300000000 QBE Capital Funding LP - Irish Stock Exchange

OFFERING MEMORANDUM
£300,000,000
QBE Capital Funding L.P.
Capital Securities
(liquidation preference of £50,000 per Capital Security)
guaranteed to the extent described in this Offering Memorandum by,
and each redeemable for cash or exchangeable as described in this Offering Memorandum
for one preferred security (liquidation preference of £50,000 per preferred security) of,
QBE Insurance Group Limited
ABN 28 008 485 014
The Offering:
£300,000,000 non-voting non-cumulative perpetual preferred securities, each with a liquidation preference of £50,000 (the “Capital Securities”),
comprising limited partnership interests in QBE Capital Funding L.P. (the “Issuer”), are proposed to be issued on July 18, 2006 (the “Closing Date”). The
Capital Securities will entitle holders to receive, subject to certain exceptions described herein, non-cumulative preferential cash distributions in arrear (i) for
any Distribution Period (as defined herein) ending on or before July 18, 2016, semi-annually on January 18 and July 18 of each year at a fixed rate per
annum of 6.857 per cent. of their liquidation preference and (ii) for each Distribution Period thereafter, quarterly on January 18, April 18, July 18 and
October 18 of each year at a floating rate per annum equal to the sum of 2.86 per cent. and the London interbank offered rate (“LIBOR”) for three month
sterling deposits of their liquidation preference.
The Issuer:
The Issuer, a Jersey limited partnership, will not be a legal entity separate from its partners. All obligations of the Issuer to make payments with
respect to the Capital Securities will be guaranteed on a limited and subordinated basis, but only to the extent the Issuer has funds available to do so except as
described herein, by QBE Insurance Group Limited (“QBE”) pursuant to a subordinated guarantee to be dated the Closing Date (the “Capital Securities
Guarantee”), all as more fully described herein under “Description of the Capital Securities Guarantee Agreement.” The principal assets of the Issuer will be
pounds sterling-denominated perpetual debt instruments (the “UK Capital Securities”) issued by QBE International Holdings (UK) PLC (“QBE UK”).
Redemption of the Capital Securities:
The Capital Securities will not have a fixed final redemption date and holders of the Capital Securities will have no right to call for their
redemption. QBE (Jersey) GP Limited, the general partner of the Issuer (the “General Partner”), may, with the prior written approval of the Australian
Prudential Regulation Authority or its successor (“APRA”), if required, redeem the Capital Securities (i) in whole or in part, on July 18, 2016 or on any
Distribution Payment Date thereafter or (ii) prior to July 18, 2016, in whole but not in part on any Business Day following the occurrence and during the
continuance of an Investment Company Event, a Capital Securities Regulatory Event or a Capital Securities Tax Event (each as defined herein). In addition,
upon the occurrence of an Acquisition Event (as defined herein), the General Partner, on behalf of the Issuer, will, subject to the prior written approval of
APRA, if required, redeem the Capital Securities in whole on any Business Day at least five (5) but not more than twenty (20) Business Days after that
occurrence. In the case of a redemption on or after July 18, 2016 or, prior to July 18, 2016, redemption due to the occurrence of a Capital Securities Tax
Event, holders of the Capital Securities will receive the Par Redemption Price (as defined herein). In the case of a redemption prior to July 18, 2016 upon an
Acquisition Event, an Investment Company Event or a Capital Securities Regulatory Event, holders of the Capital Securities will receive the Make Whole
Redemption Price (as defined herein).
Exchange of the Capital Securities:
Upon the occurrence of the Exchange Event (as defined herein), the holders of the Capital Securities will receive one preferred security with a
liquidation preference of £50,000 issued by QBE (a “QBE Preferred Security”) for each Capital Security, unless QBE is prohibited by law from issuing the
QBE Preferred Securities, all as more fully described herein under “Description of the Capital Securities.”
Investing in the Capital Securities involves risks that are described herein under “Risk Factors” beginning on
page 42.
Application has been made to The Irish Stock Exchange Limited (the “Irish Stock Exchange”) for the Capital Securities to be admitted to the
Official List and trading on its regulated market.
Offering price: £50,000 per Capital Security
None of the securities offered hereby have been registered in the United States under the Securities Act of 1933, as amended (the “Securities
Act”), or the securities laws of any other jurisdiction. Unless they are so registered, these securities may be offered only in transactions that are exempt from
or not subject to registration under the Securities Act or the securities laws of any other jurisdiction. Accordingly, we are offering these securities only
(i) outside the United States in compliance with Regulation S under the Securities Act (“Regulation S”) and (ii) in the United States to qualified institutional
buyers in compliance with Rule 144A under the Securities Act (“Rule 144A”). Prospective purchasers are hereby notified that the seller of these securities
may be relying on the exemption from the provisions of Section 5 of the Securities Act provided by Rule 144A.
It is expected that the Capital Securities will be ready for delivery in book-entry form only through the facilities of The Depository Trust
Company (“DTC”), Euroclear Bank S.A./N.V., as operator of the Euroclear System (“Euroclear”) and Clearstream Banking, société anonyme (“Clearstream,
Luxembourg”), on or about the Closing Date, against payment of immediately available funds.
Merrill Lynch International
Structuring Advisor
The date of this Offering Memorandum is July 19, 2006.
Citigroup

You should rely only on the information contained in this Offering Memorandum. The Issuer, the
General Partner, QBE UK and QBE have not, and Merrill Lynch International Limited and Citigroup
Global Markets Limited (the “Initial Purchasers”) have not, authorized any other person to provide you
with different information. If anyone provides you with different or inconsistent information, you should
not rely on it. The Issuer, the General Partner, QBE UK and QBE are not, and the Initial Purchasers are
not, making an offer to sell the securities offered hereby in any jurisdiction where the offer or sale is not
permitted. The information contained in this Offering Memorandum is accurate only as of the date hereof.
Our business, financial condition, results of operations and prospects may have changed since this date.
In connection with the issue and distribution of any Capital Securities, the Initial Purchasers or
any person acting for the Initial Purchasers may overallot or effect transactions with a view to supporting
the market price of the Capital Securities at a level higher than that which might otherwise prevail for a
limited period. However, there is no obligation on the Initial Purchasers or any of their respective agents
to do this. Such stabilizing, if commenced, may be discontinued at any time and must be brought to an end
after a limited period. See “Plan of Distribution—Price Stabilization and Short Positions.”
This Offering Memorandum constitutes a prospectus for the purposes of Directive 2003/71/EC
(the “Prospective Directive”). References throughout this document to “Offering Memorandum” shall be
taken to read “Prospectus” for such purpose. Application has been made to the Irish Financial Services
Regulatory Authority as competent authority under the Prospectus Directive, for the Prospectus to be
approved. Such approval relates only to the Capital Securities which are to be admitted to trading on the
regulated market of the Irish Stock Exchange. Application has been made to the Irish Stock Exchange for
the Capital Securities to be admitted to the Official List and trading on its regulated market. We cannot
guarantee that listing will be obtained on that exchange. Inquiries regarding our listing status on the Irish
Stock Exchange should be directed to our Irish listing agent, McCann FitzGerald Listing Services Limited,
whose address is 2 Harbourmaster Place, International Financial Services Centre, Dublin 1, Ireland.
This Offering Memorandum includes particulars given in compliance with the rules governing the
listing of securities on the Irish Stock Exchange. The Irish Stock Exchange takes no responsibility for the
contents of this Offering Memorandum and makes no representation as to their accuracy or completeness,
and expressly disclaims any liability whatsoever for any loss howsoever arising from or in reliance upon
the whole or any part of the contents of this Offering Memorandum.
This Offering Memorandum will be available free of charge at the office of each of the Agents (as
defined herein).
The investments described in this Offering Memorandum do not constitute a collective investment
fund for the purpose of the Collective Investment Funds (Jersey) Law 1988, as amended, on the basis that
they are investment products designed for financially sophisticated investors with specialist knowledge of,
and experience of investing in, such investments, who are capable of fully evaluating the risks involved in
making such investments and who have an asset base sufficiently substantial as to enable them to sustain
any loss that they might suffer as a result of making such investments. These investments are not regarded
by the Jersey Financial Services Commission (the “JFSC”) as suitable investments for any other type of
investor. Any individual intending to invest in any investment described in this Offering Memorandum
should consult his or her professional adviser and ensure that he or she fully understands all the risks
associated with making such an investment and has sufficient financial resources to sustain any loss that
may arise from it.

SPECIAL NOTE REGARDING FORWARD-LOOKING STATEMENTS
This Offering Memorandum contains forward-looking statements. Examples of such forward-looking
statements include, but are not limited to: (i) statements regarding our future results of operations and financial
condition, (ii) statements of plans, objectives or goals, including those related to our products or services and
(iii) statements of assumptions underlying such statements. Words such as “believes,” “anticipates,” “should,”
“estimates,” “forecasts,” “expects,” “may,” “intends” and “plans” and similar expressions are intended to identify
forward-looking statements but are not the exclusive means of identifying such statements.
By their very nature, forward-looking statements involve inherent risks and uncertainties, both general
and specific, and as a result the predictions, forecasts, projections and other forward-looking statements may not
be achieved. We caution investors that a number of important factors could cause actual results to differ
materially from the plans, objectives, expectations, estimates and intentions expressed or implied in such
forward-looking statements. These factors include, but are not limited to:
• changes in economic conditions;
• the performance of our investment portfolios;
• the scope and frequency of catastrophes;
• differences between our actual claims experience and our underwriting and reserving assumptions;
• the financial strength of our insurance and reinsurance subsidiaries;
• the level of competition;
• our ability to obtain the appropriate level and type of reinsurance;
• the financial condition of our reinsurance and retrocession counterparties and their performance under
any reinsurance or retrocession arrangements we have in place;
• changes in exchange rates;
• changes in regulation and government policies;
• changes in Lloyd’s rules and policies;
• our strategy, including business plans and acquisitions;
• potential litigation;
• systems risks;
• our dependency on key personnel;
• our reliance on insurance agents and brokers;
• our holding company structure; and
• other factors discussed under “Risk Factors” and “Management’s Discussion and Analysis of
Financial Condition and Results of Operations.”
We caution that the foregoing list of factors is not exhaustive. When relying on forward-looking
statements to make decisions with respect to an investment in the Capital Securities, investors should carefully
consider the foregoing factors and other uncertainties and events. These forward-looking statements speak only
as of the date of this Offering Memorandum, and we do not undertake any obligation to update or revise any of
them, whether as a result of new information, future events or otherwise.
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CERTAIN DEFINED TERMS
In this Offering Memorandum, unless the context otherwise requires, references to:
• “Acquisition Event” means an offer being made to acquire 90% or more of the ordinary shares of
QBE which, under the Corporations Act, is or becomes unconditional and the bidder has a relevant
interest, as defined under that law, in 90% or more of the ordinary shares of QBE on issue;
• “APRA” means the Australian Prudential Regulation Authority or any successor;
• “APRA Condition,” with respect to any distribution payment on the Capital Securities or Capital
Securities Guarantee Payment (as defined herein) under the Capital Securities Guarantee Agreement
on a Distribution Payment Date (as defined herein), other than a distribution payable on redemption
of the Capital Securities, any interest payment on the UK Capital Securities on an Interest Payment
Date (as defined herein), other than interest payable on redemption of the UK Capital Securities, or
any dividend payment on the QBE Preferred Securities on a Dividend Payment Date (as defined
herein), other than a dividend payable on redemption of the QBE Preferred Securities, means the
occurrence of any of the following:
(a) unless APRA otherwise agrees:
(i) the determination by APRA in writing that the QBE Group does not comply with APRA’s
then existing capital adequacy requirements as they apply to the QBE Group at the time;
(ii) the issuance by APRA of a written direction to QBE under Section 36 of the Insurance Act
1973 (Cth) of Australia for it to increase its capital;
(iii) the revocation by APRA of the authorization of QBE pursuant to subsection 15(1) of the
Insurance Act 1973 (Cth) of Australia;
(iv) the appointment by APRA of a statutory manager to QBE or the assumption by APRA of
control of QBE or the commencement of proceedings for the winding-up of QBE;
(v) the retained earnings of the QBE Group having fallen below zero; or
(vi) the distribution payment, the Capital Securities Guarantee Payment, the interest payment or
the dividend payment, as the case may be, exceeding Distributable Profits as at the date for
such payment; or
(b) APRA otherwise objecting to the distribution payment, the Capital Securities Guarantee
Payment, the interest payment or the dividend payment, as the case may be;
• “Business Day” means any day other than a Saturday or Sunday that is not a day on which banking
institutions in London, England, New York, New York or Sydney, New South Wales are authorized
or obligated to close;
• “Capital Securities” means the £300,000,000 non-voting non-cumulative perpetual preferred
securities that the Issuer will issue to the Initial Purchasers and that are being offered pursuant to this
Offering Memorandum;
• “Capital Securities Guarantee” means the full and unconditional subordinated guarantee of QBE with
respect to all of the Issuer’s obligations under the Capital Securities, but only (i) to the extent that the
Issuer has funds available for distribution to holders of the Capital Securities and (ii) after the date, if
any, on which the Exchange Event occurs, whether or not the Issuer has funds available for
distribution to holders of the Capital Securities (if the Capital Securities remain outstanding), in the
case of (i) or (ii), so long as no QBE Australia Stopper (as defined herein) or APRA Condition exists;
provided that, if the Exchange Event is the failure of the Issuer to pay a distribution in full on or
within twenty (20) Business Days after a Distribution Payment Date, the only reason for such failure
is the failure of QBE UK to pay interest in full on the UK Capital Securities on the corresponding
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Interest Payment Date and no QBE Australia Stopper or APRA Condition exists with respect to that
distribution, QBE will be deemed to have guaranteed payment of that distribution whether or not the
Issuer has sufficient available funds;
• “Capital Securities Guarantee Agreement” means the agreement between QBE, as guarantor and the
Guarantee Trustee to be dated the Closing Date relating to the Capital Securities Guarantee;
• “Capital Securities Regulatory Event” means:
• the introduction of, or an amendment or clarification to or change in (or announcement of a
prospective introduction of, amendment or clarification to or change in) a law or regulation of the
Commonwealth of Australia or any State or Territory thereof or any directive, order, requirement,
guideline or statement of APRA, after the Closing Date, which has the effect that the Capital
Securities are not eligible for inclusion in the Tier 1 capital, or its then equivalent, of the QBE
Group;
• the receipt by QBE of any statement, notification or advice by APRA or a decision by any court,
interpreting, applying or administering any such law or regulation, after the Closing Date, which
has the effect that the Capital Securities are not eligible for inclusion in the Tier 1 capital, or its
then equivalent, of the QBE Group; or
• the receipt by QBE of an opinion of a nationally recognized independent legal counsel in Australia
experienced in such matters, after the Closing Date, to the effect that the Capital Securities are not,
or within 90 days of the date of the opinion will not be, eligible for inclusion in the Tier 1 capital,
or its then equivalent, of the QBE Group.
• “Capital Securities Tax Event” means:
(a) a UK Capital Securities Tax Event; or
(b) the receipt by QBE of an opinion of competent tax counsel to the effect that, as a result of the
introduction of, or amendment or clarification to or change in (or announcement of a prospective
introduction of, amendment or clarification to or change in) or in the interpretation or application
of a law or regulation by any legislative body, court, governmental agency or regulatory
authority in a Relevant Jurisdiction after the Closing Date, there is more than an insubstantial
risk that:
(i) payments on the Capital Securities, or payments under the Capital Securities Guarantee
Agreement, are or will be subject to any Relevant Tax of whatever nature imposed or
leveled by or on behalf of a Relevant Jurisdiction for which the Issuer or QBE, as the case
may be, must pay Additional Amounts (as defined herein);
(ii) interest payments on the UK Capital Securities or distributions on the Capital Securities are
or will be treated as frankable distributions under Australian tax law (see “Taxation—
Certain Australian Tax Consequences”);
(iii) the Issuer or QBE would be exposed to more than a de minimis increase in its costs in
relation to the Capital Securities as a result of any taxes, duties or other governmental
charges or civil liabilities; or
(iv) QBE would be exposed to more than a de minimis increase in its costs in relation to the
Capital Securities Guarantee Agreement or the Exchange Agreement as a result of any
taxes, duties or other governmental charges or civil liabilities;
• “Closing Date” means July 18, 2006;
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• “Distributable Profits” means an amount calculated in accordance with the following formula (or
such other formula as APRA may require):
Distributable Profits = A - B
where:
“A” is the aggregate of the consolidated net profits after income tax of the QBE Group for the
immediately preceding two six-monthly financial periods for which results have been publicly
announced (or any other amount as determined by APRA in its discretion to be appropriate in QBE’s
circumstances for the purposes of paying QBE’s Tier 1 capital obligations); and
“B” is the aggregate amount of dividends, distributions, interest or other amounts paid, decided to be
paid or liable to be paid by the QBE Group in the twelve months to and including the applicable
Distribution Payment Date, the Interest Payment Date or the Dividend Payment Date, as the case
may be, on:
(i) the Capital Securities and the Capital Securities Guarantee or, if the Capital Securities are
exchanged for the QBE Preferred Securities, the QBE Preferred Securities and the UK
Capital Securities;
(ii) any other Tier 1 qualifying capital security of the QBE Group to the extent dividends or
distributions on those securities are funded by QBE or by instruments of QBE;
(iii) any other share capital of QBE (including its ordinary shares); and
(iv) any Upper Tier 2 qualifying instrument of the QBE Group;
but excluding:
(x) amounts payable with respect to the Capital Securities, the Capital Securities Guarantee, the
UK Capital Securities or the QBE Preferred Securities on the applicable Distribution
Payment Date, Interest Payment Date or Dividend Payment Date, as the case may be;
(y) any such dividend, distribution, interest or other amount to which the QBE Group was or is
beneficially entitled; and
(z) any such dividend, distribution, interest or other amount which is included in the calculation
of consolidated net profit after tax within the meaning of A;
• “Exchange Agreement” means the agreement among QBE, the Issuer, the General Partner, QBE UK
and the Exchange Trustee to be dated the Closing Date;
• “Exchange Trustee” means Citibank, N.A. and its successors;
• “FSA” means the UK Financial Services Authority or any successor;
• “General Partner” means QBE (Jersey) GP Limited, a wholly owned subsidiary of QBE formed as a
private limited company under the laws of the Bailiwick of Jersey, the Channel Islands;
• “Guarantee Trustee” means Citibank, N.A. and its successors;
• “Initial Purchasers” means Merrill Lynch International and Citigroup Global Markets Limited;
• “Investment Company Event” means the receipt by QBE of an opinion of nationally recognized
independent legal counsel in the United States experienced in practice under the US Investment
Company Act of 1940, as amended (the “Investment Company Act”), that, as a result of the
occurrence, after the Closing Date and prior to the occurrence of the Exchange Event, of a change in
law or regulation or a change in the interpretation or application of law or regulation of any legislative
body, court, governmental agency or regulatory authority, there is more than an insubstantial risk that
the Issuer is or will be considered an “investment company” which is required to be registered under
the Investment Company Act;
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• “Issuer” means QBE Capital Funding L.P., a Jersey limited partnership formed under the laws of the
Bailiwick of Jersey, the Channel Islands;
• “Limited Partnership Agreement” means the limited partnership agreement for the Issuer;
• “Parity Securities” means any preference shares or other securities or instruments issued by QBE or
any of its subsidiaries to the extent of distributions on those securities or instruments that are funded
by instruments of QBE ranking equally with the Capital Securities Guarantee Agreement;
• “QBE,” “QBE Group,” “we,” “us” and “our” each means QBE Insurance Group Limited (ABN 28
008 485 014) and its consolidated entities; except that, on the cover page, under the headings
“Offering Memorandum Summary—The Offering,” “Risk Factors—Risks related to the Capital
Securities,” “Description of the Capital Securities,” “Description of the Capital Securities Guarantee
Agreement,” “Description of the UK Capital Securities,” “Description of the QBE Preferred
Securities,” “Taxation,” “ERISA Considerations,” “Plan of Distribution” and “Notice to Investors,”
and elsewhere in this Offering Memorandum where the terms of the securities offered hereby and the
transaction documents are described, unless the context otherwise requires, references to “QBE,”
“we,” “us” and “our” means only QBE Insurance Group Limited (ABN 28 008 485 014);
• “QBE Australia Stopper” means a resolution adopted by the board of directors of QBE or an
authorized committee thereof that on any Distribution Payment Date any unpaid distribution on the
Capital Securities for a Distribution Period or any amount payable under the Capital Securities
Guarantee not be paid in full;
• “QBE Preferred Securities” means preferred securities to be issued by QBE upon the occurrence of
the Exchange Event as described in this Offering Memorandum;
• “QBE Regulatory Event” means:
• the introduction of, or an amendment or clarification to or change in (or announcement of a
prospective introduction of, amendment or clarification to or change in) a law or regulation of the
Commonwealth of Australia or any State or Territory thereof or any directive, order, requirement,
guideline or statement of APRA, after the Closing Date, which has the effect that the QBE
Preferred Securities are not eligible for inclusion in the Tier 1 capital, or its then equivalent, of the
QBE Group;
• the receipt by QBE of any statement, notification or advice by APRA or a decision by any court,
interpreting, applying or administering any law or regulation, after the Closing Date, which has the
effect that the QBE Preferred Securities are not eligible for inclusion in the Tier 1 capital, or its
then equivalent, of the QBE Group; or
• the receipt by QBE of an opinion of a nationally recognized independent legal counsel in Australia
experienced in these matters, after the Closing Date, to the effect that the QBE Preferred Securities
are not, or within 90 days of that opinion will not be, eligible for inclusion in the Tier 1 capital, or
its then equivalent, of the QBE Group;
• “QBE Tax Event” means that we have received an opinion of competent tax counsel to the effect that,
as a result of the introduction of, or amendment or clarification to or change in (or announcement of a
prospective introduction of, amendment or clarification to or change in) or in the interpretation or
application of a law (including the termination, change or replacement of any treaty to which
Australia is a party) or regulation by any legislative body, court, governmental agency or regulatory
authority after the Closing Date, there is more than an insubstantial risk that (i) the Australian
withholding tax payable on the dividends (or any part of the dividends) on the QBE Preferred
Securities is or will be increased to greater than 30% of the dividends paid, (ii) the Australian
withholding tax payable on the dividends (or any part of the dividends) on the QBE Preferred
Securities which are paid to any person who is resident in the United Kingdom or the United States is
or will be increased to greater than 15% of the dividends paid or (iii) we are or will be exposed to
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more than a de minimis increase in our costs in relation to the QBE Preferred Securities as a result of
any taxes, duties or other governmental charges or civil liabilities;
• “QBE UK” means QBE’s wholly owned subsidiary, QBE International Holdings (UK) PLC,
registered number 2641728;
• “QBE UK Stopper” means, with respect to any accrued and unpaid interest on the UK Capital
Securities otherwise payable on any Interest Payment Date, a resolution adopted by the board of
directors of QBE UK or an authorized committee thereof that the payment of such interest be deferred
in full or in part until redemption;
• “Relevant Jurisdiction” means the Bailiwick of Jersey, the United Kingdom, Australia or any other
jurisdiction from which a payment on the Capital Securities, the Capital Securities Guarantee or the
UK Capital Securities, as the case may be, is made (or any respective political subdivision or taxing
authority thereof or therein);
• “Relevant Tax” means any present or future taxes, duties, assessments or governmental charges;
• “September 11” means the terrorist attacks in the United States on September 11, 2001;
• “UK Capital Securities” means the pounds sterling-denominated debt instruments issued by QBE UK
to the Issuer;
• “UK Capital Securities Regulatory Event” means:
(i) the introduction of, or an amendment or clarification to or change in (or announcement of a
prospective introduction of, amendment or clarification to or change in) a law or regulation of
England or any directive, order, requirement, guideline or statement of the FSA after the Closing
Date which has the effect that the UK Capital Securities are not eligible for inclusion in the Tier
1 capital, or its then equivalent, of QBE UK;
(ii) the receipt by QBE UK of any statement, notification or advice by the FSA or a decision by any
court, interpreting, applying or administering any such law or regulation after the Closing Date
which has the effect that the UK Capital Securities are not eligible for inclusion in the Tier 1
capital, or its then equivalent, of QBE UK; or
(iii) the receipt by QBE UK of an opinion of a nationally recognized independent legal counsel in
England experienced in such matters after the Closing Date to the effect that the UK Capital
Securities are not, or within 90 days of such opinion will not be, eligible for inclusion in the Tier
1 capital, or its then equivalent, of QBE UK;
• “UK Capital Securities Tax Event” means the receipt by QBE UK or QBE of an opinion of competent
tax counsel to the effect that, as a result of the introduction of, or amendment or clarification to or
change in (or announcement of a prospective introduction of, amendment or clarification to or change
in) or in the interpretation or application of a law or regulation by any legislative body, court,
governmental agency or regulatory authority in a Relevant Jurisdiction after the Closing Date, there is
more than an insubstantial risk that (i) payments of principal or interest on the UK Capital Securities
are or will be subject to any Relevant Tax of whatever nature imposed or levied by or on behalf of a
Relevant Jurisdiction for which QBE UK must pay Additional Amounts, (ii) there would be more
than a de minimis adverse change in the deductibility by QBE UK of interest payments on the UK
Capital Securities for UK tax purposes or (iii) QBE UK would be exposed to more than a de minimis
increase in its costs in relation to the UK Capital Securities as a result of any taxes, duties or other
governmental charges or civil liabilities; and
• “UK Solvency Condition” means that the rights and claims of the holders of the UK Capital
Securities are subordinated to the claims of all Senior Creditors, in that payments in respect of the UK
Capital Securities or arising therefrom (including interest payable in cash or by way of the issue of
AISM Securities (as defined herein)) are conditional upon QBE UK being solvent at the time of the
6

elevant payment by QBE UK (or at the time of issue of such AISM Securities) and in that no
principal, premium or interest or any other amount shall be due and payable in respect of the UK
Capital Securities (including interest payable in cash or by way of the issue of AISM Securities)
except to the extent that QBE UK could make such payment and still be solvent immediately
thereafter, in each case except in the winding-up of QBE UK. QBE UK shall be considered to be
solvent if (x) it is able to pay its debts owed to its Senior Creditors as they fall due and (y) its Assets
exceed its Liabilities (other than its Liabilities to persons who are not Senior Creditors). A certificate
as to the solvency of QBE UK by two Directors shall, in the absence of manifest error, be treated and
accepted by QBE UK and the holders of the UK Capital Securities and all other interested parties as
correct and sufficient evidence thereof. For the purposes of this definition:
• “Assets” means the unconsolidated gross assets of QBE UK, as shown in the latest published
audited balance sheet of QBE UK, but adjusted for subsequent events in such manner as the board
of directors of QBE UK may determine;
• “Liabilities” means the unconsolidated gross liabilities of QBE UK, as shown in the latest
published audited balance sheet of QBE UK, but adjusted for contingent liabilities and for
subsequent events in such manner as the board of directors of QBE UK may determine; and
• “Senior Creditors” means (a) creditors of QBE UK who are unsubordinated creditors of QBE UK,
(b) creditors of QBE UK whose claims are, or are expressed to be, subordinated to the claims of
other creditors of QBE UK other than those whose claims constitute, or would but for any
applicable limitation on the amount of such capital, constitute, Tier 1 Capital (as defined by the
FSA from time to time) or whose claims rank, or are expressed to rank pari passu with, or junior
to, the claims of holders of the UK Capital Securities and (c) creditors of QBE UK whose claims
are in respect of QBE UK’s outstanding debt securities which constitute Tier 2 Capital (as defined
by the FSA from time to time), if any, (and such other securities outstanding from time to time
which rank pari passu with, or senior to, any of such Tier 2 Capital, if any).
Also in this Offering Memorandum, unless otherwise specified or the context otherwise requires:
• references to distributions on the Capital Securities include Additional Amounts that are payable as
described under “Description of the Capital Securities—Additional Amounts”;
• references to payments on the Capital Securities Guarantee include Additional Amounts that are
payable as described under “Description of the Capital Securities Guarantee Agreement—Additional
Amounts”;
• references to interest on the UK Capital Securities include interest payable as described herein on the
Interest Payment Dates therefor and Additional Amounts, in each case, that are payable as described
under “Description of the UK Capital Securities—Interest” and “—Additional Amounts”;
• references to dividends and other payments on the QBE Preferred Securities include Additional
Amounts that are payable as described under “Description of QBE Preferred Securities—Additional
Amounts”; and
• references to “redeem,” “redeemed” and “redemption” when used in connection with the QBE
Preferred Securities, includes a buy-back or cancellation (as part of a reduction of capital) of the QBE
Preferred Securities in addition to a redemption of the QBE Preferred Securities.
For definitions of certain insurance terms used in this Offering Memorandum, see “Annex A—Glossary
of Certain Insurance Terms.”
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AVAILABLE INFORMATION
Neither we nor the Issuer, the General Partner or QBE UK is subject to the informational requirements
of the US Securities Exchange Act of 1934, as amended (the “Exchange Act”). To preserve the exemptions for
resales and transfers under Rule 144A, each of QBE, the Issuer, the General Partner and QBE UK has agreed it
will promptly provide any holder or any prospective purchaser of Capital Securities information meeting the
requirements of Rule 144A(d)(4), unless it either furnishes information to the SEC in accordance with Rule
12g3-2(b) under the Exchange Act or furnishes information to the SEC pursuant to Section 13 or 15(d) of the
Exchange Act. Following completion of this offering, neither we nor the Issuer, the General Partner or QBE UK
is otherwise obligated to furnish holders or others with any supplemental information, discussion or analysis of
its business or financial reports.
Separate financial statements for the Issuer, the General Partner and QBE UK are not included in this
Offering Memorandum because we do not believe those financial statements would be meaningful or provide
investors in the Capital Securities with any important financial information. Each of the Issuer and the General
Partner is a newly organized special purpose entity, has no operating history and no independent operations, and
exists for the sole purpose of this offering and engaging in the other activities described herein.
None of the information on our website is incorporated by reference herein or otherwise deemed
to be a part of this Offering Memorandum. Any references to our website are for informational purposes
only.
ENFORCEMENT OF CIVIL LIABILITIES
QBE is a public company incorporated with limited liability under the laws of the Commonwealth of
Australia. All of the directors and most of the executive officers of QBE reside outside the United States. All or a
substantial portion of the assets of these persons and of QBE are located outside the United States. As a result, it
may not be possible for you to effect service of process within the United States upon these persons or to enforce
against them judgments obtained in United States courts predicated upon the civil liability provisions of United
States federal or state securities laws. QBE has been advised by its Australian counsel, Allens Arthur Robinson,
that there is doubt as to the enforceability in Australia, in original actions in Australian courts or in actions for
enforcement of judgments of United States courts, of certain civil liabilities predicated on the United States
federal or state securities laws.
The Issuer is a limited partnership formed under the laws of the Bailiwick of Jersey, the Channel
Islands. The General Partner is a private limited company formed under the laws of the Baliwick of Jersey, the
Channel Islands. QBE UK is a public limited company incorporated under the laws of England and Wales. All of
the directors of each of the General Partner and QBE UK reside outside the United States. All or a substantial
portion of the assets of these persons and of each of the Issuer, the General Partner and QBE UK are located
outside the United States. As a result, it may not be possible for you to effect service of process within the United
States upon these persons or to enforce against them judgments obtained in United States courts predicated upon
the civil liability provisions of United States federal or state securities laws. The Issuer and the General Partner
have been advised by their Jersey counsel, Voisin & Co., that there is doubt as to the enforceability in Jersey in
original actions in Jersey’s courts or in actions for enforcement of judgments of United States courts of certain
civil liabilities predicated on United States federal or state securities laws. QBE UK has been advised by its
United Kingdom counsel, Linklaters, that there is doubt as to the enforceability in the United Kingdom in
original actions in the United Kingdom’s courts or in actions for enforcement of judgments of United States
courts of certain civil liabilities predicated on the United States federal or state securities laws.
8

FINANCIAL INFORMATION PRESENTATION
Our financial statements as at and for the year ended December 31, 2004 and prior years (our “historical
Australian GAAP financial statements”) have been prepared in accordance with Australian generally accepted
accounting principles (“historical Australian GAAP”), that were in existence at that time. Our financial
statements as at and for the year ended December 31, 2005 (our “A-IFRS financial statements”) have been
prepared in accordance with Australian equivalents to International Financial Reporting Standards (“A-IFRS”).
The differences between A-IFRS and International Financial Reporting Standards as they apply to QBE are set
out below. We applied Australian Accounting Standards Board (“AASB”) 1: First Time Adoption of Australian
Equivalents to International Financial Reporting Standards in preparing our financial statements as at and for the
year ended December 31, 2005. In preparing the financial statements, management amended certain accounting
and valuation methods applied in the historical Australian GAAP financial statements to comply with A-IFRS
and the comparative figures as at and for the year ended December 31, 2004 have been restated to reflect these
adjustments. The information based on historical Australian GAAP is not comparable to information prepared in
accordance with A-IFRS. See Notes 1 and 2 to our A-IFRS financial statements for a summary of our significant
accounting policies under A-IFRS and the impact of the adoption of A-IFRS respectively.
This Offering Memorandum includes and refers to financial statements and other financial information
based on both A-IFRS and historical Australian GAAP. Because of the significant differences between A-IFRS
and historical Australian GAAP, we have presented the information as at and for the years ended December 31,
2005 and 2004 prepared in accordance with A-IFRS separately from the information as at and for the years ended
December 31, 2004, 2003, 2002 and 2001 prepared in accordance with historical Australian GAAP.
Each of A-IFRS and historical Australian GAAP differs in certain respects from US GAAP. If we were
to present our financial statements in US GAAP, we would be required to make retroactively a number of
subjective determinations and elections concerning the presentation of our financial statements. We have not
made any such determinations or elections.
If we were to change the presentation of our financial statements for the years 2005 and 2004 to US
GAAP, we would expect differences would arise under A-IFRS as a result of, among other things, (i) the
potential reclassification of certain gains or losses on our investment securities from the income statement to a
component of equity under US GAAP; (ii) various adjustments to our expenses and reserves for claims and
deferred acquisition costs; (iii) the potential impairment of intangibles and goodwill due to the application of
differing impairment tests under A-IFRS and US GAAP; (iv) the restatement of owner occupied and investment
properties to a historic cost basis of accounting under US GAAP; and (v) the potential remeasurement of certain
balances such as intangibles and pension fund deficits due to the application of differing transitional provisions
on the initial application of A-IFRS and US GAAP.
If we were to change the presentation of our financial statements for the years 2004, 2003, 2002 and
2001 to US GAAP, we would expect that, in addition to those items mentioned in the preceding paragraph, our
financial statements for such years under US GAAP would differ from financial statements presented in
accordance with historical Australian GAAP as a result of, among other things, (i) the mark to market of certain
derivatives as required by US GAAP; (ii) the application of hedge accounting rules required by US GAAP; (iii)
the reversal of goodwill amortisation taken under historical Australian GAAP; (iv) the translation of nonmonetary
assets and liabilities in our Lloyd’s operations to Australian dollars using transaction rates of exchange
as required by US GAAP; (v) the expense of equity based compensation through the income statement under US
GAAP; and (vi) the recognition under US GAAP of the interest component of a forward contract designated as a
hedge of a net investment in foreign operations in the income statement.
We have not made any attempt to reconcile our financial statements to US GAAP or to quantify the
differences between either A-IFRS and US GAAP or between historical Australian GAAP and US GAAP. In
addition to the specific differences mentioned in the preceding paragraphs, there may be other differences not
9

mentioned which could be of greater significance than the differences mentioned. We have no intention of
reconciling such financial statements or quantifying such differences in the future.
In making any investment decision in respect of the Capital Securities, you should rely on your own
examination of our financial information and should consult your own professional advisors for an understanding
of the differences between A-IFRS and US GAAP or historical Australian GAAP and US GAAP, and how those
differences might affect the financial information presented in this Offering Memorandum.
We record our transactions and prepare and will publish our consolidated financial statements in
Australian dollars. In this Offering Memorandum, references to “A$” or “$” are to Australian dollars, references
to “US$” or “US dollars” are to United States dollars and references to “£” are to pounds sterling.
Any discrepancies between totals and sums of components within tables contained in this Offering
Memorandum are due to rounding.
Summary of differences between AIFRS and IFRS impacting QBE
General insurance contracts
IFRS 4: Insurance Contracts and AASB 4: Insurance contracts address the definition of an insurance
contract and related disclosure requirements. There are no significant differences between these standards. IFRS
does not currently address the recognition and measurement of insurance contracts. Australian insurance
companies are required to apply the provisions of AASB 1023: General Insurance Contracts which sets out the
specific requirements for the recognition and measurement of insurance contracts.
Investments
AASB 1023 requires that all investments held to fund insurance provisions are measured in the balance
sheet at fair value with changes in fair value reflected in the income statement, provided this treatment is
permitted under AASB 139: Financial Instruments: Recognition and Measurement.
Companies reporting under IFRS are permitted to classify investments as either:
1. Financial assets held at fair value through profit or loss, subject to certain conditions;
2. Held to maturity (carried at amortised cost); or
3. Available for sale (carried at fair value with changes in fair value reflected directly in equity).
Such classification is subject to a company’s national standard setter’s potential requirement to classify
investments held to fund insurance provisions at fair value through profit and loss, such as in Australia.
10

EXCHANGE RATES AND CONTROLS
For your convenience, we have translated some Australian dollar amounts into US dollar amounts at the
noon buying rate in The City of New York for cable transfers in Australian dollars as certified for customs
purposes by the Federal Reserve Bank of New York (the “noon buying rate”). Unless otherwise stated, we have
translated Australian dollars into US dollars at the noon buying rate on December 31, 2005 of A$1.00 =
US$0.7342. We have translated US dollar amounts for our acquisitions and capital raisings at the closing rate for
the relevant year end.
For your convenience, we have translated some Australian dollar amounts into pounds sterling amounts
at the spot settlement rate of exchange as published by the Bank of England (“spot settlement rate”). Unless
otherwise stated, we have translated Australian dollars into pounds sterling at the spot settlement rate on
December 31, 2005 of A$1.00 = £0.4274. In providing these translations, we are not representing that the
Australian dollar amounts actually represent these US dollar amounts or pounds sterling amounts or that we
could have converted those Australian dollars into US dollars or pounds sterling at the rates indicated.
On July 6, 2006, the noon buying rate for Australian dollars into US dollars was A$1.00 = US$0.7459
and the spot settlement rate for Australian dollars into pounds sterling was A$1.00 = £0.4060.
The following table contains information for the noon buying rate for the Australian dollar into US
dollars for the periods indicated.
At
Period
End
Average
Rate(1) High Low
Year ended December 31,
2001 ........................................... 0.5117 0.5127 0.5712 0.4828
2002 ........................................... 0.5625 0.5448 0.5748 0.5060
2003 ........................................... 0.7520 0.6589 0.7520 0.5629
2004 ........................................... 0.7805 0.7384 0.7979 0.6840
2005 ........................................... 0.7342 0.7620 0.7974 0.7261
Period
January 2006 .................................... 0.7572 — 0.7572 0.7379
February 2006 ................................... 0.7430 — 0.7548 0.7363
March 2006 ..................................... 0.7165 — 0.7458 0.7056
April 2006 ...................................... 0.7593 — 0.7593 0.7177
May 2006 ...................................... 0.7509 — 0.7781 0.7509
June 2006 ...................................... 0.7423 — 0.7527 0.7284
(1) Determined by averaging noon buying rates on the last day of each month during the period.
11

The following table contains information for the spot settlement rate for the Australian dollar into
pounds sterling for the periods indicated.
At
Period
End
Average
Rate (1) High Low
Year ended December 31,
2001 ........................................... 0.3518 0.3589 0.3819 0.3303
2002 ........................................... 0.3499 0.3615 0.3940 0.3390
2003 ........................................... 0.4208 0.3978 0.4299 0.3524
2004 ........................................... 0.4082 0.4015 0.4272 0.3728
2005 ........................................... 0.4274 0.4193 0.4400 0.4011
Period
January 2006 .................................... 0.4257 — 0.4283 0.4205
February 2006 ................................... 0.4243 — 0.4270 0.4220
March 2006 ..................................... 0.4111 — 0.4275 0.4039
April 2006 ...................................... 0.4174 — 0.4211 0.4105
May 2006 ...................................... 0.4028 — 0.4182 0.3991
June 2006 ...................................... 0.4017 — 0.4070 0.3868
(1) Determined by averaging the spot settlement rate on the last day of each month during the period.
Fluctuations in the exchange rate between the Australian dollar and other currencies in which we
generate revenue and expenses affect the Australian dollar amount of our profits, assets, liabilities and
shareholders’ equity. See “Risk Factors—QBE’s Business Risk Factors—Our financial results are significantly
affected by changes in exchange rates.”
The Australian dollar is convertible into US dollars and pounds sterling at freely floating rates. Except
as described below, there are currently no restrictions on the flow of currency among Australia, the United States,
the United Kingdom and Jersey.
Australia
Transactions involving the transfer of funds or payments to, by the order of, or on behalf of prescribed
entities, or any undertaking owned or controlled directly or indirectly, by prescribed entities, are not permitted
without the specific approval of the Reserve Bank of Australia. Prescribed entities currently include:
• supporters of the former government of the Federal Republic of Yugoslavia; and
• specified Ministers and senior officials of the Government of Zimbabwe.
Accounts of persons and entities identified by the Australian Minister for Foreign Affairs as being
associated with terrorism can be frozen, and transactions with these persons and entities are prohibited under
various Australian regulations.
The Commonwealth of Australia has passed regulations to make effective the United Nations Security
Council resolutions which impose a freeze on financial assets and foreign exchange dealings with certain persons
and entities which currently include:
• al-Qaeda, the Taliban and Osama Bin Laden and associated individuals and entities;
• specified nationals of Bosnia/Serbia; and
• the former Government of Iraq and its senior officials.
12

Jersey
United Kingdom
There are no exchange control regulations in Jersey.
Other than in certain emergency restrictions which may be in force from time to time, there are currently
no United Kingdom foreign exchange controls or other restrictions on the export or import of capital.
The foregoing summary is based upon exchange control laws and regulations now in effect and
accurately interpreted and does not take into account possible changes in such laws, regulations and
interpretations.
13

OFFERING MEMORANDUM SUMMARY
This summary highlights selected information about this offering and QBE and its subsidiaries,
including the Issuer, the General Partner and QBE UK. It does not contain all of the information that may be
important to you in deciding whether to purchase the Capital Securities. We encourage you to read the entire
Offering Memorandum prior to deciding whether to purchase the Capital Securities. You should pay special
attention to the “Risk Factors” section of this Offering Memorandum beginning on page 42 to determine whether
an investment in the Capital Securities is appropriate for you.
QBE Capital Funding L.P.
The Issuer is a limited partnership formed under the laws of the Bailiwick of Jersey, the Channel
Islands. The Issuer is not a legal entity separate from its partners and has no operating history. The general
partner of the partnership will be the General Partner, a wholly owned subsidiary of QBE formed as a private
limited company under the laws of the Bailiwick of Jersey, the Channel Islands. The business of the Issuer will
be limited to issuing the Capital Securities, investing the proceeds of the Capital Securities in, and holding, the
UK Capital Securities and engaging in only those other activities necessary or incidental thereto. Since its
establishment, the Issuer has not commenced operations and has not prepared financial statements.
QBE International Holdings (UK) PLC
QBE UK, an indirect wholly owned subsidiary of QBE, is a public limited company incorporated under
the laws of England and Wales. QBE UK is the holding company for the entities comprising our European
operations, including our Lloyd’s operations. QBE UK has subordinated guaranteed floating rate notes listed on
the London Stock Exchange. QBE UK’s principal executive office is located at Plantation Place, 30 Fenchurch
Street, London, EC3M 3BD, United Kingdom. Its telephone number is 44-20-7105-4065. For more information
on our European operations, see “Management’s Discussion and Analysis of Financial Condition and Results of
Operations” and “Business.”
QBE Insurance Group Limited
We are Australia’s largest international general insurance and reinsurance group based on net earned
premium. We underwrite commercial and personal lines business in 42 countries around the world. The
following table sets forth information about our gross earned premium, net earned premium and general
insurance and inward reinsurance premiums for the periods indicated.
Year ended
December 31,
2005 2004
(A$ millions except
percentages, A-IFRS)
Gross earned premium .............................................. 9,171 8,571
Net earned premium ............................................... 7,386 6,781
General insurance as a percentage of net earned premium .................. 78.2 76.4
Inward reinsurance as a percentage of net earned premium ................. 21.8 23.6
billion.
As of December 31, 2005, our shareholders’ funds totaled A$5.1 billion and our assets totaled A$29.7
14

Operations
Performance
Our operations are conducted through the following divisions:
• Australia Pacific Asia Central Europe (APACE) consists of our operations in Australia, Asia-Pacific
and Central Europe:
Australian general insurance operations operates throughout Australia, providing all major lines
of insurance cover for commercial and personal risks. Our principal insurance products in this
division include compulsory third party motor vehicle personal injury insurance (“CTP”),
professional and public liability, workers’ compensation, property, commercial packages, motor,
householders’, travel, marine, aviation and trade credit;
Pacific Asia Central Europe (PACE) provides personal, commercial and specialist insurance
covers, including professional and general liability, marine, corporate property and trade credit in
25 countries in the Asia-Pacific and Central European regions;
• European operations consists of our United Kingdom and Western European operations and our
Lloyd’s division (operating as Limit):
QBE Insurance (Europe) provides product focused general insurance cover in the United
Kingdom, Ireland, France, Spain and Germany and reinsurance business in the United Kingdom
and Ireland;
Lloyd’s division writes commercial insurance and reinsurance business in the Lloyd’s market.
Through our acquisition of Limit plc (“Limit”) in August 2000 and our subsequent acquisitions of
additional capacity in Lloyd’s syndicate 386, we are now the second largest managing agent at
Lloyd’s with approximately 6.8% of Lloyd’s total market capacity for the 2006 underwriting year;
• the Americas writes general insurance and reinsurance business in the Americas with headquarters in
New York and operations in North, Central and South America and Bermuda;
• Investments provides management of our investment funds; and
• Equator Re is our captive reinsurance business based in Bermuda. (Equator Re’s intercompany
transactions are eliminated upon consolidation of our overall group results. See Note 38 to our
A-IFRS financial statements).
Under A-IFRS, our net profit after tax, investment income (after unrealized gains/losses) and combined
operating ratio were A$1,091 million, A$718 million and 89.1%, respectively, for the year ended December 31,
2005 compared to A$857 million, A$519 million and 91.2%, respectively, for the year ended December 31, 2004.
Under historical Australian GAAP, our net profit after tax, investment income (after unrealized gains/
losses) and combined operating ratio were A$820 million, A$508 million and 91.2%, respectively, for the year
ended December 31, 2004 and A$572 million, A$413 million and 93.8%, respectively, for the year ended
December 31, 2003.
Ratings
QBE Insurance Group Limited has been assigned an A-, A3, A and bbb+ counterparty credit rating by
each of Standard and Poor’s Ratings Services (“S&P”), Moody’s, Fitch and A.M. Best, respectively. Our main
insurance and reinsurance subsidiaries have been assigned an A+ insurer financial strength rating by each of S&P
and Fitch. Our insurance and reinsurance subsidiaries in the United States and our main insurance subsidiaries in
Europe have been assigned an A rating by A.M. Best. See “Business—Ratings.”
15

Recent Acquisitions
During 2006 to date, we have purchased a small general aviation insurer in Denmark and hired a team of
general aviation underwriters in the United Kingdom.
In 2005, we acquired:
• Central de Seguros in Colombia;
• National Farmers Union Property and Casualty in the United States;
• Greenhill underwriting agency operations in France, Germany and Spain;
• MiniBus Plus underwriting agency in the UK;
• British Marine Holdings, a specialist small tonnage marine underwriter;
• the wholly owned business of Allianz in Vietnam; and
• National Credit Insurance Brokers in Australia and New Zealand and Austral Mercantile Collections
in Australia to support our trade credit operations.
We paid a total of A$566 million for our acquisitions in 2005. We funded these acquisitions primarily
through an increase in short-term borrowings and funds generated by operations.
We have considered a number of acquisitions in recent times and are looking at a number of acquisitions
in Australia, the Asia-Pacific region, the Americas and Europe. In the past 20 years, we have acquired over 90
businesses or portfolios throughout the world. Our acquisition strategy has assisted our diversification by
spreading our business across both general insurance and reinsurance businesses and by increasing our
geographic and product spread. Our strategy as to the percentage of our business that should be general insurance
or reinsurance is continuously considered according to conditions in both markets. Our acquisition strategy is
driven by seeking value for our shareholders rather than focusing on specific business lines. While no major
acquisitions are currently being pursued for the remainder of 2006, we will continue to review acquisition
opportunities in the future.
Strategy
Our underwriting strategy is to achieve consistency in our underwriting results and reduce our risk of
loss through:
• geographic and product diversification;
• selective acquisitions;
• attracting and retaining quality underwriters;
• ongoing actuarial assessment of premium pricing and outstanding claims reserves;
• a decentralized regional operational management structure;
• a group risk management strategy; and
• effective use of reinsurance and retrocession protection with financially strong and highly rated
reinsurers.
16

The investment committee of our board of directors reviews our investment strategy at each committee
meeting in respect of the investments we are permitted to make. The following table sets forth the percentage of
our investments represented by cash (net of overdrafts), short-term deposits, fixed interest and other interest
bearing securities, equities and investment properties for the periods indicated.
Year ended December 31,
2005 2004
A$ % A$ %
(in millions except percentages, A-IFRS)
Cash (net of overdrafts) ......................................... 1,061 6.0 1,121 7.5
Short-term deposits ............................................. 8,292 47.1 5,482 36.6
Fixed interest and other interest bearing securities .................... 7,537 42.9 6,957 46.5
Equities ...................................................... 674 3.8 1,383 9.2
Investment properties ........................................... 33 0.2 32 0.2
Total investments and cash ................................... 17,597 100.0 14,975 100.0
We maintain a strategy of a low risk investment portfolio. Our general policy on investments is to
reduce the risk to shareholders by investing in high quality fixed interest securities and having a modest exposure
to equity investments. This is because of the risk we have already assumed in our insurance business.
Our fixed interest investments continue to be short in duration to reduce the effect of the potential
market volatility from rising interest rates. At December 31, 2005 our cash and fixed interest portfolio had an
average maturity of 0.6 years with only one portfolio having an investment maturity over three years.
Operational Summary
Our portfolio of insurance and reinsurance business is geographically diversified, with 74% and 75% of
our gross earned premium for the years ended December 31, 2005 and 2004, respectively, derived from
non-Australian divisions.
17

The following table sets forth information about the gross earned premium for each of our insurance
divisions and our insurance product lines for the periods indicated.
Year ended December 31,
2005 2004
A$ % A$ %
(in millions except percentages, A-IFRS)
Division(1)
Australian general insurance operations ......................... 2,405 26.2 2,114 24.7
Pacific Asia Central Europe (PACE) ........................... 688 7.5 684 8.0
Australia Pacific Asia Central Europe (APACE) ...................... 3,093 33.7 2,798 32.7
QBE Insurance (Europe) .................................... 2,370 25.8 2,154 25.1
Lloyd’s division ........................................... 2,273 24.8 2,265 26.4
European operations ............................................ 4,643 50.6 4,419 51.5
the Americas .................................................. 1,435 15.7 1,354 15.8
Total .................................................... 9,171 100.0 8,571 100.0
Product lines
Property(2) ................................................... 2,632 28.7 2,563 29.9
Liability(3) ................................................... 2,008 21.9 1,868 21.8
Motor and motor casualty(4) ..................................... 1,256 13.7 1,054 12.3
Professional indemnity .......................................... 835 9.1 814 9.5
Workers’ compensation(5) ....................................... 816 8.9 823 9.6
Marine and aviation ............................................ 578 6.3 566 6.6
Accident and health ............................................ 569 6.2 523 6.1
Financial and credit ............................................ 229 2.5 206 2.4
Other(6) ..................................................... 248 2.7 154 1.8
Total .................................................... 9,171 100.0 8,571 100.0
General insurance .............................................. 7,076 77.2 6,583 76.8
Inward reinsurance(7) ........................................... 2,095 22.8 1,988 23.2
Total .................................................... 9,171 100.0 8,571 100.0
(1) We have not presented information on Equator Re separately because its gross earned premium is
eliminated upon consolidation of our overall group results. See Note 38 to our A-IFRS financial statements.
(2) Includes property excess of loss, engineering, war and energy.
(3) Includes medical malpractice and general, public and product liability.
(4) Includes CTP.
(5) Includes employers’ liability.
(6) Includes agriculture, catastrophe, bloodstock, travel, satellite, transport, householders’, commercial
packages and other miscellaneous classes of insurance.
(7) Includes facultative reinsurance.
Our insurance products are classified as either short-tail or long-tail, principally based upon the average
amount of time that elapses between when we receive premiums and when we pay claims. The average amount
of time that elapses between the time premiums are received and claims are paid for our short-tail lines is
generally one year or less and for our long-tail lines is generally more than one year. Our principal short-tail lines
of business include commercial and domestic property such as motor vehicle physical damage. Our principal
long-tail lines of business include liability (casualty), professional indemnity, workers’ compensation and CTP.
18

As at December 31, 2005, 54% of our gross earned premium was generated by short-tail lines and 46% was
generated by long-tail lines, compared to 53% and 47%, respectively at December 31, 2004. The weighted
average term to settlement of our outstanding claims as of December 31, 2005 was 2.9 years and was 3.0 years as
of December 31, 2004. See Note 3(a)(vi) to our A-IFRS financial statements for details of the weighted average
term to settlement of outstanding claims.
We primarily distribute our products through a diverse network of brokers and agencies and, to a much
lesser extent, through our branch network.
We maintain comprehensive underwriting year or accident year statistics by product for every country
in which we operate. We use these statistics to monitor trends, to correct unprofitable portfolios and to identify
businesses that are growing in profitability. We employ approximately 90 persons across all of our divisions that
are engaged in actuarial work, working with underwriters on trends, pricing and claims reserving. In addition,
over 90% of our outstanding claims are also reviewed by external independent actuaries at least annually.
Our principal executive office and registered office is located at Level 2, 82 Pitt Street, Sydney, New
South Wales 2000, Australia. Our telephone number is 61-2-9375-4444.
19

SUMMARY CONSOLIDATED HISTORICAL FINANCIAL AND OTHER DATA
Change of Accounting Standards
Until December 31, 2004, we prepared our financial statements in accordance with historical Australian
GAAP. From January 1, 2005, we prepared our financial statements in accordance with A-IFRS.
We prepared our financial statements as at and for the year ended December 31, 2005 in accordance
with A-IFRS. We applied AASB 1: First Time Adoption of Australian Equivalents to International Financial
Reporting Standards in preparing our financial statements as at and for the year ended December 31, 2005. In
preparing the financial statements, management amended certain accounting and valuation methods applied in
the historical Australian GAAP financial statements to comply with A-IFRS and the comparative figures as at
and for the year ended December 31, 2004 have been restated to reflect these adjustments. The information based
on historical Australian GAAP is not comparable to information prepared in accordance with A-IFRS. See Notes
1 and 2 to our A-IFRS financial statements for a summary of our significant accounting policies under A-IFRS
and the impact of the adoption of A-IFRS respectively. This Offering Memorandum includes and refers to
financial statements and other financial information based on both A-IFRS and historical Australian GAAP.
Because of the significant differences between A-IFRS and historical Australian GAAP, we have presented the
information as at and for the years ended December 31, 2005 and 2004 prepared in accordance with A-IFRS
separately from the information as at and for the years ended December 31, 2004, 2003, 2002 and 2001 prepared
in accordance with historical Australian GAAP.
Adjustments as a result of the adoption of A-IFRS reduced shareholders’ funds at December 31, 2004
by A$388 million from A$4,480 million to A$4,092 million and increased net profit after income tax for the year
ended December 31, 2004 by A$37 million from A$820 million to A$857 million. We do not expect any future
material financial impacts from the application of existing A-IFRS although there may be some ongoing
volatility in the income statement and balance sheet due to fair value movements in assets and liabilities. See
Notes 1 and 2 to our A-IFRS financial statements for a discussion of the impact of the adoption of A-IFRS on our
results of operations.
Each of A-IFRS and historical Australian GAAP differ in certain respects from US GAAP. See
“Financial Information Presentation.”
20

Years ended December 31, 2005 and 2004 under A-IFRS
The summary consolidated historical financial data presented in Australian dollars under A-IFRS as at
December 31, 2004 and 2005 and for the years ended December 31, 2004 and 2005 set forth below have been
derived from our audited consolidated financial statements and related notes included herein. For your
convenience, the financial data contains translations of certain Australian dollar amounts into US dollars at the
noon buying rate on December 31, 2005, which rate was A$1.00 = US$0.7342. For your convenience, the
financial data contains translations of certain Australian dollar amounts into pounds sterling at the spot settlement
rate on December 31, 2005, which rate was A$1.00 = £0.4274. Our financial statements as at and for the year
ended December 31, 2005 have been prepared in accordance with A-IFRS and the comparative figures as at and
for the year ended December 31, 2004 set forth below have been restated to comply with A-IFRS.
Year ended December 31,
2005 2005 2005 2004
£ US$ A$ A$
(in millions except ratios and earnings per
share data, A-IFRS)
Income statement
Gross written premium ....................................... 4,021 6,907 9,408 8,766
Gross earned premium ........................................ 3,920 6,733 9,171 8,571
Net earned premium .......................................... 3,157 5,423 7,386 6,781
Net claims incurred(1) ........................................ (1,887) (3,243) (4,417) (4,156)
Net commissions ............................................ (535) (918) (1,251) (1,184)
Other acquisition costs ........................................ (183) (314) (428) (439)
Underwriting and other expenses ............................... (206) (354) (482) (405)
Underwriting profit .......................................... 346 594 808 597
Investment income on policyholders’ funds ....................... 205 352 480 331
Insurance profit ............................................. 551 946 1,288 928
Investment income on shareholders’ funds ........................ 102 175 238 188
Amortization of intangibles .................................... (1) (2) (3) (1)
Profit before income tax ...................................... 652 1,119 1,523 1,115
Income tax expense .......................................... (182) (312) (425) (251)
Minority interest ............................................ (3) (5) (7) (7)
Net profit .................................................. 467 802 1,091 857
Other data
Claims ratio (%)(2) .......................................... 59.9 59.9 59.9 61.3
Commission ratio (%)(3) ...................................... 16.9 16.9 16.9 17.5
Expense ratio (%)(4) ......................................... 12.3 12.3 12.3 12.4
Combined operating ratio (%)(5) ................................ 89.1 89.1 89.1 91.2
Dividends per share (cents) .................................... 30.3 52.1 71.0 54.0
Return on average shareholders’ equity (%) ....................... 23.9 23.9 23.9 24.5
Basic earnings per share (cents)(6) .............................. 61.7 105.9 144.3 123.4
Diluted earnings per share (cents)(6) ............................. 57.4 98.7 134.4 109.9
Weighted average number of shares(7) ........................... 757 757 757 695
21

