2,534 million, down from
charge of $390 million reflecting
$2,791 million at 31 December 2019.
a combination of factors including:
During the year, the carrying value of
• lower investment return expectations
intangibles reduced by $257 million due
that reflect market conditions, including
to amortisation and impairment expense
lower long-term return assumptions and
of $512 million, which more than offset
an updated strategic asset allocation
a $188 million foreign exchange impact
that was determined as part of our
and net additions in the period, being
annual planning process;
mainly the capitalisation of software
in relation to various information
technology projects.
• an increase in the 10-year average
Crop combined ratio that resulted from
the deterioration in performance of
the business in the second half of the
year, principally due to the impact of the
California wildfires; and
• an increase in North America’s
catastrophe allowance as a result
of elevated catastrophe experience
in the second half of the year.
Identifiable intangibles and goodwill
Goodwill (US$M)
18
19
PCA multiple
Capital management
Prescribed capital amount
Net outstanding claims
Borrowings
Total borrowings (US$M)
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.
At 31 December 2020, risk margins in
net outstanding claims were $1,537 million
or 9.7% of the net central estimate of
outstanding claims compared with $1,136
million or 8.3% of the net central estimate
at 31 December 2019. Excluding foreign
exchange movements, risk margins
increased $344 million in 2020 compared
with a $23 million decrease in 2019.
The PoA of net outstanding claims
increased to 92.5% from 90.0%
at 31 December 2019, primarily due
to a $300 million uplift in risk margins
reflecting heightened reserve uncertainty
arising from COVID-19, particularly with
respect to business interruption claims.
2020
AS AT 31 DECEMBER
2019
Net central estimate US$M 15,797 13,675
US$M 1,537 1,136
Risk margin
Net outstanding claims US$M 17,334 14,811
90.0
PoA
Risk margins to
central estimate
92.5
8.3
%
%
9.7
As at 31 December 2020, total borrowings
were $2,955 million, down $140 million
from $3,095 million at 31 December 2019.
In July 2020, the Group reclassified $400
million of perpetual fixed rate capital notes
out of borrowings into equity following
a successful consent solicitation to amend
the terms of the capital notes.
In August 2020, the Group issued A$500
million of subordinated notes to pre-fund
the redemption of A$200 million of
subordinated notes in September 2020
and $200 million of subordinated notes
in March 2021.
Gross interest expense on long-term
borrowings for the year was $185 million,
down from $195 million in the prior year.
The average annualised cash cost
of borrowings at 31 December 2020
was 6.1%, down slightly from 6.3%
as at 31 December 2019.
As at 31 December 2020, all but $169 million
of the Group’s borrowings continued
to count towards regulatory capital.
2,955 1
Less than one year
One to five years
More than five years
200
1,848
907
Borrowings profile
2,955
Senior debt 2
Subordinated debt
–
100%
1 Based on first call date.
2 Senior debt outstanding at 31 December 2020 is $6 million.
Identifiable intangibles and goodwill
Goodwill (US$M)
The carrying value of identifiable
intangibles and goodwill at 31 December
2020 was $2,534 million, down from
$2,791 million at 31 December 2019.
As at 31 December 2020, QBE recognised
a North America goodwill impairment
charge of $390 million reflecting
a combination of factors including:
Balance sheet and capital management
1.72x
2019 1.71x
Target PCA multiple
1.6–1.8x
Debt to equity
32.4% 1
2019 38.0%
Target debt to equity
25–35%
During 2020, QBE undertook significant
The PCA multiple increased marginally
capital management initiatives including:
to 1.72x at 31 December 2020 from
• a $750 million equity raising
via an institutional placement
at A$8.25 per share;
• a $63 million equity raising via
a Share Purchase Plan for retail
investors at A$7.51 per share;
• a $500 million AT1 securities
issuance; and
• net A$300 million of Tier 2
subordinated debt issuance.
In May 2020, QBE issued $500 million
of perpetual fixed rate resetting capital
notes that are AT1 qualifying under
APRA’s capital adequacy framework.
1.71x at 31 December 2019, reflecting:
• execution of the capital actions
announced on 14 April 2020;
• a reduced insurance concentration
risk charge (ICRC) mainly due to the
purchase of additional catastrophe
reinsurance protection for the North
America region; largely offset by
• the full year cash operating loss and
payment of the 2019 final and 2020
interim dividends;
• a higher insurance risk charge due
to an increase in outstanding claims
and premium liabilities as a result
of lower risk-free rates, prior accident
The notes are classified as equity, pay
year claims development and an
franked after tax distributions and do not
allowance for significant COVID-19
impact the weighted average number of
claims within outstanding claims and
shares for earnings per share calculations
premium liabilities; and
• a higher asset risk charge reflecting the
material increase in investment assets
which more than offset the benefit
of de-risking initiatives.