Year ended December 31,
2005 2005 2005 2004
£ US$ A$ A$
(in millions, A-IFRS)
Balance sheet
Total current assets ......................................... 7,252 12,458 16,968 13,060
Total non-current assets ..................................... 5,427 9,322 12,697 11,976
Total assets ................................................... 12,679 21,780 29,665 25,036
Total current liabilities ...................................... 4,732 8,129 11,072 8,828
Total non-current liabilities ................................... 5,741 9,863 13,434 12,116
Total liabilities ................................................ 10,473 17,992 24,506 20,944
Net assets .................................................... 2,206 3,788 5,159 4,092
Share capital .............................................. 1,367 2,346 3,195 2,780
Equity component of hybrid securities .......................... 46 79 108 108
Reserves ................................................. (9) (15) (20) (29)
Retained profits ............................................ 774 1,329 1,810 1,173
Shareholder’s funds ......................................... 2,178 3,739 5,093 4,032
Minority interest ........................................... 28 49 66 60
Total equity .................................................. 2,206 3,788 5,159 4,092
Year ended December 31,
2005 2005 2005 2004
£ US$ A$ A$
(in millions, A-IFRS)
Statement of cash flows
Cash flows from operating activities ............................ 848 1,459 1,987 2,110
Cash flows from investing activities ............................ (942) (1,617) (2,203) (2,759)
Cash flows from financing activities ............................ 69 118 161 1,053
Increase (decrease) in cash and cash equivalents held .............. (25) (40) (55) 404
Cash and cash equivalents at the beginning of the period ........... 480 823 1,121 717
Effect of exchange rate changes on opening cash and cash
equivalents .............................................. (2) (4) (5) —
Cash and cash equivalents at the end of the period ................. 453 779 1,061 1,121
(1) Claims settlement expenses are included in net claims incurred.
(2) Claims ratio is calculated by dividing net claims incurred by net earned premium.
(3) Commission ratio is calculated by dividing net commissions by net earned premium.
(4) Expense ratio is calculated by dividing other acquisition costs and underwriting and other expenses by net
earned premium.
(5) Combined operating ratio is calculated by adding the sum of our claims ratio, commission ratio and expense
ratio.
(6) Basic earnings per share is calculated on the weighted average number of ordinary shares outstanding during
the year. Diluted earnings per share includes employee options and convertible hybrid securities where they
are dilutive.
(7) The weighted average number of ordinary shares is only applicable to the calculation of basic earnings per
share.
22

Years ended December 31, 2004, 2003, 2002 and 2001 under historical Australian GAAP
The summary consolidated historical financial data as at and for the years ended December 31, 2004 and
2003 set forth below have been derived from our audited consolidated financial statements and related notes for
such periods included herein. The summary consolidated historical financial data as at and for the years ended
December 31, 2002 and 2001 set forth below have been derived from our audited consolidated financial
statements which are not included herein. Our financial statements as at and for the year ended December 31,
2004 and prior years have been prepared in accordance with historical Australian GAAP that was in existence at
that time. Historical Australian GAAP varies in certain respects from US GAAP. The financial statements as at
and for the years ended December 31, 2004, 2003, 2002 and 2001 prepared in accordance with historical
Australian GAAP are not comparable to the financial statements as at and for the years ended December 31, 2005
and 2004 that have been prepared in accordance with A-IFRS.
Year ended December 31,
2004 2003 2002 2001
(in A$ millions except ratios and earnings per
share data, historical Australian GAAP)
Income statement
Gross written premium ................................ 8,766 8,350 7,723 6,793
Gross earned premium ................................ 8,571 7,816 7,197 6,298
Net earned premium .................................. 6,781 6,036 5,642 4,634
Net claims incurred ................................... (4,166) (3,823) (3,812) (3,550)
Net commissions ..................................... (1,184) (1,100) (998) (936)
Other acquisition costs ................................ (439) (397) (387) (343)
Underwriting and other expenses ........................ (398) (344) (315) (248)
Underwriting result ................................... 594 372 130 (443)
Investment income on policyholders’ funds ................ 314 255 276 324
Insurance profit (loss) ................................. 908 627 406 (119)
Investment income on shareholders’ funds(1) .............. 194 158 (87) 25
Amortization of goodwill and write-off of intangibles ........ (22) (20) (8) (5)
Profit (loss) before income tax .......................... 1,080 765 311 (99)
Income tax (expense) benefit ........................... (253) (188) (33) 82
Outside equity interests ................................ (7) (5) 1 (8)
Net profit (loss) ...................................... 820 572 279 (25)
Other data
Claims ratio (%)(2) ................................... 61.4 63.3 67.6 76.6
Commission ratio (%)(3) ............................... 17.5 18.2 17.7 20.2
Expense ratio (%)(4) .................................. 12.3 12.3 12.4 12.8
Combined operating ratio (%)(5) ........................ 91.2 93.8 97.7 109.6
Dividends per share (cents) ............................. 54.0 42.0 35.0 30.0
Return on average shareholders’ equity (%) ................ 21.2 18.3 10.0 (1.1)
Basic earnings per share (cents)(6) ....................... 117.8 86.5 42.7 (10.5)
Diluted earnings per share (cents)(6) ..................... 105.3 77.5 43.4 (4.9)
Weighted average number of shares(7) .................... 696 639 599 472
23

Year ended December 31,
2004 2003 2002 2001
(in A$ millions, historical Australian GAAP)
Balance sheet
Total current assets ................................... 12,995 9,702 10,986 10,109
Total non-current assets ............................... 12,107 10,741 9,581 8,502
Total assets ............................................. 25,102 20,443 20,567 18,611
Total current liabilities ................................ 8,748 7,493 8,141 7,863
Total non-current liabilities ............................. 11,874 9,582 9,405 8,080
Total liabilities .......................................... 20,622 17,075 17,546 15,943
Net assets .............................................. 4,480 3,368 3,021 2,668
Share capital ........................................ 2,866 2,340 1,926 1,732
Convertible preference shares ........................... — — 274 274
Equity component of hybrid securities .................... 108 59 59 —
Reserves ........................................... (131) (119) (10) 25
Retained profits ...................................... 1,577 1,033 705 589
Equity attributable to members of the Company ............ 4,420 3,313 2,954 2,620
Outside equity interests in controlled entities ............... 60 55 67 48
Total equity ............................................ 4,480 3,368 3,021 2,668
Year ended December 31,
2004 2003 2002 2001
(in A$ millions, historical Australian GAAP)
Statement of cash flows
Cash flows from operating activities ...................... 2,110 2,089 1,511 280
Cash flows from investing activities(8) ................... (2,724) (2,823) (1,948) (914)
Cash flows from financing activities ...................... 1,018 837 703 725
Increase in cash held .................................. 404 103 266 91
Cash at the beginning of the period ....................... 717 745 459 348
Effect of exchange rate changes on opening cash ............ — (131) 20 20
Cash at the end of the period ............................ 1,121 717 745 459
(1) For the year ended December 31, 2002, there were unrealized losses on investments of A$143 million. This
was allocated to investment income on shareholders’ funds, contributing to a loss of A$87 million.
(2) Claims ratio is calculated by dividing net claims incurred by net earned premium.
(3) Commission ratio is calculated by dividing net commissions by net earned premium.
(4) Expense ratio is calculated by dividing other acquisition costs and underwriting and other expenses by net
earned premium.
(5) Combined operating ratio is calculated by adding the sum of our claims ratio, commission ratio and expense
ratio.
(6) Basic earnings per share is calculated on the weighted average number of ordinary shares outstanding during
the year. Diluted earnings per share includes employee options, mandatory convertible preference shares
and convertible hybrid securities where they are dilutive.
(7) The weighted average number of ordinary shares is only applicable to the calculation of basic earnings per
share.
(8) Due to the material increase in proceeds from foreign exchange transactions in 2003 as a result of
strengthening of the Australian dollar, cash flows relating to foreign exchange hedges in respect of the net
investment in overseas controlled entities have been reclassified as cash flows from investing activities.
Previously all proceeds from or payments for foreign exchange transactions were included within cash flows
from operating activities.
24

THE OFFERING
Capital Securities ...................
£300,000,000 non-voting non-cumulative perpetual preferred
securities, each with a liquidation preference of £50,000, comprising
limited partnership interests in the Issuer.
The Capital Securities, together with the Capital Securities Guarantee
and the UK Capital Securities, are intended to provide holders of the
Capital Securities with rights on liquidation of the Issuer equivalent to
non-cumulative preference shares of QBE, whether or not issued.
Claims against the Issuer under the Capital Securities with respect to
any distributions or redemption amounts that are payable in
accordance with the terms of the Capital Securities will rank senior to
any claims against the Issuer by the General Partner.
Because the sole assets of the Issuer consist of the UK Capital
Securities, except as described below, the obligation of the Issuer to
make timely payments of distributions and other amounts on the
Capital Securities is dependent upon the timely performance by QBE
UK of its obligations under the UK Capital Securities.
Distributions ......................
Subject to the certain conditions described below, including under
“Limitation on Payments with respect to Distributions,” distributions
on the Capital Securities will be payable at a fixed rate per annum
(the “Fixed Distribution Rate”) of 6.857 per cent. of their liquidation
preference from and including the Closing Date to but excluding
July 18, 2016 (the “Step Up Date”) and thereafter at a floating rate
per annum (the “Floating Distribution Rate”) equal to the sum of
2.86 per cent. and LIBOR of their liquidation preference.
Distributions will, if payable, be paid at the Fixed Distribution Rate
semi-annually in arrear on January 18 and July 18 of each year to and
including the Step Up Date, commencing January 18, 2007 (each a
“Fixed Rate Distribution Payment Date”). If any Fixed Rate
Distribution Payment Date falls on a day that is not a Business Day,
the distribution otherwise payable on that Fixed Rate Distribution
Payment Date will be payable on the next succeeding day that is a
Business Day, without any penalty or interest.
Distributions will, if payable, be paid at the Floating Distribution Rate
quarterly in arrear on January 18, April 18, July 18 and October 18 of
each year from and including October 18, 2016 (each a “Floating Rate
Distribution Payment Date,” provided that, if any Floating Rate
Distribution Payment Date would otherwise fall on a day that is not a
Business Day, that Floating Rate Distribution Payment Date will be
the next succeeding day that is a Business Day, unless it would fall
into the next calendar month, in which case it which case it will be the
next preceding day that is a Business Day).
25

The Fixed Rate Distribution Payment Dates and the Floating Rate
Distribution Payment Dates are referred to herein collectively as
“Distribution Payment Dates.” The period from and including the
Closing Date to but excluding the first Distribution Payment Date and
each period thereafter from and including a Distribution Payment
Date to but excluding the next following Distribution Payment Date is
referred to herein as a “Distribution Period.”
The distributions payable on the Capital Securities for any
Distribution Period will be computed on the basis of a 365 or 366 day
year, as the case may be, and the actual number of days in the
Distribution Period.
Subject to the exceptions and limitations described in this Offering
Memorandum, the Issuer will make distributions under the Capital
Securities without withholding or deduction for or on account of any
Relevant Tax of whatever nature which are imposed or levied by or
on behalf of any Relevant Jurisdiction unless the withholding or
deduction is required by law. In that event, the Issuer will pay such
additional amounts (“Additional Amounts”) as may be necessary in
order that the net amounts received by the holders of the Capital
Securities after that withholding or deduction will equal the amount
which would have been received with respect to the Capital Securities
in the absence of that withholding or deduction. See “Description of
the Capital Securities—Additional Amounts.”
Limitations on Payments with respect to
Distributions ....................
Prior to the occurrence of the Exchange Event, distributions on the
Capital Securities will be payable in accordance with their terms only
to the extent of the Issuer’s available funds and, after the occurrence
of the Exchange Event, distributions on the Capital Securities (if the
Capital Securities remain outstanding) will be payable in accordance
with their terms whether or not the Issuer has available funds,
provided that, if the Exchange Event is the failure of the Issuer to pay
a distribution in full on or within twenty (20) Business Days after a
Distribution Payment Date, the only reason for such failure is the
failure of QBE UK to pay interest in full on the UK Capital Securities
on the corresponding Interest Payment Date and no QBE Australia
Stopper or APRA Condition exists with respect to that distribution,
that distribution will be due and payable on the twenty-first
(21st) Business Day after such Distribution Payment Date to the
record holder of the Capital Securities at the close of business on the
day prior to such Distribution Payment Date, whether or not the
Issuer has available funds.
Notwithstanding the existence of funds available for distribution by
the Issuer, distributions (including Additional Amounts) will not be
due and payable by the Issuer to the holders of the Capital Securities
and QBE will not be required to make any payment with respect to
26

those distributions (including any Additional Amounts) under the
Capital Securities Guarantee Agreement if a QBE Australia Stopper
or an APRA Condition with respect to that distribution exists.
If, on any Distribution Payment Date, distributions are not paid in full
on the Capital Securities as a result of a QBE Australia Stopper or an
APRA Condition with respect to that distribution then existing, but
QBE (in the case of a QBE Australia Stopper) or APRA (in the case
of an APRA Condition) allows payment of part of that distribution,
the Issuer will pay the Relevant Proportion (as defined herein) of that
distribution. No holders of Capital Securities will have any claim with
respect to any distribution or part thereof not payable as a result of the
limitations above.
Notwithstanding any other provision of the Capital Securities or the
Capital Securities Guarantee Agreement, accrued distributions will
not be payable under the Capital Securities or the Capital Securities
Guarantee Agreement and accrued interest under the UK Capital
Securities will be deferred until their redemption, to the extent that
and so long as such payment would be prohibited by any indebtedness
of or instrument issued by QBE that ranks senior or equal to the
Capital Securities or the Capital Securities Guarantee Agreement with
respect to payments of distributions, interest or similar payments.
Prior to the exchange of the Capital Securities upon the occurrence of
the Exchange Event, while there are any unpaid distributions or other
amounts on the Capital Securities, the restrictions described under
“Restrictions on Certain Payments” below will apply.
UK Capital Securities ...............
Interest Payments ..................
The UK Capital Securities will constitute junior subordinated perpetual
debt obligations of QBE UK. The UK Capital Securities initially will
have an aggregate principal amount which equals the aggregate
liquidation preference of the Capital Securities. The UK Capital
Securities will be listed on the Channel Islands Stock Exchange.
TheUKCapital Securities will bear cumulative interest at a rate that
is the same as the rate at which distributions will accrue on the
Capital Securities and the Interest Payment Dates and the Interest
Periods for the UK Capital Securities will be the same as the
Distribution Payment Dates and the Distribution Periods for the
Capital Securities.
Interest is payable on each Interest Payment Date unless an APRA
Condition or a QBE UK Stopper with respect to that interest payment
exists on that date or the UK Solvency Condition has not been
satisfied, in which case, the amount of that interest payment that is
not paid on that Interest Payment Date will be deferred until such
time as the UK Capital Securities are redeemed, at which time it will
be paid in accordance with the alternative interest settlement
mechanism (“AISM”) described under “Description of the UK
27

Capital Securities—Alternate Interest Settlement Mechanism.” If
interest is not paid in full on the UK Capital Securities on or within
twenty (20) Business Days after an Interest Payment Date and the
Issuer has no other funds available to pay a distribution in full on the
Capital Securities on the corresponding Distribution Payment Date,
the Exchange Event will occur and QBE will deliver QBE Preferred
Securities to holders of the Capital Securities in exchange therefor, as
described below under “Exchange Event.”
If the outstanding UK Capital Securities cease to constitute regulatory
capital of QBE UK, then notwithstanding any other provision of the
UK Capital Securities, the payment of interest on the UK Capital
Securities will no longer be subject to the condition that no QBE UK
Stopper or APRA Condition with respect to that payment then exists
or to the UK Solvency Condition being satisfied.
Notwithstanding any other provision of the UK Capital Securities,
payment of accrued interest will be subject to a QBE UK Stopper and
deferred until such time as the UK Capital Securities are redeemed to
the extent that and so long as such payment would be prohibited by
any indebtedness of or instrument issued by QBE UK that ranks
senior or equal to the UK Capital Securities with respect to payments
of interest, distributions or similar payments.
Subject to the exceptions and limitations described in this Offering
Memorandum, QBE UK will make payments under the UK Capital
Securities without withholding or deduction for or on account of any
present or future taxes, duties, assessments or governmental charges
of whatever nature which are imposed or levied by or on behalf of the
Bailiwick of Jersey, the United Kingdom, Australia or any other
jurisdiction from which a payment thereon is made unless the
withholding or deduction is required by law. In that event, QBE UK
will pay such Additional Amounts as may be necessary in order that
the net amounts received by the Issuer after that withholding or
deduction will equal the amount which would have been received
with respect to the UK Capital Securities in the absence of that
withholding or deduction.
Capital Securities Guarantee
Agreement ......................
QBE,pursuant to the Capital Securities Guarantee Agreement, will
guarantee payment of the obligations of the Issuer under the Capital
Securities, (i) prior to the date, if any, on which the Exchange Event
occurs, only to the extent that the Issuer has funds available for
distribution to holders of the Capital Securities and (ii) after the date,
if any, on which the Exchange Event occurs, whether or not the Issuer
has funds available for distribution to holders of the Capital Securities
(if the Capital Securities remain outstanding), in the case of (i) or (ii),
so long as no QBE Australia Stopper or APRA Condition with respect
to that payment exists; provided that, if the Exchange Event is the
failure of the Issuer to pay a distribution in full on or within twenty
(20) Business Days after a Distribution Payment Date, the only reason
28

for such failure is the failure of QBE UK to pay interest in full on the
UK Capital Securities on the corresponding Interest Payment Date
and no QBE Australia Stopper or APRA Condition exists with respect
to such distribution, QBE will guarantee payment of that distribution
whether or not the Issuer has sufficient available funds.
A holder of the Capital Securities has the right to bring a direct action
against QBE in the event that QBE fails to perform its obligations
under the Capital Securities Guarantee Agreement without having to
involve the Guarantee Trustee or proceed against any other party.
The Capital Securities Guarantee Agreement is an unsecured and
subordinated obligation of QBE. QBE’s obligations under the Capital
Securities Guarantee Agreement will rank senior to the claims of the
holders of ordinary shares of QBE, equally with the claims of holders
of equally ranked preference shares of QBE, if any, and junior to the
claims of our creditors. Accordingly, our obligations under the
Capital Securities Guarantee Agreement will not be satisfied unless
we can satisfy in full all of our other obligations ranking senior to it.
As of December 31, 2005, we had outstanding borrowings of
approximately A$3.1 billion (or £1.3 billion) which would rank senior
to the Capital Securities Guarantee Agreement in a winding-up of us.
Subject to the exceptions and limitations described in this Offering
Memorandum, QBE will make payments under the Capital Securities
Guarantee Agreement without withholding or deduction for or on
account of any present or future taxes, duties, assessments or
governmental charges of whatever nature which are imposed or levied
by or on behalf of the Bailiwick of Jersey, the United Kingdom,
Australia or any other jurisdiction from which a payment thereon is
made unless the withholding or deduction is required by law. In that
event, QBE will pay such Additional Amounts as may be necessary in
order that the net amounts received by the recipient after that
withholding or deduction will equal the amount which would have
been received with respect to the Capital Securities Guarantee
Agreement in the absence of that withholding or deduction.
Redemption of the Capital Securities . . .
The General Partner, on behalf of the Issuer, may, subject to the prior
written approval of APRA, if required, redeem the Capital Securities
(i) in whole or in part, on July 18, 2016 or on any Distribution
Payment Date thereafter or (ii) prior to July 18, 2016, in whole but
not in part on any Business Day following the occurrence and during
the continuance of an Investment Company Event, a Capital
Securities Regulatory Event or a Capital Securities Tax Event. In
addition, upon the occurrence of an Acquisition Event, the General
Partner, on behalf of the Issuer, will, subject to the prior written
approval of APRA, if required, redeem the Capital Securities in
whole on any Business Day at least five (5) but not more than twenty
(20) Business Days after that occurrence. In the case of a redemption
on or after July 18, 2016 or, prior to July 18, 2016, redemption due to
the occurrence of a Capital Securities Tax Event, holders of the
29

Capital Securities will receive the Par Redemption Price (as defined
herein). In the case of a redemption prior to July 18, 2016 upon an
Acquisition Event, Investment Company Event or a Capital Securities
Regulatory Event, holders of the Capital Securities will receive the
Make Whole Redemption Price (as defined herein).
If redemption of the Capital Securities occurs and:
(i)
(ii)
there is a simultaneous redemption of the UK Capital
Securities, then the proceeds from redemption of the UK
Capital Securities will be used to redeem the Capital Securities;
or
there is not a simultaneous redemption of the UK Capital
Securities, then the Issuer will assign the UK Capital Securities
to QBE for an amount equal to the redemption price payable by
the Issuer to the holders of the Capital Securities called for
redemption and such proceeds will be used to redeem the
Capital Securities.
Prior to the occurrence of the Exchange Event, redemption payments
on the Capital Securities will be payable only to the extent of the
Issuer’s available funds. After the occurrence of the Exchange Event,
redemption payments on the Capital Securities (if the Capital
Securities remain outstanding) will be payable whether or not the
Issuer has available funds.
See “Description of the Capital Securities—Redemption.”
Redemption of the UK Capital
Securities .......................
QBEUKmay,provided the UK Solvency Condition is satisfied and
no APRA Condition exists and subject to obtaining applicable
regulatory approvals and satisfying the other conditions described
herein, redeem the UK Capital Securities (i) in whole or in part, on
July 18, 2016 or on any Interest Payment Date thereafter or (ii) prior
to July 18, 2016, in whole but not in part on any Business Day
following the occurrence and during the continuance of a UK Capital
Securities Regulatory Event or a UK Capital Securities Tax Event. In
the case of redemption on or after July 18, 2016 or prior to July 18,
2016 due to the occurrence of a UK Capital Securities Tax Event, the
redemption price per UK Capital Security will be equal to the UK
Capital Securities Par Redemption Price (as defined herein) and, in
the case of redemption prior to July 18, 2016 upon the occurrence of a
UK Capital Securities Regulatory Event, the redemption price per UK
Capital Security will be equal to the UK Capital Securities Make
Whole Redemption Price (as defined herein). See “Description of the
UK Capital Securities—Redemption.”
In the event that the UK Capital Securities are redeemed upon the
occurrence of a UK Capital Securities Regulatory Event, then except
as described herein, the Exchange Event will occur and the Capital
30

Securities will be exchanged for QBE Preferred Securities as
described below under “Exchange Event.”
Exchange Event ....................
Upontheoccurrence of the Exchange Event, the holders of the
Capital Securities will receive one QBE Preferred Security for each
Capital Security, unless QBE is prohibited by applicable statute,
governmental rule or regulation or court or administrative ruling,
order or decree from issuing the QBE Preferred Securities. See
“Description of the Capital Securities —Exchange Event.”
The “Exchange Event” will be the earliest to occur of any of the
following dates or events:
• one Business Day prior to any redemption of the UK Capital
Securities, unless Capital Securities with a liquidation preference
equal to the principal amount of the UK Capital Securities so
redeemed are redeemed at the same time;
• any date selected by QBE in its absolute discretion;
• the Issuer fails and QBE, as guarantor, fails to pay in full a
distribution on the Capital Securities on or within twenty
(20) Business Days after a Distribution Payment Date;
• the Issuer fails and QBE, as guarantor, fails to pay in full the
applicable redemption price on any Capital Securities as to which
notice of redemption shall have been given on or within twenty
(20) Business Days after the redemption date;
• specified events required by APRA;
• the liquidation, dissolution or winding-up of the Issuer; or
• specified events relating to the bankruptcy or insolvency of QBE.
If and so long as QBE fails to deliver QBE Preferred Securities in
exchange for Capital Securities upon the occurrence of the Exchange
Event, whether or not because QBE is unable under applicable law to
issue the QBE Preferred Securities, the holders of Capital Securities
will continue to hold the Capital Securities and the distribution,
redemption and other provisions of the Capital Securities will remain
in force and effect. For a description of some of the circumstances
under which applicable law may prevent QBE from issuing the QBE
Preferred Securities, see “Description of the QBE Preferred
Securities—Limitations on Issuance.”
The issue of the QBE Preferred Securities by QBE will be made
pursuant to the Exchange Agreement. The holders of the Capital
Securities will be deemed to consent to, and be bound by, the terms of
the Exchange Agreement and the terms of the QBE Preferred
Securities.
A holder of the Capital Securities has the right to bring a direct action
against QBE in the event that QBE fails to perform its obligations
31

under the Exchange Agreement without first having to involve or
proceed against any other party.
QBE Preferred Securities ............
TheQBEPreferred Securities will constitute preference shares of
QBE with a liquidation preference of £50,000 per share. The QBE
Preferred Securities will rank upon liquidation and with respect to
dividends senior to the claims of the holders of ordinary shares of
QBE, equally with the claims of the holders of equally ranked
securities and instruments of QBE, if any, and junior to the claims of
all other creditors of QBE. QBE currently has no other preference
shares outstanding.
QBE reserves the right to issue further QBE Preferred Securities,
preference shares (whether redeemable or not) or other securities or
instruments which rank equally with, or junior or senior to the QBE
Preferred Securities, whether in respect of dividends (whether
cumulative or not), return of capital on a liquidation of QBE or
otherwise. Such an issue will not constitute a variation or cancellation
of the rights attached to the then existing QBE Preferred Securities.
Dividends ........................
Theholders of QBE Preferred Securities will be entitled to receive
non-cumulative preferential cash dividends in arrear for the period
from and including the Distribution Payment Date on or immediately
preceding the date on which the QBE Preferred Securities are
delivered in exchange for the Capital Securities to but excluding the
Step Up Date at the Fixed Distribution Rate and thereafter at the
Floating Distribution Rate.
The dividend rates on the QBE Preferred Securities will be the same
as the distribution rates on the Capital Securities, and the Dividend
Payment Dates for the QBE Preferred Securities will be the same
days of the year as the Distribution Payment Dates for Capital
Securities, in each case, assuming the Capital Securities had remained
outstanding.
QBE will pay dividends on the QBE Preferred Securities only if,
when and to the extent declared by its board of directors or an
authorized committee thereof and so long as no APRA Condition
exists. Dividends on the QBE Preferred Securities are
non-cumulative. This means that if QBE’s board of directors or an
authorized committee thereof does not pay all or any part of a
dividend payable on any Dividend Payment Date or all or any part of
such a dividend is not payable because an APRA Condition exists
with respect to that payment, then holders of the QBE Preferred
Securities will have no right to receive that dividend at any time, even
if QBE pays other dividends in the future.
Notwithstanding any other provision of the QBE Preferred Securities,
accrued dividends will not be payable under the QBE Preferred
Securities to the extent that and so long as such payment would be
prohibited by any indebtedness of or instrument issued by QBE that
32

anks senior or equal to the QBE Preferred Securities as to payments
of dividends, distributions, interest or similar payments.
If the Exchange Event occurs as a result of the Issuer failing and
QBE, as guarantor, failing to pay in full a distribution on the Capital
Securities on or within twenty (20) Business Days after a Distribution
Payment Date, then, unless QBE declares and pays a Special Optional
Dividend (as defined herein), the holders of the Capital Securities will
not receive any unpaid distribution with respect to the immediately
preceding Distribution Period and the restrictions described below
under “Restrictions on Certain Payments” will apply.
Subject to the exceptions and limitations described in this Offering
Memorandum, QBE will make dividend payments under the QBE
Preferred Securities without withholding or deduction for or on
account of any present or future taxes, duties, assessments or
governmental charges of whatever nature which are imposed or levied
by or on behalf of Australia or any other jurisdiction from which a
payment thereon is made unless the withholding or deduction is
required by law. In that event, QBE will pay such Additional
Amounts as may be necessary in order that the net amounts received
by the holders of the QBE Preferred Securities after that withholding
or deduction will equal the amount which would have been received
with respect to the QBE Preferred Securities in the absence of that
withholding or deduction.
Stamp Duty on Transfers .............
IfQBEPreferred Securities are issued to holders of the Capital
Securities following the occurrence of the Exchange Event, under the
laws of the Australian Capital Territory (being the place of
incorporation of QBE), as of the date of this Offering Memorandum,
share transfer duty at the rate of 0.6% of the greater of the
consideration paid for the QBE Preferred Securities or the
unencumbered value of the QBE Preferred Securities would be
payable with respect to a transfer of the QBE Preferred Securities
unless the QBE Preferred Securities are listed on the Irish Stock
Exchange or another qualifying exchange or otherwise exempt.
In the event that QBE Preferred Securities are issued to the holders of
the Capital Securities following the occurrence of the Exchange
Event, QBE will pay any stamp duty payable to the Australian Capital
Territory (or any other jurisdiction in which QBE is then
incorporated) in connection with the issuance and delivery of the
QBE Preferred Securities to the holders of the Capital Securities. If
any stamp duty or similar charge is payable to the Australian Capital
Territory (or any other jurisdiction in which QBE is then
incorporated) with respect to the transfer of the QBE Preferred
Securities and the QBE Preferred Securities are not listed on the Irish
Stock Exchange or another qualifying exchange, QBE will use its
commercially reasonable best efforts to cause the QBE Preferred
Securities to be listed on the Irish Stock Exchange or another
33

qualifying exchange or take such other measures as may be necessary
to ensure that the transfer of QBE Preferred Securities will not be
chargeable with, or will be exempt from, any such stamp duty or
similar charge.
Restriction on Certain Payments .......
Under the terms of the Capital Securities Guarantee Agreement or the
QBE Preferred Securities, as the case may be, if:
• the Issuer fails and QBE, as guarantor, fails to pay in full a
distribution on the Capital Securities on any Distribution
Payment Date;
• QBE fails to pay in full a dividend on the QBE Preferred
Securities on any Dividend Payment Date; or
• the applicable redemption price with respect to any Capital
Securities or QBE Preferred Securities called for redemption is
not paid in full on the applicable redemption date,
in each case, regardless of whether or not in accordance with the
terms of the Capital Securities, the Capital Securities Guarantee
Agreement or the terms of the QBE Preferred Securities, then, unless
the holders of a majority of the aggregate liquidation preference of the
outstanding Capital Securities or the QBE Preferred Securities, as the
case may be, otherwise consent, subject to the exceptions described
herein, QBE may not:
• declare or pay any dividends, interest or other distributions on
any other of QBE’s shares, debt instruments or other instruments
or securities that by their terms rank equally with or junior to the
Capital Securities Guarantee Agreement or the QBE Preferred
Securities with respect to dividends, interest or other similar
payments other than proportionate payments on the Capital
Securities Guarantee Agreement, the QBE Preferred Securities
and such other shares, debt instruments and other instruments and
securities that rank equally therewith with respect to dividends,
interest or other similar payments, or set aside any sum for those
payments; or
• make a principal, liquidation or premium payment with respect
to, or repurchase, redeem or otherwise acquire for value legal or
beneficial ownership of any other of QBE’s shares, debt
instruments or other instruments or securities that by their terms
rank equally with or junior to the Capital Securities Guarantee
Agreement and the QBE Preferred Securities with respect to the
liquidation or winding-up of QBE, other than proportionate
payments on or repurchase of the Capital Securities, the Capital
Securities Guarantee Agreement, the QBE Preferred Securities
and such other shares, debt instruments and other instruments and
securities that rank equally with the Capital Securities Guarantee
Agreement and the QBE Preferred Securities with respect to the
liquidation or winding-up of QBE, or set aside any sum or
establish a sinking fund for that purpose,
34

unless and until,
• in the case of any failure to pay in full a distribution on the
Capital Securities on any Distribution Payment Date,
(i) the Issuer or QBE, as guarantor, has paid that distribution in
full on or within twenty (20) Business Days after that
Distribution Payment Date,
(ii) if the QBE Preferred Securities have been issued in exchange
for the Capital Securities, QBE has paid (A) with the prior
written consent of APRA, if required, a dividend on the QBE
Preferred Securities on or within 21 Business Days after that
Distribution Payment Date in an aggregate amount equal to the
unpaid amount of that distribution (a “Special Optional
Dividend”), (B) dividends on the QBE Preferred Securities in
full on each Dividend Payment Date during a 12 consecutive
calendar month period or (C) with the prior written consent of
APRA, if required, an optional dividend on the QBE Preferred
Securities (an “Optional Dividend”) equal to the unpaid amount
of the scheduled dividends on the QBE Preferred Securities and
distributions on the Capital Securities for the period of 12
months prior to the date of payment of the Optional Dividend;
and
(iii) if the Exchange Event has occurred and the Capital Securities
remain outstanding, the Issuer or QBE, as guarantor, has paid,
with the prior written consent of APRA, if required
(A) distributions on the Capital Securities in full on each
Distribution Payment Date during a 12 consecutive calendar
month period or (B) an optional distribution on the Capital
Securities (an “Optional Distribution”) equal to the unpaid
amount of the scheduled distributions on the Capital Securities
for the period of 12 months prior to the date of payment of the
Optional Distribution;
• in the case of any failure to pay in full a dividend on the QBE
Preferred Securities on any Dividend Payment Date, we have
paid (i) dividends on the QBE Preferred Securities in full on each
Dividend Payment Date during a 12 consecutive calendar month
period or (ii) with the prior written consent of APRA, if required,
an Optional Dividend equal to the unpaid amount of the
scheduled dividends on the QBE Preferred Securities for the
period of 12 months prior to the date of payment of the Optional
Dividend; or
• in the case of any failure to pay in full the applicable redemption
price with respect to any Capital Securities or QBE Preferred
Securities called for redemption, the applicable redemption price
has been paid in full.
The foregoing restrictions will not apply in certain circumstances
described herein under “Description of the QBE Preferred
35

Redemption of QBE Preferred
Securities .......................
Rights Upon Liquidation, Dissolution or
Winding-Up of the Issuer ..........
Securities—Restrictions on Certain Payments” and “Description of
the Capital Securities Guarantee Agreement—Restrictions on Certain
Payments.”
QBEmayredeem the QBE Preferred Securities on the Step Up Date
or on any Dividend Payment Date thereafter in whole or in part and,
prior to the Step Up Date, in whole but not in part on any Business
Day following the occurrence and during the continuance of a QBE
Tax Event (as defined herein), subject to the prior written approval of
APRA, if required, at a price per QBE Preferred Security equal to the
sum of (i) £50,000, (ii) any accrued but unpaid dividends for the then
current Dividend Period (as defined herein) to but excluding the
redemption date and, if the redemption date is on or within twenty
(20) Business Days following a Dividend Payment Date, any accrued
but unpaid dividends for the immediately preceding Dividend Period
and (iii) any Additional Amounts on the above (the “QBE Preferred
Securities Par Redemption Price”).
QBE may redeem the QBE Preferred Securities prior to the Step Up
Date, in whole but not in part, on any Business Day following the
occurrence and during the continuance of a QBE Regulatory Event
(as defined herein), subject to the prior written approval of APRA, if
required, at a price per QBE Preferred Security equal to the QBE
Preferred Securities Make Whole Redemption Price (as defined
herein). In addition, QBE may, subject to the prior written approval of
APRA, if required, redeem the QBE Preferred Securities in whole, at
a price per QBE Preferred Security equal to the QBE Preferred
Securities Make Whole Redemption Price, on any Business Day prior
to the Step Up Date if the Exchange Event was not QBE exercising its
right to cause the Exchange Event in its absolute discretion.
In addition, upon the occurrence of an Acquisition Event, QBE will,
subject to the prior written approval of APRA, if required, redeem the
QBE Preferred Securities in whole on any Business Day at least five
(5) but not more than twenty (20) Business Days after the occurrence
of the Acquisition Event at a price per QBE Preferred Security equal
to the QBE Preferred Securities Make Whole Redemption Price.
See “Description of the QBE Preferred Securities—Redemption,
Buy-back or Cancellation.”
Intheevent of the liquidation, dissolution or winding-up of the Issuer
(other than a dissolution of the Issuer in the context of a redemption
of the Capital Securities, in which case holders of the Capital
Securities will be entitled to the rights set forth above), holders of the
Capital Securities will be entitled to receive out of the assets of the
Issuer legally available for distribution, subject to the provisions
described below, for each Capital Security a liquidation distribution
equal to the sum of (i) the liquidation preference, (ii) any accrued but
unpaid distributions for the then current Distribution Period to but
36

excluding the date of liquidation, dissolution or winding-up and
(iii) any Additional Amounts on the above. This entitlement will rank
senior to the claims of the General Partner.
Notwithstanding the availability of sufficient assets of the Issuer to
pay any liquidation distribution as aforesaid, if, at the time that
liquidation distribution is to be paid, the Exchange Event has occurred
or proceedings have been commenced for the voluntary or
involuntary liquidation, dissolution or winding-up of QBE (other than
with respect to a solvent reconstruction in relation to forming a
holding company), the liquidation distribution payable per Capital
Security will not exceed the amount per security that would have been
paid as a liquidation distribution out of the assets of QBE had the
Capital Securities and all Parity Securities (as defined herein) been
non-cumulative preference shares issued by QBE with equivalent
rights of participation in the capital of QBE (whether or not QBE
could in fact have issued those securities at that time).
In the event of an order being made for the liquidation, dissolution or
winding-up of QBE (other than with respect to a solvent
reconstruction in relation to forming a holding company) or a
declaration being made that QBE is insolvent, the Issuer will be
dissolved and the amount per Capital Security to which holders of the
Capital Securities will be entitled as a liquidation distribution will be
as described above.
Voting Rights under the Capital
Securities and the QBE Preferred
Securities .......................
Theholders of the Capital Securities or the QBE Preferred Securities
will have voting rights only under the limited circumstances described
herein. See “Description of the Capital Securities —Action by
Holders of the Capital Securities ” and “Description of the QBE
Preferred Securities—Voting Rights” and “—Variation of Rights
Attached to the QBE Preferred Securities.”
In general, the rights and privileges attached to the QBE Preferred
Securities may not be varied or abrogated except with any required
regulatory or governmental approvals and with (i) the approval of a
resolution passed at a meeting of the holders of the QBE Preferred
Securities by the affirmative vote of holders holding at least 75% of
the issued QBE Preferred Securities or (ii) if a quorum for a meeting
of the holders of the QBE Preferred Securities is not obtained or if an
approving resolution is not carried at a meeting of those holders, the
consent in writing of the holders holding at least 75% of the issued
QBE Preferred Securities. However, subject to complying with all
applicable laws, we may without the authority, assent or approval of
the holders of the QBE Preferred Securities amend or add to the terms
of issue of the QBE Preferred Securities if we consider that such
amendment or addition:
• is of a formal, minor or technical nature;
• is made to correct a manifest error; or
37

• is not likely (taken as a whole and in conjunction with all other
modifications, if any, to be made contemporaneously with that
modification) to be materially prejudicial to the interests of the
holders of the QBE Preferred Securities.
See “Description of the QBE Preferred Securities—Variation of
Rights Attached to the QBE Preferred Securities.”
A holder of Capital Securities or QBE Preferred Securities may not
exercise or seek to exercise or take any proceedings for the exercising
of any right of set-off or counterclaim against QBE or QBE UK in
respect of any claim by QBE or QBE UK against that holder.
Use of Proceeds ....................
Transfer Restrictions ................
Form of the Capital Securities .........
OntheClosing Date, the net proceeds from this offering will be
invested by the Issuer in the UK Capital Securities. QBE UK will use
the proceeds from the issuance of the UK Capital Securities for
general corporate purposes to support our European operations. See
“Use of Proceeds.”
TheCapital Securities and the QBE Preferred Securities issuable
upon the Exchange Event are subject to transfer restrictions and may
not be offered or sold except outside the United States in compliance
with Regulation S, in the United States to qualified institutional
buyers in compliance with Rule 144A or in other transactions exempt
from registration under the Securities Act.
See “Notice to Investors” for more information on the transfer
restrictions to which the Capital Securities and the QBE Preferred
Securities issuable upon the Exchange Event are subject.
TheCapital Securities will be issued in registered form.
On or about the Closing Date,
• Capital Securities initially offered and sold outside the United
States pursuant to Regulation S (“Regulation S Capital
Securities”) will be represented by beneficial interests in one or
more global certificates (“Regulation S Global Certificates”)
registered in the name of Citivic Nominees Limited (“Citivic”) as
nominee for, and deposited with Citibank N.A. as common
depositary for Euroclear and Clearstream, Luxembourg, and
• Capital Securities initially offered and sold in the United States to
qualified institutional buyers pursuant to Rule 144A (“Rule 144A
Capital Securities”) will be represented by beneficial interests in
one or more global certificates (“Rule 144A Global Certificates”
and, together with the Regulation S Global Certificates, the
“Global Certificates”) registered in the name of Cede & Co., as
nominee for, and deposited with Citibank, N.A., as custodian for
DTC.
For so long as the Capital Securities are deposited as described above,
book-entry interests in the Capital Securities will be shown on, and
transfers thereof will be effected only through, records maintained by
DTC, Euroclear and Clearstream, Luxembourg.
38

Definitive certificates will not be made available to holders of the
Capital Securities other than in certain limited circumstances, which
are described herein.
Currency Conversion for Rule 144A
Capital Securities .................
Certain UK Tax Consequences ........
Certain US Federal Income Tax
Consequences ...................
Aholder of Rule 144A Capital Securities will receive all payments
under the Rule 144A Capital Securities in US dollars, unless such
holder makes an election, as described herein, for payment in pounds
sterling. The amount payable in United States dollars will be equal to
the amount of United States dollars exchanged for pounds sterling
received by the Exchange Agent (as defined herein). See “Description
of the Capital Securities—Currency Conversion for Rule 144A
Capital Securities” and “Risk Factors—Risks relating to the Capital
Securities —Holders may be subject to foreign exchange risk.”
Itisexpected that distributions paid in respect of the Capital
Securities and dividends paid in respect of the QBE Preferred
Securities will be made without withholding or deduction for or on
account of UK tax. For a summary of the principal UK tax
considerations relating to the acquisition, ownership and disposal of
the Capital Securities and the QBE Preferred Securities, see
“Taxation—Certain United Kingdom Tax Consequences.” The
summary does not address the UK tax consequences for all holders.
Therefore, it is important that you obtain your own independent
taxation advice to take into account your particular circumstances.
Under current law and assuming full compliance with the terms of the
Limited Partnership Agreement and the timely filing by the Issuer
with the US Internal Revenue Service (“IRS”) of any appropriate
election forms, the Issuer will be treated as a partnership for United
States federal income tax purposes, and not as an association taxable
as a corporation. As a partnership, the Issuer will not be a taxable
entity for United States federal income tax purposes and will incur no
United States federal income tax liability.
By holding the Capital Securities, each US holder (as defined herein)
will be considered a partner of a partnership and will be required to
take into account its distributive share (as determined for United
Stated federal income tax purposes) of income, gain, loss, deduction,
expense and credit of the Issuer, regardless of the actual amounts that
are distributed to the US holder. Accordingly, each US holder must
include in income its allocable share of the Issuer’s income, gain and
loss with respect to the UK Capital Securities.
The US tax rules governing transactions involving foreign currency
(in this case, pounds sterling) are complex and uncertain in many
respects. Accordingly, the tax treatment of the foreign currency
aspects of an investment in the Capital Securities and the QBE
Preferred Securities is not free from doubt, and investors are urged to
consult their own tax advisors.
39

See “Taxation—Certain United States Federal Income Tax
Considerations.”
Certain Australian Tax Consequences . . .
Distributions received on the Capital Securities, including any
payments received pursuant to the Capital Securities Guarantee
Agreement, should not generally give rise to Australian tax
consequences for holders of the Capital Securities who are
non-residents of Australia for Australian tax purposes.
Any receipt or profit on the redemption, exchange, sale or other
disposal of the Capital Securities should only be subject to Australian
income tax for the holder if the receipt or profit has an Australian
source and protection from Australian tax is not available under a
relevant tax treaty. Australian capital gains tax should not be payable
on any gain arising from the disposal of the Capital Securities, unless
the Capital Securities are held by the holder in connection with
carrying on a business at or through a permanent establishment in
Australia.
Following the occurrence of the Exchange Event, holders of the
Capital Securities that receive QBE Preferred Securities, and who are
non-residents of Australia for Australian tax purposes, may be subject
to Australian dividend withholding tax, in respect of dividends paid
on the QBE Preferred Securities, but only to the extent that the
dividends are not paid out of previously taxed profits earned by QBE.
If dividends are paid entirely out of taxed profits, the dividends will
be fully franked and Australian dividend withholding tax will not be
payable. If dividends are paid partly out of taxed profits, the
dividends will be partly franked and dividend withholding tax will be
payable on the unfranked portion of the dividend at rate of 30% or
possibly lower, such as 15%, depending on whether the holder of the
QBE Preferred Securities is resident of a country that has a tax treaty
with Australia, such as the United Kingdom or the United States. If
dividends are paid entirely out of untaxed profits, the dividends will
be unfranked and dividend withholding tax will be payable on the
entire dividend at the applicable withholding tax rate.
Any receipt or profit on the disposal of the QBE Preferred Securities
should only be subject to Australian income tax for the holder if the
receipt or profit has an Australian source and protection from
Australian tax is not available under a relevant tax treaty. Australian
capital gains tax should not be payable on any gain arising from the
disposal of the QBE Preferred Securities, unless the QBE Preferred
Securities are held by the holder in connection with carrying on a
business at or through a permanent establishment in Australia.
ERISA Consequences ...............
Toavoid certain fiduciary concerns and the potential application of
the prohibited transaction rules under ERISA and the Code, the
Capital Securities may not be sold or transferred to a Benefit Plan
Investor. See “ERISA Considerations.”
40

TRANSACTION DIAGRAM
41

RISK FACTORS
Any investment in the Capital Securities involves risks including, without limitation, those described in
this section. You should consider carefully the following information about these risks, together with the other
information contained in this Offering Memorandum, before you decide to buy the Capital Securities. You should
be aware that the risk factors set forth below are not exhaustive. Some of these risk factors are beyond our
control.
QBE’s Business Risk Factors
We are at risk from the severity and frequency of catastrophes or other events that may lead to an
increased frequency or severity of claims.
General insurers and reinsurers are subject to claims arising out of catastrophes and other events that
may result in an increased frequency or severity of claims and have a significant impact on their results of
operations and financial condition. Catastrophes can be caused by various natural events including cyclones,
hurricanes, earthquakes, wind, hail, floods, fires, volcanic eruptions and explosions. Catastrophes can also be
man-made such as terrorism, war and other hostilities. The frequency and severity of such events and the losses
associated with them are inherently unpredictable and may materially impact our results of operations. We have
experienced, and can expect in the future to experience, losses from catastrophes that may have a material
adverse impact on our results of operations and financial condition.
In 2005 net claims from large catastrophes increased to A$515 million compared to A$320 million in
2004. Notable market catastrophes for the year ended December 31, 2005 included the European storm Erwin in
January, Hurricane Katrina in the United States in August, the Mumbai floods in August, the European floods in
September, Hurricane Rita in the United States in September and Hurricane Wilma in the United States, the
Caribbean and Mexico in October. In the year ended December 31, 2004, notable market catastrophes included a
gas plant explosion in Algeria in January, Hurricane Charley in the United States in August, Hurricane Frances in
the United States in September, Hurricane Ivan in the United States and the Caribbean in September and the
tsunami in Asia in December. During 2006 to date, notable market catastrophes have included Philippines
mudslides in February and Cyclone Larry in Australia in March.
The extent of losses from a catastrophe is a function of two factors, namely, the total amount of insured
exposure in the area affected by the event and the severity of the event. Many catastrophes are localized to small
geographic areas. However, natural disasters have the potential to produce significant damage over large areas. In
addition, catastrophes can occur in heavily populated areas, which can lead to increased losses. Although
catastrophes can cause losses in a variety of general insurance lines, householders’ and property insurance have
in the past generated the vast majority of our catastrophe-related claims.
Although we monitor our aggregate exposures, they depend upon the estimates of probable maximum
loss. These estimates may prove to be incorrect and our aggregate losses may exceed our estimates.
While we have historically managed our exposure to catastrophes through, among other things, the
purchase of catastrophe reinsurance, retrocessional coverage and whole account reinsurance, there can be no
assurance that such coverage will continue to be available to us at acceptable rates and levels, that our existing
coverage will prove adequate or that counterparties to these arrangements will perform their obligations
thereunder.
We are dependent on the performance of our investment portfolio.
A substantial proportion of our profits are generated from our investment portfolio. In the year ended
December 31, 2005, our investment income was A$718 million. A reduction in investment income due to a
42

substantial fall in the equity markets, which can be more volatile than fixed-interest investments, or changes in
interest or foreign exchange rates, could materially adversely affect our overall profitability. There can be no
assurance that the investment returns achieved by us in the future will be sufficient to enable us to achieve a net
profit.
Our financial results are significantly affected by changes in exchange rates.
While our financial statements are maintained in Australian dollars, a significant portion of our revenues
are derived from countries outside Australia, including the United Kingdom, the United States and countries in
the Asia-Pacific region, Europe and Latin America. Although our policy is to carefully manage our exposure to
such foreign currency movements through the use of various hedging strategies, we are still exposed to exchange
rate risk in our financial reporting. Insofar as we are unable to hedge exchange rate movements affecting
non-Australian currencies, our reported profit or foreign currency translation reserve would be affected.
We translate income and expense items using the cumulative average rate of exchange. On this basis,
the Australian dollar rose approximately 3% against the US dollar and approximately 4% against the pound
sterling in 2005 compared to 2004. Balance sheet items are translated at the period end rate of exchange. On this
basis, the Australian dollar fell approximately 7% against the US dollar and rose approximately 4% against the
pound sterling comparing the exchange rates at December 31, 2005 with the exchange rates at December 31,
2004. See “Management’s Discussion and Analysis of Financial Condition and Results of Operations—
Overview—Impact of Exchange Rate Movements.” There can be no assurance that our financial results will not
be affected by exchange rate movements in the future.
Differences between our actual claims experience and underwriting and reserving assumptions may
require us to increase our outstanding claims provisions.
Our earnings depend significantly upon the extent to which our actual claims experience is consistent
with the assumptions we use in setting the prices for our products and establishing the reserves for our
obligations to pay claims. Establishing reserves is an imprecise science, dependent upon the accuracy of the
assessment of the underlying risks and subject to both internal and external variables. Due to the high degree of
uncertainty associated with the determination of claims reserves, we cannot determine precisely the amounts that
we will ultimately pay to settle these claims. Such amounts may vary from the estimated amounts, particularly
when those payments may not occur until well into the future, as with our long-tail classes of insurance business,
when our claims reserves increase to the extent interest rates decrease, or when claims are paid, on average, more
quickly than we originally assumed. We evaluate our reserves periodically, factoring in any changes in the
assumptions used to establish the reserves, as well as our claims experience. If the reserves we originally
establish prove inadequate, we would have to increase our reserves, which could have a material adverse effect
on our businesses, financial condition and results of operations.
There can be no assurance that ultimate losses will not materially exceed our provisions and will not
have a material adverse effect on our businesses, financial condition and results of operations.
We operate in a highly competitive industry.
There is substantial competition among general insurance and reinsurance companies in Australia, the
United Kingdom, the United States and the other jurisdictions in which we do business. We compete with general
insurers and reinsurers who have greater financial and marketing resources and greater name recognition than we
have. The recent consolidation in the global financial services industry has also enhanced the competitive
position of some of our competitors compared to us by broadening the range of their products and services, and
increasing their distribution channels and their access to capital.
The level of profitability of a general insurance or reinsurance company is significantly influenced by
the adequacy of premium income relative to its risk profile and claims exposure, as well as the general level of
43

usiness costs. Low premium rates arising from competitive pricing may adversely impact our underwriting
results. While we seek to maintain premium rates at targeted levels, the effect of competitive market conditions
may have a material adverse effect on our market share and financial condition. Similar risks apply to our small
life insurance operations in Hong Kong, Central Europe and Brazil. In addition, development of alternative
distribution channels for certain types of insurance products, including through the internet, may result in
increasing competition as well as pressure on margins for certain types of products. These competitive pressures
could result in increased pricing pressures on a number of our products and services, particularly as competitors
seek to win market share through price discounting or other growth strategies, and may harm our ability to
maintain or increase profitability.
We are dependent on our ability to reinsure risks.
A general insurance company will usually attempt to limit its risks in particular lines of business or from
specific events by using outward reinsurance arrangements. We enter into a significant number of reinsurance
contracts to limit our risk. Under these arrangements, other reinsurers assume a portion of the losses and related
expenses in connection with insurance policies we write. The availability, amount and cost of reinsurance depend
on prevailing market conditions, in terms of price and available capacity, may vary significantly. Hardening of
the reinsurance market has led to increased premiums and less favorable terms and conditions for the renewal of
some of our reinsurance.
We have stringent controls with respect to the external reinsurers with which we do business, but there
are risks associated with the determination of the appropriate levels of reinsurance protection, matching of
reinsurance to underlying policies, the cost of such reinsurance and the financial security of such reinsurers.
Since January 1, 2002, our operating subsidiaries have had a worldwide excess of loss (“WEOL”) policy
with our long standing, wholly-owned subsidiary, Equator Re, a Bermuda corporation. WEOL covers a selected
portion of the lines of business of our insurance subsidiaries. See “Business—Outward Reinsurance.” Equator Re
also participates on a number of our excess of loss and proportional reinsurance protections placed with external
reinsurers. There can be no assurance regarding the adequacy of our current reinsurance or retrocessional
coverage or the future availability of coverage at adequate rates and levels, falling equity markets and subsequent
ratings downgrades of many companies in the insurance industry. In the event that adequate reinsurance capacity
at acceptable rates becomes unavailable, we would attempt to reduce our exposures to within available insurance
capacity or acceptable levels of risk. However, we may not be successful and we may remain exposed to certain
risks unless and until this reduction could be completed.
Ceding of risk to our reinsurers does not relieve us of our primary liability to our insureds. Accordingly,
we are subject to credit risk with respect to our reinsurers. Although we initially place our reinsurance with
reinsurers that we believe to be financially stable, this may change adversely by the time recoveries are due
which could be many years later. A reinsurer’s failure to make payment under the terms of a significant
reinsurance contract would have a material adverse effect on our businesses, financial condition and results of
operations. In addition, after making large claims on our reinsurers, we may have to pay substantial reinstatement
premiums to continue reinsurance cover.
There are risks associated with our inward reinsurance business.
In addition to purchasing reinsurance coverage, we (primarily through our European and United States
subsidiaries and Lloyd’s syndicates) provide reinsurance coverage for third party insurance company cedants.
Due to various factors, including reliance on ceding company information concerning the underlying risks,
reporting delays and the cyclical nature of reinsurance rates, our inward reinsurance business may be more
volatile and present greater risks than our primary insurance business, especially for cover given in respect of
catastrophes.
44

Changes in government policy, regulation or legislation in the countries in which we operate may affect
our profitability.
We are subject to extensive regulation and supervision in the jurisdictions in which we do business. This
includes, by way of example, matters relating to licensing and examination, rate setting, trade practices, policy
reforms, limitations on the nature and amount of certain investments, underwriting and claims practices,
mandated participation in shared markets and guarantee funds, reserve adequacy, capital and surplus
requirements, insurer solvency, transactions between affiliates, the amount of dividends that may be paid and
regulations on underwriting standards. Such regulation and supervision is primarily for the benefit and protection
of policyholders and not for the benefit of investors or shareholders. In some cases, regulation in one country
may affect business operations in another country. As the amount and complexity of these regulations increase,
so may the cost of compliance and the risk of non-compliance. If we do not meet regulatory or other
requirements, we may suffer penalties including fines, suspension or cancellation of our insurance licenses which
could affect our ability to do business.
As described in detail in “Regulation,” we are experiencing and expect to continue to experience a
number of changes in regulation in certain markets in which we do business, including in the Australian, UK and
US markets. As a result, our executive management is, and we expect will continue to be, increasingly required
to spend significantly more time on compliance matters. Therefore we expect the cost of regulatory supervision
in many of our markets to increase. We estimate our cost of meeting regulatory requirements around the world is
now approximately A$100 million per annum. In addition, we pay levies and guarantee fund payments to
regulators and governments in excess of A$80 million per annum.
In addition, we may be adversely affected by changes in government policy or legislation applying to
companies in the insurance industry. These include possible changes in regulations covering pricing and benefit
payments for certain statutory classes of business (e.g., CTP and workers’ compensation in Australia and
employers’ liability in the UK), the deregulation and nationalization of certain classes of business, the regulation
of selling practices and insurance solvency standards, the regulations covering policy terms and policy
termination and the imposition of new taxes and assessments. Prudential standards for Australian general insurers
regulated by APRA require a comprehensive, risk based approach to the calculation of the minimum capital
requirement for licensed insurers. APRA is in the process of introducing revisions to the prudential framework
which applies to general insurers in Australia, particularly in relation to financial soundness and risk
management. These reforms are outlined in the “Regulation—Australian Insurance Regulation” section of this
document. The Stage 2 reforms for prudential supervision of general insurance implemented by APRA to date
have increased our compliance costs to our Australian and Asia-Pacific operations.
We note that APRA has not yet developed prudential standards for calculating consolidated capital
adequacy requirements for non-operating insurance holding companies such as QBE. We have made a number of
assumptions in applying the risk based capital prudential standards for Australian licensed insurers to the QBE
group. Our calculation of our group capital adequacy multiple on a consolidated basis as at December 31, 2005,
including our outstanding subordinated debt and LYONs due 2022 as lower tier 2 capital, was around 1.9
times the minimum capital requirement compared to 1.8 times the minimum capital requirement as at
December 31, 2004. Regulatory changes may affect our existing and future businesses by, for example, causing
customers to cancel or not renew existing policies or requiring us to change our range of products or to provide
certain products (such as terrorism cover where it is not already required) and services, redesign our technology
or other systems, retrain our staff, pay increased tax or incur other costs.
In addition to reform of the prudential standards, there are a number of other regulatory reviews and
reforms presently underway in Australia which may affect general insurers. These include: the refinement and
reform of the financial services regulation regime; the review of the position of direct offshore foreign insurers
and discretionary mutual funds in the Australian market; the review and possible reform of the Insurance
Contracts Act 1984 (Cth); regulatory and productivity reviews relating to the Privacy Act 1988 (Cth); and the
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proposed introduction of new anti-money laundering and counter terrorism financing legislation. These reforms
are outlined in the “Regulation—Australian Insurance Regulation” section of this document.
The FSA is consulting on a number of proposed regulatory changes including a requirement to fully
disclose finite and other financial reinsurance arrangements in order to not obscure the true financial position of a
firm and improving standards in contract certainty so that terms of cover are readily available at the time
insurance is taken out. Additionally, the EU Commission is carrying out a wide-ranging review in relation to
solvency margins and reserves on both a solo and group-wide basis. It is intended that the new regime will apply
more risk sensitive standards to capital requirements, bring insurance regulation more closely in line with
banking regulation in with a view to avoiding regulatory arbitrage and align regulatory capital with economic
capital. These reforms are outlined in the “Regulation—United Kingdom Insurance Regulation” section of this
document. Implementation of these changes is likely to lead to increased regulatory compliance costs and may
result in a requirement for additional regulatory capital.
In recent years, the insurance regulatory framework in the US has come under increased scrutiny by
various regulatory bodies. Legislation that would provide for federal chartering of insurance companies has been
proposed. In addition, the National Association of Insurance Commissioners (“NAIC”) and state insurance
regulators continually re-examine the appropriate nature and scope of insurance regulation. We cannot predict
whether any specific US state or federal measures will be adopted to change the nature or scope of the regulation
of the insurance business in the US or what effect such measures would have on us.
It is not possible to determine what changes in government policy or legislation will be adopted in any
jurisdiction and, if so, what form they will take or in what jurisdictions they may occur. As a result, the impact of
those changes is impossible to determine. Insurance laws or regulations that are adopted or amended may be
more restrictive than our current requirements or may result in higher costs.
Acquisitions and our acquisition strategy may adversely affect our business.
As part of our growth strategy, we continue to make acquisitions and are looking at a number of small
acquisitions in Australia, the Asia-Pacific region, the Americas and Europe. Although we conduct due diligence
prior to making any acquisition, future acquisitions are subject to many risks, including:
• acquisitions may cause a disruption to our ongoing businesses, distract our management and other
resources and make it difficult to maintain our standards, internal controls and procedures;
• our current ratings by S&P, Moody’s, A.M. Best or Fitch may be jeopardized;
• we may not be able to successfully integrate the services, products and personnel into our operations,
especially if we acquire large businesses;
• we may not be successful in acquiring all entities that we seek to acquire;
• we may be required to take prudent actions such as the disposal or cancellation of certain product
lines and other measures;
• we may be required to incur debt or issue equity securities (including securities that will rank senior
to the Capital Securities) to pay for acquisitions, for which financing may not be available or may not
be available on acceptable terms;
• our acquisitions may not result in any return on our investment and we may lose our entire
investment;
• we may assume unforeseen liabilities and exposures; and
• we may pay goodwill which we may have to impair.
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There can be no assurance that we will successfully identify suitable acquisition candidates or that we
will properly value acquisitions we make. We are unable to predict whether or when any prospective acquisition
candidate will become available or the likelihood that any acquisition will be completed once negotiations have
commenced. If we are unable to implement our acquisition growth strategy effectively, our businesses, financial
condition and results of operations could be materially adversely affected.
A downgrade in our ratings may increase policy cancellations and non-renewals, adversely affect
relationships with distributors and negatively impact new business.
Our insurer financial strength ratings are important factors in establishing and maintaining our
competitive position. Our main insurance and reinsurance subsidiaries have been assigned an A+ insurer
financial strength rating by each of S&P and Fitch. Our insurance and reinsurance subsidiaries in the United
States and our main insurance subsidiaries in Europe have been assigned an A rating by A.M. Best. QBE
Insurance Group Limited has been assigned an A-, A3, A and bbb+ counterparty credit rating by each of S&P,
Moody’s, Fitch and A.M. Best, respectively. The rating agencies regularly review our rating and the ratings of
our main insurance and reinsurance subsidiaries. In September 2004, Fitch downgraded the counterparty credit
rating of QBE from A+ to A based on its assessment of our group debt leverage over the medium term.
Following the events of September 11, S&P temporarily downgraded our rating for our core underwriting entities
from A+ to A credit watch negative. The rating was restored to A+ on November 2, 2001. Future downgrades in
the ratings of any of our insurance or reinsurance subsidiaries (or the potential for such a downgrade) could,
among other things, materially increase the number of policy cancellations and non-renewals, adversely affect
relationships with the distributors of our products and services, including new business, and negatively impact
the level of our premiums. This could adversely affect our businesses, financial condition, results of operations
and our cost of capital. See “Business—Ratings.”
Our performance is affected by general economic conditions and the cyclical nature of the insurance and
reinsurance industries.
Our performance is affected by changes in economic conditions, both globally and in the particular
countries in which we conduct our business. Premium and claim trends in the general insurance and reinsurance
markets are cyclical in nature. In 2005, overall premium rates declined slightly due to our increased underwriting
profitability and the increased underwriting profitability of the industry in the four prior years. In prior years,
premium rates have increased in a number of insurance classes as a result of a number of factors, including lower
investment returns, the events of September 11 and industry consolidation. In 2006 and 2007, we expect some
premium rates to remain stable while others may decline. Furthermore, the timing and application of these cycles
differ among our geographic and product markets. Unpredictable developments also affect the industry’s
profitability, including changes in economic conditions, competitive conditions and pricing pressures, unforeseen
developments in loss trends, market acceptance of new coverages, changes in operating expenses, fluctuations in
inflation and interest rates and other changes in investment markets that affect market prices of investments and
income from such investments. Fluctuations in the availability of capital could also have a significant influence
on the cyclical nature of general insurance and reinsurance markets. These cycles influence the demand for and
pricing of our products and services and therefore affect our financial position, profits and dividends.
In the last several years, various emerging market countries, including many countries in Asia, have
experienced severe economic, political and financial disruptions including, most recently, those related to the
outbreak of Avian flu, Severe Acute Respiratory Syndrome, hostilities in Iraq and natural disasters such as the
December 2004 Asian tsunami. This has sometimes resulted in significant devaluations of their currencies and
low or negative growth rates in their economies. The possible effects of these conditions include an adverse
impact on multinational companies and increased volatility in financial markets generally. A continuation of
these situations could adversely affect global economic conditions and world markets and, in turn, could
adversely affect our businesses. The state of capital markets affects our ability to raise funds for growth and
otherwise.
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Our extensive international operations subject us to various risks.
We operate in 42 countries around the world and continually assess opportunities to expand our
operations. Even though we typically have management and shareholder control of our non-Australian affiliates,
we are subject to the attendant risks of doing business in many foreign countries such as:
• political instability;
• difficulties in enforcing our rights;
• changes in foreign regulation or their interpretation or enforcement;
• unstable economic conditions;
• foreign taxes;
• adverse currency fluctuations; and
• lack of experience in new markets.
We are dependent on key personnel.
Our success is dependent on the efforts and abilities of our executive officers, particularly our chief
executive officer, our chief financial officer, our chief risk officer, the chief executive officer of our Australia
Pacific Asia Central Europe division, the president of our Americas division, our chief executive officer–
European operations, our group general manager–investments, our group general counsel and company secretary,
our group general manager–human resources, our chief underwriting officer–European operations and our chief
actuarial officer. Some of our executive officers are not bound by detailed service agreements. We do not have
key person insurance on any personnel. If we were to lose the services of Frank O’Halloran, who is our chief
executive officer, or other executive officers, such losses could have a material adverse effect on our business.
Our financial success and development are also dependent upon our ability to hire additional personnel
as necessary to meet our management, underwriting, investment, administration and other needs. Although we
believe that, to date, we have been successful in attracting and obtaining the highly qualified professionals we
require, there can be no assurance that we will continue to be successful in this regard.
We rely on our insurance agents and brokers.
We primarily distribute our products through insurance agents and brokers. Even though we are not
reliant on any individual distribution outlet, the failure, inability or unwillingness of insurance agents and brokers
to successfully market our insurance products could have a material adverse effect on our businesses, financial
condition and results of operations. Brokers are not obligated to promote our insurance products and agents and
brokers may sell competitors’ insurance products. As a result, our business depends to a significant extent on our
relationships with agents and brokers, the marketing efforts of those agents and brokers and our ability to offer
insurance products and services that meet the requirements of the clients and customers of those agents and
brokers.
Our holding company structure affects our ability to receive funds.
We are a holding company and our principal assets consist primarily of the entire share capital of our
insurance and investment subsidiaries. Our primary sources of funds are dividends and payments received on
loans from our insurance and investment subsidiaries. Our insurance subsidiaries are subject to significant
government regulation and our ability to receive dividends, loans and loan payments from these subsidiaries to
enable us to satisfy our obligations, including our obligations under the Capital Securities Guarantee Agreement,
may be restricted by such regulations. Such regulations usually give priority to the payment of policyholders’
claims.
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Furthermore, our right to participate in any distribution of assets of any subsidiary upon its liquidation or
reorganization or other event is subject to the prior claims of creditors of that subsidiary, except to the extent that
we may be recognized as a senior or equal ranking creditor of that subsidiary.
We are exposed to litigation.
All insurance companies are exposed to litigation relating to claims on policies they underwrite.
Accordingly, we are currently involved in such legal proceedings relating to claims lodged by policyholders,
some of which involve claims for substantial damages and other relief. Judicial decisions may expand coverage
beyond our pricing and reserving assumptions by widening liability on our policy wording or by restricting the
application of policy exclusions. There can be no assurance that the outcome of any of our judicial proceedings
will be covered by our existing provisions for outstanding claims or our reinsurance protections or will not
otherwise have a material adverse effect on our businesses, financial condition and results of operations.
We rely to a significant degree on our computer systems.
We rely to a significant degree on our computer systems in our daily operations, as well as in calculating
underwriting risks, and incur considerable expense on systems development and maintenance. We are exposed to
a number of systems risks, including:
• complete or partial failure of the computer systems;
• lost or impaired functionality of the computer systems;
• temporary and/or intermittent failure of the computer systems;
• lack of capacity; and
• system integration.
The above events may cause a loss of customers, damage to our reputation and significant remediation
costs, resulting in a material adverse effect on our businesses, financial condition and results of operations.
Our financial statements are not prepared under or reconciled to US GAAP
We have not made any attempt to reconcile our financial statements to US GAAP or to quantify the
differences between either A-IFRS and US GAAP or between historical Australian GAAP and US GAAP. Each
of A-IFRS and historical Australian GAAP differs in certain respects from US GAAP. We cannot predict the
differences in our balance sheet, income statement or statement of cash flows which would arise if we were to
change the presentation of our financial statements to US GAAP and as a result cannot exclude the possibility
that there would be significant differences. See “Financial Information Presentation.”
Risks Related to the Capital Securities
If QBE’s financial condition deteriorates, you could lose all or part of your investment.
An investment in the Capital Securities will have similar economic risks to an investment in
non-cumulative perpetual preference shares issued directly by QBE having the same liquidation preference and
rate of distribution as the Capital Securities. The Issuer is a newly organized limited partnership with no previous
operating history or revenues. We expect that the Issuer’s sole source of funds to pay distributions on the Capital
Securities will be payments which it receives under the UK Capital Securities. The rights of the holders of the
Capital Securities will be represented solely by the Capital Securities, the Capital Securities Guarantee
Agreement and the Exchange Agreement, and under no circumstances will the rights of the holders of the Capital
Securities be represented by the UK Capital Securities, nor will holders of the Capital Securities be entitled to
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eceive or hold the UK Capital Securities. The Capital Securities are guaranteed on a limited and subordinated
basis by QBE pursuant to the terms of the Capital Securities Guarantee Agreement. Accordingly, if QBE’s
financial condition were to deteriorate, you may suffer direct and materially adverse consequences, including
non-payment of distributions on the Capital Securities or of payments under the Capital Securities Guarantee
Agreement.
Except in limited circumstances, you will not receive payments on your Capital Securities if QBE UK does
not make interest payments in full on the interest payment dates for the UK Capital Securities.
Prior to the date, if any, on which the Exchange Event occurs, QBE is obligated to make payments
under the Capital Securities Guarantee Agreement only to the extent that the Issuer has funds available for
payment. After the date, if any, on which the Exchange Event occurs, QBE will be obligated to pay current
distributions on the Capital Securities under the Capital Securities Guarantee if not paid by the Issuer. However,
no payment may be made by QBE under the Capital Securities Guarantee, whether before or after the Exchange
Event, if a QBE Australia Stopper or APRA Condition with respect to that payment exits.
Interest on the UK Capital Securities will not be payable on any Interest Payment Date if an APRA
Condition or a QBE UK Stopper with respect to that interest payment exists on that date or the UK Solvency
Condition is not satisfied, in which case, the amount of that interest payment that is not paid on that Interest
Payment Date will be deferred until such time as the UK Capital Securities are redeemed.
As APRA has not finalized its Tier 1 capital regulations for insurance holding companies such as
QBE, there can be no assurance that such regulations will be adopted and, if adopted, such regulations
could have a material adverse impact on the Issuer’s ability to make distributions on the Capital Securities
or QBE’s ability to make payments on the Capital Securities Guarantee or pay dividends on the QBE
Preferred Securities. Those regulations could also result in the redemption of the Capital Securities or the
QBE Preferred Securities.
APRA is considering but has not yet adopted Tier 1 capital regulations for insurance holding companies
such as QBE. See “Regulation—Australian Insurance Regulation—The Insurance Act 1973 (Cth).” If adopted,
those regulations are likely to impose restrictions on our ability to pay distributions on and redeem or repurchase
our securities, including those of our subsidiaries, including the Issuer. The extent of those restrictions cannot be
predicted.
Under the terms of the Capital Securities and the Capital Securities Guarantee Agreement, neither the
Issuer nor QBE, as guarantor, will make distribution payments if an APRA Condition exists. Under the terms of
the QBE Preferred Securities, if issued following the Exchange Event, QBE will not pay dividends on the QBE
Preferred Securities if an APRA Condition exists. One of the APRA Conditions is that the QBE Group has
insufficient Distributable Profits. We cannot predict whether, if adopted, APRA’s Tier 1 capital regulations will
have a material adverse impact on the ability of the Issuer or QBE, as guarantor, to make distribution payments
on the Capital Securities or QBE to make dividend payments on the QBE Preferred Securities.
If APRA adopts Tier 1 capital regulations that apply to insurance holding companies such as QBE while
the Capital Securities are outstanding and the Capital Securities are not eligible for inclusion in the Tier 1 capital,
or its then equivalent, of the QBE Group under those regulations, a Capital Securities Regulatory Event will
occur and the Issuer will be entitled to redeem all of the Capital Securities at the Make Whole Redemption Price.
If APRA adopts those regulations and the QBE Preferred Securities, if issued, are not eligible for inclusion in the
Tier 1 capital, or its then equivalent, of the QBE Group, a QBE Regulatory Event will occur, and QBE will be
entitled to redeem all of the QBE Preferred Securities at the QBE Preferred Securities Make Whole Redemption
Price. In case of any such redemption, you may not be able to reinvest the redemption proceeds in a comparable
instrument, and such an early redemption may impact your hedging and other investment strategies. See also “If
the Capital Securities or the QBE Preferred Securities are redeemed, you may not be able to reinvest the
redemption proceeds in a comparable security at a similar return on investment” below.
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Our obligations will be deeply subordinated and we will not make any payments under the Capital
Securities Guarantee Agreement or the QBE Preferred Securities unless we can satisfy in full all of our
other obligations that rank senior to those obligations.
Our obligations under the Capital Securities Guarantee Agreement and the QBE Preferred Securities are
subordinated to our obligations to our creditors, other than creditors whose claims against us rank or are
expressed to rank equally with, or junior to, the claims of holders the Capital Securities with respect to the
Capital Securities Guarantee Agreement or the QBE Preferred Securities or other preference shares or
instruments that rank equally with the QBE Preferred Securities, and will in effect rank equally with the QBE
Preferred Securities in a winding-up of us. QBE Preferred Securities are shares in our capital and so in effect
rank after all of our creditors other than creditors whose claims rank equally with or junior to the QBE Preferred
Securities. Accordingly, our obligations under the Capital Securities Guarantee Agreement and the QBE
Preferred Securities will not be satisfied unless we can satisfy in full all of our other obligations ranking senior to
those instruments. As of December 31, 2005, we had outstanding borrowings of approximately A$3.1 billion (or
£1.3 billion) which would rank senior to the Capital Securities Guarantee Agreement and the QBE Preferred
Securities in a winding-up of us.
There are no terms in the Capital Securities, the UK Capital Securities, the Capital Securities Guarantee
Agreement or the QBE Preferred Securities that limit our ability to incur additional indebtedness, including
indebtedness that ranks senior to or equally with the UK Capital Securities or the Capital Securities Guarantee
Agreement or to issue other instruments which rank senior to or equally with the QBE Preferred Securities.
As a holding company, our business is operated through our subsidiaries. As a result, our right to
participate in any distribution of the assets of certain of subsidiaries, upon a subsidiary’s dissolution, winding-up,
liquidation or reorganization or otherwise, and thus your ability to benefit indirectly from that distribution, is
subject to the prior claims of creditors of that subsidiary, except to the extent that we may be a creditor of that
subsidiary and our claims are recognized. There are legal limitations on the extent to which some of our
subsidiaries may extend credit, pay dividends or otherwise supply funds to, or engage in transactions with, us or
some of our other subsidiaries. Accordingly, the Capital Securities, the UK Capital Securities, the Capital
Securities Guarantee Agreement and the QBE Preferred Securities will be effectively subordinated to all existing
and future liabilities of our subsidiaries other than in the case of the UK Capital Securities, QBE UK, and holders
of the Capital Securities, the Capital Securities Guarantee and the QBE Preferred Securities should look only to
our assets for payments.
The terms of certain instruments could limit our ability to make payments on the Capital Securities and
the QBE Preferred Securities.
Under certain circumstances, the terms of our capital securities or other instruments that we may issue
could limit the Issuer’s and our ability to make payments on the Capital Securities and the QBE Preferred
Securities, respectively. The terms of such capital securities and related instruments may provide that, if:
• a distribution, dividend, redemption or comparable payment is not made on or, in some cases, within
a specified period after the applicable date; or
• we fail to deliver preference shares or other securities in accordance with the terms thereof,
then we may not make any payments on certain of our other securities or other instruments (which may include
the Capital Securities and the QBE Preferred Securities) until such time as is specified in those instruments.
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The Capital Securities will not be exchanged for QBE Preferred Securities if QBE is prohibited by law
from issuing the QBE Preferred Securities.
If the Exchange Event is the result of an appointment by APRA of a statutory manager or the
assumption of control of QBE by APRA, or QBE is otherwise prohibited by applicable statute, governmental rule
or regulation or court or administrative ruling, order or decree from allotting and issuing the QBE Preferred
Securities, QBE will only be obligated to issue the QBE Preferred Securities if and when QBE ceases to be under
the control of a statutory manager, under the control of APRA or otherwise prohibited from allotting and issuing
the QBE Preferred Securities. See “Description of the QBE Preferred Securities—Limitations on Issuance.”
You will not be entitled to recover missed distributions on the Capital Securities because they are
non-cumulative.
Distributions on the Capital Securities are non-cumulative. If and to the extent the Issuer fails to pay a
distribution on or within twenty (20) Business Days after any Distribution Payment Date, unless we pay the
distribution under the Capital Securities Guarantee Agreement, you will not receive that distribution and will
have no claim to that distribution in the future, whether or not the Issuer subsequently pays distributions or has
funds to pay subsequent distributions or QBE, as guarantor, subsequently pays distributions. Although QBE will
guarantee payment of distributions on the Capital Securities (if the Capital Securities remain outstanding) after
the Exchange Event, whether or not the Issuer has funds available to pay that distribution, QBE will not be
obligated to pay current distributions on the Capital Securities under the Capital Securities Guarantee Agreement
if a QBE Australia Stopper or APRA Condition with respect to that payment exits.
You will not be entitled to recover missed dividends on the QBE Preferred Securities because they are
non-cumulative.
Dividends on the QBE Preferred Securities are non-cumulative. If and to the extent we do not pay a
dividend on or within twenty (20) Business Days after any Dividend Payment Date for any Dividend Period or an
Optional Dividend with respect thereto, you will not receive that dividend and will have no claim to that dividend
in the future, whether or not we subsequently pay dividends or have funds to pay subsequent dividends.
If the Exchange Event occurs as a result of the Issuer failing or QBE, as guarantor, failing to pay in full
a distribution on the Capital Securities on or after a Distribution Payment Date, then, unless QBE declares and
pays a Special Optional Dividend, you will not receive any unpaid distribution with respect to the immediately
preceding Distribution Period.
We will pay dividends on the QBE Preferred Securities only if, when and to the extent declared or
authorized by our board of directors or a duly authorized committee thereof and so long as no APRA Condition
exists with respect to that payment. If our board of directors or a duly authorized committee thereof does not
declare or authorize all or any part of a dividend payable on any Dividend Payment Date or an APRA Condition
exists with respect thereto, then you will have no right to receive that dividend at any time, even if we pay other
dividends in the future.
We are obligated to make payments under the Capital Securities Guarantee Agreement only in specified
circumstances.
QBE, pursuant to the Capital Securities Guarantee Agreement, will guarantee payment of the
obligations of the Issuer under the Capital Securities, (i) prior to the date, if any, on which the Exchange Event
occurs, only to the extent that the Issuer has funds available for distribution to holders of the Capital Securities
and (ii) after the date, if any, on which the Exchange Event occurs, whether or not the Issuer has funds available
for distribution to holders of the Capital Securities (if the Capital Securities remain outstanding), in the case of
(i) or (ii), so long as no QBE Australia Stopper or APRA Condition with respect to that payment exists; provided
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that, if the Exchange Event is the failure of the Issuer to pay a distribution in full on or within twenty
(20) Business Days after a Distribution Payment Date, the only reason for such failure is the failure of QBE UK
to pay interest in full on the UK Capital Securities on the corresponding Interest Payment Date and no QBE
Australia Stopper or APRA Condition exists with respect to that distribution, QBE will guarantee payment of that
distribution whether or not the Issuer has sufficient available funds. See “Description of the Capital Securities
Guarantee Agreement.”
If the Capital Securities or the QBE Preferred Securities are redeemed, you may not be able to reinvest the
redemption proceeds in a comparable security at a similar return on investment.
If a Capital Securities Tax Event, an Investment Company Event or a Capital Securities Regulatory
Event occurs, the General Partner may, subject to the prior written approval of APRA, if required, and any other
applicable regulatory authority (if required under the laws and guidelines then applicable), redeem the Capital
Securities, in whole but not in part. In addition, upon the occurrence of an Acquisition Event, the General Partner
will, subject to the prior written approval of APRA, if required, redeem the Capital Securities in whole on any
Business Day at least five (5) but not more than twenty (20) Business Days after that occurrence. The General
Partner may also redeem the Capital Securities, subject to regulatory approval as described above, on the Step Up
Date or on any Interest Payment Date thereafter on one or more occasions, in whole or in part. See “Description
of the Capital Securities —Redemption.” We are not aware of any currently proposed change in UK tax law that
if enacted would cause a Capital Securities Tax Event by virtue of causing a UK Capital Securities Tax Event.
If a QBE Tax Event or QBE Regulatory Event occurs, we may, subject to the prior written approval of
APRA, if required, or other applicable regulatory authority (if required under the laws and guidelines then
applicable), redeem the QBE Preferred Securities, in whole but not in part. We may redeem the QBE Preferred
Securities, subject to regulatory approval as described above, in whole but not in part, on any Business Day prior
to the Step Up Date if the Exchange Event was not QBE exercising its right to cause the Exchange Event in its
absolute discretion. In addition, upon the occurrence of an Acquisition Event, the General Partner, on behalf of
the Issuer, will, subject to regulatory approval as described above, redeem the QBE Preferred Securities in whole
on any Business Day at least five (5) but not more than twenty (20) Business Days after that occurrence. We may
also redeem the QBE Preferred Securities, subject to regulatory approval as described above, on the Step Up
Date or any subsequent Dividend Payment Date on one or more occasions, in whole or in part. See “Description
of the QBE Preferred Securities—Redemption, Buy-back or Cancellation.”
As described above under “—QBE’s Business Risk Factors—Changes in government policy, regulation
or legislation in the countries in which we operate may affect our profitability,” APRA has not finalized its Tier 1
capital regulations for insurance holding companies such as QBE, and there can be no assurance that such
regulations will be adopted. If adopted, such regulations could have a material adverse impact on the Issuer’s
ability to make distributions on the Capital Securities or QBE’s ability to make payments on the Capital
Securities Guarantee Agreement or pay dividends on the QBE Preferred Securities. If the effect of those
regulations are that the Capital Securities or the QBE Preferred Securities, as the case may be, are not eligible for
inclusion in the Tier 1 capital, or its then equivalent, of the QBE Group, a Capital Securities Regulatory Event or
QBE Regulatory Event, as the case may be, will occur and the Issuer will be entitled to redeem all of the Capital
Securities at the Make Whole Redemption Price or, if the QBE Preferred Securities are outstanding, QBE will be
entitled to redeem all of the QBE Preferred Securities at the QBE Preferred Securities Make Whole Redemption
Price.
If the Capital Securities or the QBE Preferred Securities are redeemed at a time when prevailing interest
rates are lower than the rate at which distributions accrue on the Capital Securities or dividends accrue on the
QBE Preferred Securities, as the case may be, you may not be able to reinvest the redemption proceeds in a
comparable security at as high a rate of return.
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You may be required to bear the financial risks of an investment in the Capital Securities or the QBE
Preferred Securities for an indefinite period of time.
Neither the Capital Securities nor the QBE Preferred Securities have a fixed final redemption date and
you will have no right to call for the redemption of either the Capital Securities or the QBE Preferred Securities.
Although the Capital Securities and the QBE Preferred Securities may be redeemed in certain circumstances
(including on July 18, 2016 or on any Distribution Payment Date or Dividend Payment Date, as the case may be,
thereafter or at any time following the occurrence of any of the applicable events described herein), there are
limitations on the ability to do so. In addition, any redemption of the Capital Securities or QBE Preferred
Securities would be subject to the prior written approval of APRA, if required. Therefore, you should be aware
that you may be required to bear the financial risks of an investment in the Capital Securities or the QBE
Preferred Securities for an indefinite period of time.
Stamp duty may be payable with respect to transfers of the QBE Preferred Securities.
As of the date of this Offering Memorandum, stamp duty at the rate of 0.6% of the greater of the
consideration paid for the QBE Preferred Securities or the unencumbered value of the QBE Preferred Securities
would be payable with respect to a transfer of the QBE Preferred Securities unless the QBE Preferred Securities
are listed on the Irish Stock Exchange or another qualifying exchange. See “Taxation—Certain Australian
Income Tax Considerations—Other Taxes.” QBE has undertaken to use its commercially reasonable best efforts
to list the QBE Preferred Securities on the Irish Stock Exchange or another qualifying exchange if the listing was
required or take such other measures as may be necessary to ensure that the transfer of QBE Preferred Securities
will not be chargeable with, or will be exempt from, any stamp duty or similar charge. However, if QBE were to
fail to list the QBE Preferred Securities on the Irish Stock Exchange or another qualifying exchange or take other
measures, the foregoing stamp duty would be payable with respect to transfers of the QBE Preferred Securities.
Additional Amounts will not be payable with respect to payments taxed under withholding systems by
certain Member States of the European Union.
Under EC Council Directive 2003/48/EC on the taxation of savings income, Member States of the
European Union are required to provide to the tax authorities of another Member State details of payments of
interest (or similar income) paid by a person within its jurisdiction to an individual resident in that other Member
State. However, for a transitional period, Belgium, Luxembourg and Austria are instead required (unless during
that period they elect otherwise) to operate a withholding system in relation to such payments (the ending of such
transitional period being dependent upon the conclusion of certain other agreements relating to information
exchange with certain other countries). A number of non-EU countries and territories including Switzerland have
agreed to adopt similar measures (a withholding system in the case of Switzerland) with effect from the same
date. If a payment is to be made or collected through a Member State of the European Union which has opted for
a withholding system and an amount of, or in respect of tax is to be withheld from that payment, neither the
Issuer nor any paying agent nor any other person would be obliged to pay additional amounts with respect to the
Capital Securities, the Capital Security Guarantee Agreement, the UK Capital Securities or the QBE Preferred
Securities as a result of the imposition of such withholding tax. For so long as any Capital Security or QBE
Preferred Security is outstanding, the General Partner or QBE, as the case may be, will undertake to maintain a
paying agent in a Member State of the European Union that does not impose an obligation to withhold or deduct
tax pursuant to this Directive.
54

You will not be able to participate in the management of the Issuer or QBE.
As holder of the Capital Securities or the QBE Preferred Securities, your voting rights will be limited to
matters that affect your rights, preferences and privileges under the Capital Securities or the QBE Preferred
Securities. You will not otherwise be entitled to receive notice of, attend or vote at any meeting, or participate in
the management of, the Issuer, the General Partner or QBE. See “Description of the Capital Securities—Action
by Holders of the Capital Securities” and “Description of the QBE Preferred Securities—Voting Rights” and
“Description of the QBE Preferred Securities—Variation of Rights Attached to the QBE Preferred Securities.”
Holders may be subject to foreign exchange risk.
Because the Capital Securities are, and the QBE Preferred Securities if issued will be, denominated in
pounds sterling and all payments in respect of those securities are to be made in pounds sterling, an investment in
the Capital Securities entails significant risks for a purchaser resident other than in the United Kingdom or a
purchaser that conducts its business or activities in a currency other than pounds sterling (‘home currency”).
These include the possibility of significant changes in rates of exchange between the home currency and pounds
sterling and the imposition or modification of foreign exchange controls with respect to pounds sterling.
We have no control over a number of factors affecting these type of risks, including economic, financial
and political events that are important in determining the existence, magnitude and longevity of these risks and
their results. In recent years, rates of exchange for certain currencies, including the pound sterling, have been
volatile and this volatility may be expected to continue in the future. Fluctuations in any particular exchange rate
that have occurred in the past are not necessarily indicative of fluctuations in the rate that may occur in the
future. Depreciation of the pound sterling against your home currency will result in a decrease in the value,
expressed in your home currency, of the Capital Securities or the QBE Preferred Securities, if issued, and, in
certain circumstances, could result in a loss to you when payments on the Capital Securities or the QBE Preferred
Securities, if issued, are converted into your home currency.
This description of foreign currency risks does not describe all the risks of an investment in securities
denominated in a currency other than your home currency. You should consult your own financial and legal
advisor as to the risks involved in an investment in the Capital Securities.
An active trading market may not develop for either the Capital Securities or the QBE Preferred
Securities.
Application has been made to the Irish Stock Exchange for the Capital Securities to be admitted to the
Official List for trading on its regulated market. If approval of this application is granted, the Capital Securities
will be so admitted at that time. We make no representation, however, that the Capital Securities will be so
admitted or, if so admitted, will remain so admitted. In any event, the Capital Securities comprise, and the QBE
Preferred Securities would comprise, a new issue of securities for which there is currently no active trading
market. We do not know whether an active trading market will develop for either the Capital Securities or the
QBE Preferred Securities. If the Capital Securities or the QBE Preferred Securities are traded after their initial
issuance, they may trade at a discount from their initial offering price, depending on prevailing interest rates, the
market for similar securities, our performance and other factors.
The Capital Securities and the QBE Preferred Securities have not been registered under the Securities
Act or any other state securities laws. Therefore, absent that registration, the Capital Securities and the QBE
Preferred Securities, if issued, may be offered or sold only in transactions that are not subject to, or are exempt
from, the registration requirements of the Securities Act and applicable state securities laws. See “Notice to
Investors.”
Although we will use our commercially reasonable best efforts to list the QBE Preferred Securities on
the Irish Stock Exchange or another qualifying exchange, we cannot assure you that an active trading market for
the QBE Preferred Securities will develop or as to the liquidity or sustainability of that market.
55

A classification of the Capital Securities by the NAIC may impact US insurance investors.
The Securities Valuation Office (the “SVO”) of the NAIC may from time to time classify securities in
US insurers’ portfolios as either debt, preferred equity or common equity instruments. Under the written
guidelines outlined by the SVO, it is not always clear which securities classify as debt, preferred equity or
common equity or which features are specifically relevant in making this determination. For this reason, there is
a risk that the Capital Securities may be classified as common equity. The NAIC classification of an investment
directly affects US insurance company investors because it affects the capital required for such investment by
such investors, but is not determinative in any way with respect to any other tax, accounting or legal
considerations for investors generally.
You should consider the United Kingdom corporation tax and income tax consequences of owning the
Capital Securities and the QBE Preferred Securities.
It is expected that distributions paid with respect to the Capital Securities and dividends paid with
respect to the QBE Preferred Securities will be made without withholding or deduction for or on account of UK
tax. For a summary of the principal UK tax considerations relating to the acquisition, ownership and disposal of
the Capital Securities and the QBE Preferred Securities, see the summary thereof set forth in “Taxation—Certain
United Kingdom Tax Consequences.” That summary does not address the UK tax consequences for all holders.
Therefore, it is important that you obtain your own independent taxation advice to take into account your
particular circumstances.
You should consider the United States federal income tax consequences of owning the Capital Securities
and the QBE Preferred Securities.
The Issuer believes that neither QBE UK nor QBE is a passive foreign investment company (“PFIC”).
This conclusion is a factual determination that is made annually and thus may be subject to change. If either QBE
UK or QBE were to be treated as a PFIC, gain realized on the sale, exchange, redemption, or other disposition of
the Capital Securities or the QBE Preferred Securities, respectively, generally would not be treated as capital
gain. Instead, a US holder generally would be treated as if the US holder had realized gain on the disposition of
the Capital Securities or the QBE Preferred Securities, respectively, as well as certain “excess distributions”
ratably over the US holder’s holding period for the Capital Securities or the QBE Preferred Securities and would
be taxed at the highest tax rate in effect for each such year to which the gain or the excess distributions were
allocated, together with an interest charge in respect of the tax attributable to each such year. With certain
exceptions, the Capital Securities or the QBE Preferred Securities will be treated as stock in a PFIC with respect
to a US holder if QBE UK or QBE were a PFIC at any time during such US holder’s holding period in the
Capital Securities or the QBE Preferred Securities, respectively. If a US holder owns the Capital Securities or the
QBE Preferred Securities during any year that QBE UK or QBE is a PFIC with respect to such US holder, such
US holder generally will be required to file IRS Form 8621. See “Taxation—Certain United States Federal
Income Tax Considerations.”
You should consider the Australian income tax consequences of owning the Capital Securities and the
QBE Preferred Securities.
In general, it is expected that you will not be exposed to Australian tax consequences by owning the
Capital Securities, but you could have an exposure by owning the QBE Preferred Securities. However, your
actual exposure to any Australian tax consequences will depend on your particular circumstances. For a summary
of the principal Australian tax considerations relating to the acquisition, ownership and disposal of the Capital
Securities and the QBE Preferred Securities, see “Taxation—Certain Australian Tax Consequences.” The
summary does not address the Australian tax consequences for all holders. Therefore, it is important that you
obtain your own independent taxation advice to take into account your particular circumstances.
56

QBE CAPITAL FUNDING LP
The Issuer is a Jersey limited partnership formed under the laws of the Bailiwick of Jersey, the Channel
Islands on June 14, 2006 with registered number LP733 and operates under the terms of a Limited Partnership
Agreement, dated as of the Closing Date (the “Limited Partnership Agreement”), among the General Partner and
the limited partners named therein. The Issuer is not a legal entity separate from its partners and has no operating
history.
The business of the Issuer will be limited to:
• issuing the Capital Securities;
• investing the proceeds of the Capital Securities in, and holding, the UK Capital Securities;
• entering into and performing its obligations under the Exchange Agreement; and
• engaging in only those other activities necessary or incidental thereto.
The general partner of the Issuer will be the General Partner, a wholly owned subsidiary of QBE formed
as a private limited company under the laws of the Bailiwick of Jersey, the Channel Islands. QBE will undertake
in the Capital Securities Guarantee Agreement to ensure that the general partner of the Issuer will at all times be
either itself or one of its directly or indirectly wholly owned subsidiaries. The General Partner will manage or
cause the management of the Issuer.
The General Partner will have the power under the Limited Partnership Agreement to exercise all rights,
powers and privileges with respect to the Issuer as holder of the UK Capital Securities and party to the Exchange
Agreement. Provided that they do not become involved with the management of the limited partnership other
than in the circumstances provided for in the Limited Partnership Agreement (see “Description of the Capital
Securities —Actions by Holders of the Capital Securities”), the liability of persons registered as limited partners
of the Issuer for the debts or obligations of the limited partnership will be limited to the amount which they have
contributed or agreed to contribute to the Issuer (i.e., £50,000 per Capital Security).
The rights of the holders of the Capital Securities, including economic rights, rights to information and
voting rights, are as set forth in the Limited Partnership Agreement and as provided under the laws of the
Bailiwick of Jersey, the Channel Islands. See “Description of the Capital Securities.”
All distributions on the UK Capital Securities and any proceeds received from the sale or redemption of
any UK Capital Securities will be remitted to a single, segregated non-interest bearing account with the Paying
Agents (as defined herein) for the benefit of the registered holders of the Capital Securities.
The General Partner’s registered office is at Templar House, Don Road, St Helier, Jersey JE4 8WH and
the principal office of the General Partner is Plantation Place, 30 Fenchurch Street, London, EC3M 3BD, United
Kingdom. Its telephone number in Jersey is 44-1534-500-400.
57

QBE INTERNATIONAL HOLDINGS (UK) PLC
QBE UK, an indirect wholly owned subsidiary of QBE, is a public limited company incorporated under
the laws of England and Wales. QBE UK was incorporated as Minmar (175) Limited on February 27, 1992. On
July 20, 2001 it changed its name to QBE International Holdings (UK) plc and registered as a public company.
QBE UK is the holding company for the entities comprising our European operations, including our Lloyd’s
operations. QBE UK has subordinated guaranteed floating rate notes listed on the London Stock Exchange. QBE
UK’s principal executive office is located at Plantation Place, 30 Fenchurch Street, London, EC3M 3BD, United
Kingdom. Its telephone number is 44-20-7105-4065. For more information on our European operations, see
“Management’s Discussion and Analysis of Financial Condition and Results of Operations” and “Business.”
58

USE OF PROCEEDS
On the Closing Date, the net proceeds from this offering will be invested by the Issuer in the UK Capital
Securities. QBE UK will use the proceeds from the issuance of the UK Capital Securities for general corporate
purposes to support our European operations.
59

OUR CAPITALIZATION
The following table sets forth: (i) our capitalization as of December 31, 2005 and (ii) our capitalization
as of December 31, 2005 adjusted to reflect the issuance of the Capital Securities.
The following table is based on our audited financial statements as at and for the year ended
December 31, 2005, which were prepared in accordance with A-IFRS. This table should be read in conjunction
with the financial statements and other information contained in this Offering Memorandum.
As of December 31, 2005
Actual As adjusted Actual As adjusted Actual As adjusted
£ £ US$ US$ A$ A$
(in millions, A-IFRS)
Borrowings
Current portion of borrowings ............. 171 171 294 294 400 400
Non-current borrowings
ABC securities(1) .................. 434 434 745 745 1,015 1,015
LYONs due 2022 ................. 71 71 121 121 165 165
Senior Convertible Securities due
2024 ........................... 199 199 342 342 466 466
Senior debt ........................ 175 175 300 300 409 409
Capital Securities offered hereby ....... — 300 — 515 — 702
Subordinated debt
Eurobonds issued in 2000 ............ 151 151 260 260 354 354
2003 subordinated notes ............. 144 144 247 247 336 336
Total borrowings ....................... 1,345 1,645 2,309 2,824 3,145 3,847
Equity
Ordinary shares: 793,510,465 issued and paid
up(2)............................... 1,366 1,366 2,346 2,346 3,195 3,195
Equity component of LYONs due 2022 .... 25 25 43 43 58 58
Equity component of Senior Convertible
Securities due 2024 ................... 21 21 37 37 50 50
Reserves .............................. (9) (9) (15) (15) (20) (20)
Retained profits ........................ 774 774 1,329 1,329 1,810 1,810
Minority interest ....................... 28 28 48 48 66 66
Total equity ........................... 2,205 2,205 3,788 3,788 5,159 5,159
Total capitalization ........................ 3,550 3,850 6,097 6,612 8,304 9,006
(1) The ABC securities were issued by special purpose vehicles (“SPVs”). The proceeds of the issues were used
to acquire investment assets over which fixed and floating charges were granted to Lloyd’s of London to
support the funds at Lloyd’s requirements of our Lloyd’s syndicates. Under A-IFRS, an entity is required to
consolidate an SPV when its activities are being conducted on behalf of the entity so that the entity obtains
benefits from the SPV’s operation. Although we have no ownership interest in the SPVs which issued the
ABC securities, we are required under A-IFRS to consolidate them in our financial statements. As a result,
the ABC securities and the matching ABC investment assets are separately identified on our consolidated
balance sheet. For more information see Note 35 to our A-IFRS financial statements.
(2) Ordinary shares exclude (a) 1,591,764 ordinary shares issuable at various times and prices pursuant to
options outstanding at December 31, 2005 under our Employee Share and Option Plan (“ESOP”);
(b) 9,146,826 ordinary shares issuable pursuant to options issued under our short and long-term incentive
plans; (c) 5,750,000 ordinary shares issuable pursuant to options granted to third parties in respect of
acquisitions; and (d) 8,216,396 ordinary shares previously issued under our ESOP, on which staff loans are
outstanding. Under A-IFRS the shares are de-recognized and will be recognized as the loans are repaid.
60

RATIOS OF EARNINGS TO FIXED CHARGES AND EARNINGS TO
COMBINED FIXED CHARGES AND PREFERRED SECURITY DIVIDENDS
The following tables set forth our ratio of earnings to fixed charges on an historical basis for the periods
indicated. The following table sets forth this ratio for the years ending December 31, 2005 and 2004 using
amounts derived from our financial statements prepared in accordance with A-IFRS. For the purpose of
computing the following ratios, earnings consist of net profit before income tax and minority interest. Fixed
charges consist of interest costs plus one third of minimum rental payments under operating leases (estimated by
management to be the interest factor of such rentals). Other than in respect of this offering, we have no
preference shares outstanding and for the years ended December 31, 2004 and 2005 we had no preference shares
outstanding. Accordingly, the ratio of earnings to fixed charges and preferred shares dividends is equal to the
ratio of earnings to fixed charges and is not disclosed separately for those periods.
Earnings to Fixed Charges
Year ended December 31,
2005 2004
(A-IFRS)
13.3x 10.4x
The following table sets forth our earnings to fixed charges ratio for the years ended December 31,
2004, 2003, 2002 and 2001 using amounts derived from our financial statements prepared in accordance with
historical Australian GAAP.
Earnings to Fixed Charges
Year ended December 31,
2004 2003 2002 2001
(historical Australian GAAP)
10.2x 9.5x 4.7x N/A(1)
(1) For the year ended December 31, 2001, there was a deficiency of earnings to fixed charges. For the year
ended December 31, 2001 our earnings were a net loss before tax of A$99 million and our fixed charges
were A$75 million.
For the years ended December 31, 2001, 2002 and 2003 we had 3,150,000 mandatory convertible
preference shares outstanding. The mandatory convertible preference shares were entitled to a non-cumulative
dividend of 8% per annum. The following table sets forth our earnings to combined fixed charges and preferred
security dividends for the periods indicated. For purposes of computing the following ratios, preferred security
dividends consist of the amount of pre-tax earnings that was required to pay the dividend on the mandatory
convertible preference shares. All of the mandatory convertible preference shares converted on August 18, 2003.
Earnings to Combined Fixed Charges and Preferred Security Dividends
Year ended December 31,
2003 2002 2001
(historical Australian GAAP)
8.0x 3.9x N/A(1)
(1) For the year ended December 31, 2001, there was a deficiency of earnings to fixed charges. For the year
ended December 31, 2001 our earnings were a net loss before tax of A$99 million and our fixed charges and
preferred security dividends were A$99 million.
61

SELECTED CONSOLIDATED HISTORICAL FINANCIAL AND OTHER DATA
Change of Accounting Standards
Until December 31, 2004, we prepared our financial statements in accordance with historical Australian
GAAP. From January 1, 2005, we prepared our financial statements in accordance with current A-IFRS.
We prepared our financial statements as at and for the year ended December 31, 2005 in accordance
with A-IFRS. We applied AASB 1: First Time Adoption of Australian Equivalents to International Financial
Reporting Standards in preparing our financial statements as at and for the year ended December 31, 2005. In
preparing the financial statements, management amended certain accounting and valuation methods applied in
the historical Australian GAAP financial statements to comply with A-IFRS and the comparative figures as at
and for the year ended December 31, 2004 have been restated to reflect these adjustments. The information based
on historical Australian GAAP is not comparable to information prepared in accordance with A-IFRS. See Notes
1 and 2 to our A-IFRS financial statements for a summary of our significant accounting policies under A-IFRS
and the impact of the adoption of A-IFRS respectively. This Offering Memorandum includes and refers to
financial statements and other financial information based on both A-IFRS and historical Australian GAAP.
Because of the significant differences between A-IFRS and historical Australian GAAP, we have presented the
information as at and for the years ended December 31, 2005 and 2004 prepared in accordance with A-IFRS
separately from the information as at and for the years ended December 31, 2004, 2003, 2002 and 2001 prepared
in accordance with historical Australian GAAP.
Adjustments as a result of the adoption of A-IFRS reduced shareholders’ funds at December 31, 2004 by
A$388 million from A$4,480 million to A$4,092 million and increased net profit after income tax for the year ended
December 31, 2004 by A$37 million from A$820 million to A$857 million. We do not expect any future material
financial impacts from the application of existing A-IFRS although there may be some ongoing volatility in the income
statement and balance sheet due to fair value movements in assets and liabilities. See Notes 1 and 2 to our A-IFRS
financial statements for a discussion of the impact of the adoption of A-IFRS on our results of operations.
Each of A-IFRS and historical Australian GAAP differ in certain respects from US GAAP. See
“Financial Information Presentation.”
Years ended December 31, 2005 and 2004 under A-IFRS
The selected consolidated historical financial data presented in Australian dollars as at December 31,
2004 and 2005 and for the years ended December 31, 2004 and 2005 set forth below have been derived from our
audited consolidated financial statements and related notes included herein. For your convenience, the financial
data contains translations of certain Australian dollar amounts into US dollars at the noon buying rate on
December 31, 2005, which rate was A$1.00 = US$0.7342. For your convenience, the financial data contains
translations of certain Australian dollar amounts into pounds sterling at the spot settlement rate on December 31,
2005, which rate was A$1.00= £0.4274. Our financial statements as at and for the years ended December 31,
2005 have been prepared in accordance with A-IFRS and the comparative figures as at and for the year ended
December 31, 2004 have been restated to comply with A-IFRS.
Year ended December 31,
2005 2005 2005 2004
£ US$ A$ A$
(in millions except ratios and
earnings per share data, A-IFRS)
Income statement
Gross written premium ........................................ 4,021 6,907 9,408 8,766
Gross earned premium ........................................ 3,920 6,733 9,171 8,571
Outward reinsurance premium .................................. (763) (1,310) (1,785) (1,781)
Deferred reinsurance premium movement ......................... — — — (9)
Outward reinsurance premium expense ........................... (763) (1,310) (1,785) (1,790)
62

Year ended December 31,
2005 2005 2005 2004
£ US$ A$ A$
(in millions except ratios and
earnings per share data, A-IFRS)
Net earned premium ......................................... 3,157 5,423 7,386 6,781
Gross claims incurred ....................................... (2,882) (4,951) (6,744) (5,327)
Reinsurance and other recoveries .............................. 995 1,708 2,327 1,171
Net claims incurred(1) ....................................... (1,887) (3,243) (4,417) (4,156)
Net commissions ........................................... (535) (918) (1,251) (1,184)
Other acquisition costs ....................................... (183) (314) (428) (439)
Underwriting and other expenses ............................... (206) (354) (482) (405)
Underwriting profit ......................................... 346 594 808 597
Investment income on policyholders’ funds ...................... 205 352 480 331
Insurance profit ............................................ 551 946 1,288 928
Investment income on shareholders’ funds ....................... 102 175 238 188
Amortization of intangibles ................................... (1) (2) (3) (1)
Profit before income tax ..................................... 652 1,119 1,523 1,115
Income tax expense ......................................... (182) (312) (425) (251)
Minority interest ........................................... (3) (5) (7) (7)
Net profit ................................................. 467 802 1,091 857
Other data
Claims ratio (%)(2) ......................................... 59.9 59.9 59.9 61.3
Commission ratio (%)(3) ..................................... 16.9 16.9 16.9 17.5
Expense ratio (%)(4) ........................................ 12.3 12.3 12.3 12.4
Combined operating ratio (%)(5) ............................... 89.1 89.1 89.1 91.2
Dividends per share (cents) ................................... 30.3 52.1 71.0 54.0
Return on average shareholders’ equity (%) ...................... 23.9 23.9 23.9 24.5
Basic earnings per share (cents)(6) ............................. 61.7 105.9 144.3 123.4
Diluted earnings per share (cents)(6) ............................ 57.4 98.7 134.4 109.9
Weighted average number of shares(7) .......................... 757 757 757 695
Year ended December 31,
2005 2005 2005 2004
£ US$ A$ A$
(in millions, A-IFRS)
Balance Sheet
Current Assets
Cash and cash equivalents ........................................ 453 779 1,061 1,121
Receivables ................................................... 1,542 2,648 3,607 3,146
Reinsurance and other recoveries on outstanding claims ................ 580 996 1,357 805
Deferred insurance costs ......................................... 618 1,062 1,446 1,358
Financial assets ................................................ 4,022 6,910 9,411 6,548
Derivatives .................................................... 35 60 82 78
Current tax assets ............................................... — — — 2
Other ........................................................ 2 3 4 2
Total current assets ......................................... 7,252 12,458 16,968 13,060
Reinsurance and other recoveries on outstanding claims ................ 1,221 2,097 2,856 2,338
Financial assets ................................................ 3,031 5,207 7,092 7,274
Investment properties ............................................ 14 24 33 32
ABC investments pledged for funds at Lloyd’s(8) ..................... 441 758 1,032 998
Property, plant and equipment ..................................... 99 170 232 186
63

Year ended December 31,
2005 2005 2005 2004
£ US$ A$ A$
(in millions, A-IFRS)
Retirement benefit surplus ....................................... 1 1 2 2
Intangible assets ............................................... 591 1,015 1,382 1,039
Deferred tax assets ............................................. 29 49 67 73
Other ........................................................ — 1 1 34
Total non-current assets ..................................... 5,427 9,322 12,697 11,976
Total assets ................................................... 12,679 21,780 29,665 25,036
Current Liabilities
Trade and other payables ......................................... 548 941 1,282 1,084
Outstanding claims ............................................. 2,096 3,601 4,904 3,670
Unearned premium ............................................. 1,832 3,147 4,287 3,948
Interest bearing liabilities ........................................ 171 294 400 —
Derivatives ................................................... 15 26 35 53
Current tax liabilities ............................................ 69 119 162 73
Provisions .................................................... 1 1 2 —
Total current liabilities ...................................... 4,732 8,129 11,072 8,828
Non-Current Liabilities
Outstanding claims ............................................. 4,351 7,474 10,179 8,935
Interest bearing liabilities ........................................ 739 1,270 1,730 1,805
Swaps relating to ABC securities(8) ................................ 12 21 29 30
ABC securities for funds at Lloyd’s(8) .............................. 434 745 1,015 968
Deferred tax liabilities ........................................... 107 184 251 122
Provisions .................................................... 26 46 62 54
Retirement benefit obligations .................................... 72 123 168 202
Total non-current liabilities ................................... 5,741 9,863 13,434 12,116
Total liabilities ................................................ 10,473 17,992 24,506 20,944
Net assets .................................................... 2,206 3,788 5,159 4,092
Equity
Share capital .................................................. 1,367 2,346 3,195 2,780
Equity component of hybrid securities .............................. 46 79 108 108
Reserves ..................................................... (9) (15) (20) (29)
Retained profits ................................................ 774 1,329 1,810 1,173
Shareholder’s funds ............................................. 2,178 3,739 5,093 4,032
Minority interest ............................................... 28 49 66 60
Total equity .................................................. 2,206 3,788 5,159 4,092
Year ended December 31,
2005 2005 2005 2004
£ US$ A$ A$
(in millions, A-IFRS)
Statement of cash flows
Operating activities
Premium received .......................................... 3,742 6,429 8,756 8,598
Reinsurance and other recoveries received ....................... 559 961 1,309 907
Outwards reinsurance paid ................................... (632) (1,086) (1,479) (1,664)
64

Year ended December 31,
2005 2005 2005 2004
£ US$ A$ A$
(in millions, A-IFRS)
Claims paid ................................................ (1,975) (3,392) (4,620) (4,006)
Insurance costs paid .......................................... (747) (1,283) (1,748) (1,629)
Other underwriting costs ...................................... (147) (252) (343) (374)
Interest received ............................................. 240 413 562 471
Dividends received ........................................... 19 32 44 50
Other operating income ....................................... — — — 18
Other operating payments ..................................... (89) (153) (208) (16)
Interest paid ................................................ (49) (84) (115) (103)
Income tax paid ............................................. (73) (126) (171) (142)
Cash flows from operating activities ........................... 848 1,459 1,987 2,110
Investing activities
Proceeds on sale of equity investments ........................... 600 1,030 1,403 1,526
Proceeds on sale of investment properties ......................... — 1 1 9
Proceeds on sale of property, plant and equipment .................. 1 1 2 4
Payments for purchase of equity investments ...................... (252) (432) (589) (1,498)
Proceeds from foreign exchange transactions ...................... 80 138 188 30
Payments for purchase of other financial assets .................... (1,177) (2,023) (2,755) (1,620)
Payments for purchase of ABC financial assets(8) .................. — — — (295)
Payments for purchase of controlled entities and businesses acquired
(net of cash acquired) ....................................... (157) (269) (367) (877)
Payments for purchase of investment property ..................... (2) (3) (4) —
Payments for purchase of property, plant and equipment ............. (35) (60) (82) (38)
Cash flows from investing activities ............................ (942) (1,617) (2,203) (2,759)
Financing activities
Proceeds from issue of shares .................................. — — — 3
Share issue expenses ......................................... (2) (3) (4) —
Proceeds from settlement of staff share loans ...................... 15 25 34 33
Proceeds from interest bearing liabilities ......................... 171 293 400 1,796
Proceeds from issue of ABC securities(8) ......................... — — — 294
Repayment of interest bearing liabilities .......................... (19) (33) (45) (932)
Dividends paid .............................................. (96) (164) (224) (141)
Cash flows from financing activities ........................... 69 118 161 1,053
Increase (decrease) in cash and cash equivalents held ............... (25) (40) (55) 404
Cash and cash equivalents at the beginning of the period ............. 480 823 1,121 717
Effect of exchange rate changes on opening cash and cash
equivalents ............................................... (2) (4) (5) —
Cash and cash equivalents at the end of the period ............... 453 779 1,061 1,121
(1) Claims settlement expenses are included in net claims incurred.
(2) Claims ratio is calculated by dividing net claims incurred by net earned premium.
(3) Commission ratio is calculated by dividing net commissions by net earned premium.
(4) Expense ratio is calculated by dividing other acquisition costs and underwriting and other expenses by net
earned premium.
(5) Combined operating ratio is calculated by adding the sum of our claims ratio, commission ratio and expense
ratio.
(6) Basic earnings per share is calculated on the weighted average number of ordinary shares outstanding during
the year. Diluted earnings per share includes employee options and convertible hybrid securities where they
are dilutive.
(7) The weighted average number of ordinary shares is only applicable to the calculation of basic earnings per
share.
(8) See Note 35(C) to our A-IFRS financial statements for a description of the ABC securities.
65

Years ended December 31, 2004, 2003, 2002 and 2001 under historical Australian GAAP
The selected consolidated historical financial data as at December 31, 2004, 2003, 2002 and 2001 and
for the years ended December 31, 2004 and 2003 set forth below have been derived from our audited
consolidated financial statements and related notes for such periods included herein. The summary consolidated
historical financial data as at and for the years ended December 31, 2002 and 2001 set forth below have been
derived from our audited consolidated financial statements which are not included herein. Our financial
statements as at and for the year ended December 31, 2004 and prior years have been prepared in accordance
with historical Australian GAAP that was in existence at that time. Historical Australian GAAP varies in certain
respects from US GAAP. The financial statements as at and for the years ended December 31, 2004, 2003, 2002
and 2001 prepared in accordance with historical Australian GAAP are not comparable to the financial statements
as at and for the years ended December 31, 2005 and 2004 that have been prepared in accordance with A-IFRS.
Year ended December 31,
2004 2003 2002 2001
(in A$ millions, except ratios and earnings per
share data, historical Australian GAAP)
Income statement
Gross written premium ................................ 8,766 8,350 7,723 6,793
Gross earned premium ................................ 8,571 7,816 7,197 6,298
Outward reinsurance premium .......................... (1,781) (1,809) (1,627) (1,818)
Deferred reinsurance premium movement ................. (9) 29 72 154
Outward reinsurance premium expense ................... (1,790) (1,780) (1,555) (1,664)
Net earned premium .................................. 6,781 6,036 5,642 4,634
Gross claims incurred ................................. (5,139) (4,680) (4,562) (6,139)
Claims settlement expenses ............................. (198) (140) (120) (142)
Reinsurance and other recoveries ........................ 1,171 997 870 2,731
Net claims incurred ................................... (4,166) (3,823) (3,812) (3,550)
Net commissions ..................................... (1,184) (1,100) (998) (936)
Other acquisition costs ................................ (439) (397) (387) (343)
Underwriting and other expenses ........................ (398) (344) (315) (248)
Underwriting result ................................... 594 372 130 (443)
Investment income on policyholders’ funds ................ 314 255 276 324
Insurance profit (loss) ................................. 908 627 406 (119)
Investment income on shareholders’ funds(1) .............. 194 158 (87) 25
Amortization of goodwill and write-off of intangibles ........ (22) (20) (8) (5)
Profit (loss) before income tax .......................... 1,080 765 311 (99)
Income tax (expense) benefit ........................... (253) (188) (33) 82
Outside equity interests ................................ (7) (5) 1 (8)
Net profit (loss) ...................................... 820 572 279 (25)
Other data
Claims ratio (%)(2) ................................... 61.4 63.3 67.6 76.6
Commission ratio (%)(3) ............................... 17.5 18.2 17.7 20.2
Expense ratio (%)(4) .................................. 12.3 12.3 12.4 12.8
Combined operating ratio (%)(5) ........................ 91.2 93.8 97.7 109.6
Dividends per share (cents) ............................. 54.0 42.0 35.0 30.0
Return on average shareholders’ equity (%) ................ 21.2 18.3 10.0 (1.1)
Basic earnings per share (cents)(6) ....................... 117.8 86.5 42.7 (10.5)
Diluted earnings per share (cents)(6) ..................... 105.3 77.5 43.4 (4.9)
Weighted average number of shares(7) .................... 696 639 599 472
66