The $200 million subordinated debt
redemption to be completed in March
2021, does not materially impact the PCA
multiple as only $37 million was regulatory
capital qualifying at the balance date.
(since the notes are written off in whole
or in part if APRA determines QBE is,
or would become, non-viable).
Together with the reclassified 2017
perpetual fixed rate capital notes, the
annual after tax distribution on QBE’s
AT1 capital will be $50 million, while
the reclassification of the 2017 notes
will result in annual financing and other
costs reducing by $21 million.
Allowing for subordinated debt to be
repaid in March 2021, pro forma gearing
was 32.4%, down significantly from
38.0% at 31 December 2019 and within
the Group’s internal benchmark range
of 25–35%.
1 Pro forma adjusting for $200 million pre-funded debt repayment to be completed in March 2021.
Capitalisation and capital metrics
AS AT 31 DECEMBER
Net assets
Less: intangible assets
Net tangible assets
Add: borrowings
Total tangible capitalisation
Debt to equity 1
Debt to tangible equity 1
Premium solvency 2
QBE's regulatory capital base
APRA's PCA
PCA multiple 3
US$M
US$M
US$M
US$M
US$M
%
%
%
US$M
US$M
BENCHMARK
25–35
1.6–1.8x
2020
8,492
(2,534)
5,958
2,955
8,913
32.4
46.2
50.6
9,348
5,436
1.72x
2019
8,153
(2,791)
5,362
3,095
8,457
38.0
57.7
46.2
8,502
4,966
1.71x
1 Pro forma adjusting for $200 million pre-funded debt repayment to be completed in March 2021.
2 The ratio of net tangible assets to adjusted net earned premium.
3 Indicative APRA PCA calculation at 31 December 2020.
During the year, the carrying value of
intangibles reduced by $257 million due
to amortisation and impairment expense
of $512 million, which more than offset
a $188 million foreign exchange impact
and net additions in the period, being
mainly the capitalisation of software
in relation to various information
technology projects.
• lower investment return expectations
that reflect market conditions, including
lower long-term return assumptions and
an updated strategic asset allocation
that was determined as part of our
annual planning process;
• an increase in the 10-year average
Crop combined ratio that resulted from
the deterioration in performance of
the business in the second half of the
year, principally due to the impact of the
California wildfires; and
• an increase in North America’s
catastrophe allowance as a result
of elevated catastrophe experience
in the second half of the year.
2,107
North America
International
Australia Pacific
358
546
1,203
o
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20
Investment performance and strategy
Closing remarks
At 31 December 2020, total cash
and investments was $27,735 million,
up significantly from the prior year,
reflecting strong operating cash flow
coupled with depreciation of the US dollar
against our other major currencies such
as GBP, AUD and Euro.
The portfolio remains conservatively
positioned with around 7% invested
in growth assets, comprised of real estate,
coupled with a small amount of gold and
private equity.
With sovereign bond yields anchored near
historical lows, we intend to broadly match
the interest rate sensitivity of our fixed
income assets with our net outstanding
claims liabilities, implying an asset
duration of, or modestly above, 2.2 years.
Funds under
management (US$M)
25,670
22,058
2020
2019
2020
2019
2,065
2,316
Fixed income
Growth assets
Net investment
income (US$M)
226
78% from 2019
Net investment return
0.9%
2019 4.4%
Fixed
income
Vs
Growth
assets
1.9%
(4.8)%
2019 3.7%
2019 11.8%
Having been heavily impacted by market
volatility in March 2020, the investment
portfolio subsequently experienced strong
gains as substantial and coordinated
monetary and fiscal policy stimuli helped
bolster risk sentiment. The net investment
return for 2020 was 0.9%, down materially
from 4.4% in the prior year.
Our fixed income portfolio returned 1.9%
compared with 3.7% in 2019, as sovereign
bond yields fell to and remained anchored
at historic lows. After initially widening
substantially, credit spreads eventually
retraced back toward or in some cases
beyond their pre-COVID-19 levels.
Despite a challenging environment
for corporate credit, our portfolio has
remained resilient with no downgrades into
high yield and a broadly lower incidence of
downgrades relative to the wider market.
Growth assets returned a loss of 4.8%
compared with income of 11.8% in 2019,
largely reflecting the equity market
sell-off in March 2020. Unlisted assets
remained resilient over the course of
2020; unlisted property experienced only
modest weakness, infrastructure assets
just managed a positive return and private
equity enjoyed strong gains as momentum
gathered in the second half.
Interest bearing financial assets
– S&P security grading
Currency mix of investments
AS AT 31 DECEMBER
Rating
AAA
AA
A
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