Year ended December 31,
2004 2003 2002 2001
(in A$ millions, historical Australian GAAP)
Balance Sheet
Current Assets
Cash................................................... 1,121 717 745 459
Receivables ............................................. 3,176 2,919 3,312 2,934
Reinsurance and other recoveries on outstanding claims .......... 805 772 1,137 1,608
Deferred insurance costs ................................... 1,341 1,167 1,131 1,099
Investments ............................................. 6,548 4,078 4,592 3,952
Tax assets .............................................. 2 46 62 55
Other .................................................. 2 3 7 2
Total current assets ................................... 12,995 9,702 10,986 10,109
Non-Current Assets
Reinsurance and other recoveries on outstanding claims .......... 2,293 2,113 2,529 2,901
Investments(8) ........................................... 7,398 7,028 6,167 4,772
ABC investments pledged for funds at Lloyd’s(9) ............... 998 731 — —
Plant and equipment ...................................... 101 110 133 124
Intangibles .............................................. 1,090 511 516 472
Deferred tax assets ....................................... 65 116 146 185
Other .................................................. 162 132 90 48
Total non-current assets ............................... 12,107 10,741 9,581 8,502
Total assets ............................................. 25,102 20,443 20,567 18,611
Current Liabilities
Trade and other creditors ................................... 1,103 921 1,131 929
Outstanding claims ....................................... 3,652 3,011 3,511 3,837
Unearned premium ....................................... 3,920 3,320 3,180 2,789
Borrowings ............................................. — 86 251 297
Current tax liabilities ...................................... 73 155 68 11
Total current liabilities ................................ 8,748 7,493 8,141 7,863
Non-Current liabilities
Outstanding claims ....................................... 8,817 7,469 8,149 7,461
Borrowings ............................................. 1,789 1,248 1,205 541
ABC securities for funds at Lloyd’s(9) ........................ 984 731 — —
Deferred tax liabilities ..................................... 230 117 33 60
Provisions .............................................. 54 17 18 18
Total non-current liabilities ............................. 11,874 9,582 9,405 8,080
Total liabilities .......................................... 20,622 17,075 17,546 15,943
Net assets .............................................. 4,480 3,368 3,021 2,668
Equity
Share capital ............................................ 2,866 2,340 1,926 1,732
Convertible preference shares ............................... — — 274 274
Equity component of hybrid securities ........................ 108 59 59 —
Reserves ............................................... (131) (119) (10) 25
Retained profits .......................................... 1,577 1,033 705 589
Equity attributable to members of the Company ................ 4,420 3,313 2,954 2,620
Outside equity interests in controlled entities ................... 60 55 67 48
Total equity ............................................ 4,480 3,368 3,021 2,668
67

Year ended December 31,
2004 2003 2002 2001
(in A$ millions, historical Australian GAAP)
Statement of cash flows
Operating activities
Premium received .................................... 8,598 7,897 7,685 5,806
Reinsurance and other recoveries received ................. 907 1,248 1,343 819
Outwards reinsurance paid ............................. (1,664) (1,646) (1,770) (1,076)
Claims paid ......................................... (4,006) (3,996) (4,462) (3,985)
Insurance costs paid .................................. (1,629) (1,499) (1,414) (1,342)
Other underwriting costs ............................... (374) (222) (157) (135)
Interest received ..................................... 471 375 354 407
Dividends received ................................... 50 45 31 37
Other operating income ................................ 18 2 4 4
Other operating payments .............................. (16) (39) (15) (58)
Interest paid ......................................... (103) (54) (60) (73)
Income taxes paid .................................... (142) (22) (28) (124)
Cash flows from operating activities .................... 2,110 2,089 1,511 280
Investing activities
Proceeds on sale of equity investments .................... 1,526 706 597 619
Proceeds on sale of properties ........................... 12 2 11 17
Proceeds on sale of plant and equipment .................. 1 1 3 10
Payments for purchase of equity investments ............... (1,498) (925) (837) (621)
Proceeds from foreign exchange transactions ............... 30 90 — —
Payments for purchase of properties ...................... (5) (3) (10) (3)
Payments for purchase of other investments ................ (1,585) (1,883) (1,682) (946)
Payments for purchase of ABC investments(9) ............. (295) (777) — —
(Payments for purchase) proceeds from sale of controlled
entities and businesses acquired (net of cash acquired) ..... (877) (3) 23 71
Payments for purchase of plant and equipment ............. (33) (31) (53) (61)
Cash flows from investing activities .................... (2,724) (2,823) (1,948) (914)
Financing activities
Proceeds from issue of shares ........................... 1 — 91 929
Proceeds from borrowings ............................. 1,796 461 1,170 69
Proceeds from issue of ABC securities(9) ................. 294 777 — —
Repayment of borrowings .............................. (932) (268) (443) (191)
Dividends paid ....................................... (141) (133) (115) (82)
Cash flows from financing activities(10) ................. 1,018 837 703 725
Increase in cash held .................................. 404 103 266 91
Cash at the beginning of the period ....................... 717 745 459 348
Effect of exchange rate changes on opening cash ............ — (131) 20 20
Cash at the end of the period .......................... 1,121 717 745 459
(1) For the year ended December 31, 2002, there were unrealized losses on investments of A$143 million. This
was allocated to investment income on shareholders’ funds, contributing to a loss of A$87 million.
(2) Claims ratio is calculated by dividing net claims incurred by net earned premium.
(3) Commission ratio is calculated by dividing net commissions by net earned premium.
(4) Expense ratio is calculated by dividing other acquisition costs and underwriting and other expenses by net
earned premium.
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(5) Combined operating ratio is calculated by adding the sum of our claims ratio, commission ratio and expense
ratio.
(6) Basic earnings per share is calculated on the weighted average number of ordinary shares outstanding during
the year. Diluted earnings per share includes employee options, mandatory convertible preference shares
and convertible hybrid securities where they are dilutive.
(7) The weighted average number of ordinary shares is only applicable to the calculation of basic earnings per
share.
(8) Property is included in Investments.
(9) See Note 35(C) to our A-IFRS financial statements for a description of the ABC securities.
(10) Due to the material increase in proceeds from foreign exchange transactions in 2003 as a result of
strengthening of the Australian dollar, cash flows relating to foreign exchange hedges in respect of the net
investment in overseas controlled entities have been reclassified as cash flows from investing activities.
Previously all proceeds from or payments for foreign exchange transactions were included within cash flows
from operating activities.
69

MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
Please read the following information in conjunction with the “Selected Consolidated Historical
Financial and Other Data” and our financial statements. This discussion contains forward-looking statements that
involve risks, uncertainties and assumptions. Our actual results may differ materially from those anticipated in
these forward-looking statements as a result of a number of factors including those set forth under the captions
“Special Note Regarding Forward-Looking Statements” and “Risk Factors” in this Offering Memorandum.
Change of Accounting Standards
Until December 31, 2004, we prepared our financial statements in accordance with historical Australian
GAAP. From January 1, 2005, we prepared our financial statements in accordance with A-IFRS.
We prepared our financial statements as at and for the year ended December 31, 2005 in accordance
with A-IFRS. We applied AASB 1: First Time Adoption of Australian Equivalents to International Financial
Reporting Standards in preparing our financial statements as at and for the year ended December 31, 2005. In
preparing the financial statements, management amended certain accounting and valuation methods applied in
the historical Australian GAAP financial statements to comply with A-IFRS and the comparative figures as at
and for the year ended December 31, 2004 have been restated to reflect these adjustments. The information based
on historical Australian GAAP is not comparable to information prepared in accordance with A-IFRS. See Notes
1 and 2 to our A-IFRS financial statements for a summary of our significant accounting policies under A-IFRS
and the impact of the adoption of A-IFRS respectively. This Offering Memorandum includes and refers to
financial statements and other financial information based on both A-IFRS and historical Australian GAAP.
Because of the significant differences between A-IFRS and historical Australian GAAP, we have presented the
information as at and for the years ended December 31, 2005 and 2004 prepared in accordance with A-IFRS
separately from the information as at and for the years ended December 31, 2004, 2003, 2002 and 2001 prepared
in accordance with historical Australian GAAP.
Adjustments as a result of the adoption of A-IFRS reduced shareholders’ funds at December 31, 2004
by A$388 million from A$4,480 million to A$4,092 million and increased net profit after income tax for the year
ended December 31, 2004 by A$37 million from A$820 million to A$857 million. We do not expect any future
material financial impacts from the application of existing A-IFRS although there may be some ongoing
volatility in the income statement and balance sheet due to fair value movements in assets and liabilities. See
Notes 1 and 2 to our A-IFRS financial statements for a discussion of the impact of the adoption of A-IFRS on our
results of operations.
Each of A-IFRS and historical Australian GAAP differs in certain respects from US GAAP. See
“Financial Information Presentation.”
Overview
Our founding company was established in Queensland, Australia in 1886. We have since grown into
Australia’s largest international general insurance and reinsurance group based on net earned premium. We
underwrite commercial and personal lines business in 42 countries around the world. At December 31, 2005, we
had total assets of A$29.7 billion and shareholders’ funds of A$5.1 billion. As of June 30, 2006, our market
capitalization exceeded A$16 billion.
We discuss the comparison of our financial condition and results of operations under the following
divisions:
• Australia Pacific Asia Central Europe (APACE);
• European operations;
70

• the Americas; and
• Investments.
We also discuss the results of our captive reinsurer, Equator Re. Equator Re provides excess of loss
protection at various levels for most of our subsidiaries around the world. Equator Re also participates on a
number of our excess of loss and proportional reinsurance protections placed with external reinsurers. The
exposures written by Equator Re are included in our maximum event retention, which is our estimated net loss
from our largest single realistic disaster scenario. Equator Re’s intercompany transactions are eliminated upon
consolidation of our overall group results. See Note 38 to our A-IFRS financial statements.
In 2004 and 2005 we restructured some of our divisions. In May 2005, we brought our Australian and
Asia Pacific general insurance operations under a combined management structure called “APACE” and in
September 2004 we brought our European company operations division and our Lloyd’s division (operating as
Limit) under a combined management structure called “European operations.” At that time, the Central and
Eastern Europe division of the former European company operations was moved to the Asia-Pacific general
insurance division due to its experience in managing smaller, diverse trading units across a range of countries and
cultures.
Critical Accounting Policies
Our accounting policies are set forth in Note 1 to our financial statements. Those considered most
significant in the context of our financial results are summarized below. For a summary of the impact of the
adoption of A-IFRS on our results of operations, see Note 2 to our A-IFRS financial statements. Details of the
critical accounting estimates and judgments applied in the preparation of our financial statements are set forth in
Note 3 to our A-IFRS financial statements.
Principles of consolidation. Our financial statements incorporate the assets and liabilities of all entities
controlled by us and the results of all controlled entities for the financial year. QBE and its controlled entities
together are referred to in our financial statements as the “consolidated entity.” The effects of all material
transactions between entities in the consolidated entity are eliminated in full. Minority interest, which reflects
third party ownership in the results and equity of controlled entities, is shown separately in the consolidated
income statement and consolidated balance sheet, respectively.
Where control of an entity commences during a financial year, its results are included in the
consolidated income statement from the date on which the control commences. Where control of any entity
ceases during a financial year, its results are included for that part of the period during which the control existed.
Claims. Outstanding claims and reinsurance and other recoveries are assessed by reviewing individual
claims and making allowance for claims incurred but not reported, foreseeable events, past experience and
trends. Over 90% of outstanding claims are reviewed by independent actuaries.
Outstanding claims and reinsurance and other recoveries include allowances for inflation, superimposed
inflation and expenses of run-off and are discounted for investment income using a risk free rate of return. Risk
margins are included for uncertainties and latency claims. See “Business—Reserving Policy.”
Unearned premium. At each balance date, the adequacy of the unearned premium liability is assessed
on a net of reinsurance basis against the present value of the expected future cash flows relating to potential
future claims in respect of the relevant insurance contracts, plus an additional risk margin to reflect the inherent
uncertainty of the central estimate. The assessment is carried out at the divisional business segment level, being a
portfolio of contracts that are broadly similar and managed together as a single portfolio. If the unearned
71

premium liability less related intangible assets and deferred acquisition costs is deficient, then the resulting
deficiency is recognized in the income statement of the consolidated entity.
Investments. Investments are valued at fair value and unrealized gains/losses are included in
investment income in the consolidated income statement. Fair values are determined as follows:
Quoted investments — by reference to the closing bid price of the instrument at the balance date
Unquoted investments — valuation based on techniques such as recent arm’s length transactions involving
substantially the same instruments, discounted cash flow analysis and option
pricing models
Investment properties. Investment properties are valued by reference to external market valuation at
fair value through the consolidated income statement.
Hedging transactions. Derivatives held for risk management purposes which meet the criteria
specified in AASB 139 are accounted for by the consolidated entity using fair value hedge accounting, cash flow
hedge accounting or hedging of a net investment in a foreign operation as appropriate to the risks being hedged.
When a financial instrument is designated as a hedge, the consolidated entity formally documents the
relationship between the hedging instrument and hedged item as well as its risk management objectives and its
strategy for undertaking the various hedging transactions. The consolidated entity also documents its assessment
both at hedge inception and on an ongoing basis, of whether the derivatives that are used for hedging are highly
effective in offsetting changes in fair values or cash flows of hedged items.
Hedge accounting is discontinued when:
• it is determined that a derivative is not, or has ceased to be, highly effective as a hedge;
• the derivative expires, or is sold, terminated or exercised; or
• the hedge item matures, is sold or repaid.
Fair value hedge accounting. Changes in the fair value of derivatives that qualify and are designated
as fair value hedges are recorded in the income statement, together with changes in the fair value of the hedged
asset or liability that are attributable to the hedged risk. If the hedge no longer meets the criteria for hedge
accounting, the fair value hedging adjustment cumulatively made to the carrying value of the hedged item is, for
items carried at amortized cost, amortized over the period to maturity of the previously designated hedge
relationship using the effective interest method. If the hedged item is sold or repaid, the unamortized fair value
adjustment is recognized immediately in the consolidated income statement.
Cash flow hedge accounting. For qualifying cash flow hedges, the fair value gain or loss associated
with the effective portion of the cash flow hedge is recognized initially directly in shareholders’ equity and
recycled to the consolidated income statement in the periods when the hedged item will affect profit or loss. The
gain or loss on any ineffective portion of the hedging instrument is recognized in the income statement
immediately. When a hedging instrument expires or is sold, or when a hedge no longer meets the criteria for
hedge accounting, any cumulative gain or loss existing in equity at that time remains in equity and is recognized
when the hedged item affects the consolidated income statement. When a transaction is no longer expected to
occur, the cumulative gain or loss that was recognized in equity is immediately transferred to the consolidated
income statement.
Hedges of net investments in foreign operations. Hedges of net investments in foreign operations,
including monetary items that are accounted for as part of the net investment, are accounted for in a manner
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similar to cash flow hedges. The gain or loss on the effective portion of the hedging instrument is recognized
directly in equity and the gain or loss on the ineffective portion is recognized immediately in the consolidated
income statement. The cumulative gain or loss previously recognized in equity is recognized in the consolidated
income statement on the disposal of the foreign operation.
Intangible assets. Goodwill represents the excess of the cost of an acquisition over the fair value of the
consolidated entity’s share of the net identifiable assets acquired. Goodwill acquired in a business combination is
tested for impairment and is not subject to amortization.
Intangible assets are measured at cost. Those with a finite useful life are amortized using the straight
line method over the estimated useful life. Intangible assets are tested for impairment annually or more often if
there is an indication of impairment.
Employee benefits—superannuation. The consolidated entity participates in a number of
superannuation plans and contributes to these plans in accordance with plan rules and actuarial
recommendations, which are designed to ensure that each plan’s funding provides sufficient assets to meet its
liabilities.
For defined contribution plans, contributions are expensed as incurred. The liability recognized in the
balance sheet in respect of the defined benefit superannuation plans is the present value of the defined benefit
obligation at the balance date less the fair value of plan assets, adjusted for unrecognized past service costs. The
defined benefit obligation is calculated annually by independent actuaries using the projected unit credit method.
The present value of defined benefit obligation is determined by discounting the estimated future cash outflows
using interest rates of high quality corporate or government bonds that are denominated in the currency in which
the benefits will be paid, and that have a term to maturity approximating the term of the related superannuation
liability. Actuarial gains and losses arising from experience adjustments and changes in actuarial assumptions are
recognized directly in equity. Past service costs are recognized immediately in income, unless the changes to the
superannuation plan are conditional on the employee remaining in service for a specified period of time (the
vesting period) in which case the past service costs are amortized on a straight line basis over the vesting period.
Foreign currency translation. Items included in the financial statements of controlled entities are
measured using the currency of the primary economic environment in which the entity operates (the “functional
currency”). The consolidated entity’s financial statements are presented in Australian dollars, being the
functional and presentation currency of the company.
Foreign currency transactions are translated into functional currencies at the rates of exchange at the
dates of the transactions. At the balance date, amounts payable and receivable in foreign currencies are translated
at the rates of exchange prevailing at that date. Exchange gains and losses on operational foreign currency
transactions and the translation of amounts receivable and payable in foreign currencies are included in the
income statement.
The results and the financial position of all overseas controlled entities that have a functional currency
different from the presentation currency are translated into the presentation currency as follows:
• assets and liabilities are translated at the closing balance date rates of exchange;
• income and expenses are translated at cumulative average rates of exchange; and
• all resulting exchange differences are recognized as a separate component of equity.
On consolidation, exchange differences arising from the translation of the net investment in overseas
controlled entities, and of financial liabilities and other instruments designated as hedges of such investments, are
73

taken to shareholders’ equity. When an overseas controlled entity is sold, these exchange differences are
recognized in the consolidated income statement as a part of the gain or loss on sale.
Growth by Acquisition
Historically, we have grown primarily through acquisitions. In 2006 and 2007, we expect to continue to
achieve growth primarily through small premium rate increases, a focus on higher retention of customers and
inclusion of operating results from acquisitions we made in 2005 and may make in 2006. For the year ended
December 31, 2005 under A-IFRS, net earned premium grew 8.9% compared to year ended December 31, 2004.
Although our overall premium rates declined slightly in 2005, net earned premium increased primarily due to an
increase in new business due to acquisitions made in the second half of 2004 and increased customer retention.
During 2006 to date, we have purchased a small general aviation insurer in Denmark and hired a team of
general aviation underwriters in the United Kingdom.
In 2005, we acquired:
• Central de Seguros in Colombia;
• National Farmers Union Property and Casualty in the United States;
• Greenhill underwriting agency operations in France, Germany and Spain;
• MiniBus Plus underwriting agency in the UK;
• British Marine Holdings, a specialist small tonnage marine underwriter;
• the wholly owned business of Allianz in Vietnam; and
• National Credit Insurance Brokers in Australia and New Zealand and Austral Mercantile Collections
in Australia to support our trade credit operations.
We paid a total of A$566 million for our acquisitions in 2005. We funded these acquisitions primarily
through an increase in short-term borrowings and funds generated by operations.
Our significant acquisitions since 2000 include:
• ING’s 50% share in the QBE Mercantile Mutual joint venture in Australia in 2004, including ING’s
Australian general insurance underwriting businesses conducted through Mercantile Mutual Insurance
(Australia) Limited (the “ING Acquisition”). We paid an initial purchase price of A$770 million for
the general insurance underwriting interests. We are required to pay an additional A$25 million in
February 2007 for the acquisition, subject to run-off of pre-joint venture net insurance liabilities; and
• all the outstanding shares of Limit in 2000 for an aggregate cash purchase price of £392 million
(A$1,039 million).
We have considered a number of acquisitions in recent times and are looking at a number of acquisitions
in Australia, the Asia-Pacific region, the Americas and Europe. In the past 20 years, we have acquired over 90
businesses or portfolios throughout the world. Our acquisition strategy has assisted our diversification by
spreading our business across both general insurance and reinsurance businesses and by increasing our
geographic and product spread. Our strategy as to the percentage of our business that should be general insurance
or reinsurance is continuously considered according to conditions in both markets. Our acquisition strategy is
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driven by seeking value for our shareholders rather than focusing on specific business lines. While no major
acquisitions are currently being pursued for the remainder of 2006, we will continue to review acquisition
opportunities in the future.
Severity and Frequency of Catastrophes
In 2005 net claims from large catastrophes increased to A$515 million compared to A$320 million in
2004. Notable market catastrophes for the year ended December 31, 2005 included the European storm Erwin in
January, Hurricane Katrina in the United States in August, the Mumbai floods in August, the European floods in
September, Hurricane Rita in the United States in September and Hurricane Wilma in the United States, the
Caribbean and Mexico in October. In the year ended December 31, 2004, notable market catastrophes included a
gas plant explosion in Algeria in January, Hurricane Charley in the United States in August, Hurricane Frances in
the United States in September, Hurricane Ivan in the United States and the Caribbean in September and the
tsunami in Asia in December. During 2006 to date, notable market catastrophes have included Philippines
mudslides in February and Cyclone Larry in Australia in March.
We were able to limit the financial impact of these market catastrophes on us through disciplined
underwriting policies, risk management practices and extensive reinsurance arrangements. We currently rely
partly on self-insurance arrangements and partly on external reinsurers as described under “Business—Outward
Reinsurance.” We expect the claims from these catastrophes to be within the allowances in our insurance
liabilities.
Investment Income
As an insurer, we manage investments to satisfy potential claims by our policyholders. The investment
income earned on our policyholders’ funds added to our underwriting result is equal to our insurance profit or
loss.
We also manage our investment portfolio in an effort to maximize shareholders’ funds for the long term.
To do this, we allocate the majority of our equity portfolio to our shareholders’ funds. The volatility of equity
markets, however, gives rise to unrealized gains or losses on our equity portfolios. We mark our investments to
market at each balance sheet date and the unrealized gain or loss is recognized in our consolidated income
statements. The unrealized gains/losses are allocated to shareholders’ funds and, as a result, the investment
income on shareholders’ funds reflects the volatility of the equity markets.
Operating Ratios
We believe it is appropriate to analyze our underwriting operations by focusing on our combined
operating ratio and its components, namely the claims ratio, commission ratio and expense ratio. This practice is
the insurance industry standard. Accordingly, the discussion of our underwriting results below primarily focuses
on the percentage movements of those ratios in addition to the movement in the actual monetary amounts of the
components of those items.
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Below is a table detailing our gross earned premium, net earned premium and operating ratios for each
of our divisions for years ended December 31, 2005 and 2004 prepared in accordance with A-IFRS.
Year ended December 31,
2005 2004
(in A$ millions except
percentages A-IFRS)
Australia Pacific Asia Central Europe (APACE)
Gross earned premium .................................................... 3,093 2,798
Net earned premium ..................................................... 2,551 2,277
Claims ratio % .......................................................... 52.9 57.4
Commission ratio % ..................................................... 14.0 14.8
Expense ratio % ......................................................... 16.4 16.8
Combined operating ratio % ............................................... 83.3 89.0
Australian general insurance operations
Gross earned premium .................................................... 2,405 2,114
Net earned premium ..................................................... 2,015 1,763
Claims ratio % .......................................................... 56.1 61.4
Commission ratio % ..................................................... 12.7 13.8
Expense ratio % ......................................................... 14.8 14.5
Combined operating ratio % ............................................... 83.6 89.7
Pacific Asia Central Europe (PACE)
Gross earned premium .................................................... 688 684
Net earned premium ..................................................... 536 514
Claims ratio % .......................................................... 40.8 43.6
Commission ratio % ..................................................... 18.7 18.1
Expense ratio % ......................................................... 22.8 24.7
Combined operating ratio % ............................................... 82.3 86.4
European operations
Gross earned premium .................................................... 4,643 4,419
Net earned premium ..................................................... 3,697 3,507
Claims ratio % .......................................................... 62.9 63.4
Commission ratio % ..................................................... 17.7 18.2
Expense ratio % ......................................................... 11.5 12.1
Combined operating ratio % ............................................... 92.1 93.7
QBE Insurance (Europe)
Gross earned premium .................................................... 2,370 2,154
Net earned premium ..................................................... 1,954 1,787
Claims ratio % .......................................................... 62.3 67.3
Commission ratio % ..................................................... 15.3 15.5
Expense ratio % ......................................................... 12.4 12.8
Combined operating ratio % ............................................... 90.0 95.6
Lloyd’s division
Gross earned premium .................................................... 2,273 2,265
Net earned premium ..................................................... 1,743 1,720
Claims ratio % .......................................................... 63.6 59.3
Commission ratio % ..................................................... 20.3 21.0
Expense ratio % ......................................................... 10.6 11.3
Combined operating ratio % ............................................... 94.5 91.6
76

Year ended December 31,
2005 2004
(in A$ millions except
percentages A-IFRS)
the Americas
Gross earned premium .................................................... 1,435 1,354
Net earned premium ..................................................... 843 766
Claims ratio % .......................................................... 60.0 59.3
Commission ratio % ..................................................... 25.5 27.0
Expense ratio % ......................................................... 7.4 7.2
Combined operating ratio % ............................................... 92.9 93.5
Equator Re
Gross earned premium(1) ................................................. 347 254
Net earned premium ..................................................... 295 231
Claims ratio % .......................................................... 80.0 75.3
Commission ratio % ..................................................... 9.8 —
Expense ratio % ......................................................... — (6.5)
Combined operating ratio % ............................................... 89.8 68.8
(1) Gross earned premium for Equator Re is eliminated upon consolidation of our overall group results. See
Note 38 to our A-IFRS financial statements.
Below is a table detailing our gross earned premium, net earned premium and operating ratios for each
of our divisions for years ended December 31, 2004 and 2003 prepared in accordance with historical Australian
GAAP. As discussed above, because of the significant differences between A-IFRS and historical Australian
GAAP, we have presented the historical Australian GAAP information as at and for the years ended
December 31, 2004 and 2003 separately from the information as at and for the years ended December 31, 2005
and 2004 prepared in accordance with A-IFRS. The differences in our operating ratios under A-IFRS and
historical Australian GAAP are due primarily to the treatment of defined benefit superannuation plan obligations
and share benefit compensation plans under A-IFRS. See Note 2 to our A-IFRS financial statements.
Year ended December 31,
2004 2003
(in A$ millions except
percentages historical
Australian GAAP)
Australian general insurance
Gross earned premium ..................................................... 2,114 1,715
Net earned premium ....................................................... 1,831 1,425
Claims ratio % ........................................................... 61.0 67.2
Commission ratio % ....................................................... 13.3 11.1
Expense ratio % .......................................................... 13.8 14.5
Combined operating ratio % ................................................ 88.1 92.8
Asia-Pacific general insurance
Gross earned premium ..................................................... 534 549
Net earned premium ....................................................... 439 430
Claims ratio % ........................................................... 48.3 50.0
Commission ratio % ....................................................... 17.1 18.8
Expense ratio % .......................................................... 20.0 21.2
Combined operating ratio % ................................................ 85.4 90.0
77

Year ended December 31,
2004 2003
(in A$ millions except
percentages historical
Australian GAAP)
the Americas
Gross earned premium ..................................................... 1,354 1,213
Net earned premium ....................................................... 805 740
Claims ratio % ........................................................... 60.1 63.4
Commission ratio % ....................................................... 25.7 23.5
Expense ratio % .......................................................... 6.5 6.2
Combined operating ratio % ................................................ 92.3 93.1
European company operations
Gross earned premium ..................................................... 2,304 2,302
Net earned premium ....................................................... 1,971 1,908
Claims ratio % ........................................................... 66.3 66.7
Commission ratio % ....................................................... 15.0 15.6
Expense ratio % .......................................................... 13.0 12.4
Combined operating ratio % ................................................ 94.3 94.7
Lloyd’s division
Gross earned premium ..................................................... 2,265 2,037
Net earned premium ....................................................... 1,735 1,533
Claims ratio % ........................................................... 60.3 59.2
Commission ratio % ....................................................... 20.9 25.4
Expense ratio % .......................................................... 10.9 10.5
Combined operating ratio % ................................................ 92.1 95.1
Impact of Exchange Rate Movements
We translate income and expense items using the cumulative average rate of exchange. On this basis,
the Australian dollar rose approximately 3% against the US dollar and approximately 4% against the pound
sterling in 2005 compared to 2004. Balance sheet items are translated at the period end rate of exchange. On this
basis, the Australian dollar fell approximately 7% against the US dollar and rose approximately 4% against the
pound sterling comparing the exchange rates at December 31, 2005 with the exchange rates at December 31,
2004. The impact of movements in the Australian dollar on our net profit, premium income, investment income,
assets and liabilities for the year ended December 31, 2005 is set forth below in accordance with A-IFRS.
Year ended
December 31,
2005
Year ended
December 31,
2005
at December
2004
exchange
rates(1)
Exchange rate
impact
for year
ended
December 31,
2005
A$ A$ %
(in A$ millions except percentages, A-IFRS)
(actual) (proforma)
Gross earned premium ...................................... 9,171 9,362 (2)
Net earned premium ........................................ 7,386 7,534 (2)
Net investment income ...................................... 718 732 (2)
Profit after tax ............................................. 1,091 1,121 (3)
Total investments and cash .................................. 17,597 17,755 (1)
Total assets ............................................... 29,665 30,077 (1)
Gross outstanding claims .................................... 15,083 15,325 (2)
Total liabilities ............................................ 24,506 25,167 (3)
(1) Income and expense items are restated to December 31, 2004 cumulative average rates of exchange and
balance sheet items are restated to December 31, 2004 period end rates of exchange.
78

We translate income and expense items using the cumulative average rate of exchange. On this basis,
the Australian dollar rose approximately 12% against the US dollar and approximately 2% against the pound
sterling in 2004 compared to 2003. Balance sheet items are translated at the period end rate of exchange. On this
basis, the Australian dollar rose approximately 4% against the US dollar and fell approximately 3% against the
pound sterling comparing the exchange rates at December 31, 2004 with the exchange rates at December 31,
2003. The impact of movements in the Australian dollar on our net profit, premium income, investment income,
assets and liabilities for the year ended December 31, 2004 is set forth below in accordance with historical
Australian GAAP. As discussed above, because of the significant differences between A-IFRS and historical
Australian GAAP, we have presented the historical Australian GAAP information for the year ended
December 31, 2004 separately from the information for the year ended December 31, 2005 prepared in
accordance with A-IFRS.
Year ended
December 31,
2004
Year ended
December 31,
2004
at December
2003
exchange rates(1)
Exchange rate
impact
for year
ended
December 31,
2004
A$ A$ %
(in A$ millions, except percentages historical Australian GAAP)
(actual)
(proforma)
Gross earned premium ........................... 8,571 9,090 (6)
Net earned premium ............................. 6,781 7,135 (5)
Net investment income ........................... 508 536 (6)
Profit after tax ................................. 820 878 (7)
Total investments and cash ....................... 15,067 15,147 (1)
Total assets .................................... 25,102 25,566 (2)
Gross outstanding claims ......................... 12,469 12,595 (1)
Total liabilities ................................. 20,622 20,734 (1)
(1) Income and expense items are restated to December 31, 2003 cumulative average rates of exchange and
balance sheet items are restated to December 31, 2003 period end rates of exchange.
We have a policy of matching liabilities with assets of the same currency, where practical. The
continued growth of our overseas businesses and substantial investment in foreign operations have resulted in the
decentralization of the management of foreign exchange exposures such that the operating divisions manage their
foreign exchange exposures under the guidance of the group and divisional treasury functions. All of our
overseas controlled entities manage their own foreign exchange exposures. We also have a policy of matching all
“tradeable” overseas shareholders’ funds back into Australian dollars by holding offshore Australian dollar assets
or by using currency hedges.
Regulatory changes
As described in detail in “Regulation,” we are experiencing and expect to continue to experience a
number of changes in regulation in certain markets in which we do business, including in the Australian, UK and
US markets. As a result, our executive management is, and we expect will continue to be, increasingly required
to spend significantly more time on compliance matters. Therefore we expect the cost of regulatory supervision
in many of our markets to increase. We estimate our cost of meeting regulatory requirements around the world is
now approximately A$100 million per annum. In addition, we pay levies and guarantee fund payments to
regulators and governments in excess of A$80 million per annum.
79

Year Ended December 31, 2005 Compared to Year Ended December 31, 2004 under A-IFRS
Gross Earned Premium
For 2005, our total gross earned premium was A$9,171 million, a 7% increase over our total gross
earned premium of A$8,571 million for 2004. This increase was primarily the result of acquisitions made in
2004, primarily the ING Acquisition, and higher retention of business.
APACE. Gross earned premium increased 11% for our APACE division to A$3,093 million for 2005
compared to A$2,798 million for 2004, for the reasons described below.
Australian general insurance operations. Gross earned premium for our Australian operations
was A$2,405 million for 2005 compared to A$2,114 million for 2004 an increase of 14% primarily due to
the ING Acquisition in June 2004. Overall premium rates decreased slightly in 2005 reflecting the lower
frequency of claims and increased competition.
Pacific Asia Central Europe (PACE). Gross earned premium for PACE operations increased
slightly to A$688 million for 2005 compared to A$684 million for 2004. Premium growth was affected
by the stronger Australian dollar, a slight reduction in overall premium rates and increased competition.
European Operations. Gross earned premium for our European operations was A$4,643 million for
2005 compared to A$4,419 million for 2004, a 5% increase, primarily due to acquisitions during the year and
reinstatement premiums from reinstating covers after catastrophes.
QBE Insurance (Europe). Gross earned premium for QBE Insurance (Europe) was A$2,370
million for 2005 compared to A$2,154 million for 2004, a 10% increase, primarily due to the inclusion of
the Ensign motor business previously written in our Lloyd’s operations, the increased participation on
that business in 2005 and the acquisitions of MiniBus Plus underwriting agency and its commercial motor
business, Greenhill underwriting agency and British Marine, our specialist small tonnage marine
underwriting business, in 2005. Premium growth also increased due to our business retention.
Lloyd’s division. Gross earned premium for our Lloyd’s operations marginally increased to
A$2,273 million for 2005 compared to A$2,265 million for 2004 despite the transfer of the Ensign motor
business to QBE Insurance (Europe). Premium growth was also affected by slightly lower premium rates
and increased competition, particularly for casualty business.
the Americas. Gross earned premium was A$1,435 million for 2005 compared to A$1,354 million for
2004, a 6% increase. This increase primarily reflects slight premium rate increases, higher retention of business
and the acquisition of general insurance businesses in Colombia and the United States in 2005.
Equator Re. Gross earned premium for our captive reinsurer, Equator Re, was A$347 million for 2005
compared to A$254 million for 2004, an increase of 37% primarily due to increased participation in divisional
reinsurance programs and some rate increases. Equator Re’s intercompany transactions are eliminated upon
consolidation of our overall group results.
Net Earned Premium
For 2005, our net earned premium was A$7,386 million compared to A$6,781 million for 2004 (an
increase of 9%). Analyzed by our divisions, net earned premium for 2005 compared to 2004 was:
• APACE. A$2,551 million compared to A$2,277 million (an increase of 12%);
Australian general insurance operations.
increase of 14%);
A$2,015 million compared to A$1,763 million (an
80

PACE. A$536 million compared to A$514 million (an increase of 4%);
• European operations. A$3,697 million compared to A$3,507 million (an increase of 5%);
QBE Insurance (Europe). A$1,954 million compared to A$1,787 million (an increase of 9%);
Lloyd’s division. A$1,743 million compared to A$1,720 million (an increase of 1%);
• the Americas. A$843 million compared to A$766 million (an increase of 10%); and
• Equator Re. A$295 million compared to A$231 million (an increase of 28%).
Our outward reinsurance premium expense decreased slightly to A$1,785 million for 2005 from
A$1,790 million for 2004. The decrease was primarily due to increased reinsurance to Equator Re, which is
eliminated on consolidation of our overall group results, thereby reducing the amount of reinsurance protection
purchased from third parties, and savings realized following the restructure of the APACE and European
operations divisions.
Underwriting Results
Our combined operating ratio decreased to 89.1% for 2005 from 91.2% for 2004. The following section
discusses the results of individual components of our combined operating ratio.
Claims Ratio
Our claims ratio decreased to 59.9% for 2005 from 61.3% for 2004. Net claims incurred increased 6%
to A$4,417 million for 2005 compared to A$4,156 million for 2004 while net earned premium rose by 9%,
giving rise to the improved claims ratio. This primarily reflects a 27% increase in gross claims to A$6,744
million in 2005 from A$5,327 million in 2004 due to higher catastrophe claims, which was more than offset by
the benefits of our reinsurance protections.
Commission Ratio
Our commission ratio improved to 16.9% for 2005 from 17.5% for 2004, reflecting a change in the mix
of business during the year and the benefits of the acquisitions in Australia in 2004. Net commissions increased
6% to A$1,251 million for 2005 from A$1,184 million in 2004, slightly less than the 9% growth in net earned
premium.
Expense Ratio
Our expense ratio improved slightly to 12.3% for 2005 from 12.4% for 2004 as a result of synergies
from acquisitions and restructures. Expenses increased to A$910 million for 2005 compared to A$844 million for
2004, an 8% increase, compared with a 9% increase in net earned premium, giving rise to the improved expense
ratio. This is primarily due to substantially increased costs of corporate governance and regulatory compliance
and one-off expenses relating to the restructure of European and APACE businesses and the increased provision
for short and long-term staff incentive payments because of our improved insurance results.
As a result of the above, we had an underwriting profit of A$808 million for 2005 compared to an
underwriting profit of A$597 million for 2004, a 35% increase.
Combined Operating Ratio by Division
APACE. The combined operating ratio for this division improved to 83.3% for 2005 from 89.0% in
2004 for the reasons discussed below.
Australian general insurance operations. The combined operating ratio for our Australian
operations improved to 83.6% for 2005 from 89.7% for 2004 due to a continuation of the low frequency
81

of claims, savings on prior year outstanding claims provisions and higher customer retention. The claims
ratio decreased to 56.1% for 2005 from 61.4% for 2004 due to the lower frequency of claims. The
commission ratio decreased to 12.7% for 2005 from 13.8% for 2004 due to the acquisition of
underwriting agencies and change in the mix of business. The expense ratio increased to 14.8% for 2005
compared to 14.5% for 2004 due to one-off expenses relating to the restructure and higher information
technology costs, statutory charges and compliance costs.
PACE. The combined operating ratio for our Pacific Asia Central Europe operations improved
to 82.3% for 2005 compared to 86.4% for 2004. We achieved this improvement through continued focus
on profitable business and a lower frequency of catastrophe losses. The claims ratio decreased to 40.8%
for 2005 from 43.6% for 2004 reflecting the higher premium rates of recent years, improved policy terms
and conditions and the focus on underwriting profitability. The commission ratio increased slightly to
18.7% for 2005 compared to 18.1% for 2004, primarily because of a change in product and geographical
mix. The expense ratio decreased to 22.8% for 2005 from 24.7% for 2004, mainly due to the elimination
of a number of duplicate processes in key operations.
European operations. The combined operating ratio for our European operations was 92.1% for 2005
compared to 93.7% for 2004 despite the high level of catastrophe claims in both QBE Insurance (Europe) and our
Lloyd’s operations. The combined operating ratio benefited from our product and geographic diversification, as
well as the low frequency of claims on our non-catastrophe exposed business.
QBE Insurance (Europe). The combined operating ratio for this division improved significantly
to 90.0% for 2005 from 95.6% for 2004, primarily due to a lower frequency of claims on the majority of
portfolios not exposed to catastrophes, particularly on the UK and non-US casualty accounts. We had a
relatively small net exposure to the hurricanes in the US through our direct and facultive property and
marine excess of loss portfolios. Our general insurance combined operating ratio for this division
improved to 84.5% in 2005 compared to 89.1% in 2004 reflecting the strong focus on portfolio
performance and improved market conditions over the past four years. Our inward reinsurance business
had a combined operating ratio of 109.6% in 2005 compared to 113.6% in 2004 reflecting high levels of
catastrophes in both years. The improvement in 2005 is largely due to the absence of prior year upgrades
which affected 2004. The claims ratio was 62.3% for 2005 compared to 67.3% for 2004 reflecting a lower
claims frequency, as well as the absence of upgrades for 2001 and prior years on US casualty and motor
excess of loss claims which affected results in 2004. The commission ratio decreased slightly to 15.3%
for 2005 compared to 15.5% for 2004 due to the change in mix of business. The expense ratio decreased
to 12.4% for 2005 compared to 12.8% for 2004. This reflects the synergies from the restructure of the
European operations in 2004, partly offset by provisions made for dilapidation and other costs incurred in
consolidating premises in the UK. For the 2006 underwriting year, most of the reinsurance business
written by the London office of QBE Insurance (Europe) has been transferred to Limit. We expect the
transfer of this business to be offset by the Minibus Plus, Greenhill and British Marine acquisitions made
in 2005, together with new business initiatives on the existing portfolios.
Lloyd’s division. For our Lloyd’s operations, the combined operating ratio increased to 94.5%
for 2005 compared to 91.6% for 2004. Our results were materially affected by catastrophe claims. The net
claims from large catastrophes was A$285 million for 2005 compared to A$140 million for 2004. Our
general insurance business combined operating ratio improved to 90.2% for 2005 compared to 91.4% for
2004, reflecting the lower frequency of claims on non-catastrophe exposed business, particularly casualty
classes written principally by syndicate 386. However, the combined operating ratio of our inward
reinsurance business increased to 100.8% for 2005 compared to 91.9% for 2004 due to an increase in net
claims from catastrophes in 2005. The claims ratio increased to 63.6% for 2005, compared to 59.3% for
2004 as a result of higher net claims from catastrophes, partly offset by a lower frequency of claims on
non-catastrophe exposed classes of business, particularly syndicate 386. The decrease in commission ratio
to 20.3% for 2005 from 21.0% for 2004 is primarily due to changes in our business mix. The expense
82

atio decreased to 10.6% for 2005 from 11.3% for 2004. Higher incentives for increased profits from
syndicate 386 and additional property costs associated with the restructure of the European operations in
2004 were more than offset by the increased profit commission from external capital providers to
syndicate 386.
the Americas. The combined operating ratio for this division improved to 92.9% for 2005 compared to
93.5% for 2005. The improvement was achieved primarily in the general insurance business where the combined
operating ratio improved to 93.0% for 2005 compared to 94.7% for 2004 primarily due to management’s focus
on the profitability of the business. Our reinsurance business produced a combined operating ratio of 92.6% for
2005 compared to 92.0% for 2004. The claims ratio increased slightly to 60.0% for 2005 from 59.3% for 2004.
Despite the increased catastrophe activity the strong results reflect lower claims due to our focus on portfolio
profitability, extensive reinsurance protections, improvements in policy terms and conditions and very low
exposure to long tail US casualty business. The commission ratio decreased to 25.5% for 2005 from 27.0% for
2004, primarily due to profit and higher commissions received on ceded proportional reinsurance. The expense
ratio increased slightly to 7.4% for 2005 compared to 7.2% for 2004 due to higher expenses on acquisitions
during the year, higher staff incentives because of our improvement in insurance results and increased costs of
information technology, compliance and risk management.
Equator Re. The combined operating ratio for our captive reinsurer, Equator Re, increased to 89.8%
for 2005 from 68.8% for 2004, reflecting the increased incidence of catastrophe losses in 2005 and the increase
in prudential margins in outstanding claims. The claims ratio increased to 80.0% for 2005 from 75.3% for 2004
due to the impact of large losses in 2005. The commission ratio increased to 9.8% for 2005 from nil% for 2004
and the expense ratio for 2005 was nil% compared to (6.5)% for 2004. During 2005, we reassessed the
commission rates and levels of expenses attributable to business written by Equator Re.
Investments
Our investment portfolio (including cash) increased to A$17.6 billion at December 31, 2005 from
A$15.0 billion at December 31, 2004, an increase of 17%. This increase principally reflects the impact of
increases in operational cash flows and acquisitions. At December 31, 2005, approximately 30% of our
investments and cash were in Australian dollars, approximately 34% in pounds sterling, approximately 23% in
US dollars and approximately 13% in other currencies. Our total investment income was A$843 million for 2005
compared to A$637 million for 2004, a 32% increase. Net investment income including borrowing costs, foreign
exchange gains and losses and investment expenses increased to A$718 million for 2005 compared to A$519
million for 2004. The factors contributing to the increase in net investment income, included:
• net realized and unrealized gains on fixed interest securities of A$87 million for 2005 compared to
net realized and unrealized losses on fixed interest securities of A$13 million for 2004;
• net realized and unrealized gains on equities of A$129 million in 2005 compared to net realized and
unrealized gains on equities of A$101 million in 2004;
• realized gain on sale of controlled entities of A$11 million for 2005 compared to A$ nil for 2004;
• increased interest from non-related entities of A$567 million for 2005 compared to A$483 million for
2004; and
• net cost of ABC securities decreased to A$17 million in 2005 compared to A$43 million in 2004.
These were partially offset by:
• dividends earned decreased to A$41 million for 2005 compared to A$52 million for 2004; and
• exchange gains of A$3 million for 2005 compared to A$51 million for 2004.
83

We continued to maintain our strategy of a low risk investment portfolio. Our general policy on
investments is to reduce the risk to shareholders by investing in high quality fixed interest securities and having a
modest exposure to equity investments. This is because of the risk we have already assumed in our insurance
business.
Our fixed interest investments continue to be short in duration to reduce the effect of the potential
market volatility from rising interest rates. At December 31, 2005, our cash and fixed interest portfolio had an
average maturity of 0.6 years with only one portfolio having an investment maturity over three years. Our cash
and fixed interest portfolio produced an annualized gross yield of 4.3% for 2005 compared to 3.9% for 2004 due
to higher interest rates.
We continue to maintain a policy of matching liabilities with assets of the same currency where
practical and matching all “tradable” overseas shareholders’ funds back into Australian dollars by holding
offshore Australian assets or by using currency hedges. The nature of our business is such that we will have a
slight mismatch from time to time which for the year ended December 31, 2005 resulted in a small exchange gain
of A$3 million compared to a gain of A$51 million for 2004. The gain in 2004 arose principally due to
adjustments on transition to A-IFRS. See Note 2 to our A-IFRS financial statements for a discussion of the
impact of A-IFRS on our results of operations.
Investment Income on Policyholders’ Funds and Insurance Profit
We earned A$480 million and A$331 million in investment income on policyholders’ funds for 2005
and 2004, respectively. Our results for 2005 reflected higher interest rates during the period and management of
our investment portfolio. This income, together with our underwriting result, produced an insurance profit of
A$1,288 million for 2005 compared to A$928 million for 2004, an increase of 39%.
Investment Income on Shareholders’ Funds
Investment income on shareholders’ funds improved to A$238 million for 2005 compared to A$188
million for 2004. This primarily reflected higher interest rates and the improvement in equity markets.
Profit Before Income Tax
As a result of the above, we had a profit before income tax of A$1,523 million for 2005 compared to
A$1,115 million for 2004.
Income Tax
We had an income tax expense of A$425 million for 2005 compared to A$251 million for 2004. Income
tax expense for 2005 was approximately 28% of pre-tax profit, compared with approximately 23% for 2004. The
increase reflects increased profits in higher tax paying countries primarily Australia, the United States and the
UK.
Minority Interest
For 2005, minority interest in our net profit after income tax remained the same for 2005 and 2004 at
A$7 million.
Profit After Tax
As a result of the foregoing, our net profit after tax increased to A$1,091 million for 2005 from A$857
million for 2004. By division, for 2005 compared to 2004, respectively:
• our APACE division had a net profit after tax of A$463 million compared to A$316 million;
• our European operations had a net profit after tax of A$527 million compared to A$422 million;
84

• the Americas division had a net profit after tax of A$62 million compared to A$44 million; and
• Equator Re had a net profit after tax of A$39 million compared to A$75 million.
There has been no significant change in our financial or trading position or material adverse change in
our prospects which has occurred since the end of the last financial period for which either audited financial
information or interim financial information has been published.
Gross Earned Premium
Year Ended December 31, 2004 compared to Year Ended December 31, 2003
under historical Australian GAAP
For 2004 our total gross earned premium was A$8,571 million, which represents a 10% increase over
our total gross earned premium of A$7,816 million for 2003 This increase was primarily the result of acquisitions
made in 2004 and a higher retention of business, partly offset by the appreciation of the Australian dollar against
many of the currencies in which we receive premiums, primarily the US dollar and pound sterling.
Australian general insurance. Gross earned premium for our Australian general insurance division
was A$2,114 million for 2004 compared to A$1,715 million for 2003 an increase of 23% primarily due to the
ING Acquisition in June 2004 and improved customer retention. Premium rate increases slowed due to the lower
frequency of claims, particularly on liability classes, and increased competition in the markets in which we
operate.
Asia-Pacific general insurance. Gross earned premium for our Asia-Pacific general insurance division
decreased to A$534 million for 2004 compared to A$549 million for 2003 due primarily to the stronger
Australian dollar and our withdrawal from the Guam and Japan general insurance markets in 2003. In 2004, 13 of
our 16 operations produced higher premium income in local currency, however when translated to Australian
dollars, gross earned premium decreased 3%.
the Americas. For the Americas division, gross earned premium was A$1,354 million for 2004
compared to A$1,213 million for 2003, representing a 12% increase. This increase was primarily due to premium
rate increases, new general insurance programme business and a small acquisition in Brazil, partly offset by the
appreciation of the Australian dollar against the US dollar. For this division general insurance gross earned
premium grew 38% to A$912 million for 2004 compared to A$659 million for 2003. Inward reinsurance gross
earned premium decreased 20% to A$442 million in 2004 compared to A$554 million for 2003, reflecting our
strategy of focusing on general insurance business and, where possible, converting reinsurance relationships into
primary insurance.
European company operations. Gross earned premium for our European company operations was
substantially unchanged at A$2,304 million for 2004 compared to A$2,302 million for 2003 due to the
appreciation of the Australian dollar. In local currencies gross earned premium increased 11% in 2004 compared
to 2003 primarily due to the growth in the general insurance portfolios, including the co-insurance of the Ensign
motor business. Premium growth was also slowed by the cancellation of some business due to premium rates not
meeting our criteria and the more competitive market conditions. For this division although inward reinsurance
gross earned premium decreased 16% to A$628 million in 2004 compared to A$750 million in 2003, general
insurance gross earned premium increased 8% to A$1,676 million in 2004 compared to A$1,552 million in 2003.
Lloyd’s division. Gross earned premium for Lloyd’s division increased 11% to A$2,265 million for
2004 compared to A$2,037 million for 2003 primarily due to the acquisition of Ensign motor business and the
higher participation in syndicate 386. Premium growth was also affected by the appreciation of the Australian
dollar and the appreciation of the pound sterling against the US dollar. Approximately 40% of our Lloyd’s
business in 2004 was written in US dollars.
85

Net Earned Premium
Net earned premium was A$6,781 million for 2004 compared to A$6,036 million for 2003, representing
a 12% increase. Analyzed by divisions, net earned premium for 2004 compared to 2003 was:
• Australian general insurance. A$1,831 million compared to A$1,425 million (an increase of 28%);
• Asia-Pacific general insurance. A$439 million compared to A$430 million (an increase of 2%);
• the Americas. A$805 million compared to A$740 million (an increase of 9%);
• European company operations. A$1,971 million compared to A$1,908 million (an increase of 3%);
and
• Lloyd’s division. A$1,735 million compared to A$1,533 million (an increase of 13%).
Outward reinsurance premium expense increased slightly to A$1,790 million for 2004 from A$1,780
million for 2003 although for 2004, reinsurance expense was 21% of gross earned premium compared to 23% in
2003. The reduction reflects the favorable terms achieved as a result of our longstanding relationships with many
of our reinsurers and the mutually profitable experience over recent years.
Underwriting Results
Our combined operating ratio decreased to 91.2% for 2004 from 93.8% for 2003. The following section
discusses the results of individual components of our combined operating ratio.
Claims Ratio
The claims ratio improved to 61.4% for 2004 from 63.3% for 2003. This reflects the continuation of a
low claims frequency from improved policy terms and conditions and premium rate increases. These were
partially offset by an increase in catastrophe claims, mainly from four hurricanes in the US and the Caribbean
and the tsunami in Asia in 2004 and the increase in our prudential margins in outstanding claims.
Commission Ratio
The commission ratio improved to 17.5% for 2004 from 18.2% for 2003, reflecting a change in the mix
of business during the year and the impact of acquisitions in 2004.
Expense Ratio
Our expense ratio was unchanged at 12.3% for 2004 and 2003 as a result of synergies from acquisitions
and other initiatives, being offset by the increased cost of short and long term staff incentives for improved
insurance results, further increases in the cost of corporate governance and regulatory requirements and the cost
of the restructure in the UK in September 2004. Underwriting and other expenses increased 16% to A$398
million for 2004 compared to A$344 million for 2003. Other acquisition costs increased 11% to A$439 million in
2004 compared to A$397 million for 2003.
As a result of the above, we had an underwriting profit of A$594 million for 2004 compared to an
underwriting profit of A$372 million for 2003, a 60% increase.
Combined Operating Ratio by Division
Australian general insurance. The combined operating ratio for our Australian general insurance
division improved to 88.1% for 2004 from 92.8% for 2003 due to a continued focus on risk selection and the
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strong premium rate increases and improved terms and conditions achieved in 2002 and 2003. The claims ratio
improved to 61.0% for 2004 from 67.2% for 2003 due to the lower frequency of claims. The commission ratio
increased to 13.3% for 2004 from 11.1% for 2003 due to higher commissions on acquired business. The expense
ratio improved to 13.8% for 2004 compared to 14.5% for 2003.
Asia-Pacific general insurance. The combined operating ratio for our Asia-Pacific general insurance
division improved to 85.4% for 2004 from 90.0% for 2003. The improved result was driven by a continued focus
on portfolio profitability and the general improvement in premium rates and policy terms and conditions
achieved in the past three years. The claims ratio decreased to 48.3% for 2004 from 50.0% for 2003 reflecting the
lower frequency of claims partially offset by losses from the Asian earthquake and tsunami in December 2004.
The commission ratio also improved to 17.1% for 2004 compared to 18.8% for 2003, reflecting a change in
product and geographical mix. The expense ratio improved to 20.0% for 2004 from 21.2% for 2003. This
reflected the savings from process re-engineering initiatives partly offset by higher incentive payments due to
improved profitability, new information systems and the stronger Australian dollar. A large percentage of the
total expenses for the division was incurred in Australian dollars.
the Americas. The combined operating ratio for this division improved to 92.3% for 2004 from 93.1%
for 2003. The improvement was achieved primarily in the general insurance business where the combined
operating ratio improved to 93.4% for 2004 compared to 97.0% for 2003 primarily due to our strategy of
converting reinsurance relationships to primary insurance where possible and strong growth following the
acquisition of new insurance program business with a proven track record. The claims ratio improved to 60.1%
for 2004 from 63.4% for 2003 as a result of higher premium rates and the improvements in policy terms and
conditions implemented over the past three years. The commission ratio increased to 25.7% for 2004 from 23.5%
for 2003, reflecting a slight change in mix of business and increased profit commissions paid to our agents on
profitable program business. The expense ratio increased to 6.5% for 2004 compared to 6.2% for 2003 due to the
change in business mix, staff incentives for improved insurance profitability and the increased costs of regulatory
reform.
European company operations. The combined operating ratio for our European company operations
improved slightly to 94.3% for 2004 compared to 94.7% for 2003. The improvement in the results of our general
insurance business with a combined operating ratio of 89.8% in 2004 compared to 90.6% in 2003 was largely
offset by a deterioration in the results from our inward reinsurance business. The combined operating ratio of our
inward reinsurance business was 106.6% in 2004 compared to 103.9% in 2003. Our inward reinsurance business
was affected by the increased number of catastrophes during 2004 and an upgrade of prior year outstanding
claims provisions for US casualty and UK motor excess of loss portfolios. The claims ratio improved to 66.3%
for 2004 from 66.7% for 2003 reflecting a lower claims frequency, partly offset by an increase in catastrophe
claims and the upgrade of 2001 and prior years claims. The commission ratio improved to 15.0% for 2004 from
15.6% for 2003 due to the change in mix of business and the addition of the Ensign motor business. The expense
ratio increased to 13.0% for 2004 from 12.4% for 2003 due to restructure costs, increased costs of corporate
governance and regulatory compliance and the write-off of systems development expenditure.
Lloyd’s division. For our Lloyd’s division, the combined operating ratio improved to 92.1% for 2004
compared to 95.1% for 2003 due to premium rate increases and improved terms and conditions for most classes
of business in the previous years. Our improved results were reflected in both our general insurance business
with a combined operating ratio of 92.2% for 2004 compared to 95.9% for 2003 and our inward reinsurance
business with a combined operating ratio of 92.0% for 2004 compared to 94.0% for 2003. The claims ratio
increased to 60.3% for 2004 from 59.2% for 2003 mainly due to large catastrophes and risk losses exceeding
2003 levels and the conservative approach taken in establishing claims liabilities in respect of the 2002, 2003 and
2004 underwriting years. The improved policy terms and conditions implemented over the past three years have
assisted the reduction in the frequency of claims. The decrease in commission ratio to 20.9% for 2004 from
25.4% for 2003 is primarily due to changes in our business mix, the inclusion of the Ensign motor business and a
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small correction in the ratio in 2003. The expense ratio increased slightly to 10.9% for 2004 from 10.5% for 2003
primarily due to higher incentives for increased profit and higher regulatory compliance costs and restructure
costs.
Investments
Our investment portfolio (including cash) increased to A$15.1 billion at December 31, 2004 from
A$11.8 billion at December 31, 2003, an increase of 28%. This increase principally reflects the impact of
increases in operational cash flows and acquisitions. At December 31, 2004, approximately 28% of our
investments and cash were in Australian dollars, approximately 34% in pounds sterling, approximately 26% in
U.S. dollars and approximately 12% in other currencies. Our gross investment income before realized and
unrealized gains and losses was A$549 million for 2004 compared to A$427 million for 2003, a 29% increase.
Net investment income including borrowing costs, foreign exchange gains and losses and investment expenses
increased 23% to A$508 million for 2004 compared to A$413 million for 2003. The factors contributing to the
increase in net investment income, included:
• net realized and unrealized losses on fixed interest securities of A$13 million for 2004 compared to
net realized and unrealized losses on fixed interest securities of A$53 million for 2003;
• exchange gains of A$2 million in 2004 compared to exchange losses of A$13 million in 2003; and
• interest income was A$483 million in 2004 compared with A$365 million in 2003, reflecting the
growth in the investment portfolio and generally higher interest yields.
These were partially offset by:
• net realized and unrealized gains on equities of A$104 million in 2004 compared to net realized and
unrealized gains on equities of A$163 million in 2003;
• an increase in interest expense to A$94 million for 2004 compared to A$80 million for 2003; and
• an increase in the net cost of ABC securities for funds at Lloyd’s to A$16 million in 2004 compared
to A$2 million in 2003.
We continued to maintain our strategy of a low risk investment portfolio with a small exposure to
equities, mainly to support our shareholders’ funds, and a short duration for fixed interest securities. We had a
diverse geographic spread of our portfolio with approximately 37% of our equity portfolio at December 31, 2004
denominated in Australian dollars, approximately 28% in pounds sterling, approximately 23% in US dollars and
approximately 12% in other currencies.
Our fixed interest investments continued to be short in duration to reduce the effect of the potential
market volatility from rising interest rates. At December 31, 2004 our cash and fixed interest portfolios had an
average maturity of 0.6 years with only one small portfolio having an investment maturity over three years.
Investment Income on Policyholders’ Funds and Insurance Profit
We earned A$314 million and A$255 million in investment income on policyholders’ funds for 2004
and 2003, respectively. Our results for 2004 reflected higher interest rates during the period. This income,
together with our underwriting result, produced an insurance profit of A$908 million for 2004 compared to
A$627 million for 2003, an increase of 45%.
Investment Income on Shareholders’ Funds
Investment income on shareholders’ funds improved to an income of A$194 million for 2004 compared
to a income of A$158 million for 2003, a 23% increase. This primarily reflected the improvement in equity
markets and higher interest rates.
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Profit Before Income Tax
As a result of the above, we had a profit before income tax of A$1,080 million for 2004 compared to
A$765 million for 2003, a 41% increase.
Income Tax
We had an income tax expense of A$253 million for 2004 compared to A$188 million for 2003. Income
tax expense for 2004 decreased slightly to approximately 23% of pre-tax profit, compared with approximately
25% for 2003 primarily as a result of untaxed dividends, low rates of tax in some countries and the release of
prior year provisions.
Outside Equity Interests
For 2004, outside equity interests in our net profit after income tax was A$7 million for 2004 compared
to A$5 million for 2003.
Profit After Tax
Given the above, our net profit after tax increased to A$820 million for 2004 from A$572 million for
2003. By division, for 2004 compared to 2003, respectively:
• our Australian general insurance division had a net profit after tax of A$258 million compared to
A$180 million;
• our Asia-Pacific general insurance division had net profit after tax of A$56 million compared to A$38
million;
• the Americas division had a net profit after tax of A$68 million compared to A$46 million;
• our European company operations division had a net profit after tax of A$216 million compared to
A$168 million; and
• our Lloyd’s division had a net profit after tax of A$222 million compared to A$140 million.
Liquidity and Capital Resources
Our principal sources of funds historically have been cash flows from operating activities and income
from investments and financing activities and, to a lesser extent, external borrowings. Our principal uses of funds
have been the payment of policyholder claims, insurance administration costs, premiums for outwards
reinsurance, acquisitions, finance costs, investment purchases and dividends to our shareholders.
We use our foreign currency borrowings to support our capital requirements for overseas subsidiaries, to
fund acquisitions and to support growth in our overseas businesses, thereby providing a hedge against the
exposure of our shareholders’ funds to foreign currencies.
At December 31, 2005 we had:
• a total of A$400 million in borrowings under bank loans, which are repayable on August 24, 2006;
• £175 million of senior debt due September 28, 2009;
• US$250 million of subordinated notes due 2023, which we issued in June 2003 with a fixed annual
interest rate of 5.647% for the first ten years and a floating rate of US dollar three-month LIBOR rate
plus 3.18% for the remaining ten years;
• A$170 million and €115 million under a Eurobond subordinated note program with optional
redemption from August 2010 and maturing in August 2020;
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• LYONs due 2022 repayable in the amount of US$201 million in cash or ordinary shares in April
2022; and
• Senior Convertible Securities due 2024 repayable in the amount of US$558 million in cash or
ordinary shares.
From December 31, 2004 to December 31, 2005, the only significant change in our current borrowings
was an increase to A$400 million at December 31, 2005 compared to A$nil at December 31, 2004. Our longterm
borrowings decreased to A$1,730 million (not including A$1,015 million relating to the ABC Securities) at
December 31, 2005 compared to A$1,805 million at December 31, 2004. The movement in our long and shortterm
borrowings over the period from December 31, 2004 to December 31, 2005 has primarily been to fund
general growth.
In 2005 we completed a number of acquisitions. See “—Growth by Acquisition” and “Business.” We
paid a total of A$566 million for these acquisitions. We funded these acquisitions primarily through an increase
in short-term borrowings and funds generated by operations.
We used existing surplus funds in our Asia-Pacific operations to fund the Zurich Singapore acquisition
and short-term bank facilities to initially fund the ING Acquisition in 2004. The initial purchase price for the
ING Acquisition was A$770 million for net tangible assets of A$392 million. A further A$25 million is payable
in February 2007, subject to the run-off of pre-joint venture net insurance liabilities. On July 1, 2004 we raised
A$800 million through a bridge facility with a syndicate of banks to fund the ING Acquisition. We fully repaid
this facility as of October 5, 2004.
In November 2004, we raised US$220 million through the issue of five year contingent securities of
Mantis Reef II Limited, a special purpose entity (“ABC II Securities”). The funds were used to replace more
bank letters of credit for our funds at Lloyd’s and to provide additional capacity for our Lloyd’s syndicates. We
have no ownership interest in Mantis Reef II Limited. For more information, see Note 35 to our A-IFRS financial
statements.
In September 2004, we raised approximately US$375 million through the issue of US$558,327,000
liquidation amount at final redemption of senior convertible securities due 2024 to institutional investors. Of this
amount, approximately A$49 million was accounted for as the fair value of the equity conversion option on the
hybrid securities. We used approximately US$337 million to repay indebtedness under the bridge facility in
connection with the ING Acquisition, US$31 million to repay other indebtedness and the balance for general
corporate purposes. As of May 31, 2006 none of the senior convertible securities have been converted.
In September 2004, we issued approximately £175 million, 5.625% medium term notes due 2009. The
funds were used to partially pay down the bridge facility in connection with the ING Acquisition.
In November 2003, we raised US$550 million through the issue of five year contingent securities of
Mantis Reef Limited, a special purpose entity (“ABC Securities”). The funds were used to replace the majority of
our bank letters of credit for our funds at Lloyd’s and to provide additional capacity for our Lloyd’s syndicates.
We have no ownership interest in Mantis Reef Limited. For more information, see Note 35 to our A-IFRS
financial statements.
In early September 2003, we made special payments in respect of the LYONs due 2022 in an
aggregate amount of US$12 million which included a special issue of approximately 1.3 million ordinary shares
for no cash consideration. Those payments were the result of the higher than expected 2003 interim dividend
since we issued the LYONs due 2022 in 2002. In March 2004 and August 2004 we agreed to increase the
conversion rate on the LYONs due 2022 to reflect the higher than expected final dividend for 2003 and interim
dividend for 2004. Upon conversion, we expected to issue an additional 4.2 million shares to reflect these
adjustments. We have notified holders of LYONs due 2022 that no further dividend pass-throughs will be
offered but have also entered into arrangements with some of these LYONs holders to provide them with
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incentives not to convert their LYONs. As of April 30, 2006 approximately 75% of the LYONs due 2022
have been converted. The total number of ordinary shares issued as a result of the conversions to date is 80.3
million. We expect to issue an estimated further 30.7 million ordinary shares in the event of conversion of the
remaining LYONs outstanding.
Through our Dividend Reinvestment Plan (“DRP”) and Dividend Election Plan (“DEP”) we issued
6,213,672 ordinary shares in March 2006 in respect of a portion of our 2005 final dividend. We issued
14,452,674 ordinary shares under our DRP and DEP in respect of a portion of our 2005 interim and final
dividends. We issued 15,251,998 ordinary shares under our DRP and DEP in respect of a portion of our 2004
interim and final dividends. We expect to continue these plans.
Our debt to equity ratio (excluding the ABC Securities and the ABC II Securities) was 41.8% as at
December 31, 2005 compared to 44.8% as at December 31, 2004. Since December 31, 2005 there have been no
material changes to our debt to equity ratio. In addition, our annualized weighted average cost of borrowings in
respect of amounts outstanding was 5.2% at December 31, 2005 compared to 4.9% at December 31, 2004.
The following table summarizes our cash flows from operating activities, investing activities and
financing activities for the years ended December 31, 2005 and 2004.
Year ended December 31,
2005 2004
(A$ in millions, A-IFRS)
Operating activities .......................... 1,987 2,110
Investing activities ........................... (2,203) (2,759)
Financing activities .......................... 161 1,053
Cash flows from operating activities for the year ended December 31, 2005 decreased 6% to A$1,987
million from A$2,110 million for the year ended December 31, 2004, primarily due to the settlement of large
losses which we incurred in 2004 and 2005.
Cash flows from investing activities for the year ended December 31, 2005 were an outflow of A$2,203
million compared to an outflow of A$2,759 million for the year ended December 31, 2004. Our negative cash
flows from investing activities in both periods reflect the acquisition of investments. In 2005, we had net cash
inflows of A$814 million on the sale of equity investments compared to A$28 million in 2004 as we actively
reduced our exposure to equities to lock in equity gains. In addition, in 2005 we used A$402 million for purchase
of controlled entities compared to A$877 million in 2004.
Cash flows from financing activities decreased to A$161 million for the year ended December 31, 2005
compared to A$1,053 million for the year ended December 31, 2004. The decrease is primarily attributable to a
decrease in proceeds from financing transactions. In addition, in 2004 we received proceeds from the issue of the
ABC II Securities.
The following table summarizes our contractual obligations and other commercial commitments as of
December 31, 2005.
Amount of commitment expiration per period
Less than
1 year 2-3 years 4-5 years
After 5
years
Total
(A$ in millions)
Contractual Obligations
Long-term indebtedness ................................. 1,730 — — 763 967
ABC Securities and ABC II Securities ...................... 1,015 — 720 295 —
Operating leases ....................................... 273 27 — 80 166
Capital expenditure commitments ......................... 14 14 — — —
Other Commercial Commitments
Letters of credit ........................................ 352 — — — 352
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The net proceeds from this offering will be invested by the Issuer in the UK Capital Securities. QBE UK
will use the proceeds from the issuance of the UK Capital Securities for general corporate purposes to support
our European operations. We believe that the proceeds from this offering together with our cash flows from
operations will be sufficient to meet our estimated cash requirements for at least the next twelve months.
However, we may further access the capital markets in order to refinance existing commitments and fund
premium growth and acquisitions.
Market risk
Interest rate risk
We are exposed to interest rate risk arising from interest bearing assets. Assets with floating interest
rates expose us to cash flow interest rate risk. Fixed interest rate assets expose us to fair value interest rate risk.
Our strategy is to invest in highly quality, liquid fixed interest securities and cash to actively manage the duration
of our investments. The investment portfolios are managed to achieve a balance between cash flow interest rate
risk and fair value interest rate risk bearing in mind the need to meet the liquidity requirements of our insurance
business.
ABC Securities and ABC II Securities
We are exposed to fair value interest rate risk and currency risk in respect of the ABC Securities and
ABC II Securities and exposed to cash flow interest rate risk on the financial assets pledged in those transactions.
We manage these risks by using floating to fixed interest rate swaps and floating to fixed cross currency interest
rate swaps. In respect of the ABC Securities and the ABC II Securities, we have entered into two swap
agreements: (i) for the ABC Securities: an interest rate swap agreement with a financial institution under which
we are obliged to pay interest at a variable rate and receive interest at a fixed rate; and (ii) for ABC II Securities:
a cross currency interest rate swap agreement with a financial institution under which we are obliged to pay
variable rate interest on a sterling asset portfolio and receive a fixed amount of US dollar interest.
ABC II Securities (due 2009) are measured at amortized cost in original currency and translated to
Australian dollars at the closing rate of exchange. Under the swap agreement, we pay a margin of 1.7% above the
wholesale interbank rate monthly on £120 million and receive a fixed rate of 3.2% on US$220 million every six
months to match the interest payment to investors. The swap agreement currently comprises three swaps which
are measured at fair value. Two of the swaps are designated as cash flow hedges and have satisfied the
effectiveness tests throughout the period from inception and at the balance date. The movement in the fair value
of the swaps is recognized in equity. Any ineffectiveness in the cash flow hedges is recognized directly in our
consolidated income statement. An amount is transferred from equity and recognized in our consolidated income
statement to offset:
• the differential between the fixed and variable interest payments; and
• the foreign exchange gain or loss on translation of the financial liabilities.
During 2005, a loss of A$1 million was recognized in equity relating to the fair value movements on the
cash flow hedges compared to A$ nil in 2004. During 2005, a gain of A$4 million was transferred from equity to
the consolidated income statement compared to A$ nil in 2004.
ABC Securities (due 2008) are measured at amortized cost in original currency and translated to
Australian dollars at the closing rate of exchange. Under the swap agreement, we pay interest at the wholesale
interbank rate and receive a fixed rate of 3.5% on US$550 million every six months to match the interest
payment to investors. The swap agreement comprises two swaps which are measured at fair value. The swaps are
designated as fair value hedges and have satisfied the relevant hedge effectiveness tests throughout the period
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and at the balance date. The fair value movement on the swaps is recognized in the consolidated income
statement. Any change in the value of the financial liabilities as a result of the hedged risk adjusts the carrying
amount of the hedged item and impacts the consolidated income statement.
See Note 5 to our A-IFRS financial statements for a discussion of our interest rate risk and management
policies and Note 35(c) to our A-IFRS financial statements for a discussion of the ABC Securities and the ABC
II Securities.
Eurobonds
We are exposed to interest rate and currency risk in respect of our three Eurobond financing
arrangements. Accordingly, we have entered into swap agreements which result in the financial liabilities being
fixed at sterling amounts until 2010, at which point we will be liable for the original Australian dollar and Euro
amounts in the underlying finance arrangements. The facility can be extended for a further 10 years to 2020.
Under the swap agreements, the variable interest rates of between 1.8% and 2.0% above the wholesale interbank
rate are swapped to fixed rates of between 8.4% and 8.6% payable quarterly until 2010. The timing of the
payments under the swap agreements matches the dates on which interest is payable on the underlying debt. The
contracts are settled on a net basis.
The underlying differential between the fixed and variable interest payments and the movement in the
spot rate on the financial liabilities are measured at amortized cost in the original currency and translated to
Australian dollars at the closing rate of exchange. The swaps are measured at fair value. The swaps are
designated as cash flow hedges and have satisfied the relevant hedge effectiveness tests throughout the year and
at the balance date. The gain or loss on the cash flow hedges is recognized directly in equity. Any ineffectiveness
in the cash flow hedges is recognized directly in the income statement.
Each financial year end, until the close out of the swap arrangements in 2010, an amount is transferred
from equity to the income statement to offset the differential between the fixed and variable interest payments
and the movement in the spot rate on the financial liabilities. See Note 22 to our A-IFRS financial statements for
more information.
Foreign exchange and market risk
Our primary business is that of providing insurance by way of contracts that expose us to identified risks
of loss from events or circumstances occurring or discovered within a specified year. Derivatives are one of the
means we use to manage risks which arise as a consequence of the management of policyholders’ funds and
shareholders’ funds, particularly in relation to our overseas operations. We do not use derivatives for speculative
purposes. The information provided below is specific to derivatives only.
Foreign currency risk arises from the translation of net investments in foreign operations to Australian
dollars. We use foreign currency interest bearing liabilities and forward foreign exchange contracts to mitigate
this risk. We are also exposed to foreign currency risk on our net position in foreign currencies arising from
foreign currency transactions. We use derivatives to help manage this exposure by entering into forward foreign
exchange contracts, some of which involve the exchange of two foreign currencies according to the needs of our
subsidiaries. Contractual amounts for foreign exchange derivatives outstanding at December 31, 2005 include
forward foreign exchange contracts to purchase A$6,778 million compared to A$5,162 million for 2004.
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The maturity profile of these derivatives is as follows:
December 31,
2005 2004
(in A$ millions, A-IFRS)
Less than one year .......................................... 6,766 4,962
More than one but less than five years .......................... — —
Later than five years ........................................ 12 200
Total ................................................ 6,778 5,162
We are exposed to market risk on our investment in equities and fixed interest securities and use
forward contracts and options to help manage this exposure. All derivative positions we enter into are for
economic hedging purposes but do not in all cases meet the criteria for hedge accounting due to the detailed
requirements that need to be addressed in order to achieve hedge accounting under A-IFRS. Contractual amounts
for written options outstanding at both December 31, 2005 and 2004 were A$ nil. There were nil amounts
outstanding for purchased options at December 31, 2005 compared to A$12 million at December 31, 2004.
Our derivative risk management process is subject to regular internal audit and close senior management
scrutiny, including regular board and other management reporting. All derivative transactions we enter into are
subject to authority levels provided to management and the levels of exposure are reviewed on a ongoing basis
by the investment committee of the board. This committee is responsible for overviewing the process of
derivative risk management while the audit committee monitors internal control procedures relating to derivative
transactions.
Hedging arrangements
We have designated the following derivatives as hedges:
Fair Value at December 31,
2005 2004
Type of hedge Description of instrument Nature of risks (in A$ millions, A-IFRS)
Fair value ............ Interest rate swaps—ABC
Securities (due 2008)
Changes in fair value of
financial liability due to
Cash flow ............
Cash flow ............
Net investments in
foreign operations . . .
Cross currency interest rate
swaps—Eurobonds
Cross currency interest rate
swaps—ABC Securities II
(due 2009)
Forward foreign exchange
contracts—spot component
interest rate risk (28) —
Variability of functional
currency cash flows due to
interest rate and foreign
currency risk 13 12
Variability of functional
currency cash flows due to
interest rate and foreign
currency risk (1) —
Foreign currency risk
(21) 117
At December 31, 2005, A$nil non-derivative interest bearing liabilities were designated as hedges of net
investments in foreign operations compared to A$908 million at December 31, 2004. During 2005, these hedging
instruments were replaced as hedges by forward foreign exchange contracts.
See Note 5 to our A-IFRS financial statements for a discussion of our foreign exchange and market risk
and management policies.
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Credit risk
The credit risk on our financial assets is generally the carrying amount, which is net of any provisions.
We only use derivatives in highly liquid markets. Credit risk exposures are calculated regularly and compared
with authorized credit limits before further transactions are undertaken with each counterparty. 77% of our total
financial assets and cash is with counterparties having a Moody’s rating of Aa3 or better. We do not expect any
counterparties to fail to meet their obligations given their high credit ratings and therefore do not require
collateral or other security to support derivatives.
Insurance Solvency
We are subject to a number of different regulations that require, among other things, capital to be held to
support our business activities. Insurance solvency, represented by the ratio of net tangible assets to net earned
premium, is an important indicator in assessing the ability of general insurers to pay their existing liabilities. See
“Regulation.” We continue to maintain insurance solvency margins in excess of the statutory minimum insurance
solvency margins where we operate.
We believe our insurance solvency is strong and at near optimum levels to support our businesses. Our
directors will continue to carefully monitor our capital requirements for the future, particularly in view of our
strategy of growth by acquisition.
The table below details our insurance solvency ratio, calculated as the ratio of net tangible assets at
market value to net earned premium for the periods presented.
As of December 31,
2005 2004
(A-IFRS)
Insurance solvency ratio % .................................... 51.1 45.0
Insurance solvency ratio % (including subordinated debt as equity) .... 60.5 54.8
Prudential standards for Australian general insurers introduced by APRA under legislation which
became effective July 1, 2002 require a more comprehensive, risk based approach to the calculation of the
minimum capital requirement for licensed insurers. APRA has not yet developed prudential standards for
calculating consolidated capital adequacy requirements for non-operating insurance holding companies such as
QBE. We have made a number of assumptions in applying the risk based capital standards for Australian
licensed insurers to the QBE group. Our calculation of our group capital adequacy multiple on a consolidated
basis as at December 31, 2005, including our outstanding subordinated debt and LYONs due 2022 as lower tier
2 capital, was around 1.9 times the minimum capital requirement compared to 1.8 times the minimum capital
requirement as at December 31, 2004. The increase in the capital adequacy multiple since December 31, 2004
was due principally to the increase in shareholders’ funds and higher prudential margins.
Australian Business Tax Reform
Australia has undergone general business tax reform in recent years. This has resulted in a reduction in
the Australian corporate tax rate from 36% to 34% from July 1, 2000 and then to 30% from July 1, 2001.
A tax consolidation regime for Australian groups of companies applied for us from July 1, 2003. Under
that regime, we elected to be treated as a single company for Australian tax purposes.
Accordingly, QBE Insurance Group Limited is the head entity in a tax-consolidated group comprising it
and all of its Australian wholly-owned controlled entities (“Australian entities”) from the implementation date of
January 1, 2003, and we applied UIG 52: Income tax accounting under the tax consolidation system, which was
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the relevant guiding Abstract at the time. The financial effect of this change was brought to account in our
financial statements for the six months ended June 30, 2004.
As a consequence, we entered into a tax sharing and tax funding agreement with our Australian
subsidiary entities (“the agreement”), that requires our Australian subsidiary entities to make contributions to us
for tax liabilities and deferred tax balances arising from external transactions occurring after the implementation
of tax consolidation. The allocation of these contributions, together with related assets and liabilities arising
under the agreement are recognized in the statement of financial position of each Australian entity in accordance
with the new UIG Interpretation 1052: Tax Consolidation Accounting, which has superseded UIG 52.
Tax consolidation legislation requires a tax-consolidated group to keep a single franking account. The
amount of franking credits available to shareholders has been recognized under this legislation.
Recently, draft legislation relating to the taxation of financing arrangements was released. The draft
legislation, referred to as the “TOFA Rules,” sets out the following five methods for determining the tax timing
of financial arrangements: fair value, compounding accruals, realization, retranslation and hedging. At this stage,
it is not clear how the TOFA Rules will apply to general insurance companies, but it is likely that the Rules will
alter the way in which certain activities are assessed and brought to account for income tax purposes. The TOFA
Rules are, however, still in draft form and are incomplete. No start date has been announced and other key
aspects of the Rules, such as provisions dealing with the interaction with existing income tax law and transitional
arrangements, still need to be introduced.
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BUSINESS
Overview
We are Australia’s largest international general insurance and reinsurance group based on net earned
premium. We underwrite commercial and personal lines business in 42 countries around the world. The
following table sets forth information about our gross earned premium, net earned premium and general
insurance and inward reinsurance premiums for the periods indicated.
Year ended December 31,
2005 2004
(in A$ millions except
percentages, A-IFRS)
Gross earned premium ................................................... 9,171 8,571
Net earned premium ..................................................... 7,386 6,781
General insurance as a percentage of net earned premium ........................ 78.2 76.4
Inward reinsurance as a percentage of net earned premium ....................... 21.8 23.6
billion.
As of December 31, 2005, our shareholders’ funds totaled A$5.1 billion and our assets totaled A$29.7
Operations
Our operations are conducted through the following divisions:
• Australia Pacific Asia Central Europe (APACE) consists of our operations in Australia, Asia-Pacific
and Central Europe:
Australian general insurance operations operates throughout Australia, providing all major lines
of insurance cover for commercial and personal risks. Our principal insurance products in this
division include compulsory third party motor vehicle personal injury insurance (“CTP”),
professional and public liability, workers’ compensation, property, commercial packages, motor,
householders’, travel, marine, aviation and trade credit;
Pacific Asia Central Europe (PACE) provides personal, commercial and specialist insurance
covers, including professional and general liability, marine, corporate property and trade credit in
25 countries in the Asia-Pacific and Central European regions;
• European operations consists of our United Kingdom and Western European operations and our
Lloyd’s division (operating as Limit):
QBE Insurance (Europe) provides product focused general insurance cover in the United
Kingdom, Ireland, France, Spain and Germany and reinsurance business in the United Kingdom
and Ireland;
Lloyd’s division writes commercial insurance and reinsurance business in the Lloyd’s market.
Through our acquisition of Limit plc (“Limit”) in August 2000 and our subsequent acquisitions of
additional capacity in Lloyd’s syndicate 386, we are now the second largest managing agent at
Lloyd’s with approximately 6.8% of Lloyd’s total market capacity for the 2006 underwriting year;
• the Americas writes general insurance and reinsurance business in the Americas with headquarters in
New York and operations in North, Central and South America and Bermuda;
• Investments provides management of our investment funds; and
• Equator Re is our captive reinsurance business based in Bermuda. (Equator Re’s intercompany
transactions are eliminated upon consolidation of our overall group results. See Note 38 to our
A-IFRS financial statements).
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In 2004 and 2005 we restructured some of our divisions. In May 2005, we brought our Australian and
Asia-Pacific general insurance operations under combined management structure called “APACE” and in
September 2004 we brought our European company operations division and our Lloyd’s division (operating as
Limit) under a combined management structure called “European operations.” At that time, the Central and
Eastern Europe division of the former European company operations was moved to the Asia-Pacific general
insurance division which was experienced in managing smaller, diverse trading units across a range of countries
and cultures.
Performance
Under A-IFRS, our net profit after tax, investment income (after unrealized gains/losses) and combined
operating ratio were A$1,091 million, A$718 million and 89.1%, respectively, for the year ended December 31,
2005 compared to A$857 million, A$519 million and 91.2%, respectively, for the year ended December 31,
2004.
Under historical Australian GAAP, our net profit after tax, investment income (after unrealized gains/
losses) and combined operating ratio were A$820 million, A$508 million and 91.2%, respectively, for the year
ended December 31, 2004 and A$572 million, A$413 million and 93.8%, respectively, for the year ended
December 31, 2003.
Our History
Our founding company, The North Queensland Insurance Company Limited, was established in
Queensland, Australia in 1886. By 1890, we had established over 36 agencies throughout the Asia-Pacific region
and Europe providing general insurance services. In 1973, we merged with Bankers and Traders Insurance
Company Limited and Equitable Life and General Insurance Company Limited, were renamed QBE Insurance
Group Limited on October 3, 1973 (ABN 28 008 484 014) and were listed on the ASX. We have since grown
into Australia’s largest international general insurance and reinsurance group based on net earned premium,
operating in 42 countries around the world. We are domiciled in Australia. Our principal executive office and
registered office is located at Level 2, 82 Pitt Street, Sydney, New South Wales 2000, Australia. Our telephone
number is 61-2-9375-4444.
In 1986, we entered the inward reinsurance market with the acquisition of an Australian reinsurer,
Sydney Reinsurance Company Limited (formerly Storebrand International Reinsurance), and expanded our
inward reinsurance business in 1988 through the purchase of two European reinsurance companies.
In the past decade we have experienced substantial growth, largely through acquisitions, with gross
written premium increasing from A$629 million for the year ended June 30, 1990 to A$9,408 million for the year
ended December 31, 2005. Major acquisitions have included Australian-based multiline underwriter Australian
Eagle Insurance Company Limited, which we acquired in 1992, New York-based reinsurer American Royal
Reinsurance Company which we acquired in 1993, London-based Allstate Reinsurance Company Limited, which
we acquired in 1996, and the Australian-based trade credit business QBE Trade Indemnity Limited, which we
acquired in 1997. In December 1999, we acquired Iron Trades, a United Kingdom direct insurer. In August 2000,
we acquired Limit, which currently manages five ongoing Lloyd’s syndicates and makes us currently the second
largest manager and third largest provider of capacity in the Lloyd’s market. In June 2004, we purchased ING’s
50% share in the QBE Mercantile Mutual joint venture in Australia including ING’s Australian general insurance
underwriting businesses conducted through Mercantile Mutual Insurance (Australia) Limited (now named MMIA
Pty Limited).
We have grown primarily through acquisitions. In 2006 and 2007, we expect to continue to achieve
growth primarily through small premium rate increases, a focus on higher retention of customers and inclusion of
operating results from acquisitions we made in 2005 and may make in 2006.
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Recent Acquisitions
During 2006 to date, we have purchased a small general aviation insurer in Denmark and hired a team of
general aviation underwriters in the United Kingdom.
In 2005, we acquired:
• Central de Seguros in Colombia;
• National Farmers Union Property and Casualty in the United States;
• Greenhill underwriting agency operations in France, Germany and Spain;
• MiniBus Plus underwriting agency in the UK;
• British Marine Holdings, a specialist small tonnage marine underwriter;
• the wholly owned business of Allianz in Vietnam; and
• National Credit Insurance Brokers in Australia and New Zealand and Austral Mercantile Collections
in Australia to support our trade credit operations.
We paid a total of A$566 million for our acquisitions in 2005. We funded these acquisitions primarily
through an increase in short-term borrowings and funds generated by operations.
We have considered a number of acquisitions in recent times and are looking at a number of acquisitions
in Australia, the Asia-Pacific region, the Americas and Europe. In the past 20 years, we have acquired over 90
businesses or portfolios throughout the world. Our acquisition strategy has assisted our diversification by
spreading our business across both general insurance and reinsurance businesses and by increasing our
geographic and product spread. Our strategy as to the percentage of our business that should be general insurance
or reinsurance is continuously considered according to conditions in both markets. Our acquisition strategy is
driven by seeking value for our shareholders rather than focusing on specific business lines. While no major
acquisitions are currently being pursued for the remainder of 2006, we will continue to review acquisition
opportunities in the future.
Strategy
Our underwriting strategy is to achieve consistency in our underwriting results and reduce our risk of
loss through:
• geographic and product diversification;
• selective acquisitions;
• attracting and retaining quality underwriters;
• ongoing actuarial assessment of premium pricing and outstanding claims reserves;
• a decentralized regional operational management structure;
• a group risk management strategy; and
• effective use of reinsurance and retrocession protection with financially strong and highly rated
reinsurers.
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The investment committee of our board of directors reviews our investment strategy at each committee
meeting in respect of the investments we are permitted to make. The following table sets forth the percentage of
our investments represented by equities, cash (net of overdrafts), short-term deposits, fixed interest and other
interest bearing securities and investment properties for the periods indicated.
Year ended December 31,
2005 2004
A$ % A$ %
(in millions except percentages, A-IFRS)
Cash (net of overdrafts) ........................................ 1,061 6.0 1,121 7.5
Short-term deposits ........................................... 8,292 47.1 5,482 36.6
Fixed interest and other interest bearing securities ................... 7,537 42.9 6,957 46.5
Equities .................................................... 674 3.8 1,383 9.2
Investment properties ......................................... 33 0.2 32 0.2
Total investments and cash ..................................... 17,597 100.0 14,975 100.0
We maintain a strategy of a low risk investment portfolio. Our general policy on investments is to
reduce the risk to shareholders by investing in high quality fixed interest securities and having a modest exposure
to equity investments. This is because of the risk we have already assumed in our insurance business.
Our fixed interest investments continue to be short in duration to reduce the effect of the potential
market volatility from rising interest rates. At December 31, 2005, our cash and fixed interest portfolio had an
average maturity of 0.6 years with only one portfolio acquired in a recent acquisition having an investment
maturity over three years.
Operational Summary
For a discussion of our key ratios by division, see “Management’s Discussion and Analysis of Financial
Condition and Results of Operations.”
Our portfolio of insurance and reinsurance business is geographically diversified, with 74% and 75% of
our gross earned premium for the years ended December 31, 2005 and 2004, respectively, derived from
non-Australian divisions. The information in the table below indicates the gross earned premium of our insurance
product lines for the periods indicated.
Year ended December 31,
2005 2004
A$ % A$ %
(in A$ millions except percentages, A-IFRS)
Product lines
Gross earned premium
Property(1) .............................................. 2,632 28.7 2,563 29.9
Liability(2) .............................................. 2,008 21.9 1,868 21.8
Motor and motor casualty(3) ................................ 1,256 13.7 1,054 12.3
Professional indemnity ..................................... 835 9.1 814 9.5
Workers’ compensation(4) .................................. 816 8.9 823 9.6
Marine and aviation ....................................... 578 6.3 566 6.6
Accident and health ....................................... 569 6.2 523 6.1
Financial and credit ....................................... 229 2.5 206 2.4
Other(5) ................................................ 248 2.7 154 1.8
Total ............................................... 9,171 100.0 8,571 100.0
General insurance ......................................... 7,076 77.2 6,583 76.8
Inward reinsurance(6) ..................................... 2,095 22.8 1,988 23.2
Total ............................................... 9,171 100.0 8,571 100.0
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(1) Includes property excess of loss, engineering, war and energy.
(2) Includes medical malpractice and general, public and product liability.
(3) Includes CTP.
(4) Includes employers’ liability.
(5) Includes agriculture, bloodstock, engineering, satellite and other miscellaneous classes of insurance.
(6) Includes facultative reinsurance.
Our insurance products are classified as either short-tail or long-tail, principally based upon the average
amount of time that elapses between when we receive premiums and when we pay claims. The average amount
of time that elapses between the time premiums are received and claims are paid for our short-tail lines is
generally one year or less and for our long-tail lines is generally more than one year. Our principal short-tail lines
of business include commercial and domestic property such as motor vehicle physical damage. Our principal
long-tail lines of business include liability (casualty), professional indemnity, workers’ compensation and CTP.
As at December 31, 2005, 54% of our gross earned premium was generated by short-tail lines, and 46% was
generated by long-tail lines, compared to 53% and 47%, respectively, at December 31, 2004. The weighted
average term to settlement of our outstanding claims as of December 31, 2005 was 2.9 years and was 3.0 years as
of December 31, 2004. See Note 3(a)(vi) to our A-IFRS financial statements for details of the weighted average
term to settlement of outstanding claims.
Description of Products and Services
Our major products and services are described below.
Property—Property insurance refers to the underwriting of a broad range of risks including policies for
fire, industrial special risks and consequential loss, as well as schemes tailored for specific classes of cover. We
focus on providing specialized insurance coverage and offer cover for catastrophe, property facultative, direct
and excess of loss risks.
Motor Vehicle and Motor Casualty—Private motor insurance includes the provision of comprehensive
insurance for damage to or loss and theft of a vehicle, as well as third party property damage. Commercial motor
insurance refers to the underwriting of risks for business vehicles and fleets. Private motor policies are generic,
unlike commercial motor coverage, where policies are often tailored to a customer’s specific needs. We both
insure and reinsure motor vehicle risks. It includes CTP (see below).
Compulsory Third Party—CTP insurance covers insureds in Australia against liability to third parties
injured in motor vehicle accidents and is the means by which those third parties are compensated for their
injuries in Australia. The insurance is compulsory for all motor vehicles in Australia. Claims are governed by
legislation and disputes can be resolved by the courts. In New South Wales, Queensland and the Australian
Capital Territory, CTP is underwritten by private insurers. In other states and the Northern Territory, CTP is
underwritten by the respective state and territory governments.
Liability (Casualty)—Liability insurance is purchased to insure against claims made by third parties who
are injured or who suffer property damage arising out of the insured’s activities or statutory obligations. It
includes professional indemnity (see below), medical malpractice and general, public and product liability. We
believe that our liability insurance and reinsurance portfolio is diversified, both in terms of business risk and
geographic location.
Marine—Marine insurance covers a broad range of risks including marine hull (insurance which covers
loss or damage to a marine vessel) and marine cargo (insurance that covers the loss of or damage to goods being
transported), as well as a number of specialty risks including offshore oil and gas rigs, onshore energy facilities
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and space. Our marine insurance and reinsurance businesses are conducted in all divisions. However, the
majority is written through our European operations.
Aviation—Aviation insurance covers both aviation hull and aviation liability, including passengers. Both
our Australian general insurance and Lloyd’s divisions have significant aviation businesses.
Accident and Health—Accident and health insurance covers insureds for expenses incurred in
association with medical costs, including hospital stays and fixed lump sums such as in accidental death or loss
of limbs. We both insure and reinsure accident and health risks.
Professional Indemnity—Professional indemnity insurance is purchased by professional advisers such as
engineers, architects and lawyers and by company directors and officers to insure against damages arising from
actions for the provision of negligent advice or services. We provide this cover primarily on a general insurance
basis.
Workers’ Compensation—Workers’ compensation insurance is provided for work-related injuries. The
provision of workers’ compensation insurance is typically a statutory class of business, as it is required by local
or state government legislation. Legislation also typically requires employers to either self-insure with adequate
reinsurance or to obtain appropriate workers’ compensation insurance with an approved insurer. The level of
insurance required is mainly determined by reference to the number of workers employed and the nature of work
performed. Includes employers’ liability (see below).
In Australia in the states of New South Wales, Victoria, South Australia and Queensland, workers’
compensation underwriting is administered by the state governments. Our role in the first three of these states is
currently largely limited to providing a claims management service on a fee basis. As of July 1, 2006, we will not
be providing claims management services in South Australia.
Employers’ Liability—We provide general insurance cover for employers’ liability in the United
Kingdom and Ireland through our European operations. This is similar to workers’ compensation insurance as
described above.
tools.
Financial and Credit—Includes products such as residual value bonds or other credit enhancement
Catastrophe—Purchased to insure against catastrophes such as natural disasters. Typically, a form of
excess of loss reinsurance is offered, subject to specified limits, to indemnify the reinsured for the amount of loss
resulting from a catastrophic event or series of events in excess of a specified amount.
Householders’—Householders’ insurance refers to the underwriting of home, contents, personal effects
and personal liability risks. We both insure and reinsure householders’ risks.
Commercial Packages—Commercial package insurance is a flexible package of insurance options
designed to provide cost-effective protection for our customers in retail, commercial and industrial businesses.
Terrorism cover
Because of the unpredictable nature of terrorist attacks, providing terrorism cover without the support of
reinsurance can be uneconomic. Consequently, where matching reinsurance is unavailable, we generally provide
terrorism cover only after careful consideration. For example, in some lines of business, such as US property
risks outside major metropolitan areas, where we believe our terrorism exposure is not material, we are not
excluding terrorism from our policies. This is consistent with our underwriting policy since the events of
September 11, 2001 to only insure terrorism risks where terrorism losses are expected to be minimal. We
continue to work with industry bodies and governmental authorities to further reduce our and the industry’s
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exposure to terrorism risks. Many governments have already passed legislation or have committed to introduce
legislation that would have this effect. For information on this legislation, see “Regulation—Australian Insurance
Regulation—Terrorism Insurance Act 2003” and “Regulation—United States Insurance Regulation—Terrorism
Risk Insurance Act.”
Australia Pacific Asia Central Europe (APACE)
Our operations in the APACE group are comprised of our operations in the Australia and Pacific Asia
Central Europe divisions.
Australian general insurance operations
Our Australian operations comprise a broad range of product lines, each of which applies specific
product management focus to its respective portfolios. The seven core business units are specialist risk,
intermediary distribution, third party distribution, credit and surety, statutory classes, aviation and direct
distribution. Australian operations includes:
• QBE Insurance (Australia) Limited, our general insurance subsidiary in Australia, underwriting
risks written through intermediaries and through Western QBE and QBE Travel, as well as specialist
insurance products such as CTP, professional indemnity, aviation, trade credit, workers’
compensation, corporate property and corporate liability;
• Western QBE, largely writing direct personal lines business in Australia and providing insurance to
the travel industry; and
• Our non-risk (fee for service) workers’ compensation business in New South Wales, Victoria and
South Australia. As of July 1, 2006, we will not be providing this service in South Australia.
The strategy of our Australian general insurance operation is to ensure optimum retention of quality
customers, maintain profitability of existing and new business, eliminate consistently unprofitable lines of
business and distribution channels, extend distribution and service of insurance products and reduce costs. In
2005, we acquired National Credit Insurance Brokers in Australia and New Zealand and Austral Mercantile
Collections in Australia to support our trade credit operations. In 2005, we commenced writing builders’
warranty and medical malpractice insurance in Australia. This follows changes made by various state
governments and the Commonwealth Government to improve the claims experience and affordability of these
classes of insurance.
Following the completion of the review into the law of negligence conducted by a panel chaired by the
Honourable David Ipp, each of the States and Territories of Australia and the Commonwealth of Australia have
passed legislation introducing significant reform to the law of tort in respect of claims for death and personal
injury. There have also been reforms implementing proportionate liability, that is for the abolition of the
principles of joint and several liability in certain cases involving economic and property loss. The impact of these
tort reforms will be felt over time although it is likely to bring some stability to market prices for public liability
risks.
For a summary of certain financial data and key ratios for our Australian general insurance operations
for the years ended December 31, 2005 and 2004, see “Management’s Discussion and Analysis of Financial
Condition and Results of Operations.”
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Products
Our Australian general insurance operations underwrites a broad mix of both personal and corporate
insurance business. The table below indicates the contribution of each class of business to gross earned premium
for our Australian general insurance operations for the years ended December 31, 2005 and 2004.
Year ended December 31,
2005 2004
A$ % A$ %
(in millions except percentages, A-IFRS)
Business Class
Professional indemnity ...................................... 125 5.2 131 6.2
Credit and surety ........................................... 113 4.7 110 5.2
Accident and health ......................................... 175 7.3 123 5.8
Property .................................................. 399 16.6 332 15.7
Motor vehicle ............................................. 224 9.3 188 8.9
Travel ................................................... 43 1.8 40 1.9
Householders’ ............................................. 255 10.6 207 9.8
Compulsory third party ...................................... 178 7.4 190 9.0
General liability ............................................ 450 18.7 385 18.2
Workers’ compensation ...................................... 197 8.2 195 9.2
Marine and aviation ......................................... 111 4.6 97 4.6
Other(1) .................................................. 135 5.6 116 5.5
Total ................................................ 2,405 100.0 2,114 100.0
(1) Includes agriculture, bloodstock, casualty and other miscellaneous classes.
Competition
We are the largest general insurer in the Australian market based on net earned premium as of
December 31, 2005. Our main competitors include other large insurers operating in the Australian market, such
as Insurance Australia Group (formerly NRMA) (“IAG”), Promina Group Limited (formerly Royal & Sun
Alliance), Suncorp General Insurance and Allianz. Because of the significant number of companies with market
shares of between 5% to 10%, as well as smaller companies with market shares just below 5%, the insurance
market is highly competitive in Australia. The general insurance market has many niche participants and there is
a high number of general insurers for a relatively small market.
There has been rationalization in the general insurance industry since January 2003. The main
developments were:
Distribution
• CGU Insurance Australia was acquired by IAG in early 2003;
• Promina Group Limited, Royal & Sun Alliance’s Australian and New Zealand insurance business,
was listed on the ASX in May 2003;
• Wesfarmers acquired Lumley Insurance Group Limited in August 2003; and
• our ING Acquisition in June 2004.
We write the majority of our business in Australia through brokers and agents. The remainder of our
products are written directly through our branch network.
The agents we use typically also sell the insurance products of our competitors. While these agents
receive a commission on any business we accept, we are generally not committed to accept any business from
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any particular agent. Certain brokers and agents with limited authority write certain policies on our behalf, but
only up to a specified amount of cover and within prescribed parameters. We do not rely on any single broker or
agent for a significant portion of our Australian business. Additional distribution channels include banks and
other financial institutions. More recently, there has been an increase in the commoditization of selected product
lines of general insurance products, consolidation of distribution channels and the establishment of new lines of
underwriting.
Pacific Asia Central Europe (PACE)
The PACE division conducts general insurance business outside Australia in 25 countries throughout the
Asia-Pacific and Central European regions: Bulgaria, China, Czech Republic, Denmark, Estonia, Fiji, French
Polynesia, Hong Kong, Hungary, Indonesia, Macau, Macedonia, Malaysia, Moldova, New Caledonia, New
Zealand, Papua New Guinea, Philippines, Singapore, Slovakia, Solomon Islands, Thailand, Ukraine, Vanuatu and
Vietnam. We have had a representative office in China since 1996. We provide personal, commercial and
specialist insurance covers, including professional and general liability, marine, corporate property and trade
credit products. We have had a presence in the Asia-Pacific region for over 100 years, and have a well known
brand name and strong market share in most countries in this region.
The PACE division tends to be more capital intensive than our other divisions because of the number of
jurisdictions in which we operate in these regions. However, we believe these are still important and profitable
markets for us, as evidenced by the claims ratio for this division. Our strategy is to continue to increase business
retention and grow our specialist product lines through international and local insurance brokers. We are
considering several acquisitions that are compatible with our existing operations.
The majority of our ongoing operations in the Asia-Pacific and Central Europe regions were profitable
for the year ended December 31, 2005, however operations in Macedonia, Moldova and our Vietnam joint
venture produced small underwriting losses. Our recent developments include:
• selling our 50% share of the QBE-BIDV joint venture in Vietnam 2005, effective January 1, 2006;
• acquiring the wholly-owned business of Allianz in Vietnam in 2005, effective January 1, 2006;
• acquiring Nordic Aviation in Denmark in 2006;
• acquiring businesses in Singapore, including Zurich Insurance (Singapore) Pte Limited in June 2004
significantly increasing the size of our Singapore operations;
• launching a specialist marine underwriting agency in Singapore;
• acquiring two businesses in Papua New Guinea, increasing our market share to over 50% of the
property and casualty market in that country;
• merging our two Hong Kong operations; and
• finalizing a joint venture in Malaysia with MBF Capital Berhad.
For a summary of certain financial data and key ratios for our PACE operations for the years ended
December 31, 2005 and 2004 see “Management’s Discussions and Analysis of Financial Condition and Results
of Operations.”
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Products
Our PACE division underwrites a broad mix of both personal and corporate insurance business. The
table below indicates the contribution of each class of business to gross earned premium for our Pacific Asia
Central Europe operations for the years ended December 31, 2005 and 2004.
Year ended December 31,
2005 2004
A$ % A$ %
(in millions except percentages, A-IFRS)
Business Class
Professional indemnity ................................. 71 10.4 64 9.4
Marine .............................................. 76 11.1 68 10.0
Workers’ compensation ................................. 41 6.0 33 4.8
Motor and motor casualty ............................... 129 18.8 129 18.8
Property ............................................. 171 24.8 174 25.3
Accident and health .................................... 52 7.5 55 8.1
Liability ............................................. 52 7.5 53 7.8
Engineering .......................................... 22 3.2 20 2.9
Travel .............................................. 21 3.0 26 3.8
Householders’ ........................................ 24 3.5 19 2.8
Other(1) ............................................. 29 4.2 43 6.3
Total ........................................... 688 100.0 684 100.0
(1) Includes credit and surety, agriculture and other miscellaneous classes.
The business that we underwrite in the PACE division reflects the nature and development of the
underlying markets. In more established markets like Hong Kong, Malaysia and Singapore, the premium base is
split between personal lines (such as motor, home, accident and health) and commercial lines. In developing
markets, such as Indonesia and Thailand, insurance is still essentially a commercial product. As these economies
and insurance markets develop, we expect to see increasing demand for commercial liability products (such as
public liability, product liability, directors’ and officers’ liability, professional indemnity and workers’
compensation) from businesses and for personal products like private motor vehicle, home and travel insurance.
New product development under the banner of “specialized insurance solutions” has resulted in the
introduction of professional liability, directors’ and officers’, medical malpractice, specialist liability, marine
liability, trade credit products and coverage for cargo in transit by sea, land and air into a number of Asian and
Central European markets. A team of specialists, including staff from our London and Sydney operations,
support these new products.
PACE business is conducted in 25 countries where we have shareholder and management control and a
strong distribution base of agents and longstanding business relationships with key insurance brokers. We use
over 11,000 agents and brokers to distribute personal and commercial lines of business. We do not rely on any of
these agents or brokers for a significant portion of our business in this division. Where we write commercial lines
of business, we focus on the small-to-medium sized business market, where we believe competition is less
intense and longer-term relationships can be formed. We believe that developing personal relationships is
important to having a competitive advantage in this region.
European operations
QBE’s European operations principally comprise QBE Insurance (Europe) and the Lloyd’s division,
operating as Limit.
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As part of our strategy to rationalize the European division’s structure, in September 2004, we brought
our European company operations division and our Lloyd’s division under a new combined management
structure called European operations. In addition, the Central Europe division of our former European company
operations was combined into the Asia-Pacific general insurance division to take advantage of its experience in
managing smaller, diverse trading units across a range of countries and cultures.
QBE Insurance (Europe)
QBE Insurance (Europe) operations, with a head office in London, is comprised of:
• general insurance businesses in the UK, France, Spain and Germany; and
• inward reinsurance business in London and Dublin.
We write reinsurance and specialty lines of business in the London market (See “—London versus
United Kingdom Insurance Markets”).
The strategy for our QBE Insurance (Europe) operations is to continue to rationalize the division’s
United Kingdom corporate and capital structure, review business processes to gain long and short-term
efficiencies and cost reduction and management information systems to improve the risk management of our
business. In addition, we are looking at opportunities to further diversity our products and our continental
European operations.
For a summary of certain financial data and key ratios for our QBE Insurance (Europe) operations for
the years ended December 31, 2005 and 2004, see “Management’s Discussion and Analysis of Financial
Condition and Results of Operations.”
Products
The table below indicates the contribution of each class of business to gross earned premium for our
QBE Insurance (Europe) division for the years ended December 31, 2005 and 2004.
Year ended December 31,
2005 2004
A$ % A$ %
(in millions except percentages, A-IFRS)
Business class
Professional indemnity .............................. 337 14.2 280 13.0
Financial and credit ................................. 66 2.8 99 4.6
Marine and aviation ................................. 109 4.6 91 4.2
Accident and health ................................. 78 3.3 103 4.8
Bloodstock ........................................ 55 2.3 45 2.1
Property treaty ..................................... 130 5.5 134 6.2
Property facultative and direct ........................ 227 9.6 252 11.7
Employers’ liability ................................. 325 13.7 362 16.8
Motor vehicle ..................................... 429 18.1 174 8.1
Casualty .......................................... 102 4.3 110 5.1
Public and product liability ........................... 446 18.8 457 21.2
Other(1) .......................................... 66 2.8 47 2.2
Total ........................................ 2,370 100.0 2,154 100.0
General insurance .................................. 1,745 73.6 1,526 70.8
Inward reinsurance ................................. 625 26.4 628 29.2
Total ........................................ 2,370 100.0 2,154 100.0
(1) Includes agriculture, engineering and other miscellaneous classes of insurance.
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London versus United Kingdom Insurance Markets
We write business in both the United Kingdom insurance market and in what is known as the London
market. The London market is the largest international underwriting market for international insurance and
reinsurance business. The London market is distinctly different from the United Kingdom general insurance
market. Differences between the two markets include:
• the London market writes a broad range of coverages internationally, whereas the United Kingdom
general insurance market only writes cover for United Kingdom risks, of which the majority are in
personal lines;
• the London market underwrites a broad mix of both direct and reinsurance business, whereas the
United Kingdom general insurance market does not underwrite a significant amount of reinsurance
business;
• there are specialty markets within the London market such as the large marine, aviation and satellite
markets, which do not exist in the United Kingdom general insurance market; and
• there is a subscription market in the London market where risk is shared among various insurers and
reinsurers, a feature not common in the United Kingdom general insurance market.
The London market itself is composed of two different sub-markets; namely, Lloyd’s and the
International Underwriting Association of London (the “IUA”). The IUA was formed by the merger of the
London Insurance and Reinsurance Market Association (“LIRMA”) and The Institute of London Underwriters
(the “ILU”). LIRMA was a bureau for non-Lloyd’s markets in London and dealt with central processing of
premiums, accounts and claims for the company markets. The ILU was a marketplace for the marine
underwriting companies (excluding Lloyd’s). The IUA is based at the London Underwriting Centre and carries
on the functions formerly performed by the ILU and LIRMA. We operate both in the Lloyd’s market and IUA.
Commencing in 2000, we established a new Lloyd’s division as a result of our acquisition of Limit. See
“—Lloyd’s Division.”
Inward Reinsurance
Our reinsurance business comprises two key segments:
• London market business, which is based in London, underwrites reinsurance globally and is focused
on specialty lines of business such as property, marine and aviation and energy coverage. We
distribute products in the London market through brokers; and
• Other European, which is based in Dublin, underwrites reinsurance risks in continental Europe and
also manages the Group’s captive Equator Re and run-off portfolios.
Our underwriting teams focus on building long-term relationships with brokers and clients. We receive
business from a large number of brokers and do not rely on any one broker for a significant portion of our
business.
The reinsurance industry is highly competitive. We compete worldwide with major reinsurers, as well as
reinsurance departments of numerous multi-line insurance organizations. We believe we compete effectively
because of our strong capital position, the quality of service provided to customers and our customized approach
to risk selection.
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General Insurance
From the late 1990s, we have expanded our general insurance business through acquisitions in Europe.
In December 1999, we acquired Iron Trades, a direct insurer in the United Kingdom that primarily writes
employers’ liability and motor vehicle insurance, as well as property and public liability insurance. In 2005, we
completed the acquisitions of: MiniBus Plus underwriting agency in the UK with its commercial motor business,
Greenhill underwriting agency with offices in France, Spain and Germany and British Marine, a specialist small
tonnage marine underwriting business. In 2005 we sold Garwyn, our non-core loss adjusting business in the UK
and Ireland.
Lloyd’s division
The Lloyd’s market currently comprises 62 syndicates which underwrite insurance risks both globally
and in London. The structure of the Lloyd’s market has changed considerably since 1993. Before 1993, all
capital was subscribed by individual members of Lloyd’s, with unlimited personal liability. Today, a significant
portion of capital is provided by corporates on a limited liability basis. The Lloyd’s market constitutes
approximately half of the London market.
In 2000, we acquired Limit, which operates in the Lloyd’s insurance market. Limit currently manages
five Lloyd’s syndicates and is the second largest manager and the third largest provider of capacity at Lloyd’s
with approximately 6.8% share of the total market capacity for the 2006 underwriting year. Limit provided 100%
of capacity for syndicates 566, 1036 and 2000 and 68% of capacity for syndicate 386 in the 2005 underwriting
year. For the 2006 underwriting year we increased our share of syndicate 386 to 69% and set up syndicate 1886
as a non-marine liability syndicate. Our Lloyd’s syndicates write the following general insurance and reinsurance
product lines:
• non-marine liability (principally product, employers’, public and directors’ and officers’ liability and
professional indemnity);
• non-marine short-tail (principally commercial property, energy, pecuniary loss and credit and
political risks);
• marine, aviation and transport (including hull, cargo, aviation and space); and
• excess of loss reinsurance.
Set out below is the total capacity for each of our Lloyd’s syndicates for the 2005 and 2006
underwriting years and our percentage share for the 2006 underwriting year:
Syndicate
Number Type of business Total capacity QBE share
2005 2006 2006
(in £ millions) %
386 Non-marine liability (ex-USA) .................................... 425 340 69
566(1) Property & aviation reinsurance ................................... 180 240 100
1036(1) Direct marine & energy .......................................... 185 210 100
1886(1) Non-marine liability ............................................ — 30 100
2000(1) Non-marine property & liability ................................... 185 180 100
Total ................................................................. 975 1,000 90
(1) From a Lloyd’s reporting and regulatory perspective, syndicates that are 100% supported by us are
sub-syndicates of an umbrella syndicate, syndicate 2999. We established syndicate 2999 to maximize the
efficient allocation of capacity across our 100% supported syndicates. Syndicate 2999 does not underwrite
risks on its own.
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For a summary of certain financial data and key ratios for our Lloyd’s division for the years ended
December 31, 2005 and 2004, see “Management’s Discussion and Analysis of Financial Condition and Results
of Operations.”
Products
The table below indicates the contribution of each class of business to gross earned premium for our
Lloyd’s division for the years ended December 31, 2005 and 2004.
Year ended December 31,
2005 2004
A$ % A$ %
(in A$ millions except percentages, A-IFRS)
Business class:
Professional indemnity ........................................ 305 13.4 308 13.6
Marine and aviation .......................................... 225 9.9 279 12.3
Property ................................................... 818 36.0 834 36.8
Casualty ................................................... 686 30.2 720 31.8
Other(1) ................................................... 239 10.5 124 5.5
Total .................................................. 2,273 100.0 2,265 100.0
General insurance ............................................ 1,258 55.3 1,398 61.7
Inward reinsurance ........................................... 1,015 44.7 867 38.3
Total .................................................. 2,273 100.0 2,265 100.0
(1) Includes extended warranty, credit, motor and other miscellaneous classes.
Since the acquisition of Limit, we have integrated our pre-existing Lloyd’s business with Limit’s
Lloyd’s business. We have increased our share of Limit-managed syndicates from 55% for the 2000 underwriting
year to 90% for the 2006 underwriting year. These purchases of additional capacity create an obligation for us to
accept the additional share of insurance liabilities in exchange for an equal amount of investments and other
assets.
Our strategy for Lloyd’s is to focus on those classes where we have specific expertise, a proven track
record and a leadership position which enables us to dictate our own underwriting terms and conditions. We do
this by correcting or canceling consistently unprofitable business, maximizing benefits from improved market
conditions, seeking to achieve synergies from our various syndicates to improve the expense ratio by optimizing
syndicate operating structures and capital utilization and contributing to the process of regulatory change. In
connection with this strategy, we have withdrawn underwriting capacity from poor performing businesses
(principally US and Canadian casualty portfolios), sold a direct property and aviation syndicate, closed a
non-marine liability syndicate, brought syndicate 2724’s direct marine and energy business into syndicate 1036
and set up syndicate 1886 as a non-marine liability syndicate. During 2006, we hired a team of general aviation
underwriters.
There is significant competition in all classes of business transacted from a number of different markets
worldwide. Depending on the class of business concerned, competition comes from the London market, other
Lloyd’s syndicates and major international insurers and reinsurers. On international risks, competition also
comes from the domestic insurers in the country of origin of the insured. We believe we are able to compete
successfully by employing specialist underwriters and by developing and maintaining close, long-term
relationships through high quality service and an ability to deliver innovative solutions tailored to our clients’
needs. See “Risk Factors—QBE’s Business Risk Factors—We operate in a highly competitive industry.”
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In November 2003 and 2004, we restructured our Lloyd’s division capital base by replacing virtually all
our bank letters of credit with US$550 million of contingent securities of Mantis Reef Limited and US$220
million of contingent securities of Mantis Reef II Limited, respectively. See “Management’s Discussion and
Analysis of Financial Condition and Results of Operations—Liquidity and Capital Resources.”
the Americas
The Americas division, based in New York, includes the reinsurance business written by QBE
Reinsurance Corporation (“QBE Re”), the general insurance business written by QBE Insurance Corporation
(“QIC”) and National Farmers Union Property and Casualty Company (“NFU”) and excess and surplus lines
business written by QBE Specialty Insurance Company (“QSIC”). Our operations in the Americas are comprised
of general insurance and reinsurance businesses in the United States and Colombia, regional personal lines
insurance in the United States, reinsurance businesses in Panama, Mexico and Peru and general insurance
businesses in Argentina and Brazil.
QBE Re writes selected lines of reinsurance business. As of May 31, 2006, QBE Re held insurance
licenses in 31 states in the United States and the District of Columbia and was an accredited or approved
reinsurer in all 50 states in the United States as well as the territory of Puerto Rico.
All primary insurance business in the United States is written through QIC and NFU. As of May 31,
2006, QIC held insurance licenses in all 50 states in the United States and the District of Columbia. As of
May 31, 2006 NFU held insurance licenses in 46 states and the District of Columbia. Product concentration
centers on standard and non-standard personal automobile lines and regional personal lines, including farm,
complemented by small commercial property and casualty business, including rural telecommunications
coverages.
QSIC writes specialist excess and surplus lines reinsurance business in the United States, providing an
alternative to the traditional market for our existing insurance and reinsurance relationships.
In the Americas division, we have continued to focus on a strategy of diversification which, combined
with additional marketing efforts, has improved the product and geographic diversity of our reinsurance and
general insurance portfolios. Our growth strategy in this division is to continue to develop relationships with
existing clients, to pursue acquisitions that meet our criteria and to add new program business. In 2005, growth
arose from premium rate increases for most reinsurance and insurance classes of business, increased retention
and acquisition of businesses. During 2005, we acquired two businesses: Central de Seguros in Colombia and
National Farmers Union Property and Casualty in the United States.
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Products
The table below indicates the contribution of each class of business to gross earned premium for our
Americas division for the years ended December 31, 2005 and 2004.
Year ended December 31,
2005 2004
A$ % A$ %
(in millions except percentages, A-IFRS)
Business class
Property ..................................................... 537 37.4 496 36.7
Casualty ..................................................... 359 25.0 340 25.1
Motor and motor casualty ....................................... 191 13.3 236 17.4
Accident and health ............................................ 222 15.5 236 17.4
Workers’ compensation ........................................ 40 2.8 19 1.4
Other(1) ..................................................... 86 6.0 27 2.0
Total ................................................... 1,435 100.0 1,354 100.0
General insurance ............................................. 1,028 71.6 912 67.4
Inward reinsurance ............................................ 407 28.4 442 32.6
Total ................................................... 1,435 100.0 1,354 100.0
(1) Includes agriculture, financial and credit, engineering and other miscellaneous classes of insurance.
Because we are a relatively small competitor in the United States reinsurance market, our reinsurance
strategy in this market has been to develop an expertise in health, facultative property and casualty lines and to
focus on specialty lines of the market that are less exposed to capacity-driven competition from larger reinsurers.
Over the last ten years, we have reduced the significance of catastrophe coverage in the overall mix of our
business in this division by diversifying our portfolio and not renewing certain unprofitable lines of business. Our
strategy is to focus on program business and, when possible, to convert reinsurance relationships into primary
insurance. We intend to continue to pursue selective growth in both the insurance and reinsurance markets.
We market our insurance products in the Americas division predominantly through brokers and agents.
We receive business from a number of brokers and do not rely on any one broker for a significant portion of our
business.
For a summary of certain financial data and key ratios for the Americas division for the years ended
December 31, 2005 and 2004, see “Management’s Discussion and Analysis of Financial Condition and Results
of Operations.”
Equator Re
Equator Re is our captive reinsurance business based in Bermuda. Equator Re provides excess of loss
protection at various levels for most of our subsidiaries around the world. Equator Re also participates on a
number of our excess of loss and proportional reinsurance protections placed with external reinsurers. The
exposures written by Equator Re are included in our maximum event retention, which is our estimated net loss
from our largest single realistic disaster scenario. Equator Re’s intercompany transactions are eliminated upon
consolidation of our overall group results. See Note 38 to our A-IFRS financial statements. For a summary of
certain financial data for Equator Re for the years ended December 31, 2005 and 2004, see “Management’s
Discussion and Analysis of Financial Condition and Results of Operations.”
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Investments
We manage our worldwide investments from our head office in Sydney, Australia. We control
approximately A$15.5 billion in net invested funds. We are required to observe the prudential and insurance
solvency requirements of the various countries in which we operate with respect to the amount and nature of the
investment assets held relative to our liabilities. See “Management’s Discussion and Analysis of Financial
Condition and Results of Operations—Insurance Solvency.” We hold investment assets to provide a return on
shareholders’ funds and to provide funds for the claims that arise in relation to the policies we underwrite. Our
investment income for the years ended December 31, 2005 and 2004 was $718 million and $519 million,
respectively.
For a discussion of the results of our Investments division for the years ended December 31, 2005 and
2004, see “Management’s Discussion and Analysis of Financial Condition and Results of Operations.”
We maintain a strategy of a low risk investment portfolio. Our general policy on investments is to
reduce the risk to shareholders by investing in high quality fixed interest securities and having a modest exposure
to equity investments. This is because of the risk we have already assumed in our insurance business.
Our fixed interest investments continue to be short in duration to reduce the effect of the potential
market volatility from rising interest rates. At December 31, 2005, our cash and fixed interest portfolio had an
average maturity of 0.6 years with only one portfolio having an investment maturity over three years.
Our policy is to manage cash, fixed interest and equity holdings within constraints approved by the
investment committee of our board of directors. Our asset allocation policy is set by our investment committee,
which formulates asset allocation ranges with consideration given to applicable insurance solvency standards,
sets investment guidelines on currency and property dealings and reviews the performance of internal and
external fund managers against approved benchmarks. This asset allocation is usually reviewed by our
investment committee at each meeting, and our investments are generally managed in-house by our investment
division.
Set out below is a summary of our investments and cash by class for the periods shown. These
allocations are consistent with the investment allocation policy that has been set by our investment committee.
The dollar amounts invested in each class and the weighting relative to the overall portfolio are shown below.
A$
As of December 31,
2005 2004
%of
portfolio A$
%of
portfolio
(in millions except percentages, A-IFRS)
Cash (net of overdrafts) ........................................ 1,061 6.0 1,121 7.5
Short-term deposits ........................................... 8,292 47.1 5,482 36.6
Fixed interest securities and other interest bearing securities ........... 7,537 42.9 6,957 46.5
Equities .................................................... 674 3.8 1,383 9.2
Investment properties .......................................... 33 0.2 32 0.2
Total investments and cash ................................ 17,597 100.0 14,975 100.0
Due to the diversity of our operations, exposure to foreign currencies requires close management.
Currency management is defensive in nature and any hedging strategies are undertaken with a view to
minimizing net exposure so as to make neither profit nor loss on currencies. See “Management’s Discussion and
Analysis of Financial Condition and Results of Operations-Liquidity and Capital Resources” and see Notes 5 and
15 to our A-IFRS financial statements for a general discussion of our foreign exchange rate risk and management
policies.
Through our investments we are exposed to interest rate risk. See Note 5 to our A-IFRS financial
statements for a more detailed discussion of the interest rate risk.
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Underwriting Policy
We have developed an underwriting and pricing methodology that incorporates underwriting, claims,
expenses, actuarial analysis and product development disciplines for our various classes of business. This
approach utilizes proprietary data gathered and analyzed by us over many years and is designed to maintain high
quality underwriting and pricing discipline. The underwriters use this information to assess and evaluate risks
prior to quoting the premium on a particular policy. This information provides specialized knowledge about
industry segments and catastrophe management and helps analyze and manage risk based on account
characteristics and pricing parameters. This approach is designed to ensure that we do not compromise our
underwriting integrity and we believe this provides us with a competitive advantage. We have a disciplined
approach to underwriting and risk management that emphasizes profitability rather than premium volume or
market share.
We have a policy of reinforcing our underwriting performance with a range of operational controls and
procedures aimed at enhancing financial performance. Our underwriting performance to date has primarily
reflected a policy of diversifying risk through geographic and product diversity and also through a combination
of strict underwriting standards and risk management controls. Comprehensive underwriting year or accident
year statistics are maintained by product for every country in which we operate. This enables us to monitor trends
and take action at an early stage to correct unprofitable portfolios and focus on growing profitable business. Over
90 actuaries are employed throughout our organization to work with underwriters on trends and pricing. We also
have external actuarial reviews performed by independent actuaries for most portfolios. We use sophisticated
computer modeling techniques to assess underwriting risks and monitor accumulations of risk. Our pricing
includes substantial allowances for large losses and catastrophes.
Pricing levels for property and casualty insurance products are generally developed by us based upon
the estimated frequency and severity of losses, reinsurance costs, the expenses associated with writing business
and administering claims and a reasonable allowance for profit.
Pricing for personal motor insurance is driven primarily by changes in the frequency of claims and by
inflation in the cost of automobile repairs and medical care, litigation of liability claims and by legislative
requirements. As a result, the profitability of the business is largely dependent on promptly identifying and
rectifying disparities between premium levels and expected claim costs and obtaining approval of the regulatory
authorities, where applicable, for rate increases. The premiums on coverage for motor physical damage reflect
the values of the automobiles we insure.
Pricing in the householders’ business is driven primarily by changes in the frequency of claims and by
inflation in building supplies, labor costs and household possessions. Most householders’ policies offer, but do
not require, automatic increases in coverage to reflect growth in replacement costs and property values. The
profitability and pricing of householders’ insurance is affected by the incidence of natural disasters, particularly
hurricanes, winter storms, earthquakes, floods and tornadoes. In order to limit our exposure to catastrophes, we
have implemented price increases in certain catastrophe-prone areas, introduced strict controls on the
accumulation of risks, purchased comprehensive reinsurance protection and instituted deductibles in hurricaneprone
areas, all subject to restrictions imposed by insurance regulatory authorities.
Pricing in long-tail classes of business is driven primarily by inflation, legal costs, developments in
medical care, changing levels of court awards and the governing legislation of CTP and workers’ compensation
schemes. Long-tail lines are relatively more difficult to price because there is generally a longer period of time
before claims are settled. Extensive historical data, claims development tables and other benchmarks are typically
used to assist in pricing long-tail business.
Claims Administration
We seek to achieve minimal levels of net losses and loss adjustment expenses while maintaining our
high level of service. Our claims departments are organized to meet these goals. The organization distinguishes
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among operating regions and delegates to the region’s authority to address the needs of local customers,
underwriters, agents and brokers. Outsourcing of certain functions may occur if appropriate and if it makes
business sense to do so. In addition, we have created teams around technical specialties to better support the
regional operations. The claims organization structure in each region is driven by the composition of the portfolio
of our business. This structure permits us to maintain economies of scale while maintaining flexibility that allows
us to quickly respond to the needs of our customers, underwriters, agents and brokers. We centrally monitor
adherence to claims policies and procedures, the adequacy of case reserves, loss and expense controls and
productivity and service standards. We continuously review our claims practices in an effort to meet our service
and loss and expense objectives.
Outward Reinsurance
We reinsure a portion of the risks we underwrite in order to control our exposure to losses, stabilize
earnings and protect capital resources. We cede to reinsurers a portion of these risks and pay premiums based
upon the risk and exposure of the policies subject to such reinsurance. These programs protect us against severity
and frequency of losses and have played an important role in managing our combined operating ratio. See
“Management’s Discussion and Analysis of Financial Condition and Results of Operations.” We believe our own
reinsurance operations provide us with insight and valuable knowledge on how the reinsurance market operates.
Reinsurance involves credit risk and is generally subject to aggregate loss limits. Although the reinsurer is liable
to us to the extent of the reinsurance ceded, we remain primarily liable as the direct insurer on all risks reinsured.
Reinsurance recoverables are reported after allowances for uncollectible amounts (approximately A$239 million
and A$163 million at December 31, 2005 and 2004, respectively). We monitor the financial condition of
reinsurers on an ongoing basis and review our reinsurance arrangements periodically. Reinsurers are selected
based on their financial condition, business practices and the price of their product offerings. We also hold
collateral, including escrow funds and letters of credit, under certain reinsurance agreements. Substantially all of
our reinsurance assets (approximately 90% at December 31, 2005, on an undiscounted basis) are due from
counterparties which are A- rated or better by S&P.
We use a variety of reinsurance agreements to control our exposure to large property and casualty
losses. We utilize the following types of reinsurance: (i) facultative reinsurance, in which reinsurance is provided
for all or a portion of the insurance provided by a single policy and each policy reinsured is separately
negotiated; (ii) treaty reinsurance, in which reinsurance is provided for a specific type or category of risks; and
(iii) catastrophe reinsurance, in which we are indemnified for an amount of loss in excess of a specified retention
with respect to losses resulting from a catastrophic event. In addition to the external reinsurance arrangements,
since January 1, 2002 our operating subsidiaries also had a WEOL with our long standing, wholly-owned
subsidiary, Equator Reinsurances Limited, a Bermuda corporation. WEOL covers a selected portion of the lines
of business of our insurance subsidiaries. WEOL protections for our insurance subsidiaries have an aggregate
limit exceeding our historical large loss experience . The aggregate limit is fully funded from the premiums
charged at market rates. The reinsurance premiums for WEOL are paid to and held by Equator Re to pay claims
of our insurance subsidiaries under their individual reinsurance agreements with Equator. The WEOL profits are
either taken to our income statement or retained in our balance sheet as part of our prudential margins in
outstanding claims.
Major reinsurance contracts are arranged on a group basis, incorporating both Australian and
international subsidiaries, so as to enable us to benefit from lower premiums applying to the larger, diversified
group. Treaties comprise both proportional and non-proportional arrangements. After allowing for external and
internal reinsurances (including WEOL), each division generally does not retain exposure to individual risks
above A$10 million, or catastrophe risks greater than US$20 million on any one event. However, it is possible
that a particularly large claim or event may give rise to exposure under insurance or reinsurance contracts written
in different divisions, thereby increasing our net exposure. This type of exposure primarily occurs in the property
classes. We believe our retention levels are reasonable relative to our capital base and our reinsurances are well
spread across international reinsurers, mainly European and American rated A or better by S&P. Management
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actions after September 11, 2001 have reduced our risk profile through less exposure to major catastrophes,
selectively writing terrorism cover and minimizing event losses across multiple classes of business and divisions.
The following table sets forth our net results of reinsurance ceded for the years ended December 31,
2005 and 2004 prepared in accordance with A-IFRS.
Year ended December 31,
2005 2004
(in A$ millions, A-IFRS)
Total premium ceded .............................................. (1,785) (1,790)
Reinsurance commission ........................................... 179 222
Reinsurers’ share of claims incurred .................................. 2,327 1,171
Net amount recovered from (paid to) reinsurers ......................... 721 (397)
The following table sets forth our net results of reinsurance ceded for the years ended December 31,
2004, 2003, 2002 and 2001 prepared in accordance with historical Australian GAAP.
Year ended December 31,
2004 2003 2002 2001
(in A$ millions, historical Australian GAAP)
Total premium ceded ......................................... (1,790) (1,780) (1,555) (1,664)
Reinsurance commission ...................................... 222 197 119 143
Reinsurers’ share of claims incurred ............................. 1,171 997 870 2,731
Net amount (paid to) recovered from reinsurers .................... (397) (586) (566) 1,210
Reserving Policy
We are required by applicable insurance laws and regulations to establish provisions for payment of
claims and claims expenses that arise from the policies we issue. Our provisions are segmented into two major
categories: provisions for reported claims and provisions for incurred but not reported (“IBNR”) claims. We
establish our provisions on an aggregate basis, after allowances for the particular requirements of each class of
business. A separate provision is also made for future claims handling costs.
Provisions are established to recognize the estimated costs necessary to bring all pending reported
claims and IBNR claims to final settlement. Provisions are based upon estimates which have been based on the
particular facts available at a given time. Estimating the ultimate liability for a claim is an imprecise science
subject to both internal and external variables. This is true because claim settlements to be made in the future
may be impacted by changes in our claims handling procedures, changing rates of inflation and other economic
conditions and changing legislative, judicial and social environments. This is particularly the case with respect to
long-tail claims in which significant periods of time, ranging up to several years or more, may elapse between the
occurrence of an insured loss, the reporting of the loss to us and the settlement of our liability for that loss. Our
team of actuaries and management conduct quarterly reviews of our provisions to assess whether to adjust our
provisions in light of such changes.
Provisions for reported claims are established on a case-by-case basis. The provisions are estimates
based upon the facts of each case and upon our experience with similar cases. Consideration is given to such
historical trends as provisioning patterns, loss payments, pending levels of unpaid claims and product mix, as
well as policy limits, court decisions, economic conditions and public attitudes. All of these can affect the
ultimate costs of claims and therefore the estimation of provisions.
IBNR provisions are established to recognize the estimated cost of losses that have occurred of which
we have not yet been notified. Because nothing is known about the occurrence, we must rely upon our historical
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information to estimate the IBNR liability. The statistical methods used to calculate IBNR provisions are based
upon historical reporting patterns. Adjustments are made to these initial projections in light of changes in
exposure, trends in underlying data and the strength of previously established IBNR provisions.
Outstanding claims and recoveries from reinsurers are each assessed by reviewing individual reported
claims on a case-estimates basis and estimating IBNR claims based on past experience and foreseeable events.
Over 90% of our outstanding claims provisions are reviewed at least annually by independent actuaries. Total
reserves are then discounted to the net present value as required under Australian Accounting Standard AASB
1023. Additional reserves or prudential margins are taken up in many portfolios to partially offset the effect of
the discount on outstanding claims.
We believe that, taking into account our internal procedures and the views of our independent actuaries,
we have made adequate provision for losses incurred as of December 31, 2005. Prudential margins in our
outstanding claims provision have increased in recent years, largely as a result of the increase in our exposure to
long-tail classes of business resulting in a probability of adequacy of 94% at December 31, 2005. This is in
excess of the prudential standards issued by APRA that became effective on July 1, 2002. The standards provide
that, for our Australian licensed insurers, outstanding claims must be set at a level that provides a probability of
at least 75% that the provision for outstanding claims will be adequate to settle claims as they become payable in
the future. See “Regulation—Australian Insurance Regulation.”
The following table is a summary of our outstanding claims provisions on an undiscounted and
discounted basis and split between the current and non-current outstanding claims provisions (before and after
reinsurance recoveries) as at December 31, 2005 and 2004:
As of December 31,
2005 2004
(in A$ millions, A-IFRS)
Gross outstanding claims (including prudential margins) .............. 16,694 14,172
Claims settlement costs ........................................ 365 260
Discount to present value ....................................... (1,976) (1,827)
Gross outstanding claims provision ............................... 15,083 12,605
Current ..................................................... 4,904 3,670
Non-current .................................................. 10,179 8,935
Gross outstanding claims provision ............................... 15,083 12,605
Reinsurance and other recoveries on outstanding claims(1) ............ 4,769 3,582
Discount to present value ....................................... (556) (439)
Reinsurance and other recoveries on outstanding claims ............... 4,213 3,143
Current ..................................................... 1,357 805
Non-current .................................................. 2,856 2,338
Reinsurance and other recoveries on outstanding claims ............... 4,213 3,143
Net outstanding claims ......................................... 10,870 9,462
Central estimate(2) ............................................ 9,627 8,404
Risk margin(3) ............................................... 1,243 1,058
Net outstanding claims ......................................... 10,870 9,462
Australia Pacific Asia Central Europe (APACE) ..................... 2,797 2,547
European operations ........................................... 6,781 5,957
The Americas ................................................ 742 534
Equator Re .................................................. 550 424
Net outstanding claims ......................................... 10,870 9,462
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(1) Reinsurance and other recoveries on outstanding claims are shown net of a provision for impairment of
$152 million in 2005 and $88 million in 2004.
(2) Central estimate is an estimate of the level of claims provision that is intended to contain no intentional
under or over estimation. See Note 3(A)(ii) to our A-IFRS financial statements for a discussion of the
process used to determine central estimate.
(3) The risk margin included in net outstanding claims was 12.9% of the central estimate in 2005 and 12.6% in
2004. See Note 3(A)(iii) to our A-IFRS financial statements for a discussion of the process used to
determine risk margins.
The inflation and discount rates we apply depend upon the division to which the outstanding claims
relate. As a result, the range of rates can vary significantly. See Note 3 to our A-IFRS financial statements for the
details of our discount rates. The estimated weighted average term to settlement for our outstanding claims as of
December 31, 2005 and 2004 was as follows:
As of December 31,
2005 2004
(years)
Australia Pacific Asia Central Europe (APACE) ....... 2.8 3.1
European operations ............................. 3.0 3.1
the Americas ................................... 2.2 2.3
Equator Re ..................................... 1.9 1.8
QBE group ..................................... 2.9 3.0
The following tables summarize (i) net claims incurred, split between direct insurance and inward
reinsurance business and (ii) net claims incurred separated between current year claims and prior year claims for
the periods presented. Current year claims relate to risks attaching in the year ended December 31, 2005. Prior
year claims relate to a reassessment of the risks borne in all previous financial years. The reduction in prior year
undiscounted claims reflects the positive run-off of the 2002, 2003 and 2004 accident years due to our
conservative claims reserving policy, resulting in the release of risk margins as claims are settled below central
estimate. Claims incurred for prior years includes releases of prudential margins consistent with the reduction in
claims liabilities associated with those years. Conversely, prudential margins are taken up for claims incurred in
the current year. Because of the significant differences between A-IFRS and historical Australian GAAP, we
have presented the information for the years ended December 31, 2005 and 2004 prepared in accordance with
A-IFRS separately from the information for the years ended December 31, 2004, 2003, 2002 and 2001 prepared
in accordance with historical Australian GAAP.
Year ended December 31,
2005 2004
(in A$ millions, A-IFRS)
Gross claims incurred and related expenses
Direct ........................................................... 4,384 3,962
Inward reinsurance ................................................. 2,360 1,365
6,744 5,327
Reinsurance and other recoveries
Direct ........................................................... 1,125 843
Inward reinsurance ................................................. 1,202 328
2,327 1,171
Net claims incurred .................................................... 4,417 4,156
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Year ended
December 31, 2005
Current
year
Prior
years
Current
Total year
(in A$ millions, A-IFRS)
Year ended
December 31, 2004
Gross claims incurred and related expenses
Undiscounted (including prudential margin) ........... 7,533 (651) 6,882 5,808 (205) 5,603
Discount ....................................... (659) 521 (138) (541) 265 (276)
Prior
years
Total
6,874 (130) 6,744 5,267 60 5,327
Reinsurance and other recoveries
Undiscounted ................................... 2,458 (33) 2,425 1,322 (65) 1,257
Discount ....................................... (233) 135 (98) (153) 67 (86)
2,225 102 2,327 1,169 2 1,171
Net claims incurred ................................... 4,649 (232) 4,417 4,098 58 4,156
Year ended December 31,
2004 2003 2002 2001
(in A$ millions, historical Australian GAAP)
Gross claims incurred and related expenses
Direct ............................................ 3,965 3,507 3,388 3,449
Inward reinsurance .................................. 1,372 1,313 1,294 2,832
5,337 4,820 4,682 6,281
Reinsurance and other recoveries
Direct ............................................ 843 843 657 1,068
Inward reinsurance .................................. 328 154 213 1,663
1,171 997 870 2,731
Net claims incurred ..................................... 4,166 3,823 3,812 3,550
Year ended
December 31, 2004
Current
year
Prior
years Total
Year ended
December 31, 2003
Current
year
Prior
years Total
Year ended
December 31, 2002
Current
year
Prior
years Total
Year ended
December 31, 2001
Current
year
Prior
years Total
(in A$ millions, historical Australian GAAP)
Gross claims incurred and related
expenses
Undiscounted (including
prudential margin) ....... 5,808 (205) 5,603 4,740 (27) 4,713 4,698 (82) 4,616 6,521 111 6,632
Discount ................. (541) 275 (266) (321) 428 107 (284) 350 66 (595) 244 (351)
5,267 70 5,337 4,419 401 4,820 4,414 268 4,682 5,926 355 6,281
Reinsurance and other recoveries
Undiscounted ............. 1,332 (65) 1,257 866 17 883 818 (70) 748 2,677 273 2,950
Discount ................. (153) 67 (86) (46) 160 114 (40) 162 122 (255) 36 219
1,169 2 1,171 820 177 997 778 92 870 2,422 309 2,731
Net claims incurred ............. 4,098 68 4,166 3,599 224 3,823 3,636 176 3,812 3,504 46 3,550
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years:
The following table summarizes net undiscounted outstanding claims for the five most recent accident
As of December 31,
2001 2002 2003 2004 2005 Total
(in A$ millions)
(A-IFRS)
Estimate of net ultimate claims cost:
At end of accident year ....................... 3,522 3,201 3,413 4,490 5,189
One year later .............................. 3,496 3,084 3,154 4,120 —
Two years later ............................. 3,599 3,004 2,921 — —
Three years later ............................ 3,737 2,965 — — —
Four years later ............................. 3,753 — — — —
Current estimate of net cumulative claims cost .... 3,753 2,965 2,921 4,120 5,189
Cumulative net payments ..................... (2,883) (1,975) (1,474) (1,566) (873)
Net undiscounted outstanding claims for the five most
recent accident years ........................... 870 990 1,447 2,554 4,316 10,177
The estimates of net ultimate claims cost and cumulative claims payments for five most recent accident
years have been translated to Australian dollars using the closing rate of exchange at December 31, 2005.
The following table shows the reconciliation of net undiscounted outstanding claims for the five most
recent accident years to net outstanding claims:
Total
(in A$ millions)
Net undiscounted outstanding claims for the five most recent accident years ................. 10,177
Outstanding claims—accident years 2000 and prior ..................................... 1,734
Foreign exchange ................................................................ (164)
Discount on outstanding claims ..................................................... (1,420)
Claims settlement costs ........................................................... 365
Other .......................................................................... 178
Net outstanding claims ............................................................ 10,870
See Note 20 to our A-IFRS financial statements for more information regarding our claims
development.
Ratings
Ratings organizations assess the credit rating of a company’s debt and, if an insurer, its financial
strength and ability to pay claims. By influencing a company’s ability to raise capital and the cost of that capital,
these ratings may impact the financial performance of a company. We believe that our ratings are important
factors in marketing our products.
Insurance companies are rated by rating agencies to provide both industry participants and insurance
consumers with meaningful information on specific insurance companies. Higher insurer financial strength
ratings generally indicate financial stability and a strong ability to pay claims. These ratings are based upon
factors relevant to policyholders and are not directed toward the protection of investors. Such ratings are neither a
rating of securities nor a recommendation to buy, hold or sell any security and may be revised or withdrawn at
any time. Ratings focus primarily on the following factors: capital resources; financial strength; demonstrated
management expertise in the insurance business; credit analysis; systems development; market position and
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growth opportunities; marketing and sales conduct practices; investment operations; minimum policyholders’
surplus requirements; and capital sufficiency to meet projected growth, as well as access to such traditional
capital as may be necessary to continue to meet standards for capital adequacy. Our ratings are not continually
monitored and are subject to change. Any investor for whom these ratings may be important as of any date
subsequent to the Closing Date should obtain those ratings from the relevant ratings organizations and not rely on
the ratings set out herein.
Rating Categories—Insurer Financial Strength Ratings
S&P
S&P’s rating definitions are as follows:
Secure
Vulnerable
AAA Extremely strong B Weak
AA Very strong CCC Very weak
A Strong CC Extremely weak
BBB Good R Regulatory action
BB Marginal NR Not rated
Note:
Plus (+) or minus (–) signs following rating from “AA” to “CCC” show relative standing within the major
rating categories. Lloyd’s syndicate assessments evaluate, on a scale of 1 (very high dependency) to 5
(very low dependency), the relative dependency of syndicates on Lloyd’s infrastructure and the central
fund, reflecting their ability to offer continuity to policyholders.
A.M. Best
Fitch
A.M. Best’s rating definitions are as follows:
Secure
Vulnerable
A++, A+ Superior B, B – Fair
A, A – Excellent C++, C+ Marginal
B++, B+ Very Good C, C – Weak
D Poor
E Under Regulatory Supervision
F In Liquidation
S Rating Suspended
Fitch’s rating definitions are as follows:
Secure
Vulnerable
AAA Exceptionally strong BB Moderately weak
AA Very strong B Weak
A Strong CCC Very weak
BBB Good CC Ceased or interrupted payments
probable
C Ceased or interrupted payments
imminent
Note:
Plus (+) or minus (–) signs following rating from “AA” to “CCC” show relative standing within the major
rating categories.
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Moody’s
Moody’s rating definitions are as follows:
Secure
Vulnerable
Aaa Exceptional Ba Questionable
Aa Excellent B Poor
A Good Caa Very Poor
Baa Adequate Ca Extremely Poor
C Lowest
Note:
Numeric modifiers are used to refer to the ranking within the group—one being the highest and three
being the lowest. However, the financial strength of companies within a generic rating symbol (Aa, for
example) is broadly the same.
QBE Ratings
Our ratings as of June 5, 2006 are as follows:
S&P
A.M.
Best Fitch Moody’s
Insurer Financial Strength/Claims-paying Ability Ratings
National Farmers Union Property and Casualty Company .................... A–
QBE Hongkong & Shanghai Insurance Limited ............................ A A+ –
QBE Insurance (Australia) Limited ...................................... A+ – A+ –
QBE Insurance Corporation ............................................ A+ A A+ –
QBE Insurance (International) Limited ................................... A+ A A+ –
QBE Insurance (Europe) Limited ........................................ A+ A A+ –
QBE Reinsurance Corporation .......................................... A+ A A+ –
QBE Reinsurance (Europe) Limited ...................................... A+ A A+ –
QBE Specialty Insurance Company ...................................... – A – –
Lloyd’s Market ...................................................... A – – –
Limit Syndicate 2999(1) ............................................... 3+ – – –
Limit Syndicate 386 .................................................. 5 – – –
S&P
A.M.
Best Fitch Moody’s
Debt/Counterparty Ratings
National Farmers Union Property and Casualty Company .................... a-
QBE Insurance (Australia) Limited ...................................... A+ – – –
QBE Insurance Corporation ........................................... A+ a – –
QBE Insurance Group Limited ......................................... A– bbb+ A A3
QBE Insurance (International) Limited ................................... A+ a+ – –
QBE Insurance (Europe) Limited ....................................... A+ a+ – –
QBE Reinsurance Corporation ......................................... A+ a – –
QBE Reinsurance (Europe) Limited ..................................... A+ a+ – –
QBE Specialty Insurance Company ..................................... – a – –
(1) From a Lloyd’s reporting and regulatory perspective, syndicates that are 100% supported by us are
sub-syndicates of an umbrella syndicate, syndicate 2999. We established syndicate 2999 to maximize the
efficient allocation of capacity across our 100% supported syndicates. Syndicate 2999 does not underwrite
risks on its own.
S&P recently downgraded QBE Hongkong & Shanghai Insurance Limited’s rating from A+ to A
following the removal of a guarantee by QBE Reinsurance (Europe) Limited.
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Employees
As of December 31, 2005 we had 7,789 employees, as follows:
Number
Australia Pacific Asia Central Europe (APACE) ............... 5,302
European operations ..................................... 1,651
the Americas ........................................... 729
Investments ............................................ 41
Other (includes head office and Equator Re) ................... 66
Total .............................................. 7,789
Litigation
We are involved in numerous lawsuits and arbitration proceedings arising in the ordinary course of
business either as a liability insurer defending third-party claims brought against insureds or an insurer defending
coverage claims brought against it. In the opinion of our management, the ultimate resolution of these legal
proceedings is not likely to have a material adverse effect on our results of operations, financial condition or
liquidity.
In the ordinary course of our business, certain of our subsidiaries receive claims asserting alleged
injuries and damages from asbestos and other hazardous waste and toxic substances. The conditions surrounding
the final resolution of these claims continue to change. Currently, it is not possible to predict legal and legislative
changes and their impact on the future development of asbestos and environmental claims. Such development
will be affected by future court decisions and interpretations as well as changes in legislation applicable to such
claims. Because of these variables, additional liabilities may arise exceeding current reserves by an amount that
would be material to our operating results in one or more future periods. The magnitude of these additional
amounts, or a range of these additional amounts, cannot now be reasonably estimated. However, we believe that
it is not likely that these claims will have a material adverse effect on our overall financial condition or liquidity.
We are not involved in, or in the previous twelve months have not been involved in, any governmental
proceedings relating to claims which have had or may have a material adverse effect on our overall financial
condition or liquidity. See “Risk Factors—QBE’s Business Risk Factors—We are exposed to litigation.”
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REGULATION
Australian Insurance Regulation
The Insurance Act 1973 (Cth)
The Insurance Act 1973 (Cth) (“Australian Insurance Act”) provides a scheme for the prudential
supervision of private sector general insurance companies carrying on business in Australia. The Australian
Insurance Act seeks to ensure the financial soundness of companies carrying on general insurance business in
Australia.
The Australian Insurance Act provides that a company must not carry on general insurance business in
Australia unless it is authorized to do so. Our wholly-owned subsidiaries, QBE Insurance (Australia) Limited,
QBE Insurance (International) Limited and MMIA Pty Limited, are authorized insurers under section 12 of the
Australian Insurance Act. QBE Insurance Group Limited is an authorized non-operating holding company
(“NOHC”) under section 18 of the Australian Insurance Act.
APRA is responsible, among other things, for the prudential supervision of general insurance companies
and NOHCs. The Australian Securities and Investments Commission (“ASIC”) is responsible for the regulation
of market integrity, disclosure and other consumer protection issues in relation to general insurance products and
insurance agents and brokers.
Pursuant to section 32 of the Australian Insurance Act, APRA may determine prudential standards that
must be complied with by general insurers, NOHCs and their subsidiaries. APRA has determined Prudential
Standards and Guidance Notes applicable to general insurers authorized under the Australian Insurance Act.
Prudential supervision of general insurers in Australia is presently undergoing a significant amount of reform
which is discussed further at the end of this section.
General insurers and their subsidiaries are subject to continuous monitoring by APRA in relation to
prudential matters. APRA may conduct an investigation of a general insurer or NOHC under Part V of the
Australian Insurance Act where:
• it appears to APRA that the insurer or NOHC is, or is likely to become, unable to meet its liabilities,
or has contravened or failed to comply with a provision of the Act or a condition or direction
applicable to it under the Act;
• it appears to APRA that there is, or may be, a risk to the insurer’s or NOHC’s assets;
• it appears to APRA that there is, or may be, a sudden deterioration in the insurer’s or NOHC’s
financial condition; or
• the Australian Federal Treasurer agrees in writing.
APRA.
below.
Neither QBE Insurance Group Limited nor any of its authorized insurers is subject to investigation by
Some of the most important requirements of the prudential regime for general insurers are described
Under the Prudential Standard entitled “Capital Adequacy for General Insurers,” the following
requirements are specified:
• insurers may choose one of two methods for determining their Minimum Capital Requirement
(“MCR”)—an in-house capital measurement model, conditional on APRA’s and the Federal
Treasurer’s approval, or the model prescribed in the Prudential Standard;
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• regardless of the method used to calculate the MCR, an insurer’s MCR is determined having regard to
a range of risk factors that may threaten the ability of the insurer to meet policyholder obligations;
• insurers must, at all times, have eligible capital in excess of their MCR. Eligible capital comprises
Tier 1 capital, or permanent capital that does not impose on-going servicing costs, and Tier 2 capital,
which may be of limited life and/or have on-going servicing obligations. Within an insurer’s eligible
capital, Tier 2 capital cannot exceed Tier 1 capital;
• regardless of the outcome of the calculation of MCR, an insurer’s MCR must be at least A$5 million;
and
• insurers should disclose in their published annual accounts details of their eligible Tier 1 capital and
Tier 2 capital (to arrive at the total capital base of the insurer), MCR and the capital adequacy
multiple of the insurer.
Section 28 of the Australian Insurance Act requires Australian general insurers and authorized foreign
insurers to maintain assets in Australia (excluding goodwill and assets excluded by the Prudential Standard) of a
value that equals or exceeds their total amount of liabilities in Australia. The Prudential Standard entitled “Assets
in Australia for General Insurers” provides guidance on what are not considered to be “assets in Australia” for
the purposes of section 28 of the Australian Insurance Act.
The Prudential Standard entitled “Liability Valuation for General Insurers” establishes a set of
principles for the consistent measurement and reporting of the insurance liabilities of all general insurers. The
key requirements of the Prudential Standard are as follows:
• the board of directors of an insurer that is required to have APRA approve its actuary must obtain
written advice from the approved actuary on the valuation of its insurance liabilities. This requirement
is designed to aid the board of directors to perform their duties by ensuring they are adequately
informed;
• insurance liabilities include both the insurer’s outstanding claims liabilities and its premium
liabilities. Outstanding claims liabilities relate to all claims incurred prior to the calculation date,
whether or not they have been reported to the insurer. Premium liabilities are future claim payments
arising from future events insured under existing policies, assessed on a prospective basis;
• the valuation of insurance liabilities by the approved actuary must include a risk margin over and
above the central estimate;
• insurance liabilities are to be valued on a discounted basis using risk free rates; and
• in circumstances where the board of directors decides not to accept the approved actuary’s advice, or
to otherwise adopt a valuation of insurance liabilities (higher or lower) that is not in accordance with
the principles of the Prudential Standard, this must be disclosed to APRA.
The Prudential Standard entitled “Risk Management for General Insurers” aims to ensure that an insurer
is well managed, has access to appropriate independent expertise and has systems for identifying, managing and
monitoring risks that could otherwise reduce the ability of the insurer to meet its obligations to policyholders.
The key requirements of the Prudential Standard are as follows:
• known as the fit and proper test, persons occupying key positions within the insurer must have the
degree of probity and competence commensurate with their responsibilities. These key positions
include directors and senior managers of the insurer as well as the insurer’s APRA approved external
auditor and approved actuary. At a minimum, each insurer should have policies and procedures in
place to address criteria for fitness and propriety contained in the Prudential Standard;
• each insurer must obtain APRA’s approval for its appointment of an approved auditor and an
approved actuary;
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• insurers must review the composition of their boards of directors to ensure membership provides
adequate independence and oversight;
• the board of directors and senior management of an insurer must develop, implement and maintain a
sound and prudent risk management strategy that identifies the insurer’s policies and procedures,
processes and controls that comprise the insurer’s risk management and control systems. The
insurer’s risk management strategy must be documented, approved by the board of directors, updated
as necessary, and provided to APRA; and
• an insurer must adhere to its risk management strategy at all times and must inform APRA of any
changes to its risk management strategy within 14 days of the changes being approved by the board of
directors. The risk management strategy must be approved by our board of directors and submitted to
APRA annually.
The Prudential Standard entitled “Reinsurance Arrangements for General Insurers” aims to ensure that a
general insurer has in place prudent reinsurance arrangements. The key requirements of this Prudential Standard
are as follows:
• the board of directors and senior management of an insurer must develop, implement and maintain a
reinsurance management strategy, appropriate for the operations of that insurer, to ensure that the
insurer has sufficient capacity to meet obligations as they fall due. The insurer’s reinsurance
management strategy must be approved by the board of directors and by APRA on an annual basis;
• an insurer must adhere to its reinsurance management strategy at all times and must inform APRA if
it intends to undertake activities in a manner that represents a material deviation from its reinsurance
management strategy; and
• an insurer must inform APRA immediately if there is a likelihood of a problem arising with its
reinsurance arrangements that is likely to materially detract from its current or future capacity to meet
its obligations and discuss with APRA its plans to redress this situation.
The Australian Insurance Act also provides that no part of the insurance business of a general insurer
may be transferred to another general insurer except under a scheme approved by the Federal Court of Australia.
Section 116 of the Australian Insurance Act provides that in the winding up of the insurer, the insurer’s
assets inside Australia must not be applied in the discharge of its liabilities other than its liabilities in Australia,
until all Australian liabilities have been discharged.
In November 2003, APRA released a discussion paper entitled “Stage 2 Reforms” for prudential
supervision of general insurance. The Stage 2 Reforms paper proposed changes to technical standards including a
number of revisions to the prudential standards. The general objective of these proposed changes is to introduce a
new prudential framework to substantially strengthen the regulatory framework which applies to general insurers
in Australia. In accordance with its Stage 2 objectives, APRA has released new prudential standards relating to
risk management; reinsurance management; audit and actuarial standards; governance; and the ‘fit and proper
person’ test for officers and senior managers of general insurers. These new standards come into effect on
October 1, 2006. There are also a number of pending reforms which are discussed briefly below.
Although Prudential Standards applicable to NOHCs and subsidiaries of general insurers have yet to be
determined by APRA, the HIH Royal Commission made a recommendation on April 4, 2003 that APRA develop
a prudential standard for corporate groups that includes a minimum capital requirement at the group level as well
as at the entity level. The Federal Government’s response to the recommendations of the HIH Royal Commission
on September 12, 2003 referred this recommendation to APRA for its action. On May 16, 2005 APRA released a
discussion paper on its proposals for prudential supervision of corporate groups. Submissions were received by
APRA until October 2005. A response from APRA to those submissions has not yet been released but we
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understand APRA presently intends for the new prudential standards regarding groups to begin in 2007. The
proposed standards for groups deal with: contagion risk; capital adequacy; asset concentration risk; related entity
dealings; reinsurance; and group-wide risk management and audit.
APRA has announced that in late 2006 it intends to introduce capital requirements for general insurers
based on the ADI prudential standard and guidance notes relating to Tier 1 Capital (APS111 and AGN111.1). It
is understood that APRA intends these reforms will be introduced following the completion of consultation on
general insurance reforms relating to capital, assets in Australia and custodian requirements. APRA recommends
that the ADI prudential standard and guidance notes should therefore be considered by general insurers.
On March 23, 2006 APRA issued for consultation a discussion paper accompanied by draft prudential
standards and a prudential practice guide regarding managing risks from outsourcing. The package details
APRA’s intended minimum requirements for managing risks from outsourcing. The proposed standards will
introduce changes in the way insurers will be required to report to APRA about intra-group outsourcing and
‘offshoring’. Also of importance to insurers is the proposal by APRA that they will have to notify APRA of their
existing material outsourcing arrangements within 20 business days after the date on which the proposed
standards are implemented. APRA intends that the draft prudential standards and prudential practice guide will
be finalized in the second quarter of 2006 and will take effect on October 1, 2006.
APRA has also introduced changes to the prudential supervision of lenders’ mortgage insurance. The
changes focus on reformulating and standardizing the calculation of an insurer’s minimum capital requirements
and came into effect on January 1, 2006. Up until that date APRA was accepting applications for insurer specific
transitional periods of up to three years.
State and Territory legislation
Both CTP and workers compensation are subject to state or territory legislation, with local regulators
different to APRA.
Following the completion of the review into the law of negligence conducted by a panel chaired by the
Honourable David Ipp, each of the States and Territories of Australia and the Commonwealth of Australia have
passed legislation introducing significant reform to the law of tort in respect of claims for death and personal
injury. There have also been reforms implementing proportionate liability, that is for the abolition of the
principles of joint and several liability in certain cases involving economic and property loss. The impact of these
tort reforms will be felt over time although it is likely to bring some stability to market prices for public liability
risks.
Financial Sector (Collection of Data) Act 2001 (Cth)
The Financial Sector (Collection of Data) Act 2001 (“Data Act”) commenced operation on July 1, 2002.
It makes APRA the single Government collection agency for financial sector data. The Data Act sets out APRA’s
data collection powers across parts of the financial sector. The Data Act allows APRA to determine “reporting
standards” on prudential matters which apply to general insurers. These require general insurers to report on a
timely basis on prudential matters.
The Insurance Contracts Act 1984 (Cth)
Most types of insurance contracts that QBE Insurance (Australia) Limited writes are subject to the
provisions of the Insurance Contracts Act 1984 (Cth). The Act does not apply to CTP, workers compensation,
marine or reinsurance. The legislation, regulated by ASIC, codifies the duty of utmost good faith in applicable
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insurance contracts and provides for appropriate disclosure of information by insurers and policyholders. It also
provides rules covering a wide variety of things such as cancellation of insurance, fraudulent claims and
misrepresentation.
On September 10, 2003, the Federal government announced a review of the Insurance Contracts Act
1984 (Cth). The stated objective of the review was to seek recommendations aimed at improving the overall
operation of the Act by correcting deficiencies and clarifying ambiguities in its operation. The review was
conducted in two parts, the first dealt with section 54 regarding late notification of claims and the second with the
remainder of the Act. The review panel provided to the government its report on section 54 on October 31, 2003
and its report regarding the remainder of the Act on June 30, 2004. An exposure draft bill relating to the section
54 recommendations was released for consultation on March 8, 2004. Following that consultation process, the
government intends to prepare a new draft bill to address all of the review panel’s key recommendations. That
draft bill has not yet been released for public comment. The government has given no further indication as to
when that draft will be released.
The Corporations Act 2001 (Cth)
In addition to the existing disclosure requirements under the Insurance Contracts Act 1984 (Cth), the
Financial Services Reform Act 2001 (Cth) (“FSR Act”) introduced disclosure rules into the Corporations Act
which apply to financial products (including insurance). The FSR Act amendments to the Corporations Act came
into full effect on March 11, 2004.
The FSR Act regime aims to provide a uniform regulatory framework for the licensing and conduct of
all providers of financial services. It applies to general insurance products, as general insurance products fall
within the definition of financial products which forms the basis of the regulatory framework.
For the general insurance industry, the requirement to provide a Product Disclosure Statement (“PDS”)
represents a significant change from previous practice. Amongst other things, the PDS must set out the cost and
benefits of the insurance product, any risks associated with it, its significant characteristics such as exclusions
and the statutory cooling-off period. A PDS must be provided when a licensee first offers or recommends
insurance products to certain persons. Other disclosure requirements are also imposed, including the provision of
financial services guides and statements of advice.
The Corporations Act also contains licensing requirements which apply to certain insurance agents,
brokers and other intermediaries which are in the business of providing a financial service. This includes
businesses that do any of the following things:
• Provide financial product advice. This category includes insurers or intermediaries who make
recommendations or statements of opinion that are intended to influence a prospective insured’s
decision in relation to a particular insurance product. It also includes recommendations or statements
that could reasonably be regarded as having such an influence.
• Deal in a financial product. This category includes insurers and agents who issue insurance and also
intermediaries who arrange for a person to acquire insurance.
Providers of services who do not obtain a license can be authorized by a licensee to provide such
services on the licensee’s behalf. However where they are so appointed by a licensee that licensee becomes,
subject to a few exceptions, liable for the actions of the intermediary.
There are a number of exemptions which apply to the license requirement. For example:
• an insurer licensed by APRA will not need an Australian financial services license to provide a
service in relation to which APRA has regulatory or supervisory responsibility and which is provided
only to wholesale clients; and
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• insurance agents who provide insurance services only to their related bodies corporate are also
excluded from the license requirements.
Financial services licences are issued by ASIC and may be issued subject to conditions imposed by
ASIC on the licensee. The licensee must comply with any conditions attached to the license in addition to
statutory obligations set out in the Corporations Act. The principal requirements are those set out below:
• the licensee must ensure its financial services are provided efficiently, honestly and fairly;
• the licensee must have in place adequate arrangements for the management of conflicts of interest;
• the licensee must ensure its representatives also comply with the legislation and are adequately
trained to provide the services;
• the licensee must have risk management and dispute resolution systems in place;
• the licensee must deal with clients’ money as required by the Corporations Act;
• the licensee must comply with ASIC requirements; and
• the licensee must comply with product disclosure requirements noted above.
Australian financial services licences have been obtained by QBE Insurance (Australia) Limited. Our
other APRA regulated company, QBE Insurance (International) Limited is not required to obtain a license.
Refinements to aspects of the financial services regulation introduced by the FSR Act are currently
underway. On December 15, 2005 the Federal government released a package of financial services reform
refinements in the form of Corporations Amendment Regulations 2005 No. 5. These refinements include
provisions which (amongst other things): streamline oral and written disclosure to consumers; and clarify the
retail/wholesale client distinction, the general advice definition and the sub-authorization requirements. However
the high level benefit to general insurers of the refinements are not significant. The central licensing requirements
and obligations set out above remain in place.
On April 7, 2006, the Federal government released a consultation paper entitled Corporate and Financial
Services Regulation Review setting out areas of potential further reform for discussion. There are a number of
issues raised in the paper which are relevant to general insurers including: streamlining disclosure requirements;
bundling of general insurance products; badging of disclosure documents; the scope of the general advice
provisions; and liability for authorized representatives. The Department of Treasury accepted submissions in
response to the paper until May 19, 2006. To date, no legislation has been introduced into the Australian
Parliament.
The Insurance Acquisitions and Takeovers Act 1991 (Cth)
The Insurance Acquisitions and Takeovers Act 1991 (Cth) requires the Australian Federal Treasurer to
approve, among other things, certain acquisitions and leasing of assets of an authorized insurer, or acquisitions of
an authorized insurer’s interests, rights or benefits under contracts of insurance, including when:
• there occurs an acquisition or lease of 15% or more of the total book value of a company’s assets; or
• the acquisition of the insurer’s interests in its contracts of insurance results in a reduction of 15% or
more of a company’s unearned premium or outstanding claims provisions.
Terrorism Insurance Act 2003 (Cth)
In Australia, the Australian Commonwealth Government enacted its own terrorism insurance legislation,
the Terrorism Insurance Act (the “TIA”). The TIA has the effect of imposing a compulsory terrorist cover on
certain “eligible insurance contracts” (as that term is defined in the TIA) which includes non-residential property,
business interruption and liability (where liability arises out of the insured being the owner or occupier of eligible
property) insurance contracts.
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Although the Australian Commonwealth Government has established a reinsurance pool for the risk,
participation by insurers in the pool is neither automatic or compulsory. Insurers who issued eligible insurance
contracts which were in force prior to July 1, 2003 or incepted after July 1, 2003 but before October 1, 2003 will
receive an automatic indemnity from the pool. Otherwise, insurers of eligible insurance contracts wishing to
purchase reinsurance cover from the pool will be required to pay a reinsurance premium.
The TIA provides that if the Australian Commonwealth Government declares that a “terrorist incident”
(as that term is defined in TIA) has occurred in Australia, then in respect of an “eligible insurance contract” (as
that term is defined in TIA), any exclusion which would exclude liability for terrorism is deemed to have no
effect to the extent that a loss or liability covered by the policy is an “eligible terrorism loss” (as that term is
defined in TIA).
The reinsurance terms and premiums for the pool are as follows. A retention will be imposed on
participating insurers. The retention will be the lesser of A$1 million or 4% of the insurer’s fire and industrial
special risk premium for the year. If the total retentions of all insurers exceed A$10 billion then there is a pro-rata
reduction in the relevant insurer’s retentions. The pool is backed by an unlimited Australian Commonwealth
Government guarantee. Although the amount of the guarantee is expected to be unlimited, the TIA provides that
the Australian Commonwealth Government can declare a “reduction percentage” if without the reduction
percentage the amount payable under the guarantee would be more than A$10 billion. If the Australian
Commonwealth Government declares a reduction percentage then the amount payable by the insurer under
eligible insurance reinsured to the pool will be reduced by the reduction percentage.
The premiums to be charged by the pool vary with the location of the risk. Generally the reinsurance
premium will be 12% for central business district property, 4% for urban property and 2% for rural property of
the premium charged by the insurer, net of stamp duty, good and services tax and fire services levy. These
premiums may increase if a terrorist incident occurs.
QBE Insurance (Australia) Limited, MMIA Pty Limited, QBE Insurance (International) Limited, QBE
Insurance (Europe) Limited and certain syndicates managed by Limit issue eligible insurance contracts and
participate in the TIA reinsurance program.
Corporate Governance—ASX Requirements
ASX Listing Rule 4.10.3 was amended on January 1, 2003 to require all entities listed on the ASX to
disclose in their Annual Report the extent to which the entity complies with the ASX Corporate Governance
Council Principles of Good Corporate Governance and Best Practice Recommendations. This disclosure is made
by QBE in its annual report. The ASX Corporate Governance Council Principles of Good Corporate Governance
and Best Practice Recommendations were released on March 31, 2003 and deal with the following corporate
governance principles: lay solid foundations for management and oversight; structure the board to add value;
promote ethical and responsible decision-making; safeguard integrity in financial reporting; make timely and
balanced disclosure; respect the rights of shareholders; recognize and manage risk; encourage enhanced
performance; remunerate fairly and responsibly; and recognize the legitimate interests of stakeholders.
From July 1, 2004, the Corporations Act has been amended to include numerous corporate governance
requirements principally in the audit and the disclosure areas, that will require specific disclosure in our annual
reports.
Other Pending Regulatory Reforms
Of significant relevance to the Australian insurance environment is the review presently being
conducted by the Federal Government regarding the regulation of discretionary mutual funds and direct offshore
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foreign insurers and their operations in the Australian market. On December 16, 2005 the Department of
Treasury released a discussion paper regarding closer regulation of these providers of product. Treasury accepted
submissions in response until February 24, 2006. No legislation has as yet been introduced into the Australian
Parliament.
The exposure draft of the Anti-Money Laundering and Counter-Terrorism Financing Bill 2005 (the
“Bill”) was released for public consultation in late 2005. It is expected that a revised draft of the Bill will be
released for further review late in June 2006 with the intention that the new regime be in place by the end of
2006. The new regime includes more rigorous identification, record-keeping and reporting requirements. The Bill
presently does not expressly apply to general insurers, however this position cannot be confirmed until the final
version of the Bill is released.
The private sector in Australia is, subject to limited exceptions, required to comply with a privacy
regime which strictly regulates the collection, storage and disclosure of personal information. This regime is set
out in the Privacy Act 1988 (Cth) which was amended in 2001 to apply to the private sector. The operation of the
private sector provisions of the Privacy Act were reviewed by the Privacy Commissioner in 2005 but no
amendments have yet been made following that review. It may be that the Federal government is awaiting the
outcome of the Australian Productivity Commission’s review of the Privacy Act announced in January 2006
before it considers revising the privacy regime. Public consultation in relation to the Productivity Commission
review is scheduled for 2006 with a discussion paper in 2007 and a final report to the Commonwealth Parliament
by March 31, 2008.
United Kingdom Insurance Regulation
Overview—Permission to Carry on Insurance Business. Under the Financial Services and Markets Act
2000 and subordinate legislation (“FSMA”), it is unlawful to carry on insurance business in the United Kingdom
without permission to do so from the Financial Services Authority (the “FSA”) under Part IV of FSMA (a “Part
IV Permission”). The FSA, in deciding whether to grant a Part IV Permission, is required to determine whether
the applicant satisfies the FSMA Threshold Conditions (the “Threshold Conditions”). As part of this decision, the
FSA will consider whether the applicant has established systems and controls to comply with regulatory
standards and the FSMA Principles for Business, which cover matters such as: integrity; skill, care and diligence;
management and control; financial prudence; observation of the rules of market conduct; payment of due regard
to customers’ interests; communication with clients; management of conflicts of interest; a proper relationship of
trust with clients; adequate protection for clients’ assets when responsible for them; and dealing with regulators
in an open and cooperative way. In connection with a company’s Part IV Permission, the FSA may impose
limitations and requirements relating to the operation of the company and the carrying on of insurance business.
Detailed prudential rules applicable to carrying on insurance business are contained in the FSA’s
Interim Prudential Sourcebooks for Insurers (“IPRU(INS)”) and Friendly Societies (“IPRU(FSOC)”), its
Integrated Prudential Sourcebook (“PRU”) and the FSA’s Lloyd’s Sourcebook (“LLD”). PRU has since
1 January 2005 to a large extent replaced IPRU(INS) and IPRU(FSOC) although the IPRUs still have some
provisions which remain in force. An authorized insurer that breaches the rules of a sourcebook is liable to be
disciplined by the FSA. Much of the new material introduced by PRU results from the FSA’s continuing review
of the regulation of the United Kingdom insurance market following the failures of Independent Insurance plc
and Equitable Life and as a result of the implementation or proposed implementation of EU regulation.
PRU, in turn, is due (following proposals contained in the FSA’s Consultation Paper CP06/03) to be
replaced by new prudential sourcebooks to be adopted by the FSA and which are expected to come into force at
the beginning of 2007. The General Prudential Sourcebook (GENPRU) will contain core principles applying
across all regulated sectors. It will be supplemented by sectoral prudential sourcebooks. In the case of insurers
the sectoral sourcebook will be the Insurance Prudential Sourcebook (INSPRU). GENPRU and INSPRU will not,
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however, introduce significant changes for insurers (as opposed to, for instance, banks). They are intended to
replace and reiterate the existing regime in a more coherent form.
Lloyd’s. Lloyd’s is not an insurance company, but an association of insurance underwriters, the
management of which is incorporated as the Society of Lloyd’s (“Lloyd’s” or, specifically in relation to its
management and regulatory function the “Society”). The Society is itself authorized by the FSA to arrange deals
in contracts of insurance and arrange deals in participation in Lloyd’s syndicates. For regulatory purposes, the
Society does not itself arrange or enter into any contracts of insurance; its role is to provide the market
infrastructure which enables participants in the Lloyd’s market (principally members of Lloyd’s and managing
agents) to engage in insurance business. For this purpose, the FSA has delegated authority to the Society to
authorize and supervise the members of Lloyd’s, although FSMA provides that the FSA may, if it thinks fit,
impose its regulation under FSMA directly on members of Lloyd’s. Accordingly, members of Lloyd’s are
currently exempt from the requirements of FSMA for persons carrying on insurance business in the United
Kingdom to obtain a Part IV Permission from the FSA. Managing agents are subject to both the direct regulation
by the FSA under FSMA and by the Society.
The FSA imposes some of its prudential requirements for carrying on insurance business on both
Lloyd’s and on managing agents under PRU and LLD on a basis that reflects their respective responsibilities for
prudential risk management in practice. If Lloyd’s is in breach of any of the obligations imposed on it by FSMA,
the FSA has available to it broadly the same powers of intervention that it would have in relation to an insurance
company in the same circumstances.
QBE Insurance Business. QBE Insurance (Europe) Limited ( the “London Market Subsidiary”) is our
principal subsidiary in the United Kingdom. Our London Market Subsidiary is an insurance company having a
Part IV Permission from the FSA. Our principal Lloyd’s market subsidiaries are: QBE Corporate Ltd; LIMIT
(No. 2) Ltd; LIMIT (No. 3) Ltd (together, the “QBE Corporate Members”); and LIMIT Underwriting Ltd, which
is a managing agent at Lloyd’s (the “QBE Managing Agent”).
Each of these companies is a wholly-owned, indirect subsidiary of QBE UK. The QBE Managing Agent
is regulated by the FSA under FSMA, and by Lloyd’s under the Lloyd’s Acts 1871 to 1982 and the QBE
Managing Agent has both a Part IV Permission and authorization from Lloyd’s to carry out its business activities
in the Lloyd’s market. The QBE Managing Agent, being authorized by the FSA as well as by Lloyd’s, is subject
to the FSA’s rules including the high level principles and systems and controls requirements. It is also required to
manage the insurance business of the syndicates it oversees in line with the FSA’s prudential requirements. Since
January 2005, when the new prudential rules came into force it has been subject to the FSA’s direct supervision
of Lloyd’s managing agents. In particular, the requirement that managing agents establish and maintain
appropriate controls over risks affecting insurance business carried on through the syndicates they manage,
including credit and marketing risk, and assess the capital needed to support the business of each such syndicate.
The regulatory regimes of both the FSA and Lloyd’s provide for the approval of “controllers” of
regulated firms including insurance companies, as well as Lloyd’s managing agents and corporate members. In
appropriate circumstances these may require holding companies to apply for approval before acquiring or
increasing control. In addition directors of holding companies may sometimes need to obtain approval to perform
specific functions within group members where the regulatory regime provides for the person performing those
functions to be pre-approved by the regulator. Subject to this, there are no United Kingdom insurance regulations
that apply to a company solely because it is the holding company of an insurer, although members of an
insurance group may be required (under Chapter 8 of PRU and Chapter 9.40-9.46 of IPRU(INS) to report on, and
from 31 December 2006 maintain, group capital adequacy by reference to the net assets of the holding company
(see “Insurance Group Capital”).
The following paragraphs, describe the general rules applicable to our London Market Subsidiaries, the
QBE Corporate Members and the QBE Managing Agent.
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Regulatory Reporting. Our London Market Subsidiary is required to prepare its accounts in
accordance with special provisions applicable to it under the Companies Act 1985 and FSMA which require it to
file, and provide its shareholders with, audited financial statements and related reports. Our London Market
Subsidiary is required to prepare its accounts in accordance with International Financial Reporting Standards for
accounting periods beginning on or after January 1, 2005. Our London Market Subsidiary is required under
FSMA to separately file with the FSA an annual return comprising audited accounts, a regulatory return in the
prescribed form and other prescribed documents, currently within three months of the end of the relevant
financial year. In addition, the FSA may require, in certain circumstances, particularly in the first years after
authorization or after approval of a change of control, that an insurance company provide quarterly or monthly
management returns.
Solvency Margins and Reserves. Pursuant to FSMA, our London Market Subsidiary is required to
maintain a solvency margin (that is, the value of such of its assets as are admissible for this purpose must exceed
the amount of its liabilities by a specified amount as required by relevant regulations). Changes in the UK
minimum solvency requirements became effective on January 1, 2004 following the implementation of certain
European Union life and general insurance solvency Directives in the United Kingdom (Directive 2002/83/EC in
respect of life business (which replaced Directive (2002/12/EC)), and Directive (2002/13/EC) in respect of
general business, together known as “Solvency I”). These requirements are consolidated in PRU and LLD. Since
31 December 2004 in addition to maintaining a minimum capital requirement (the MCR) based on the solvency
margin prescribed in the directives, insurers must also report to the FSA on a more risk sensitive Enhanced
Capital Requirement (the ECR) as well as carrying out their own firm specific assessment of their capital
requirements using, among other things, stress testing and scenario analysis. The FSA may then review the firm’s
capital assessment, issue its own “individual capital guidance” for that firm and if this results in a higher amount
than the MCR and/or the firm’s capital resources, require further capital to be injected.
Each general insurance company writing certain volatile risks is required under Chapter 7.5 of PRU to
maintain an equalization reserve for the purpose of providing against above average fluctuations in claims in
respect of that business. Our London Market Subsidiary is authorized to write such business and thus is subject to
these rules.
In relation to the QBE Corporate Members, the FSA does not currently impose direct solvency
requirements. However, LLD imposes solvency requirements on the Society that have a similar effect on Lloyd’s
as a whole to those imposed on authorized insurance companies. The Society is required to carry out a two part
solvency test: first a calculation of the capital requirement for each individual member; and second a calculation
of the solvency position of the Lloyd’s market as a whole. Managing agents are required to assess the capital
requirements of the syndicates they manage as they have the closest understanding of syndicate level risks and
controls. In circumstances where a member’s assets are insufficient to cover its individual required capital
amount, any shortfall must be covered by the central assets held by Lloyd’s itself. Accordingly, in order that the
Society meet its own regulatory requirements, it requires each member to hold assets equal to its individually
calculated capital requirement, taking into account the syndicate level assessment of the managing agent.
Insurance Group capital. The Directive on the Supplementary Supervision of Insurance Companies in
an Insurance Group (1998/78/EC) (the “Insurance Groups Directive”) as amended by the European Union
Directive on the Supplementary Supervision of Credit Institutions, Insurance Undertakings and Investment Firms
in a Financial Conglomerate (2002/87/EC) requires member states to provide supervision for any insurance
undertaking that is part of a group which includes at least one other insurance company, insurance holding
company, reinsurance undertaking or non-member-country insurance undertaking. The Insurance Groups
Directive was implemented in the United Kingdom on December 1, 2001 within IPRU(INS). Since 2005 the
provisions implementing the Insurance Groups Directive are contained in chapter 9.40 to 9.46 of IPRU(INS) and
8.3 of PRU. Every insurer (other than a pure reinsurer) that is a subsidiary undertaking of an ultimate insurance
parent undertaking and whose head office is in the United Kingdom is required to report on the capital adequacy
of the insurance group of which it is a member at the level of its ultimate insurance parent company and its
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ultimate EEA insurance parent company (if different). From 31 December 2005 insurers have been required to
provide on request a summary of the report on group capital adequacy at the level of the ultimate EEA insurance
parent. From 31 December 2006 it will be a regulatory requirement for positive group capital adequacy to be
maintained at that level. These requirements apply at the same time as, and in addition to, the normal calculation
of insurers’ own solo solvency requirements. Once the Reinsurance Directive is implemented (see below) the
requirement to report on and maintain insurance group capital adequacy will be extended to pure reinsurers.
In the case of an authorized insurer that is itself a parent undertaking or has a participating interest of at
least 20% in at least one other financial firm (a “related undertaking”), an adjusted calculation to the solvency
margin calculation must be carried out to provide for deficits in the related undertaking, exclude all assets
deriving from related bodies, which are either inadmissible under the FSA’s rules for valuing assets (e.g.
goodwill) or fall within other disallowed categories such as assets backing the margin of capital adequacy
requirements of related undertakings. Although Lloyd’s corporate members are not authorized by the FSA and
are not required to report on group capital adequacy in their own right, if they are part of an insurance group
which includes insurers so authorized, the group capital adequacy report must include the assets, liabilities and
regulatory capital of the corporate members.
Regulated entities within a “financial conglomerate” have been subject to additional prudential
requirements for financial years beginning on or after January 1, 2005 on the implementation of the European
Union Directive on the Supplementary Supervision of Credit Institutions, Insurance Undertakings and Investment
Firms in a Financial Conglomerate (2002/87/EC). A financial conglomerate is a financial group which satisfies a
number of threshold requirements as to minimum holdings in, on the one hand, the insurance sector and, on the
other hand, the banking/investment sectors. QBE is not a financial conglomerate or part of a financial
conglomerate and is not expected to be affected by conglomerate regulation.
Supervision of Management and Control. If a person intends to acquire or increase its “control” of an
insurance company, managing agent or corporate member it must first notify the FSA in the case of an insurance
company, both the FSA and Lloyd’s in the case of a managing agent, and Lloyd’s in the case of a corporate
member. The FSA and/or Lloyd’s must then decide whether to approve the acquisition or increase of control
within three months of receipt of this notice. Acquiring control for the purposes of FSMA includes cases where a
person first holds 10% or more of the shares in an insurance company or its parent undertaking, where it is first
able to exercise “a significant influence” over the management of an insurance company through a shareholding
in that company or its parent undertaking, or where it is otherwise able to exercise or control the exercise of 10%
or more of the voting power in the insurance company or in its parent undertaking. Increasing control for the
purposes of FSMA includes cases where a person increases their shareholding in an insurance company above a
threshold of 20%, 33% or 50%. In addition, a person who is already a controller of an insurance entity may not
acquire a different kind of control in respect of such insurance entity unless the person has obtained the FSA’s
prior consent. FSMA determines control by reference to an acquirer’s associates in addition to the acquirer itself.
The FSA will not approve any new controller or any increase of control without being satisfied that the controller
is fit and proper to be a controller of, or acquire increased control of, the insurance company. There are proposals
by HM Treasury to apply some relaxations to the controllers’ regime, however these are not expected to come
into force for some time.
Approved Persons. Certain key functions in the operation of an insurance business (“controlled
functions”) may only be carried out by persons who are approved for such tasks by the FSA under FSMA
(“Approved Persons”). Controlled functions include governing functions such as being a director of an insurance
company or Lloyd’s managing agent, finance functions and significant management functions, such as insurance
underwriting. The FSA will not grant Approved Person status to an individual unless it is satisfied that the
individual has appropriate qualifications and/or experience and is fit and proper to perform those functions. In
deciding whether to grant Approved Person status the FSA will have regard to the Statements of Principle for
Approved Persons set out in the FSA’s High Level Standards Handbook. A person may not carry out a controlled
function for a regulated company until the FSA has approved that person in respect of that function and that
company.
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Investigation and Intervention. The FSA has various powers to intervene in the affairs of an insurance
company, including the power to make requirements in relation to the investments of an insurance company, to
limit the insurance company’s premium income, to require an actuarial investigation of the company to be made,
to appoint someone to investigate whether the Threshold Conditions are being met with respect to an insurance
company, to obtain information and require production of documents, to search and enter premises, and a
residual power to take such action as it thinks appropriate to protect policyholders against the possibility that the
insurance company may not be able to make payments due to policyholders. These powers may be exercised by
the FSA if it considers, for instance, that it is desirable in order to protect policyholders or potential policyholders
against the risk that the company may be unable to meet its liabilities, that the Threshold Conditions may not be
met, that the company or its parent has failed to comply with obligations under the relevant legislation, that the
company has furnished misleading or inaccurate information or that there has been a substantial departure from
any proposal or forecast submitted to the FSA.
Power to Cancel or Vary Part IV Permission. The FSA may cancel or vary a Part IV Permission of an
insurance company either at the request of the company or, for instance, if the company has failed to satisfy its
obligations under FSMA or if it appears to the FSA that the Threshold Conditions are not being, or have not been
met. Permission to carry on insurance business will be cancelled if the company ceases to carry on insurance
business.
Reinsurance of Potential Liabilities. FSMA does not prescribe the types or proportion of assumed
business to be protected by reinsurance. However, it is generally accepted that to comply with the FSA’s
principles of sound and prudent management, no more than 20 per cent of projected gross premiums should be
ceded to any one reinsurer in any one year. Furthermore, the FSA has powers to impose requirements on an
insurance company (such as a requirement not to take on new business) if it is satisfied that the company has not
met its solvency requirement or does not meet the Threshold Conditions.
Investment of Funds—Capital and Reserves. There are no legislative restrictions on the investments of
an insurer either in relation to technical provisions or to shareholders’ funds. However, assets and investments
only count towards capital adequacy requirements if they are capable of being valued in accordance with section
1.3 of PRU and comply with the requirements in PRU 2 and 3 as to counterparty and asset exposure limits.
In relation to the QBE Corporate Members, Lloyd’s is required to hold all assets equal to each
member’s individual capital requirement in trust in the form of “funds at Lloyd’s.” Additionally, each member
must establish one or more trust funds to hold all premiums received by the member or on his, her or its behalf.
Separate premiums trust funds must be established to segregate premium income for life or other long-term
business, on the one hand, and general business, on the other.
Distribution and Sale of General Insurance. As required by the European Union Insurance Mediation
Directive, the distribution and sale of general insurance products by insurance intermediaries has been regulated
by the FSA since January 2005 and the regime also applies to direct sales by insurers themselves. The FSA’s
Insurance (Conduct of Business) Sourcebook (“ICOB”) contains rules that govern the treatment by insurers and
insurance intermediaries of their customers. Many of the provisions of ICOB only relate to insurers or to
insurance intermediaries who are in direct contact with the ultimate customer/policyholder or are confined in
their application to transactions with retail customers. They apply to the promotion, arrangement, sale and
administration of general insurance and non-investment life insurance.
Proposed Regulatory Changes
Financial Engineering. In October 2005 the FSA issued Consultation Paper 05/14 which contained,
among other things, proposals to regulate outward finite reinsurance arrangements entered into by general
insurers. These proposals are aimed at ensuring that finite reinsurance arrangements are not used to obscure the
true financial position of the firm and are properly accounted for in regulatory reporting. The proposals are yet to
be adopted.
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Reinsurance Directive. The Reinsurance Directive (2005/68/EC) was adopted in December 2005 and
is due to be implemented by EU member states by December 2007, although the FSA has indicated that some at
least of its provisions may be brought into force in the UK earlier than this. In general terms the Reinsurance
Directive extends the regime currently applying under the Insurance Directives. It requires all pure reinsurers to
be authorized in their member states, to be subject to minimum prudential standards broadly equivalent to those
applying to direct insurers. Once authorized such insurers will be able to carry on business throughout the EEA
without further authorization requirements. The Reinsurance Directive will also extend the requirement to report
on and maintain insurance group capital adequacy to pure reinsurers. The FSA is due to consult on
implementation of the Reinsurance Directive in the UK in June 2006. The UK is already to a considerable degree
compliant with the Reinsurance Directive. In particular it applies an authorization requirement to pure reinsurers
outside Lloyd’s and prudential standards which are based on, although they are not identical to, standards
applying to direct insurers or insurers writing direct and reinsurance business. Lloyd’s itself is not directly
affected by the Reinsurance Directive as it writes both direct and reinsurance business and all members are
regulated irrespective of type of business. The provisions contained in the Reinsurance Directive will be
absorbed into Solvency I from about 2010 (see “Solvency II” below).
Contract certainty. The FSA has indicated to the London wholesale insurance market that it expects
the market to adhere to more rigorous standards in documenting insurance and reinsurance arrangements. In
principle the terms on which cover or reinsurance is provided should be readily ascertainable at the time it is
taken out rather than at some later time. The FSA expects significantly better standards in this area to be achieved
by December 2006, failing which a more formal regulatory initiative, including rules and guidance, may follow.
Insurance fraud. As with contract certainty the FSA has indicated that it expects insurers to develop
systems for countering insurance fraud. If its expectations are not met a further regulatory initiative may result.
Solvency II. The EU Commission is carrying out a wide-ranging review in relation to solvency
margins and reserves (the project being known as “Solvency II”). It is intended that the new regime will apply
more risk sensitive standards to capital requirements, bring insurance regulation more closely in line with
banking regulation with a view to avoiding regulatory arbitrage and align regulatory capital with economic
capital. It is currently anticipated that a European Union Framework Directive will be proposed by the
Commission in mid 2007 with detailed European legislation being subsequently adopted by means of
implementing measures. Solvency II is expected to come into force in 2010, barring major delays arising from,
for instance, political problems in getting the directive through the initial “co-decision” process. The broad
outlines of the new regime are already apparent from consultations issued by the Committee of European
Insurance and Occupational Pensions Supervisors although there is still a great deal of material to be developed.
The changes to the FSA’s prudential regime which came into force on 31 December 2004 anticipated what was
then expected to emerge from the Solvency Project, although considerable further change is expected.
United States Insurance Regulation
General
Although at the present time there is limited federal regulation of the insurance business in the United
States, our insurance subsidiaries in the United States (the “US insurance subsidiaries”) are subject to extensive
regulation in the states in which they do business. This regulation is designed primarily for the protection of
policyholders and not securityholders. As of May 31, 2006, QBE Insurance Corporation held insurance licenses
in all 50 states and the District of Columbia. As of May 31, 2006, QBE Reinsurance Corporation (formerly
Sydney Reinsurance Corporation) held insurance licenses in 31 states and the District of Columbia and is an
accredited or approved reinsurer in all 50 states and the territory of Puerto Rico. As of May 31, 2006, National
Farmers Union Property and Casualty Company held insurance licenses in 46 states and the District of Columbia.
As of May 31, 2006, QBE Specialty Insurance Company held licenses in 44 states. The laws of the various states
establish supervisory agencies with broad authority to regulate, among other things, licenses to transact insurance
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usiness, rates for insurance business, policy language, rating, underwriting and claims practices, transactions
with affiliates, reserve requirements, dividends, mandatory capital and surplus requirements, insurer solvency,
withdrawal from certain markets and investment standards. In addition, our US insurance subsidiaries are subject
to statutes, regulations and judicial decisions that define the risks and benefits for which insurance is sought and
provided, including in such areas as product liability and environmental coverages.
Information Reporting and Statutory Examination
Our US insurance subsidiaries are required to file detailed annual and quarterly financial statements and
other reports with state insurance regulators in each of the states in which they are licensed to transact business.
Such annual and quarterly financial statements and other reports are required to be prepared on a calendar year
basis and include financial statements and other information prepared on a statutory accounting basis (“statutory
accounting practices” or “SAP”) promulgated by the NAIC, which basis differs in certain material respects from
US GAAP. In addition, the US insurance subsidiaries’ operations and accounts are subject to examination at
regular intervals, and as demanded, by state regulators. The respective reports filed by the insurance regulators
with respect to the most recent periodic examinations of the US insurance subsidiaries contained no material
adverse findings.
The key financial ratios of NAIC’s Insurance Regulatory Information System, or IRIS, which ratios
were developed to assist insurance departments in overseeing the financial condition of insurance companies, are
reviewed by the NAIC and state insurance departments to select those companies that merit highest priority in
the allocation of the regulators’ resources. IRIS identifies 12 industry ratios and specifies “usual values” for each
ratio. Departure from the usual values on four or more of the ratios can lead to inquiries from individual state
insurance commissioners as to certain aspects of an insurer’s business.
Holding Company System Regulation
We and the US insurance subsidiaries are subject to regulation under the insurance holding company
system laws of various jurisdictions. The insurance holding company system laws and regulations vary from
jurisdiction to jurisdiction, but generally require an insurance company that is a member of an insurance holding
company system to register with the state regulatory authorities and to file with those authorities certain reports
regarding its holding company system, including information concerning its holding company and affiliates and
its capital structure, ownership, financial condition, certain affiliate transactions and general business operations.
If a transaction between an insurance company registrant and a company within the holding company system will
materially affect the operations, management or financial condition of insurers under the system, prior
notification of such transaction must be filed with its domiciliary regulator. Such laws and regulations also
require advance regulatory approval with respect to any direct or indirect change of control of a subject registrant
insurance company. Because such regulation focuses on the ultimate control of the insurance company,
regulatory compliance would be required with respect to any person that sought to acquire control of QBE.
Generally, such control is presumptively deemed to exist through the ownership of 10% or more of the
outstanding voting securities of a domestic insurance company or any entity that controls a domestic insurance
company, although control can otherwise exist under certain circumstances.
Statutory Surplus and Dividend Limitations
Statutory surplus (i.e., the net worth of an insurance company, as calculated in accordance with SAP) is an
important measure utilized by insurance regulators and rating agencies to assess our US insurance subsidiaries’
ability to support business operations and provide dividend capacity. Our US insurance subsidiaries are subject to
various state statutory and regulatory restrictions that limit the amount of dividends that may be paid without
prior approval from regulatory authorities. These restrictions differ by state, but are generally based on
calculations incorporating statutory surplus, statutory net income and/or investment income.
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Risk Based Capital Requirements
Virtually all state insurance regulators have adopted some form of Risk Based Capital (“RBC”) requirements
similar to those provided in the risk-based capital model act of the NAIC (“NAIC Model RBC Act”) that are
applicable to the US insurance subsidiaries. These RBC requirements are designed to monitor capital adequacy in
relation to the various risks inherent in an insurance company’s operations. The RBC formula provides a
mechanism for the calculation of an insurance company’s Authorized Control Level (the “ACL”) RBC amount
which is determined under the RBC formula in accordance with the RBC instructions adopted by the NAIC. The
initial RBC level which triggers regulatory action is known as the “Company Action Level.” Failure to achieve
this level of RBC, which, in the NAIC Model RBC Act, occurs if statutory surplus falls below 200% of the ACL,
requires the insurance company to submit a plan of corrective action to the relevant insurance commissioner.
There are additional progressive RBC regulatory thresholds, which trigger more stringent regulatory action.
Ultimately, an insurance commissioner must take mandatory action to place an insurance company into statutory
receivership when its RBC is at or below the Mandatory Control Level, which, in the NAIC Model RBC Act,
occurs if statutory surplus falls below 70% of the ACL. The RBC formula is not intended as a means to rank
insurers.
Regulation of Investments
The US insurance subsidiaries are subject to state laws and regulations that require diversification of
their investment portfolios and impose qualitative and quantitative limits upon the amount and type of their
investments in certain investment categories such as non-investment grade fixed income securities, real estate
and equity investments. Investments exceeding regulatory limitations are generally treated as non-admitted assets
for purposes of measuring statutory surplus, and, in some instances, require divestiture.
The NAIC has adopted a model law governing legal investments for life and non-life insurers in an
effort to impose uniform regulatory standards for insurance company investments. This so-called “defined limits”
or pigeonhole version of the model law prescribes permitted classes of legal investments, and certain prohibited
investments, and establishes qualitative and quantitative limitations for each class of investment. At present, a
limited number of states have approved the defined standards version of the model law. The NAIC has also
adopted a second, “defined standards” or prudent person version of the model law which relies more on the
exercise of prudence by insurers in their investment activity rather than the establishment of strict quantitative
limits on investments. However, such model laws are without binding legal effect in a given jurisdiction unless
specifically adopted in such jurisdiction.
Gramm-Leach-Bliley Act
In November 1999, the US Congress passed the Gramm-Leach-Bliley Act (the “GLBA”). The GLBA
repealed provisions of the Glass-Steagall Act and Bank Holding Company Act that had prevented affiliation
between banks, securities companies and insurers. Generally, the GLBA:
• provides for the establishment of a “financial services holding company” that may conduct a broad
range of financial activities, including, among others, banking, insurance and securities underwriting
and agency activities as well as activities considered complimentary to financial activities. The
Federal Reserve Board (the “Fed”) is designated as the “umbrella regulator” of the holding company;
• permits cross industry acquisitions;
• provides for “functional regulation” of insurance activities by the states;
• prohibits banks from providing insurance, except for “authorized products,” as principals;
• creates a federal definition of insurance for underwriting purposes; and
• establishes a dispute resolution process by which preemption challenges to insurance regulation will
be decided on the merits.
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Until the full extent of the integration of banking, securities and insurance businesses is known, it is
impossible to predict the impact of this law on competition in the markets in which we operate.
The GLBA allows state legislatures and state insurance departments to impose more stringent privacy
requirements than the baseline standards of the GLBA, including broader curtailments of information-sharing
practices. As of this date, numerous state legislatures and state insurance departments have debated such
curtailments. As states continue to augment the GLBA privacy protections, there may be no uniform standard for
the collection, use and disclosure of non-public personal customer information, and state-by-state compliance
requirements will increase. In 2002, to further facilitate the implementation of the GLBA, the NAIC adopted the
Standards for Safeguarding Customer Information Model Regulation. Several states have now adopted similar
provisions regarding the safeguarding of policyholder information. We have established policies and procedures
intended to ensure that we are in compliance with the GLBA related privacy requirements.
Guaranty Associations
Virtually all states where the US insurance subsidiaries are licensed to transact business have insurance
guaranty fund laws requiring insurance companies doing business, within those jurisdictions, to participate in
guaranty associations. Guaranty associations are organized to cover, subject to limits, contractual obligations
under insurance policies, and certificates issued under group insurance policies, issued by impaired or insolvent
insurance companies. These associations levy assessments, up to prescribed limits, on each member insurer
doing business in a particular state on the basis of their proportionate share of the premiums written by all
member insurers. Some states permit member insurers to recover assessments paid through full or partial
premium tax offsets, usually over a period of years. Assessments levied against our US insurance subsidiaries by
guaranty associations during each of the past five years have not been material. While our US insurance
subsidiaries cannot accurately predict the amount of future assessments, it is unlikely that assessments with
respect to other pending insurance company impairments and insolvencies will have a material effect on our US
insurance subsidiaries’ financial position or results of operations.
Patriot Act
The USA Patriot Act of 2001 (the “Patriot Act”), enacted in response to the terrorist attacks on
September 11, 2001, contains enhanced anti-money laundering laws and mandates for the adoption and
maintenance of appropriate anti-money laundering programs by financial institutions. All covered financial
institutions are required to implement and maintain an effective anti-money laundering program (“AML
Program”) that, at a minimum, includes: (1) establishment and maintenance of appropriate anti-money
laundering policies, procedures and internal controls; (2) the appointment of an anti-money laundering
compliance officer with responsibility for the day-to-day AML program; (3) an ongoing anti-money laundering
training program; and (4) an independent audit function to test the AML Program. The Patriot Act applies to a
broad range of financial institutions, including insurance companies.
Terrorism Risk Insurance Act
In November 2002, the US federal government enacted the Terrorism Risk Insurance Act of 2002
(“TRIA”). Pursuant to the provisions of TRIA, certain insurers must offer, in all “property and casualty insurance
policies” (defined below), insurance coverage for any loss resulting from an “act of terrorism” (defined below)
on terms (other than price) not materially different than those terms applicable to losses arising from other events
covered by such policies. However, insureds are not obliged under TRIA to buy the offered coverage. Under
TRIA, the US federal government, subject to certain limitations, will reimburse insurers for ninety percent
(90%) of amounts paid by such insurers in excess of a specified deductible on claims made under property and
casualty insurance policies for certain material losses related to an act of terrorism (and, in the case of workers’
compensation insurance, an act of war). “Act of terrorism” is defined in TRIA to include only those acts that,
among other requirements, are certified by the US Secretary of the Treasury to be an act of terrorism and have
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een committed by individuals on behalf of a foreign person or foreign interests, as part of an effort to coerce or
affect the US civilian population or the US federal government. Additionally, TRIA only applies to terrorism
events that occur: (i) in the United States; (ii) outside of the United States with respect to certain aircarriers or
flag vessels; or (iii) at the premises of a United States mission. Subject to a deductible to be paid by each insurer
equal to 15% of direct earned premiums in the previous calendar year, aggregate reimbursements to insurers
under TRIA are limited to $100,000,000,000 per program year, and such reimbursements may be recouped by
the US federal government from property and casualty policy holders through a prospective surcharge of up to
3% of applicable property and casualty insurance policy premiums. Any such surcharge is to be collected and
remitted to the US federal government by the applicable insurers. “Property and casualty insurance” policies
subject to TRIA include commercial lines of property and casualty insurance, such as excess insurance, workers’
compensation insurance and surety insurance.
TRIA’s “make available” provision, which requires insurers to make terrorism coverage available to
their policyholders for insured losses with terms, amounts and other factors that do not differ materially from
those applying to other types of losses was extended under The Terrorism Risk Insurance Extension Act of 2005
(the “2005 Extension”), which extended TRIA to December 31, 2007. While the underlying structure of TRIA
was left intact, the 2005 Extension makes some adjustments, including increasing the insurer deductible for 2006
to 17.5% of direct premiums written, and 20% of these premiums in 2007. For losses in excess of the deductible,
the federal government will still reimburse 90% of the insurer’s loss, but the amount of federal reimbursement
decreases to 85% of the insurer’s loss in 2007. After March 31, 2006, federal reinsurance is only available if
industry aggregate insured losses from a certified act exceed $50.0 million. The program amount increases to
$100.0 million in 2007. When these increases take effect, insurers must still provide terrorism insurance for
events causing losses up to that amount, even though federal reinsurance is only available for events causing
losses exceeding that amount. Under the 2005 Extension, insurers must offer coverage for losses due to terrorist
acts in all of their property and casualty insurance policies.
Certain of our insurance subsidiaries are impacted by TRIA, specifically: (i) QBE Insurance
Corporation, QBE Reinsurance Corporation, National Farmers Union Property and Casualty and QBE Specialty
Insurance Company in the Americans division; (ii) QBE Insurance (Europe) Limited in our European operations;
(iii) certain syndicates managed by Limit in our Lloyd’s operations; and (iv) QBE Insurance (International)
Limited and QBE Hongkong & Shanghai Insurance Limited in our Asia Pacific division.
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OUR BOARD AND MANAGEMENT
Overview
Our board of directors comprises eight directors, being the chairman, the chief executive officer and six
independent non-executive directors, using the “independence” definition of the ASX Corporate Governance
Council. Applying this definition, the board has determined that a non-executive director’s relationship with
QBE as a professional adviser, consultant, supplier, customer or otherwise is not material unless amounts paid
under that relationship exceed 1% of our revenue or expenses.
Directors are selected to achieve a broad range of qualifications, skills and experience on the board
complementary to our activities. The board regularly discusses its composition, including the nomination of
potential members. All directors are members of the nomination committee and are involved in the selection of
new board members. External consultants may be engaged where necessary in searching for prospective board
members.
The chairman oversees the performance of the board, its committees and each director. The review
procedure involves an annual assessment of each director comprising a combination of written questions and
answers, covering areas such as role, procedures, practices and behaviors, followed by interviews. Individual
assessments are confidential to the directors concerned. The chairman reports the overall result to the board as a
whole, at which time it is discussed by all directors. The review procedure is a precursor to other directors
supporting, via the notice of meeting, a non-executive director for re-election at an annual meeting.
Our constitution provides that no non-executive director shall hold office for a continuous period in
excess of three years or past the third annual general meeting following the director’s appointment, whichever is
the longer, without submitting for re-election. If no such director would otherwise be required to submit for
re-election but the listing rules of the ASX require that an election of directors be held, the director to retire at the
annual general meeting will be the director who has been longest in office since their last election, but, as
between persons who became directors on the same day, the one to retire shall (unless they otherwise agree
among themselves) be determined by lot. Retiring directors may offer themselves for re-election at the annual
general meeting. Directors appointed by the board are subject to re-election at the annual general meeting. Under
our constitution, there is no maximum fixed term or retirement age for non-executive directors.
The issue of independence of directors has received considerable attention in recent times. As a general
guide, the board has agreed that a non-executive director’s term should be approximately 10 years. Although one
of our directors, Mr. Greiner, has been a non-executive director for more than 10 years, the other directors
believe that he remains independent of management and continues to demonstrate independent judgment in
decision making. The board considers that a mandatory limit on tenure would deprive us of valuable and relevant
corporate experience in the complex world of international general insurance and reinsurance. Similarly, our
chairman’s former executive capacity with us has been fully disclosed to shareholders. The chairman ceased to
be managing director in January 1998. The chairman was re-elected as a director by an overwhelming majority at
the 2006 annual meeting. The other directors consider it to be in shareholders’ and policyholders’ interests to
retain the chairman’s first hand wealth of experience and have resolved that he should continue in that role. With
over 50 years involvement at many levels, the chairman has extensive knowledge of the insurance industry.
However, the chairman is not considered to be an “independent” director as recommended by the ASX Corporate
Governance Council because there was less than a three year period between him acting as a managing director
and being appointed chairman.
Directors advise the board on an ongoing basis of any interest they have that they believe could conflict
with our interests. If a potential conflict does arise, either the director concerned may choose not to, or the board
may decide he or she should not, receive documents or take part in board discussions while the matter is being
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considered. There are no material conflicts between any duties of QBE and any private interests or other duties of
the members of our board of directors that have not been disclosed.
Under our constitution, our management is vested in the board. In particular, the board:
• oversees corporate governance;
• selects and supervises the chief executive officer;
• provides direction to management;
• approves the strategies and major policies of the group;
• monitors the achievement of strategies and policies;
• monitors performance against plan;
• considers regulatory compliance; and
• reviews human and other resources (including succession planning) and information technology.
The board ensures it has the information it requires to be effective including, where necessary, external
professional advice. A non-executive director may seek such advice at our cost with the consent of the chairman.
All directors would receive a copy of such advice. Non-executive directors may attend relevant external training
courses at our cost with the consent of the chairman.
Strategic issues and management’s detailed budget and three year business plans are reviewed annually
by the board. The board receives updated forecasts during the year. Visits by non-executive directors to our
offices in key locations are encouraged. To assist the board to maintain its understanding of the business and to
effectively assess management, directors have regular presentations by the managing directors and other senior
managers of the various divisions on topics including budgets, three year business plans and operating
performance, and have contact with senior employees at numerous times and in various forums during the year.
The board meets regularly in Australia and once a year overseas. Each meeting normally considers reports from
the chief executive officer and chief financial officer together with other relevant reports. The board regularly
meets in the absence of management. The chairman and chief executive officer, and board members in general,
have substantial contact outside board and committee meetings.
Board of Directors
Our board of directors consists of the following eight directors, all of whom may be contacted at our
principal executive offices:
Name Position Age
Len Bleasel .......................... Non-executive director 63
John Cloney ......................... Non-executive director and chairman 65
The Hon. Nick Greiner ................. Non-executive director 59
Isabel Hudson ........................ Non-executive director 46
Belinda Hutchinson .................... Non-executive director 52
Charles Irby .......................... Non-executive director 61
Irene Lee ............................ Non-executive director 52
Frank O’Halloran ..................... Chief executive officer and director 60
Len Bleasel AM, FAIM, FAICD. Mr. Bleasel was appointed an independent, non-executive director
of QBE in January 2001. He is also chairman of the remuneration committee and a member of the audit
committee. He joined The Australian Gas Light Company in 1958 and was Managing Director and CEO from
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May 1990 until March 2001. Mr. Bleasel is also Chairman of the Zoological Parks Board of New South Wales, a
member of the ABN AMRO advisory council and is on the advisory boards of various charities.
John Cloney ANZIIF, FAIM, FAICD. Mr. Cloney joined us as managing director in 1981. He
retired in January 1998, at which time he was appointed a non-executive director. He was appointed deputy
chairman in April 1998 and chairman in October 1998. He is also chairman of the chairman’s and funding
committees and a member of the investment and remuneration committees. Mr. Cloney is a director of Boral
Limited and Maple-Brown Abbott Limited. He is chairman of the Create Foundation, a member of the ABN
AMRO advisory council and a trustee of the Sydney Cricket and Sport Ground Trust. He has over 50 years of
involvement in the insurance industry.
The Hon Nick Greiner AC, BEc., MBA. Appointed an independent, non-executive director in 1992,
Mr. Greiner is a member of the audit, chairman’s, funding and remuneration committees. He is chairman of
Bilfinger Berger Australia and Bradken Limited, deputy chairman of Stockland Trust Group and a director of
McGuigan Simeon Wines Limited. He is a trustee of the Sydney Theatre Company and a director of the South
Sydney Rugby League Club. He was Premier and Treasurer of New South Wales from 1988 to 1992.
Isabel Hudson MA, FCII. Ms. Hudson is based in the UK and was appointed an independent,
non-executive director in November 2005. She is a member of the audit and remuneration committees.
Ms. Hudson is a non-executive director of Fineos Corporation Limited. She is the Chief Executive Officer of
Synesis Life Limited in the UK. She is also a member of the committee of Scope, a UK charity.
Belinda Hutchinson BEc, FCA. Appointed an independent, non-executive director in 1997,
Ms. Hutchinson is chair of the investment committee and a member of the audit and funding committees. She is
president of the State Library of New South Wales Council and director of Coles Myer Limited, St. Vincent’s &
Mater Health Sydney Limited and Telstra Corporation Limited. Ms. Hutchinson was an executive director of
Macquarie Bank Limited from 1992 to 1997 and remains a consultant to the bank. She was a vice president of
Citibank Limited between 1981 and 1992.
Charles Irby FCA (England and Wales). Mr. Irby is based in the UK and was appointed an
independent, non-executive director of QBE in June 2001. He is a member of the investment committee and
chairman of the European operations’ audit committee. Mr. Irby was senior UK Advisor to ING Barings Limited
from 1999 to 2001, having spent 27 years with ING Barings. Mr. Irby became a non-executive director of
Aberdeen Asset Management plc, a company listed on the London Stock Exchange in 1999 and was appointed its
Chairman in 2000. He is a director of Great Portland Estates plc and North Atlantic Smaller Companies
Investment Trust plc. Mr. Irby is also a trustee and governor of King Edward VII’s Hospital Sister Agnes.
Irene Lee BA, Barrister-at-Law. Ms. Lee was appointed an independent, non-executive director in
May 2002 and is chair of the audit committee and a member of the funding and investment committees. Ms. Lee
has wide experience in financial services, including as CEO and executive director of Sealcorp Holdings Limited
in Australia, executive director and vice president of investment management and investment banking at Citibank
Limited in Australia and overseas and as the Head of Corporate Finance, at Commonwealth Bank in Australia.
She is a director of Mariner Financial Limited, Record Investments Limited, Ten Network Holdings Limited, and
ING Bank (Australia) Limited. She is a member of the Takeovers Panel, the advisory council of JP Morgan
Australia and the executive council of the UTS Faculty of Business. Ms. Lee is also a trustee of the Art Gallery
of New South Wales.
Frank O’Halloran FCA. Mr. O’Halloran was appointed Chief Executive Officer in January 1998 and
is a member of the chairman’s, funding and investment committees. He joined us in 1976 as Group Financial
Controller and was appointed Chief Financial Officer in 1982. He was Director of Finance from 1987 to 1994
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and Director of Operations from 1994 to 1997. He has had extensive experience in professional accountancy for
14 years and insurance management for over 29 years.
Audit Committee
The audit committee membership comprises five non-executive directors and it normally meets four
times per year. The chairman must be a non-executive director who is not the chairman of the board. The current
composition of the audit committee complies with the best practice recommendations set by the ASX Corporate
Governance Council. The chairman is appointed by the board. The current members of the audit committee are
Mr. Bleasel, The Hon. Nick Greiner, Ms. Hudson, Ms. Hutchinson and Ms. Lee (chair).
The audit committee operates under a written charter determined by the board. The role of the
committee is to oversee and enhance the credibility of our financial reporting process. The objectives of the audit
committee include reviewing:
• the quality of financial reporting to the ASX, ASIC and shareholders;
• our accounting policies, practices and disclosures; and
• the scope and outcome of our internal and external audits.
The audit committee’s responsibilities include the financial statements (including items such as claims
reserves, reinsurance recoveries and income tax), external and internal audit, risk management and other matters
including internal controls compliance, tax compliance and significant changes in accounting policies.
The chairman of the board usually, and other non-member non-executive directors often, attend audit
committee meetings which consider our June 30 and December 31 financial statements. Meetings of the audit
committee also include, by invitation, the chief executive officer, the chief financial officer, our chief risk officer,
our group internal audit manager, our external auditor and our group actuary. On occasion, other senior managers
also attend.
The audit committee has the right of access to the external and internal auditors (in the absence of
management if required) and senior management. The audit committee also has the right to obtain external
professional advice at our expense. Our group internal audit manager, the external auditor and the group actuary
have direct access to the audit committee and a reporting line to the chairman of the audit committee.
The audit committee meets with the external auditor in the absence of management in relation to our
June 30 and December 31 financial statements and otherwise as required.
The chief executive officer and chief financial officer provide the board with certificates in relation to
the financial reports and risk management as recommended by the ASX Corporate Governance Council and as
required by the Corporations Act.
Chairman’s Committee
The chairman’s committee comprises the chairman, Mr. Cloney, a non-executive director, The Hon.
Nick Greiner and the chief executive officer, Mr. O’Halloran. This committee meets from time to time as
required to address such matters as are referred by the board.
Funding Committee
In 2004, we established the funding committee which comprises Mr. Cloney (chairman), The Hon. Nick
Greiner, Ms. Hutchinson, Ms. Lee and Mr. O’Halloran. The purpose of the funding committee includes
reviewing funding strategies and potential funding transactions.
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Investment Committee
The membership of the investment committee comprises four non-executive directors and one executive
director and it normally meets three times a year. The chairman must be a non-executive director who is not the
chairman of the board. The current members of the investment committee are Ms. Hutchinson (chairman),
Mr. Cloney, Mr. Irby, Ms. Lee and Mr. O’Halloran. The meetings also include, by invitation, the group general
manager—investments and the chief financial officer.
The investment committee operates under a written term of reference determined by the board. The role
of the investment committee is to oversee our investment activities. This includes review of:
• investment objectives and strategy;
• investment risk management;
• currency, equity and fixed interest exposure limits;
• credit exposure limits with financial counterparties; and
• group treasury.
The investment committee’s responsibilities include review of economic and investment conditions as
they relate to us, approval of management’s investment strategy and review of investment performance including
our defined benefit superannuation funds.
Remuneration Committee
The membership of the remuneration committee comprises four non-executive directors and it normally
meets four times a year. The chairman must be a non-executive director who is not the chairman of the board.
The current members of the remuneration committee are Mr. Bleasel (chairman), Mr. Cloney, The Hon. Nick
Greiner and Ms. Hudson. Meetings of the remuneration committee also include, by invitation, the chief executive
officer and the group general manager, human resources.
The remuneration committee operates under a written terms of reference determined by the board. The
role of the remuneration committee is to oversee QBE’s general remuneration practices. The remuneration
committee’s responsibilities include:
• approval of the total remuneration cost of the group executives;
• short and long-term incentives, such as equity based plans;
• review of superannuation;
• review of performance measurement criteria and other human resource practices;
• review of personal development plans for the group executives and other senior positions; and
• recommendations on non-executive director remuneration.
The committee considers independent external advice in determining policies and practices that will
attract and retain high quality people.
Compensation of Directors and Executive Officers
Non-executive director remuneration reflects our desire to attract, motivate and retain high quality
directors and to ensure their active participation in affairs for the purposes of corporate governance, regulatory
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compliance and other matters. We aim to provide a level of remuneration for non-executive directors comparable
with our peers, which include multi-national financial institutions. The board seeks the advice of independent
remuneration consultants to ensure that remuneration levels are appropriate.
Remuneration practices for our executive officers vary in each of the markets within which we operate,
and therefore the diversity of individual roles and complexity of each operating environment is considered. The
remuneration committee recognizes that we operate in a competitive environment, where the key to achieving
sustained performance is to generally align executive reward with increasing shareholder wealth.
The guiding principles applied in managing remuneration and reward for executive officers combine:
• linking individual performance objectives to achievement of financial targets and business strategies;
• the achievement of short-term and long-term financial business targets that deliver sustained growth
in value for shareholders (e.g. return on equity, insurance profit, return on capacity for our Lloyd’s
business and investment performance); and
• using market data to set fixed annual remuneration levels.
The remuneration committee seeks the advice of independent remuneration consultants to ensure that
remuneration and reward levels are appropriate and are in line with market conditions in the various markets in
which we operate. The remuneration committee seeks to have remuneration structures in place that encourage the
achievement of a return for shareholders in terms of both dividends and growth in share price.
The Short Term Incentive (“STI”) scheme is a short-term incentive arrangement in the form of an
annual cash bonus, designed to reward both executive officers and the majority of staff. The STI aims to
recognize the contributions and achievements of individuals when business targets relating to the performance of
the business unit, the division or QBE as a whole, as appropriate, are achieved or exceeded.
Executive officers are also eligible to participate in an annual long-term incentive arrangement under the
Long Term Incentive (“LTI”) scheme (to be renamed the Deferred Compensation Plan). The LTI aims to reward
the achievement of excellent results in the financial year, retain key executive officers and increase shareholder
value by motivating executive officers. It provides executive officers with the opportunity to acquire equity in the
form of conditional rights to fully paid shares without payment by the executive, and options to subscribe for
shares at market value at the grant date. For further details, see Note 27 to our A-IFRS financial statements.
The remuneration committee reviews and approves the STI and LTI rules annually, and approves the
quantum of short-term and long-term incentives for executive officers based on the applicable audited results.
The aggregate amount of compensation paid by us to all directors (executive and non-executive) of
QBE as a group during the year ended December 31, 2005 was approximately A$5.7 million.
A wholly-owned subsidiary of QBE has entered into a retirement benefit arrangement with
Mr. O’Halloran, which is in addition to his entitlement under our staff superannuation plan. As Mr. O’Halloran
has remained employed with us beyond May 2004, he will receive a lump sum payment of 150% of his total cash
remuneration on retirement, being his annual cash salary plus the cash incentive bonus, for the financial year
prior to the date of his retirement. As a condition of this arrangement, Mr. O’Halloran has entered into a
non-compete agreement to apply for three years from the date of his retirement.
Under our constitution, the non-executive directors may collectively be paid, as fees for their services, a
fixed sum not exceeding the aggregate maximum sum determined from time to time by the shareholders in
general meeting. Total non-executive directors fees are now authorized to a limit of A$2.2 million per financial
year. The fees paid to non-executive directors during the year ended December 31, 2005 were approximately
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A$1.5 million. Such fees are apportioned among the directors on the basis of duties performed either as board
members or members of various committees. Executive directors are not entitled to receive directors’ fees and
are remunerated through their existing employment arrangements.
Employees are eligible to participate in our Employee Share and Option Plan (“ESOP”). See Note 27 to
our A-IFRS financial statements for further information related to our LTI and our ESOP.
For more information on the compensation of our directors and executive officers, please see the
Directors’ Report included in this Offering Memorandum commencing on page F-2.
External Auditor Independence
We have issued an internal guideline on external auditor independence. Under this guideline, the
external auditor is not allowed to provide the excluded services of preparing accounting records, financial reports
or asset or liability valuations. Furthermore, the external auditor cannot act in a management capacity, as a
custodian of assets or as share registrar. The board believes some non-audit services are appropriate given the
external auditor’s knowledge of our business. We may engage the external auditor for non-audit services subject
to the general principle that fees for non-audit services should not exceed 30% of all fees paid to the external
auditor in any one financial year. External tax services are generally provided by an accounting firm other than
the external auditor.
The external auditor has been our auditor for many years. As a diverse international group, we require
the services of one of a limited number of international accounting firms to act as auditor. It is our practice to
review from time to time the role of the external auditor. The Corporations Act, Australian professional auditing
standards and the external auditor’s own policy deal with rotation and require rotation of the lead engagement
partner after five years. In accordance with such policy, the lead engagement partner of the external auditor
rotated in 2004.
Risk Management
We have in place a global risk management framework that defines the risks that we are in business to
accept and those that we are not, together with the key risks that we need to manage and the framework and high
level controls that are required to manage those risks.
We have established internal controls to manage risk in the key areas of exposure relevant to our
business. The broad risk categories are:
• insurance risk—including underwriting, claims and actuarial risk factors;
• operational risk—including areas such as human resources, valuation of assets, corporate security and
outsourcing, regulatory risks and the adequacy of processes and systems;
• acquisition risks—including due diligence and integration processes; and
• funds management and treasury risk—including operational, cash flow, trading and security risks.
Internal controls and systems are designed to provide reasonable assurance that our assets are
safeguarded, insurance and investment exposures are within desired limits, reinsurance protections are adequate,
counterparties are subject to security assessment and foreign exchange exposures are within predetermined
guidelines. The board has approved a comprehensive risk management strategy (“RMS”) and reinsurance
management strategy (“REMS”) both of which have been lodged with APRA. The RMS deals with all areas of
significant business risk to us. The REMS covers topics such as our risk tolerance and our strategy in respect of
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the selection, approval and monitoring of all reinsurance arrangements. Our reinsurance security committee
assesses reinsurer counterparty security. This management committee normally meets four times a year and holds
special meetings as required.
While the RMS and REMS are approved by the board, we believe that managing risks is the
responsibility of the business units and that all staff need to understand and actively manage risk. The business
units are supported by compliance teams and by our senior management. See Notes 4 and 5 to our A-IFRS
financial statements for a discussion of our risk management policies and procedures.
Code of Conduct
We have adopted a code of conduct. The code of conduct requires that business be carried out in an
open and honest manner with our customers, shareholders, employees, regulatory bodies, outside suppliers,
intermediaries and the community at large. The code also deals with confidentiality, conflict of interest, “whistleblowing”
and related matters. No material waivers have been granted to this code.
Summary Director Compensation Table for Year Ended December 31, 2005
The following table summarizes director compensation for the year ended December 31, 2005:
Director’s
Fees(1)
Superannuation
Retirement
Benefits(2) Total
(A$ in thousands except shares)
Ordinary
shares
Directors
Len Bleasel ................................... 187 17 6 210 43,403 (3)
John Cloney ................................... 494 44 26 564 734,917
Charles Curran(4) .............................. 53 5 5 63 —
The Hon. Nick Greiner .......................... 194 17 20 231 55,505 (5)
Isabel Hudson(6) ............................... 28 3 — 31 —
Belinda Hutchinson ............................. 189 17 13 219 27,446 (7)
Charles Irby ................................... 206 — 5 211 15,000
Irene Lee ..................................... 187 17 4 208 13,956
Frank O’Halloran(8) ............................
(1) Includes fees paid for service on board committees.
(2) Retirement benefits reflect the adjustment to the amounts preserved at December 31, 2003, being an annual
increase equal to the five year Australian government bond rate.
(3) Includes 16,139 ordinary shares of QBE held by Mr. Bleasel’s wife, Mrs. Valerie Anne Bleasel, and 3,264
shares held by Sambop Pty Ltd, a company owned by Mr. Bleasel’s family.
(4) Mr. Curran retired on April 8, 2005.
(5) Includes warrants to purchase 10,000 ordinary shares of QBE which are exercisable on October 10, 2006 at
an exercise price of A$3.74 per share. These are held by Gabane Pty Ltd as Trustee for Hugo Frank Capital
Trust, a company owned by Mr. Greiner’s family.
(6) Ms. Hudson was appointed on November 4, 2005.
(7) Includes 20,126 shares held by Dovose Pty Limited, Ms. Hutchinson’s superannuation trust.
(8) Information for Mr. O’Halloran is provided under “Summary Executive Compensation Table for the Year
Ended December 31, 2005.”
Mr. Charles Curran, a former non-executive director of QBE, is a non-executive chairman of Perpetual
Trustees Australia Ltd. During 2005, we paid A$734,000 for share registry services of a subsidiary of Perpetual
Trustees Australia Ltd. The services were provided on an arms length basis.
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Executive Officers
The following table shows our executive officers:
Name Position Age
Frank O’Halloran ............... Chief executive officer 60
Steven Burns ................... Chief executive officer, European operations 47
Neil Drabsch ................... Chief financial officer 57
Peter Grove .................... Chief underwriting officer, European operations 56
Raymond Jones(1) .............. Group general manager, business development 54
Tim Kenny .................... President and chief executive officer, the Americas 46
Vince McLenaghan .............. Chief executive officer, Australia Pacific Asia Central Europe 47
Duncan Ramsay ................ Group general counsel and company secretary 44
Jenni Smith .................... Group general manager—human resources 44
MarktenHove ................. Group investment manager 48
George Thwaites(2) ............. Chief risk officer 40
Blair Nicholls(3) ................ Group chief actuarial officer 38
(1) Raymond Jones will retire on October 31, 2006.
(2) Mr. George Thwaites, who served as our Group general manager corporate, succeeded Ms. Gayle Tollifson
as chief risk officer in April 2006. Ms. Tollifson has retired.
(3) Blair Nicholls was appointed to this role in May 2006.
Steven Burns. Mr. Burns is currently chief executive officer of QBE European operations. He is a
chartered accountant and was finance director of the Janson Green managing agency at Lloyd’s from 1987, prior
to being acquired by Limit in 1998. Mr. Burns became CEO of the Limit Group in August 2000. In September
2004 he was appointed CEO of European operations as part of the restructure of our European company
operations and Lloyd’s division.
Neil Drabsch. Mr. Drabsch was appointed chief financial officer of QBE Insurance Group in 1994
and acts as deputy company secretary of QBE insurance Group Limited. He joined QBE in 1991 and was the
Group company secretary from 1992 to 2001. Mr. Drabsch has over 39 years experience in insurance and
reinsurance management, finance and accounting, including 24 years as a practicing chartered accountant.
Peter Grove. Mr. Grove is currently chief underwriting officer for QBE European operations and the
reinsurance adviser to our chief executive officer. He joined QBE in 2000 as a result of the acquisition of Limit
and was formerly underwriting director at Bankside managing agency from 1996, prior to it being acquired by
Limit in 1998. Mr. Grove has 39 years experience in the London market and has been a lead underwriter of
reinsurance and retrocession business at Lloyd’s for 23 years.
Raymond Jones. Mr. Jones is currently Group general manager, business development. He joined
QBE as managing director of Australian operations in 1994 after several years in Asia as a regional vice
president for the American International Group. He was previously general manager at Citicorp Insurance and
has 19 years experience in the general insurance market.
Tim Kenny. Mr. Kenny is currently president and chief executive officer of QBE the Americas. He
has over 23 years experience in the insurance industry including 16 years with QBE during which he has served
as senior vice president, chief financial officer and treasurer in the Americas.
Vince McLenaghan. Mr. McLenaghan is currently chief executive officer of APACE.
Mr. McLenaghan has been in the insurance industry for 29 years. During his 23 years with QBE, he has served in
a number of general management roles, including as managing director within our Asia-Pacific operations prior
to assuming his current role in 2005.
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Duncan Ramsay. Mr. Ramsay joined QBE as general counsel in 1993. Since May 2001, he has acted
as general counsel and Group company secretary. Prior to joining QBE Mr. Ramsay spent seven years working
for Freehills, an Australian law firm, in the general commercial and litigation areas.
Jenni Smith. Ms. Smith joined QBE in 2003 and is currently the Group general manger, human
resources. She was formerly general manager HR, international at Telstra Corporation Ltd., based in Sydney with
specific Asia-Pacific responsibilities. Before relocating to Australia in 1999, Ms. Smith had extensive business
and human resources experience in London in the advertising and television industries.
Mark ten Hove. Mr. ten Hove joined QBE in 1999 as Group investment manager, having previously
been chief investment officer at OCBC Asset Management Limited in Singapore. He has over 20 years
experience in funds management including previous roles with Bankers Trust in Hong Kong and Singapore and
Thornton Investment Management (Dresdner Bank Group) in Hong Kong.
George Thwaites. Mr. Thwaites is currently the Group chief risk officer. He joined QBE in December
1999 as financial controller for Asia-Pacific operations and subsequently became the chief finance officer for the
PACE division and then the Group general manager, corporate. Mr. Thwaites is a Chartered Accountant with
over 15 years accounting experience including 10 years experience in the insurance and reinsurance industry.
Blair Nicholls. Mr. Nicholls is currently the Group chief actuarial officer. He joined QBE in 1994
having previously worked in consulting for Trowbridge Deloittes. His previous roles in QBE include Group
actuary and chief actuarial officer, QBE European operations. Mr. Nicholls is a Fellow of the Institute of
Actuaries with over 15 years actuarial experience.
Summary Executive Compensation Table for the Year Ended December 31, 2005
The following table summarizes compensation for Mr. O’Halloran (our executive director) and certain
of our executive officers:
Primary Benefits
Base
Salary Other(3) STI(5)
Post
Employment
Benefits
Super-
Annuation
LTI/ Equity
Compensation(2)
Conditional
Rights Options
Termination
Benefits
(A$ in thousands)
Frank O’Halloran ......... 1,115 203 1,816 167 496 201 — 3,998
Specified executives
Steven Burns(1) .......... 1,074 253 1,914 45 594 350 — 4,230
Neil Drabsch ............. 668 93 967 98 300 261 — 2,387
Paul Glen(1)(4) ........... — — — — — — 317 317
Peter Grove(1) ........... 907 973 2,512 272 530 295 — 5,489
Raymond Jones ........... 530 125 720 85 294 175 — 1,929
Tim Kenny(1) ............ 971 1,151 1,291 35 460 289 — 4,197
Vince McLenaghan ........ 590 92 750 88 193 104 — 1,817
MarktenHove ........... 697 154 897 137 117 53 — 2,055
Gayle Tollifson(6) ........ 479 23 517 71 157 111 — 1,358
Total specified
executives ......... 5,916 2,864 9,568 831 2,645 1,638 317 23,779
(1) Mr. Kenny is located in New York and Messrs Burns and Grove are located in London. Their remuneration
has been converted to Australian dollars using the cumulative average rates of exchange for the year.
(2) The fair value at grant date of options and conditional rights is calculated using a binomial model. The fair
value of each option and conditional right is earned evenly over the period between grant and vesting.
Details of grants of conditional rights and options are provided in Note 28 to our A-IFRS financial
statements.
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Total

(3) “Other” includes the deemed value of the provision of motor vehicles, long service leave, health insurance,
life insurance and personal accident insurance and the applicable taxes thereon. Directors’ and officers’
liability insurance has not been included in other remuneration since it is not possible to determine an
appropriate allocation basis.
(4) Mr. Glen’s employment was terminated through redundancy on 30 September 2004. During 2005, Mr. Glen
became entitled to a further allocation of conditional rights to ordinary shares in QBE on the fulfillment of
certain conditions in his redundancy arrangements.
(5) STI is the accrued entitlement for the financial year.
(6) Ms. Tollifson retired in April 2006.
The aggregate amount of compensation paid by us during the year ended December 31, 2005 to all
executive officers of QBE as a group, excluding the chief executive officer, was approximately A$23.8 million.
As of December 31, 2005 our executive officers held approximately 2.6 million options to acquire
approximately 2.6 million of our ordinary shares at various times and prices.
For further information relating to executive compensation, see Notes 27 and 28 to our A-IFRS financial
statements.
151

OUR PRINCIPAL SHAREHOLDERS
The following table sets forth information concerning the beneficial ownership of our ordinary shares
known to us as of June 30, 2006 by the following persons or entities:
• beneficial owners of 5% or more of our outstanding ordinary shares; and
• all members of our board and our executive officers, as a group.
The applicable percentage of ownership for each holder of ordinary shares is based on 803,730,446 total
issued ordinary shares of QBE as of June 30, 2006. Beneficial ownership is determined in accordance with the
rules of the SEC and generally includes voting or investment power with respect to securities. Ordinary shares of
QBE subject to options, warrants and convertible notes currently exercisable or convertible, or exercisable or
convertible within 60 days of the date of this Offering Memorandum, are deemed outstanding for computing the
percentage of the person holding the options but are not deemed outstanding for computing the percentage of any
other person. The individuals named in the table have sole voting and investment power with respect to all
ordinary shares of QBE shown as beneficially owned by them.
Name
Number of
Shares
Percentage of
Ownership
The Capital Group Companies, Inc ........................................ 55,447,381 6.90
UBS Nominees Pty Ltd ................................................. 64,790,756 8.06
AXA Asia Pacific Holdings Limited ....................................... 51,242,490 6.38
Executive officers and directors (17 persons) as a group ........................ 3,374,956 0.42
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DESCRIPTION OF THE CAPITAL SECURITIES
The Capital Securities will be issued pursuant to the terms of the Limited Partnership Agreement, to be
dated as of the Closing Date (the “Limited Partnership Agreement”), among the General Partner and the limited
partners named therein. The following summarizes some, but not all, of the material provisions of the Capital
Securities and the Limited Partnership Agreement. The following summary does not purport to be complete and
is subject to, and qualified by reference to, all of the provisions of the Limited Partnership Agreement.
An agency agreement, to be dated as of the Closing Date (the “Agency Agreement”), will be entered
into in relation to the Capital Securities among QBE, the General Partner, on behalf of the Issuer, Citibank, N.A.,
as the paying and transfer agent (the “Paying and Transfer Agent”), the exchange agent (the “Exchange Agent”),
and the registrar (the “Registrar”) and Citibank International PLC, as Irish paying agent (the “Irish Paying
Agent” and, together with the Paying and Transfer Agent, the “Paying Agents”). The foregoing terms shall
include any successors appointed from time to time in accordance with the provisions of the Agency Agreement,
and any reference to “Agent” or “Agents” shall mean any or all (as applicable) of those persons.
The General Partner, on behalf of the Issuer, will also enter into a calculation agency agreement, to be
dated as of the Closing Date (the “Calculation Agreement”), among QBE, the General Partner, on behalf of the
Issuer, QBE UK and Citibank, N.A., as calculation agent (the “Calculation Agent”).
The holders of the Capital Securities are bound by, and are deemed to have notice of, the provisions of
the Agency Agreement. Copies of those agreements are available for inspection during usual business hours at
the principal offices of each of the Agents.
General
The Capital Securities, together with the Capital Securities Guarantee and the UK Capital Securities, are
intended to provide holders of the Capital Securities with rights on liquidation equivalent to non-cumulative
preference shares of QBE, whether or not issued. Claims against the Issuer under the Capital Securities with
respect to any distributions or redemption amounts that are payable in accordance with the terms of the Capital
Securities will rank senior to any claims against the Issuer by the General Partner.
The Capital Securities will be limited to £300,000,000, each with a liquidation preference of £50,000.
The Capital Securities will be issued in fully registered form without coupons.
Payments by the Issuer of distributions on the Capital Securities and upon a redemption of the Capital
Securities or liquidation of the Issuer are guaranteed by QBE to the extent described under “Description of the
Capital Securities Guarantee Agreement.”
On or about the Closing Date,
• Capital Securities initially offered and sold outside the United States pursuant to Regulation S
(“Regulation S Capital Securities”) will be represented by beneficial interests in one or more global
certificates (“Regulation S Global Certificates”) registered in the name of Citivic Nominees Limited
(“Citivic”) as nominee for, and deposited with Citibank N.A. as common depositary for Euroclear and
Clearstream, Luxembourg (the “Common Depositary”), and
• Capital Securities initially offered and sold in the United States to qualified institutional buyers
pursuant to Rule 144A (“Rule 144A Capital Securities”) will be represented by beneficial interests in
one or more global certificates (“Rule 144A Global Certificates” and, together with the Regulation S
Global Certificates, the “Global Certificates”) registered in the name of Cede & Co., as nominee for,
and deposited with Citibank, N.A., as custodian for DTC.
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Subject to applicable law and the Limited Partnership Agreement, the General Partner, the Issuer, QBE
and the Agents will treat the persons in whose names the Global Certificates are registered, initially Citivic and
Cede & Co. (collectively, the “holders”), as the owners of the Capital Securities for all purposes. Beneficial
interests in the Global Certificates will be shown on, and transfers thereof will be effected only through, records
maintained by DTC, Euroclear and Clearstream, Luxembourg (collectively, the “clearing systems”) and their
respective participants.
Definitive certificates will not be issued in exchange for beneficial interests in the Global Certificates
unless DTC, Euroclear or Clearstream, Luxembourg notifies the General Partner that it is unwilling or unable to
continue as a clearing system in connection with a Global Certificate or, in the case of DTC only, DTC ceases to
be a clearing agency registered under the US Securities Exchange Act of 1934, as amended, and in each case, the
General Partner does not appoint a successor clearing system within 90 days after receiving such a notice from
the applicable clearing system or, in the case of DTC only, becoming aware that DTC is no longer so registered.
In any such case, the General Partner will cause the Issuer to issue definitive certificates in exchange for such a
Global Certificate. If definitive certificates representing Capital Securities are issued, holders of those certificates
will be able to receive payment and effect transfers and exchanges at the offices of the Paying Agents.
A holder of Rule 144A Capital Securities will receive all payments under the Rule 144A Capital
Securities in US dollars, unless such holder makes an election, as described herein, for payment in pounds
sterling. The amount payable in United States dollars will be equal to the amount of United States dollars
exchanged for pounds sterling received by the Exchange Agent. See “—Currency Conversion for Rule 144A
Capital Securities.”
All Capital Securities initially sold pursuant to Rule 144A will be “restricted securities.” Upon the
transfer, exchange or replacement of restricted securities bearing the legend referred to under “Notice to
Investors,” or upon specific request for removal of that legend on a Capital Security, the Registrar will deliver
only Capital Securities that bear that legend, or will refuse to remove that legend, as the case may be, unless there
is delivered to the Registrar satisfactory evidence, which may include an opinion of counsel, as may reasonably
be required by the Registrar that neither the legend nor the restrictions on transfer set forth therein are required to
ensure compliance with the provisions of the Securities Act.
See “—Registration of Transfer and Exchange” and “Notice to Investors.”
No service charge will be made for any registration of transfer or exchange of Capital Securities.
However, the Issuer may require the holder to pay any tax, assessment or other governmental charge payable as a
result of that transfer or exchange.
Distributions
The Capital Securities will entitle holders to receive, subject to certain conditions described herein,
non-cumulative preferential cash distributions.
Subject to certain conditions described herein, including under “Limitations on Payments with respect to
Distributions” below, distributions on the Capital Securities will be payable on each Capital Security at a fixed
rate per annum (the “Fixed Distribution Rate”) of 6.857 per cent. of the liquidation preference of £50,000 from
and including the Closing Date to but excluding July 18, 2016 (the “Step Up Date”) and thereafter at a floating
rate per annum (the “Floating Distribution Rate”) equal to the sum of 2.86 per cent. and LIBOR of the liquidation
preference. The distributions payable on the Capital Securities for any Distribution Period will be computed on
the basis of a 365 or 366 day year, as the case may be, and the actual number of days in the Distribution Period.
Distributions will, if payable, be paid at the Fixed Distribution Rate semi-annually in arrear on January
18 and July 18 of each year to and including the Step Up Date, commencing January 18, 2007 (each, a “Fixed
Rate Distribution Payment Date”). If any Fixed Rate Distribution Payment Date falls on a day that is not a
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Business Day, the distribution otherwise payable on that Fixed Rate Distribution Payment Date will be payable
on the next succeeding day that is a Business Day, without adjustment of the amount of that distribution for
interest or any other payment with respect to that delay, with the same force and effect as if made on that Fixed
Rate Distribution Payment Date.
Distributions will, if payable, be paid at the Floating Distribution Rate quarterly in arrear on
January 18, April 18, July 18 and October 18 of each year, from and including October 18, 2016 (each a
“Floating Rate Distribution Payment Date,” provided that, if any Floating Rate Distribution Payment Date would
otherwise fall on a day that is not a Business Day, that Floating Rate Distribution Payment Date will be the next
succeeding day that is a Business Day, unless it would fall into the next calendar month, in which case it will be
the next preceding day that is a Business Day).
The Fixed Rate Distribution Payment Dates and the Floating Rate Distribution Payment Dates are
referred to herein collectively as “Distribution Payment Dates.” The period from and including the Closing Date
to but excluding the first Distribution Payment Date and each period thereafter from and including a Distribution
Payment Date to but excluding the next following Distribution Payment Date is referred to herein as a
“Distribution Period.”
Distributions on the Capital Securities are not cumulative. If and to the extent the Issuer does not pay a
distribution in full on or within twenty (20) Business Days after any Distribution Payment Date as a result of the
conditions described herein, including those described below under “Limitations on Payments with respect to
Distributions,” unless QBE pays the distribution under the Capital Securities Guarantee Agreement, you will not
receive that distribution and will have no claim to that distribution in the future, whether or not the Issuer
subsequently pays distributions or has funds to pay subsequent distributions or QBE, as guarantor, subsequently
pays distributions.
The Calculation Agent will calculate LIBOR as of the Determination Date with respect to each
Distribution Period after the Step Up Date as the rate (expressed as a percentage per year) for deposits in pounds
sterling for a three-month period beginning on the Determination Date that appears on Moneyline Telerate Page
3750 as of 11:00 A.M., London time, on the Determination Date. If Moneyline Telerate Page 3750 does not
include this rate or is unavailable on the Determination Date, the Calculation Agent will request the principal
London office of each of four major banks in the London interbank market, as selected by the Calculation Agent,
to provide that bank’s offered quotation (expressed as a percentage per year) as of approximately 11:00 A.M.,
London time, on the Determination Date to prime banks in the London interbank market for deposits in a
representative amount in pounds sterling for a three-month period beginning on the Determination Date. If at
least two offered quotations are so provided, LIBOR for that Distribution Period will be the arithmetic mean of
those quotations. If fewer than two quotations are so provided, the Calculation Agent will request each of three
major banks in London, as selected by the Calculation Agent, to provide that bank’s rate (expressed as a
percentage per year), as of approximately 11:00 A.M., London time, on the Determination Date for loans in a
representative amount in pounds sterling to leading European banks for a three-month period beginning on the
Determination Date. If at least two rates are so provided, LIBOR for that Distribution Period will be the
arithmetic mean of those rates. If fewer than two rates are so provided, then LIBOR for that Distribution Period
will be LIBOR in effect with respect to the immediately preceding Distribution Period or, in the case of the first
Distribution Period after the Step Up Date, 6.857 per cent. per year.
“Determination Date” means the first day of the relevant Distribution Period.
“Moneyline Telerate Page 3750” means the display designated as “Page 3750” on Moneyline Telerate
(or such other page as may replace Page 3750 on that service).
All calculations of the Calculation Agent, in the absence of manifest error, will be conclusive for all
purposes and binding on the Issuer, the holders of the Capital Securities, the General Partner and QBE. In no
155

event will the rate of distributions on the Capital Securities be higher than the maximum rate permitted by New
York law, as the same may be modified by United States law of general application. The Calculation Agent will,
upon the request of any holder of the Capital Securities, provide the rate of distributions then in effect.
The Calculation Agent may resign or be terminated upon 30 days’ prior written notice to the Issuer, in
the case of resignation, or to the Calculation Agent in the case of termination. Upon the occurrence of either of
such events, the Issuer will promptly appoint a successor Calculation Agent.
The Issuer will pay distributions on the Capital Securities to the holders thereof as they appear on the
books and records of the Issuer at the close of business on the date, whether or not a Business Day, immediately
preceding the relevant Distribution Payment Date. Subject to any applicable laws and regulations and the
provisions of the Limited Partnership Agreement, the General Partner, on behalf of the Issuer, will make each
payment as described under “—The Depository Trust Company” and “—Euroclear and Clearstream,
Luxembourg.”
The Issuer will only be able to make distributions on the Capital Securities to the extent that it has funds
available for the payment of the distributions. Amounts available to the Issuer for distribution to the holders of
the Capital Securities will be limited to payments the Issuer receives from QBE UK with respect to the UK
Capital Securities. If the Issuer does not have sufficient funds available for the payment of distributions, QBE is
not obligated to make payments under the Capital Securities Guarantee Agreement except as described under
“Description of the Capital Securities Guarantee Agreement.”
Limitations on Payments with respect to Distributions
Prior to the occurrence of the Exchange Event, distributions on the Capital Securities will be payable
only to the extent of the Issuer’s available funds and, after the occurrence of the Exchange Event, distributions on
the Capital Securities (if the Capital Securities remain outstanding) will be payable whether or not the Issuer has
available funds, provided that, if the Exchange Event is the failure of the Issuer to pay a distribution in full on or
within twenty (20) Business Days after a Distribution Payment Date, the only reason for such failure is the
failure of QBE UK to pay interest in full on the UK Capital Securities on the corresponding Interest Payment
Date and no QBE Australia Stopper or APRA Condition exists with respect to that distribution, that distribution
will be due and payable on the twenty-first (21st) Business Day after such Distribution Payment Date to the
record holder of the Capital Securities at the close of business on the day prior to such Distribution Payment
Date, whether or not the Issuer has available funds.
Notwithstanding whether or not the Issuer has funds available for distribution by the General Partner on
its behalf, no distribution (including Additional Amounts) will be due and payable by the Issuer to the holders of
the Capital Securities and QBE will not be required to make any payment with respect to that distribution
(including any Additional Amounts) under the Capital Securities Guarantee Agreement if and so long as a QBE
Australia Stopper or an APRA Condition with respect to that distribution exists.
If, on any Distribution Payment Date, the distribution is not paid in full on the Capital Securities as a
result of a QBE Australia Stopper or an APRA Condition with respect to that distribution then existing, but QBE
(in the case of a QBE Australia Stopper) or APRA (in the case of an APRA Condition) allows payment of part of
that distribution, the Relevant Proportion of that distribution will be payable pro rata to the holders of the Capital
Securities. No holders of Capital Securities, however, will have any claim with respect to any distribution or part
thereof not payable as a result of the limitations described above. In the event that any distribution is not to be
paid in full, the General Partner will notify or procure notification to the Agents and the holders of the Capital
Securities of the amount, if any, to be paid with respect to that distribution.
“Relevant Proportion” means (i) in relation to any partial payment of a distribution on the Capital
Securities due to a QBE Australia Stopper, the fraction specified in the QBE Australia Stopper, (ii) in relation to
any partial payment of a distribution due to an APRA Condition, a fraction of which the numerator is an amount
156

set at the absolute discretion of APRA being no more than Distributable Profits as of the relevant Distribution
Payment Date and the denominator is the sum of (a) the amount originally scheduled to be paid on the Capital
Securities on that Distribution Payment Date and (b) the aggregate of distributions or dividends originally
scheduled (also disregarding for that purpose possible movements in interest rates or any other fluctuating
benchmark used in calculating that distribution or dividend) to be paid to holders of Parity Securities during the
relevant Distribution Period, converted where necessary into pounds sterling and (iii) in relation to any partial
payment of any liquidation distribution on the Capital Securities due to an APRA Condition, the total amount
available for that payment and for making any corresponding payment of a liquidation distribution on any Parity
Securities divided by the sum of (x) the full liquidation distributions before any reduction or abatement with
respect to the Capital Securities and (y) the amount of the full liquidation distributions before any reduction or
abatement with respect to any Parity Securities, converted where necessary into the same currency in which
liquidation payments are made to creditors of QBE.
Notwithstanding any other provision of the Capital Securities, accrued distributions will not be payable
under the Capital Securities to the extent that and so long as such payment would be prohibited by any
indebtedness of or instrument issued by the Issuer.
Redemption
The Capital Securities will be perpetual securities and will not have a fixed final redemption date.
Holders of the Capital Securities will have no right to call for their redemption.
The General Partner, on behalf of the Issuer, may, subject to the prior written approval of APRA, if
required, redeem the Capital Securities
• in whole or in part, on the Step Up Date or on any Distribution Payment Date thereafter or
• prior to the Step Up Date, in whole but not in part, on any Business Day following the occurrence and
during the continuance of an Investment Company Event, a Capital Securities Regulatory Event or a
Capital Securities Tax Event,
provided, however, that the right of the Issuer to redeem the Capital Securities due to an Investment Company
Event, a Capital Securities Regulatory Event or a Capital Securities Tax Event is subject to the condition that, if
at the time there is available to QBE, QBE UK, the General Partner or the Issuer, as applicable, the opportunity
to eliminate, within 90 days of the occurrence of that event by taking some ministerial action, such as filing a
form or making an election, or pursuing some other similar reasonable measure that in the absolute discretion of
QBE has or will cause no adverse effect on QBE, any of QBE’s subsidiaries or affiliates, the Issuer or the holders
of the Capital Securities and will involve no material cost, QBE will pursue or will cause QBE UK, the General
Partner or the Issuer to pursue that measure in lieu of redemption. The Issuer may not redeem any of the Capital
Securities prior to the expiration of the earlier of (i) 90 days from the date of the Investment Company Event, the
Capital Securities Regulatory Event or the Capital Securities Tax Event and (ii) the date that QBE determines in
its absolute discretion that not redeeming the Capital Securities has or will cause an adverse effect on QBE, any
of QBE’s subsidiaries or affiliates, the Issuer or the holders of the Capital Securities or will involve material cost.
In addition, upon the occurrence of an Acquisition Event, the General Partner, on behalf of the Issuer,
will, subject to the prior written approval of APRA, if required, redeem the Capital Securities in whole on any
Business Day at least five (5) but not more than twenty (20) Business Days after the occurrence of the
Acquisition Event. Upon the occurrence of an Acquisition Event prior to the occurrence of the Exchange Event,
QBE must notify holders of the Capital Securities of the occurrence thereof as soon as practicable after becoming
aware that an Acquisition Event has occurred.
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In the case of a redemption on or after the Step Up Date or, prior to the Step Up Date, redemption due to
the occurrence of a Capital Securities Tax Event, holders of the Capital Securities will receive the Par
Redemption Price. In the case of a redemption prior to the Step Up Date upon an Acquisition Event, an
Investment Company Event or an Capital Securities Regulatory Event, holders of the Capital Securities will
receive the Make Whole Redemption Price.
Prior to the occurrence of the Exchange Event, redemption payments on the Capital Securities will be
payable only to the extent of the Issuer’s available funds. After the occurrence of the Exchange Event,
redemption payments on the Capital Securities (if the Capital Securities remain outstanding) will be payable
whether or not the Issuer has available funds.
The payment of the applicable redemption price to the holders of the Capital Securities upon a
redemption of the UK Capital Securities is guaranteed to the extent described under “Description of the Capital
Securities Guarantee Agreement.”
The “Par Redemption Price,” with respect to each Capital Security called for redemption, means an
amount equal to the sum of:
• the liquidation preference of £50,000;
• any accrued but unpaid distributions for the then current Distribution Period to but excluding the
redemption date and, if the redemption date is on or within twenty (20) Business Days following a
Distribution Payment Date, any accrued but unpaid distributions for the immediately preceding
Distribution Period; and
• any Additional Amounts on the above.
The “Make Whole Redemption Price,” with respect to each Capital Security called for redemption,
means an amount equal to the sum of:
• the greater of (i) £50,000 and (ii) the price, expressed as a percentage (rounded to four decimal
places, 0.00005 being rounded upwards), of the liquidation preference of the Capital Security, at
which the Gross Redemption Yield on the Capital Securities on the Reference Date (assuming for this
purpose that the Capital Securities are to be redeemed at their liquidation preference on the Step Up
Date) is equal to the Gross Redemption Yield (determined by reference to the middle market price) at
3:00 p.m., London time, on the Reference Date of the Benchmark Gilt plus 0.75 per cent.;
• any accrued but unpaid distributions for the then current Distribution Period to but excluding the
redemption date;
• if the redemption date is on or within twenty (20) Business Days following a Distribution Payment
Date, any accrued but unpaid distributions for the immediately preceding Distribution Period; and
• any Additional Amounts on the above.
For purposes of the foregoing definition:
• “Benchmark Gilt” means, in relation to any determination of the Make Whole Redemption Price, the
4 per cent. Treasury Stock due September, 2016 or, if such stock is no longer in issue, such other
United Kingdom government security having a maturity date as near as possible to the Step Up Date
as the Calculation Agent, with the advice of the Reference Market Makers, may determine to be
appropriate;
• “Gross Redemption Yield” means, with respect to a security, the gross redemption yield on such
security, as calculated by the Calculation Agent on the basis set out by the United Kingdom Debt
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Management Office in the paper “Formulae for Calculating Gilt Prices from Yields,” page 4, Section
One: Price/Yield Formulae “Conventional Gilts (Double dated and Undated Gilts with Assumed (or
Actual) Redemption on a Quasi Coupon Date”) published June 8, 1998, as amended or updated from
time to time) on a semi-annual compounding basis (converted to an annualized yield and rounded up,
if necessary, to four decimal places);
• “Reference Date” means the third Business Day prior to the applicable redemption date for the
Capital Securities; and
• “Reference Market Makers” means three brokers of gilts and/or gilt edged market makers selected by
the Calculation Agent in consultation with the General Partner, on behalf of the Issuer, and QBE, as
guarantor.
Redemption Procedures
If redemption of the Capital Securities occurs and:
(i) there is a simultaneous redemption of the UK Capital Securities, then the proceeds from redemption
of the UK Capital Securities will be used to redeem the Capital Securities; or
(ii) there is not a simultaneous redemption of the UK Capital Securities, then the Issuer, pursuant to the
Exchange Agreement, will assign the UK Capital Securities to QBE for an amount equal to the redemption price
payable by the Issuer to the holders of the Capital Securities called for redemption and such proceeds will be
used to redeem the Capital Securities.
The General Partner must give holders of the Capital Securities not less than 30 and not more than 60
days’ notice of any redemption. The General Partner must mail the notice by first-class mail to the registered
address of the holders of the Capital Securities. Each notice of redemption of Capital Securities must state (i) the
redemption date, (ii) if less than all outstanding Capital Securities are subject to redemption, the identification of
the Capital Securities subject to redemption, (iii) that, as from the redemption date, distributions will cease to be
calculated and payable and the only rights holders of Capital Securities will have will be to obtain the applicable
redemption price payable in accordance with the Limited Partnership Agreement, (iv) the place or places where
the certificates, if any, for the Capital Securities may be submitted and (v) any other information required by any
stock exchange or quotation system where the Capital Securities are then listed or quoted or otherwise required
by applicable law.
If the General Partner gives a notice of redemption with respect to the Capital Securities, which notice
will be irrevocable, and if QBE UK or QBE, as the case may be, has paid to the Issuer a sufficient amount of
cash in connection with the redemption of the UK Capital Securities by QBE UK or the assignment of the UK
Capital Securities to QBE, then, by 12:00 noon, London time, on the redemption date, the General Partner will
irrevocably deposit with DTC, Euroclear and Clearstream, Luxembourg cash sufficient to pay the amount
payable on redemption of the Capital Securities to be redeemed and will give DTC, Euroclear and Clearstream,
Luxembourg irrevocable instructions and authority to pay the redemption amount to holders of the Capital
Securities to be redeemed. See “—The Depository Trust Company” and “—Euroclear and Clearstream,
Luxembourg.”
If fewer than all of the outstanding Capital Securities are redeemed, the Capital Securities will be
redeemed on a proportionate basis in accordance with the procedures of DTC, Euroclear and Clearstream,
Luxembourg or any successor depository. In the case of a partial redemption, the number of Capital Securities
remaining after the redemption must be not less than the minimum number of securities required to maintain any
listing or quotation of the Capital Securities on any stock exchange on which they are listed or any quotation
system on which they are quoted immediately prior to the partial redemption.
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If the General Partner has given notice of redemption and has deposited cash as required, then
immediately prior to the close of business on the day preceding the redemption date, distributions will cease to
accrue on the Capital Securities redeemed and all rights of holders of any Capital Securities called for
redemption will cease, except the right of the holders of those Capital Securities to receive the applicable
redemption price, and those Capital Securities will cease to be outstanding. If any date fixed for redemption of
the Capital Securities is not a Business Day, then the General Partner will pay the amount payable on the next
succeeding day that is a Business Day, without any interest or other payment with respect to the amount payable.
If either the General Partner or QBE, as guarantor under the Capital Securities Guarantee Agreement,
improperly withholds or refuses payment of the applicable redemption price with respect to a redemption of the
Capital Securities, interest at the annual rate in effect for the current Distribution Period, or if the date fixed for
redemption is a Distribution Payment Date, the immediately preceding Distribution Period, will accrue on the
applicable redemption price from the date on which the redemption was due to the date of payment.
Subject to the foregoing and applicable law, including, without limitation, United States federal
securities laws, and APRA’s prior approval, if required, QBE or its subsidiaries may at any time and from time to
time after the Closing Date purchase outstanding Capital Securities by tender, in the open market or by private
agreement.
Additional Amounts
All payments with respect to the Capital Securities will be made without withholding or deduction for or
on account of any Relevant Tax of whatever nature imposed or levied by or on behalf of any Relevant
Jurisdiction unless the withholding or deduction for on account of that Relevant Tax is required by law. In that
event, the Issuer will pay, as a distribution, additional amounts (“Additional Amounts”) as may be necessary in
order that the net amounts received by the holders of the Capital Securities after that withholding or deduction
will equal the amount which would have been received with respect to the Capital Securities in the absence of
that withholding or deduction, except that no Additional Amount will be payable to a holder of the Capital
Securities (or a third party on its behalf) with respect to any Capital Securities to the extent that the Relevant Tax
is imposed or levied by virtue of that holder (or the beneficial owner of those Capital Securities):
• having some connection with the Relevant Jurisdiction, other than being a holder (or beneficial
owner) of those Capital Securities;
• not having made a declaration of non-residence in, or other lack of connection with, the Relevant
Jurisdiction or any similar claim for exemption, if the General Partner or its agent has provided the
beneficial owner of those Capital Securities or its nominee with at least 60 days’ prior written notice
of any opportunity to make that declaration or claim;
• presenting a Capital Security for payment (whenever presentation is required) more than 30 days after
the date on which that payment first becomes due;
• presenting a Capital Security for payment (whenever presentation is required) to a paying agent in a
Member State of the European Union where that holder would have been able to avoid that
withholding or deduction by presenting that Capital Security to another paying agent in a Member
State of the European Union; or
• being subject to a withholding or deduction made pursuant to, or in relation to, European Council
Directive 2003/48/EC or any other Directive on implementing the conclusions of the ECOFIN
Council meeting of 26-27 November 2000 on the taxation of savings income or any law
implementing or complying with, or introduced in order to conform to, or in relation to, that
Directive.
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See “Description of the Capital Securities Guarantee Agreement—Additional Amounts,” “Description
of the UK Capital Securities—Additional Amounts” and “Description of the QBE Preferred Securities—
Additional Amounts.”
Exchange Event
Pursuant to the terms of the Exchange Agreement, upon the occurrence of the Exchange Event, the
holders of the Capital Securities will receive one QBE Preferred Security for each Capital Security, unless QBE
is prohibited by applicable statute, governmental rule or regulation or court or administrative ruling, order or
decree from issuing the QBE Preferred Securities. The holders of the Capital Securities will be deemed to
consent to, and be bound by, the terms of the Exchange Agreement and the terms of the QBE Preferred
Securities.
The “Exchange Event” will be the earliest occurrence of any of the following dates or events:
• one Business Day prior to any redemption of the UK Capital Securities, unless Capital Securities with
a liquidation preference equal to the principal amount of the UK Capital Securities so redeemed are
redeemed at the same time;
• any date selected by QBE in its absolute discretion;
• the Issuer fails and QBE, as guarantor under the Capital Securities Guarantee Agreement, fails to pay
in full a distribution on the Capital Securities on or within twenty (20) Business Days after a
Distribution Payment Date;
• the Issuer fails and QBE, as guarantor under the Capital Securities Guarantee Agreement, fails to pay
in full the applicable redemption price on any Capital Securities as to which notice of redemption
shall have been given on or within twenty (20) Business Days after the redemption date;
• any of the following events, unless APRA otherwise agrees:
• the determination by APRA in writing that the QBE Group does not comply with APRA’s then
existing capital adequacy requirements as they apply to the QBE Group at that time;
• the issuance by APRA of a written direction to QBE under Section 36 of the Australian Insurance
Act for it to increase its capital;
• the revocation by APRA of the authorization of QBE pursuant to subsection 15(1) of the Australian
Insurance Act;
• the appointment by APRA of a statutory manager to QBE or the assumption by APRA of control of
QBE or the commencement of proceedings for the winding-up of QBE; and
• the retained earnings of the QBE Group having fallen below zero;
• the liquidation, dissolution or winding-up of the Issuer in accordance with the terms of the Limited
Partnership Agreement; and
• the bankruptcy, insolvency, receivership, administration, winding-up or reorganization of QBE (other
than with respect to a solvent reconstruction in relation to forming a holding company).
If the Exchange Event is the appointment by APRA of a statutory manager or the assumption of control
of QBE by APRA, or QBE is otherwise prohibited by applicable law, governmental rule or regulation or court or
administrative ruling, order or decree from allotting and issuing the QBE Preferred Securities, QBE will only be
obligated under the Exchange Agreement to issue the QBE Preferred Securities if and when QBE ceases to be
under the control of a statutory manager, under the control of APRA or is otherwise not prohibited by law from
allotting and issuing the QBE Preferred Securities.
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If and so long as QBE fails to deliver QBE Preferred Securities in exchange for Capital Securities upon
the occurrence of the Exchange Event, whether or not because QBE is unable under applicable law to issue the
QBE Preferred Securities, the holders of Capital Securities will continue to hold the Capital Securities and the
distribution, redemption and other provisions of the Capital Securities will remain in force and effect. For a
description of some of the circumstances under which applicable law may prevent QBE from issuing the QBE
Preferred Securities, see “Description of the QBE Preferred Securities—Limitations on Issuance.”
Except as described above, upon the occurrence of the Exchange Event, the following events will occur
as provided in the Exchange Agreement:
• QBE will issue one fully paid QBE Preferred Security for each outstanding Capital Security to the
holders of the Capital Securities;
• in consideration of the issue of the QBE Preferred Securities:
• the Capital Securities will be cancelled and the holders of the Capital Securities will cede their
partnership interests in the Issuer; and
• if the UK Capital Securities are not redeemed by QBE UK at the time of the Exchange Event, the
General Partner (being entitled to the residual assets of the Issuer under the Limited Partnership
Agreement) will assign the UK Capital Securities to QBE in consideration of QBE issuing the QBE
Preferred Securities to holders of the Capital Securities; or
• if the UK Capital Securities are redeemed by QBE UK at the time of the Exchange Event, the
General Partner (being entitled to the residual assets of the Issuer under the Limited Partnership
Agreement) will pay QBE an amount equal to the principal amount of the UK Capital Securities
plus accrued and unpaid interest thereon; and
• the Issuer will be wound-up.
QBE will deliver to the General Partner and the General Partner will give to holders of the Capital
Securities written notice of the occurrence of the Exchange Event as soon as practicable but in any event no later
than five (5) Business Days after any officer of QBE becomes aware of the occurrence of the Exchange Event.
The notice will state that the Exchange Event has occurred and briefly describe the nature of the Exchange Event.
If the Exchange Event has occurred, QBE will, unless it is then prohibited by law from allotting and
issuing the QBE Preferred Securities, as soon as practicable following the occurrence of the Exchange Event,
deliver to Citibank, N.A., as custodian for DTC and the Common Depositary the number of QBE Preferred
Securities equal to the number of outstanding Rule 144A Capital Securities and Regulation S Capital Securities,
respectively, with instructions to credit the accounts of the holders of the Capital Securities. Notwithstanding the
above, QBE will not issue the QBE Preferred Securities unless and until the QBE Preferred Securities are
qualified for book-entry clearing and settlement through the facilities of DTC, Euroclear and Clearstream,
Luxembourg.
If QBE has issued and deposited with Citibank, N. A., as custodian for DTC, and the Common
Depositary QBE Preferred Securities as required, then on the date of deposit, all rights of the Issuer, as the holder
of all the outstanding UK Capital Securities, will cease, except as described above. If any date fixed for the
deposit of the QBE Preferred Securities is not a Business Day, then QBE will deposit the QBE Preferred
Securities on the next succeeding day that is a Business Day, without any interest or other payment with respect
to the QBE Preferred Securities to be delivered.
Under the Exchange Agreement, QBE will agree that, in the event that the Capital Securities are
exchanged for QBE Preferred Securities following the occurrence of the Exchange Event, QBE will pay any
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stamp duty payable to the Australian Capital Territory (or any other jurisdiction in which QBE is then
incorporated) in connection with the issuance and delivery of the QBE Preferred Securities to the holders of the
Capital Securities and will use its commercially reasonable best efforts to (i) qualify the QBE Preferred
Securities for book-entry clearing and settlement through the facilities of DTC, Euroclear and Clearstream,
Luxembourg and (ii) if any stamp duty or similar charge is payable to the Australian Capital Territory (or any
other jurisdiction in which QBE is then incorporated) with respect to the transfer of the QBE Preferred Securities
and the QBE Preferred Securities are not listed on the Irish Stock Exchange or another qualifying exchange,
cause the QBE Preferred Securities to be listed on the Irish Stock Exchange or another qualifying exchange or
take such other measures as may be necessary to ensure that the transfer of QBE Preferred Securities will not be
chargeable with, or will be exempt from, any such stamp duty or similar charge.
An event of default under the Exchange Agreement will occur upon the failure of QBE to issue the QBE
Preferred Securities in accordance with the terms of the Exchange Agreement or the default by QBE in any other
obligation under the Exchange Agreement that remains unremedied for 30 days.
The holders of a majority of the aggregate liquidation preference of the outstanding Capital Securities
have the right to direct the time, method and place of conducting any proceeding for any remedy available to the
Exchange Trustee or to direct the exercise of any trust or power conferred upon the Exchange Trustee under the
Exchange Agreement upon providing to the Exchange Trustee such security and indemnity, satisfactory to the
Exchange Trustee, against the reasonable costs, expenses (including attorneys’ fees and expenses and the
expenses of the Exchange Trustee’s agents, nominees or custodians) and liabilities that might be incurred by it in
complying with that request or direction, including such advances as may be requested by the Exchange Trustee.
If the Exchange Trustee fails to enforce its rights under the Exchange Agreement after a holder of the Capital
Securities has made a written request, the holder may institute a legal proceeding directly against the parties
thereto to enforce the Exchange Trustee’s rights under the Exchange Agreement, without first instituting a legal
proceeding against the Exchange Trustee or any other person or entity. Notwithstanding the foregoing, upon the
occurrence of an event of default under the Exchange Agreement, a holder of the Capital Securities may directly
institute a legal proceeding in the holder’s own name against the parties thereto for enforcement of the Exchange
Agreement, without involving the Exchange Trustee or instituting a legal proceeding against any other person or
entity.
The holders of a majority of the aggregate liquidation preference of the outstanding Capital Securities
may, by vote, waive any past event of default under the Exchange Agreement and its consequences. Upon such
waiver, any such event of default will cease to exist, and any event of default arising therefrom will be deemed to
have been cured, for every purpose of the Exchange Agreement, but no such waiver will extend to any
subsequent or other default or event of default or impair any right consequent thereon.
The Exchange Trustee will, within 90 days after the occurrence of an event of default under the
Exchange Agreement, transmit by mail, first class postage prepaid, to the holders of the Capital Securities,
notices of all events of default under the Exchange Agreement known by a responsible officer of the Exchange
Trustee, unless such defaults have been cured before the giving of such notice. The Exchange Trustee will not be
deemed to have knowledge of any event of default unless a responsible officer of the Exchange Trustee has
received written notice of that event of default.
The Exchange Agreement may be amended or assigned only in the circumstances in which the Capital
Securities Guarantee Agreement may be amended or assigned. See “Description of the Capital Securities
Guarantee Agreement—Amendments and Assignment.” In addition, under the terms of the Exchange
Agreement, QBE may not merge or consolidate with any entity or sell, assign, transfer, lease or convey all or
substantially all of its properties and assets to any person, firm, corporation or entity unless the conditions
described under “Description of the Capital Securities Guarantee Agreement—Consolidation, Merger, Sale or
Conveyance,” to the extent applicable, have been satisfied.
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Rights Upon Liquidation, Dissolution or Winding-up of the Issuer
In the event of the liquidation, dissolution or winding-up of the Issuer (other than a dissolution of the
Issuer in the context of a redemption of the Capital Securities, in which case holders of the Capital Securities will
be entitled to the rights set forth above), holders of the Capital Securities will be entitled to receive out of the
assets of the Issuer legally available for distribution, subject as set out below, for each Capital Security a
liquidation distribution equal to the sum of (i) the liquidation preference, (ii) any accrued but unpaid distributions
for the then current Distribution Period to but excluding the date of liquidation, dissolution or winding-up and, if
the liquidation date is on or within twenty (20) Business Days following a Distribution Payment Date, any
accrued and unpaid distributions for the immediately preceding Distribution Period, and (iii) any Additional
Amounts on the above. This entitlement will rank senior to the claims of the General Partner.
Notwithstanding the availability of sufficient assets of the Issuer to pay any liquidation distribution as
aforesaid, if, at the time that liquidation distribution is to be paid, the Exchange Event has occurred or
proceedings have been commenced for the voluntary or involuntary liquidation, dissolution or winding-up of
QBE (other than with respect to a solvent reconstruction in relation to forming a holding company), the
liquidation distribution payable per Capital Security will not exceed the amount per security that would have
been paid as a liquidation distribution out of the assets of QBE had the Capital Securities and all Parity Securities
been non-cumulative preference shares issued by QBE with equivalent rights of participation in the capital of
QBE (whether or not QBE could in fact have issued those securities at that time).
If the liquidation distribution on the Capital Securities cannot be made in full by reason of the limitation
described above, but there are funds available for payment so as to allow payment of part of the liquidation
distribution, then each holder of the Capital Securities will be entitled to receive the Relevant Proportion of the
liquidation distribution. After payment of all liquidation distributions, or the Relevant Proportion thereof, if
applicable, the General Partner will be entitled to any remaining assets of the Issuer representing proceeds of the
sale or redemption of the Issuer’s assets and the holders of the Capital Securities will have no right or claim to
any of the remaining assets of the Issuer or QBE.
In the event of an order being made for the liquidation, dissolution or winding-up of QBE (other than
with respect to a solvent reconstruction in relation to forming a holding company) or a declaration being made
that QBE is insolvent, the Issuer will be dissolved (by delivery by the General Partner of a statement of
dissolution in accordance with Jersey law) and the amount per Capital Security to which holders of the Capital
Securities will be entitled as a liquidation distribution will be as described above.
Action by Holders of the Capital Securities
Except as described herein or as required by Jersey law, the holders of the Capital Securities will not be
entitled to receive notice of, attend or vote at any meeting of partners of the Issuer or participate in the
management of the Issuer or the General Partner.
The procedures by which holders of the Capital Securities represented by the Global Certificates may
exercise their rights are described below. See also “—The Depository Trust Company” and “—Euroclear and
Clearstream, Luxembourg.” The procedures by which holders of the Capital Securities may take direct action
under the Capital Securities Guarantee Agreement are described herein under “Description of the Capital
Securities Guarantee Agreement.”
The consent in writing of the holders of at least a majority of the aggregate liquidation preference of the
outstanding Capital Securities or the sanction of a resolution, passed by holders of at least a majority of the
aggregate liquidation preference of the Capital Securities present or represented at a separate meeting at which a
quorum is present, will be required in order to give effect to any variation or abrogation of the rights, preferences
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and privileges of the Capital Securities by way of amendment of the Limited Partnership Agreement or
otherwise. Notwithstanding the foregoing, the General Partner may, without the consent of the holders of the
Capital Securities, amend the Limited Partnership Agreement to:
• cure any ambiguity;
• correct or supplement any provision in the Limited Partnership Agreement that may be defective or
inconsistent with any other provision of the Limited Partnership Agreement;
• conform to any change in the Investment Company Act or the rules or regulations thereunder; and
• modify, eliminate or add to any provision of the Limited Partnership Agreement to the extent as may
be necessary or appropriate consistent with effectuating the purposes of the Limited Partnership
Agreement,
provided that no such amendment would have a material adverse effect on the rights, preferences or privileges of
the holders of the Capital Securities.
No amendment or modification to the Limited Partnership Agreement that will affect the treatment by
APRA of the Capital Securities may be made unless APRA consents to the amendment or modification.
Notwithstanding the foregoing, no vote of the holders of the Capital Securities will be required for the
redemption or cancellation of the Capital Securities or a holder of the Capital Securities ceasing to be a holder of
Capital Securities in accordance with the Limited Partnership Agreement.
The General Partner will cause a notice of any meeting at which holders of the Capital Securities are
entitled to vote and any voting forms to be mailed to each holder of record of the Capital Securities. Each notice
will include a statement setting forth (i) the date, time and place of the meeting, (ii) a description of any
resolution to be proposed for adoption at the meeting on which the holders of the Capital Securities are entitled to
vote and (iii) instructions for the delivery of proxies. See “—The Depository Trust Company” and “—Euroclear
and Clearstream, Luxembourg.”
Covenants of the General Partner
Pursuant to the Limited Partnership Agreement, the General Partner will covenant, among other things:
• to manage and at all times control the affairs of the Issuer;
• to use all reasonable endeavors to carry on and conduct the operation of the business of the Issuer in a
proper and efficient manner and to ensure that any undertaking, scheme or enterprise to which the
Limited Partnership Agreement relates is carried on and conducted in a proper and efficient manner;
• to the extent that it holds any part of the assets of the Issuer at any time, to arrange for the assets of
the Issuer to be held in safe custody and to keep the assets of the Issuer clearly identified as
Partnership assets in its books and records and separate from its own assets;
• to receive and apply or arrange for the receipt and application of all income from the assets of the
Issuer and all proceeds of or other consideration for the sale, redemption or transfer of the assets of
the Issuer on behalf of the Issuer in accordance with the terms of the Limited Partnership Agreement;
• to exercise the rights and remedies available to the Issuer under the UK Capital Securities and the
agreements to which the Issuer is a party on behalf of the Issuer;
• to procure that each of the persons authorized by it to perform its powers, functions, duties or
obligations under the Limited Partnership Agreement will duly observe and perform its powers,
functions, duties and obligations under the Limited Partnership Agreement in the same manner as is
required of it;
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• to keep, or cause to be kept, proper books of account in relation to the Issuer and the assets of the
Issuer;
• to comply with all applicable statutes and other laws (including but not limited to the Limited
Partnership (Jersey) Law 1994, as amended) in any relevant jurisdiction relating to the Issuer, the
assets of the Issuer or the business of the Issuer (and for those purposes it may rely on independent,
competent professional advice and assistance received from time to time in relation to such
compliance);
• to prepare and lodge, or cause to be prepared and lodged, in accordance with all applicable statutes
and other laws, all notices, statements, returns, reports and other documents (including any tax
returns) which may be required to be prepared and lodged in relation to the Issuer, the assets of the
Issuer or the business of the Issuer;
• not to incur any indebtedness in the name of the Issuer other than the cost and expenses incidental to
creating the Issuer, creating, issuing and performing its and the Issuer’s obligations with respect to the
Capital Securities, performing its obligations with respect to the Limited Partnership Agreement,
maintaining the listing of the Capital Securities, maintaining the limited partnership register, dealing
with the Agents, holding the assets of the Issuer, the exercise of the Issuer’s rights with respect to its
assets and the administration of the Issuer;
• for so long as any Capital Security is outstanding, the General Partner will undertake to maintain a
paying agent in a Member State of the European Union that does not impose an obligation to
withhold or deduct tax pursuant to the EC Council Directive 2003/48/EC on the taxation of savings
income;
• for so long as the Capital Securities remain outstanding, to use its reasonable best efforts to ensure
that (i) an Investment Company Event does not occur and (ii) the Issuer will be treated as a
partnership for United States federal income tax purposes (and will file an appropriate election to be
so treated) and the Issuer will not file any election to be treated as anything other than a partnership
for those purposes;
• to not permit, or take any action that would or might cause, the liquidation, dissolution or winding-up
of the Issuer other than in connection with a redemption of, or the Exchange Event with respect to,
the Capital Securities or an order being made for the liquidation, dissolution or winding-up of QBE
(other than with respect to a solvent reconstruction in relation to forming a holding company) or a
declaration being made that QBE is insolvent;
• to conduct its affairs and the affairs of the Issuer at all times in such a manner that no holder of the
Capital Securities will have any personal liability with respect to any liability or obligation of the
Issuer; and
• for so long as Capital Securities are outstanding, to ensure that it, or a directly or indirectly wholly
owned subsidiary of QBE, remains general partner of the Issuer.
Currency Conversion for Rule 144A Capital Securities
All payments with respect to the Capital Securities and the Capital Securities Guarantee Agreement are
payable in pounds sterling. Distributions with respect to the Regulation S Capital Securities will be credited, in
pounds sterling, to the extent received by Euroclear or Clearstream, Luxembourg from the Paying and Transfer
Agent, to the cash accounts of Euroclear or Clearstream, Luxembourg customers in accordance with the relevant
system’s rules and procedures. However, holders of beneficial interests in Rule 144A Capital Securities will
receive payments in US dollars unless they elect to receive payments in pounds sterling as described below. If a
holder of beneficial interests in Rule 144A Capital Securities has not made this election, payments to the holder
will be converted to US dollars by the Exchange Agent. All costs of conversion will be borne by the holder by
deduction from the payments. The amount of US dollars payable with respect to any particular distribution,
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edemption or liquidation payment under the Rule 144A Capital Securities or the Capital Securities Guarantee
Agreement with respect thereto will be the amount of US dollars exchanged for pounds sterling received by the
Exchange Agent in respect of that distribution, redemption or liquidation payment at Citibank, N.A.’s in-house
mid-market agency £/US$ rate of exchange prevailing as at 11:00 a.m., New York City time, on the day that is
two New York City business days prior to the relevant payment date, less any costs incurred by the Exchange
Agent for such conversion (to be shared pro rata among the holders of Rule 144A Capital Securities accepting
US dollar payments in the proportion to their respective holdings), all as set out in more detail in the Agency
Agreement.
If an exchange rate bid quotation is not available from Citibank, N.A., the Exchange Agent will obtain a
bid quotation from a leading foreign exchange bank in The City of New York selected by the Exchange Agent
for that purpose after consultation with the General Partner, on behalf of the Issuer, and QBE. If no bid quotation
from a leading foreign exchange bank is available, payment will be in pounds sterling to the account or accounts
specified by DTC to the Registrar. Until the account or accounts are so specified, the funds held by the Exchange
Agent will bear interest at the rate of interest quoted by the Registrar for deposits with it on an overnight basis to
the extent that the Exchange Agent is reasonably able to invest those funds.
At present, DTC will not accept payments in pounds sterling. DTC has acknowledged that the entire
payment of distributions, redemption amounts and liquidation amounts to DTC’s participants will be made in
United States dollars unless the Exchange Agent is unable to convert pounds sterling into US dollars or DTC is
notified by one or more of its participants holding interests in the Rule 144A Capital Securities, or through which
any interest in the Rule 144A Capital Securities is held, that it elects to receive payment, or a portion thereof, of a
distribution, redemption amount or liquidation amount in pounds sterling.
DTC’s participants must notify DTC of any election by a holder of a beneficial interest in a Rule 144A
Capital Security to receive payments in pounds sterling. In the event that beneficial owners request payments in
pounds sterling, DTC participants must comply with DTC’s notification requirements set forth below.
At least twelve (12) New York Business Days (as defined below) prior to any payment date, the DTC
participant must notify DTC of (i) its election to receive all or a specified portion of the payment in pounds
sterling and (ii) its instructions for wire transfer of the payment to a pounds sterling account or accounts (these
instructions must not result in the payment of the full amount thereof in pounds sterling being illegal or
effectively precluded by exchange controls or similar restrictions). DTC will notify the Exchange Agent on or
prior to the tenth (10th) New York Business Day prior to any payment date of the amount of the payment to be
received in pounds sterling and the applicable wire transfer instructions, and the Exchange Agent will use these
instructions to pay DTC participants directly. If DTC does not so notify the Exchange Agent, only US dollar
payments will be made. The remainder of the payment due Cede & Co, as nominee of DTC, in pounds sterling, if
any, will be will be converted from pounds sterling to US dollars in accordance with the provisions of the
Agency Agreement. The Exchange Agent will then credit the US dollar payment to Cede & Co., as nominee of
DTC, in accordance with DTC’s procedures. In the event the Exchange Agent is unable to convert pounds
sterling into US dollars, the Exchange Agent will notify DTC that the entire payment is to be made in pounds
sterling. DTC will thereafter ask the DTC participants for payment instructions and will forward these
instructions to the Exchange Agent, which will use these instructions to pay the DTC participants directly. All
cost of such payment by wire transfer will be borne by holders of beneficial interests receiving such payments by
deduction from such payments. For purposes of the foregoing, “New York Business Day” means any day other
than a Saturday or Sunday or a day on which banking institutions in The City of New York are authorized or
required by law or executive order to close.
Holders of the Capital Securities may be subject to foreign exchange risks as to payments in respect of
the Capital Securities that may have important consequences. See “Risk Factors—Risks related to the Capital
Securities—Holders may be subject to foreign exchange risk.”
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Registration of Transfer and Exchange
General
Subject to the restrictions on transfer contained in the Limited Partnership Agreement and as described
below and under “Notice to Investors,” and the limitations applicable to Global Certificates, Capital Securities
may be presented for exchange for other Capital Securities of any authorized denominations and of a like tenor
and aggregate liquidation preference or for registration of transfer by the holder or its attorney duly authorized in
writing and, if so required by the Registrar, with the form of transfer thereon duly endorsed or accompanied by a
written instrument of transfer in a form satisfactory to the Registrar duly executed, at the office of the Registrar
designated for that purpose. No service charge will be made for any exchange or registration of transfer of
Capital Securities, but the Registrar or the General Partner may require payment of a sum by the holder of a
Capital Security sufficient to cover any tax or other governmental charge payable in connection therewith. A
transfer or exchange will be effected upon the Registrar being satisfied with the documents of title and identity of
the person making the request. The General Partner may at any time designate additional transfer or paying
agents or rescind the designation of any transfer or paying agent or approve a change in the office through which
any transfer or paying agent acts.
Title
Subject to applicable law and the terms of the Limited Partnership Agreement, we, the Registrar and any
paying agent will treat the persons in whose names the Global Certificates are registered, initially Cede & Co.
and Citivic (collectively, the “holders”), as owners of the Capital Securities for the purpose of receiving
payments in respect of the Capital Securities or the Capital Securities Guarantee Agreement and for all other
purposes whatsoever. Therefore, we, the Registrar and any paying agent have no direct responsibility or liability
for any payment in respect of the Capital Securities or the Capital Securities Guarantee Agreement to owners of
beneficial interests in the Capital Securities. All payments made to the registered holders of the Global
Certificates will discharge the liability of Issuer and QBE to the extent of the sums so paid.
The laws of some jurisdictions require that certain purchasers of securities take physical delivery of
certificates representing the Capital Securities. These laws may impair the ability to transfer beneficial interests
in the Capital Securities as represented by a Global Certificate.
Transfers between Global Certificates
Trading between Euroclear/Clearstream, Luxembourg Seller and DTC Purchaser
When book-entry interests in the Capital Securities are to be transferred from the account of a Euroclear
or Clearstream, Luxembourg accountholder to the account of a DTC participant wishing to purchase a beneficial
interest in a Rule 144A Global Certificate (subject to the certification described below), the Euroclear or
Clearstream, Luxembourg participant must send to Euroclear or Clearstream, Luxembourg, delivery free of
payment, instructions by 7:45 p.m., Luxembourg/Brussels time, as the case may be, one business day prior to the
settlement date. Euroclear or Clearstream, Luxembourg, as the case may be, will in turn transmit appropriate
instructions to the Common Depositary and the Registrar to arrange delivery to the DTC participant on the
settlement date. Separate payment arrangements are required to be made between the DTC participant and the
relevant Euroclear or Clearstream, Luxembourg accountholder, as the case may be. On the settlement date, the
Common Depositary will (a) transmit appropriate instructions to Citibank, N.A., as custodian for DTC, who will
in turn deliver such book-entry interests in the Capital Securities free of payment to the relevant account of the
DTC participant and (b) instruct the Registrar to (i) decrease the amount of Capital Securities registered in the
name of the nominee (being Citivic) of the Common Depositary and evidenced by a Regulation S Global
Certificate and (ii) increase the amount of Capital Securities registered in the name of Cede & Co. and evidenced
by a Rule 144A Global Certificate.
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Prior to the expiration of the 40th day after the later of the Closing Date or the date the Capital
Securities were first offered to persons other than the Initial Purchasers (the “Restriction Period”), a beneficial
interest in a Regulation S Global Certificate may be transferred to a person who takes delivery in the form of an
interest in a Rule 144A Global Certificate only upon receipt by the Registrar of a written certification from the
transferee or the transferor, as the case may be (in the form provided in the Limited Partnership Agreement), to
the effect that either (i) the transferee is purchasing the Capital Securities for its own account or for accounts as
to which it exercises sole investment discretion and that it and, if applicable, each account is a qualified
institutional buyer within the meaning of Rule 144A, in each case, in a transaction meeting the requirements of
Rule 144A and in accordance with any applicable securities laws of any State of the United States or any other
jurisdiction or (ii) the transferor did not purchase the Capital Securities as part of the initial distribution and the
transfer is being effected pursuant to and in accordance with an applicable exemption from the registration
requirements of the Securities Act and the transferor has delivered to the Registrar such additional evidence as
the Registrar may require as to compliance with the available exemption. After the Restriction Period, the
certifications contemplated by this paragraph will no longer be required.
Trading between DTC Seller and Euroclear/Clearstream, Luxembourg Purchaser
When book-entry interests in Capital Securities are to be transferred from the account of a DTC
participant holding a beneficial interest in a Rule 144A Global Certificate to the account of a Euroclear or
Clearstream, Luxembourg accountholder wishing to purchase a beneficial interest in a Regulation S Global
Certificate (subject to the certification described below), the DTC participant will deliver instructions for
delivery to the relevant Euroclear or Clearstream, Luxembourg accountholder to DTC by 12:00 noon, New York
City time, on the settlement date. Separate payment arrangements are required to be made between the DTC
participant and the relevant Euroclear or Clearstream, Luxembourg accountholder. On the settlement date,
Citibank, N.A., as custodian for DTC, will instruct the Registrar to (i) decrease the amount of Capital Securities
registered in the name of the Cede & Co. and evidenced by the Rule 144A Global Certificate and (ii) increase the
amount of Capital Securities registered in the name of the nominee (being Citivic) of the Common Depositary
and evidenced by the Regulation S Global Certificate. Book-entry interests will be delivered free of payment to
Euroclear or Clearstream, Luxembourg, as the case may be, for credit to the relevant accountholder on the first
business day following the settlement date.
Beneficial interests in a Rule 144A Global Certificate may be transferred to a person who takes delivery
in the form of an interest in a Regulation S Global Certificate, whether before, during or after the Restriction
Period, only upon receipt by the Registrar of a written certification from the transferor (in the form provided in
the Limited Partnership Agreement) to the effect that the transfer is being made in accordance with Rule 903 or
Rule 904 of Regulation S (as applicable) or Rule 144 under the Securities Act and that, if the transfer occurs prior
to the expiration of the Restriction Period, the interest transferred will be held immediately thereafter through
Euroclear or Clearstream, Luxembourg.
Any beneficial interest in any Global Certificate that is transferred to a person who takes delivery in the
form of an interest in the other type of Global Certificate will, upon transfer, cease to be an interest in that Global
Certificate and will become an interest in the other type of Global Certificate and, accordingly, will thereafter be
subject to all transfer restrictions and other procedures applicable to beneficial interests in the other type of
Global Certificate for as long as it remains as that interest.
Although the foregoing sets out the procedures of DTC, Euroclear and Clearstream, Luxembourg in
order to facilitate the transfers of interests in the Capital Securities among participants of DTC, Euroclear and
Clearstream, Luxembourg none of DTC, Euroclear or Clearstream, Luxembourg is under any obligation to
perform or continue to perform such procedures, and such procedures may be discontinued at any time. Neither
we, nor the General Partner, the Issuer, any Agent, any Initial Purchaser or any affiliate of any of the above, or
any person by whom any of the above is controlled for the purposes of the Securities Act, will have any
responsibility for the performance by DTC, Euroclear or Clearstream, Luxembourg or their respective direct or
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indirect participants or accountholders of their respective obligations under the rules and procedures governing
their operations or for the sufficiency for any purpose of the arrangements described above.
So long as a Regulation S Global Certificate is held on behalf of Euroclear and Clearstream,
Luxembourg or any other clearing system (an “Alternative Clearing System”), notices to holders of Capital
Securities represented by a beneficial interest in a Regulation S Global Certificate may be given by delivery of
the relevant notice to Euroclear, Clearstream, Luxembourg or the Alternative Clearing System, as the case may
be, and so long as a Rule 144A Global Certificate is held on behalf of DTC or an Alternative Clearing System,
notices to holders of Capital Securities represented by a beneficial interest in a Rule 144A Global Certificate may
be given by delivery of the relevant notice to DTC or the Alternative Clearing System, as the case may be.
The Depository Trust Company
DTC has advised us as follows. DTC is a limited-purpose trust company organized under the New York
Banking Law, a “banking organization” within the meaning of the New York Banking Law, a member of the
Federal Reserve System, a “clearing corporation” within the meaning of the New York Uniform Commercial
Code and a “clearing agency” registered pursuant to the provisions of Section 17A of the Exchange Act. DTC
holds securities that its participants deposit with DTC. DTC also facilitates the settlement among participants of
securities transactions, such as transfers and pledges, in deposited securities through electronic computerized
book-entry changes in participants’ accounts, thereby eliminating the need for physical movement of securities
certificates. Participants in DTC include securities brokers and dealers, banks, trust companies, clearing
corporations and certain other organizations. DTC is a wholly owned subsidiary of the Depository Trust &
Clearing Corporation, which is owned by a number of DTC’s participants and by the New York Stock Exchange,
Inc., the American Stock Exchange, Inc. and the National Association of Securities Dealers, Inc. Access to the
DTC system is also available to others such as securities brokers and dealers, banks and trust companies that
clear through or maintain a custodial relationship with a participant, either directly or indirectly. The rules
applicable to DTC and its participants are on file with the SEC.
Purchases of the Capital Securities within the DTC system must be made by or through participants,
which will receive a credit for the Capital Securities on DTC’s records. The ownership interest of each beneficial
owner of the Capital Securities is in turn to be recorded on the participants’ and indirect participants’ records.
Beneficial owners will not receive written confirmation from DTC of their purchases, but beneficial owners are
expected to receive written confirmations providing details of the transactions, as well as periodic statements of
their holdings, from the participants or indirect participants through which the beneficial owners purchased
Capital Securities. Transfers of ownership interests in the Capital Securities are to be accomplished by entries
made on the books of participants and indirect participants acting on behalf of beneficial owners.
DTC has no knowledge of the actual beneficial owners of the Capital Securities; DTC’s records reflect
only the identity of the participants to whose accounts the Capital Securities are credited, which may or may not
be the beneficial owners. The participants and indirect participants will remain responsible for keeping account
of their holdings on behalf of their customers.
So long as DTC, or Cede & Co., is the registered owner or holder of a Global Certificate, DTC or
Cede & Co., as the case may be, will be considered the sole owner or holder of the Capital Securities being
represented for all purposes under the Limited Partnership Agreement and the Capital Securities. No beneficial
owner of an interest in a Global Certificate will be able to transfer that interest except in accordance with DTC’s
applicable procedures, in addition to those provided for under the Limited Partnership Agreement.
Conveyance of notices and other communications by DTC to participants, by participants to indirect
participants and by participants and indirect participants to beneficial owners will be governed by arrangements
among them, subject to any statutory or regulatory requirements as may be in effect from time to time.
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Redemption and exchange notices will be sent to Cede & Co. If less than all of the Capital Securities are
being redeemed, DTC will determine the amount of the interest of each participant to be redeemed in accordance
with its procedures.
Although voting with respect to the Capital Securities is limited, in those cases where action is required,
neither DTC nor Cede & Co. will itself consent or act with respect to the Capital Securities. Under its usual
procedures, DTC would mail an omnibus proxy to the Issuer as soon as possible after the record date. The
omnibus proxy assigns Cede & Co.’s consenting or other rights to those participants to whose accounts the
Capital Securities are allocated on the record date identified in a listing attached to the omnibus proxy.
Distributions on the Capital Securities held in book-entry form will be made to DTC in immediately
available funds. DTC’s practice is to credit participants’ accounts upon the receipt of funds and corresponding
detail information on the relevant payment date in accordance with their respective holdings shown on DTC’s
records. Payments by participants and indirect participants to beneficial owners will be governed by standing
instructions and customary practices and will be the responsibility of the participants and indirect participants
and not of DTC, the Issuer, the General Partner, QBE UK or QBE, subject to any statutory or regulatory
requirements as may be in effect from time to time. Payment of any distributions to DTC is the responsibility of
the General Partner, disbursement of those payments to participants is the responsibility of DTC and
disbursement of those payments to the beneficial owners is the responsibility of participants and indirect
participants.
Except in the limited circumstances described herein, a beneficial owner of an interest in a Global
Certificate will not be entitled to receive physical delivery of the Capital Securities. Accordingly, each beneficial
owner must rely on the procedures of DTC or any successor depository to exercise any rights under the Capital
Securities.
The information in this section concerning DTC and DTC’s system has been obtained from sources that
QBE believes to be reliable, but QBE takes no responsibility for the accuracy of the information.
Euroclear and Clearstream, Luxembourg
Euroclear holds securities and book-entry interests in securities for participating organizations
(“Euroclear Participants”) and facilitates the clearance and settlement of securities transactions between
Euroclear Participants, and between Euroclear Participants and participants of certain other securities
intermediaries through electronic book-entry changes in accounts of such participants or other securities
intermediaries. Euroclear provides Euroclear Participants, among other things, with safekeeping, administration,
clearance and settlement, securities lending and borrowing, and related services. Euroclear Participants are
investment banks, securities brokers and dealers, banks, central banks, supranationals, custodians, investment
managers, corporations, trust companies and certain other organizations, and may include the Initial Purchasers
or their affiliates. Non-participants in Euroclear may hold and transfer beneficial interests in a Global Certificate
through accounts with a participant in the Euroclear System or any other securities intermediary that holds a
book-entry interest in a Global Certificate through one or more securities intermediaries standing between such
other securities intermediary and Euroclear.
Securities clearance accounts and cash accounts with Euroclear are governed by the Terms and
Conditions Governing Use of Euroclear and the related Operating Procedures of the Euroclear System, and
applicable Belgian law (collectively, the “Terms and Conditions”). The Terms and Conditions govern transfers of
securities and cash within Euroclear, withdrawals of securities and cash from Euroclear and receipts of payments
with respect to securities in Euroclear. All securities in Euroclear are held on a fungible basis without attribution
of specific certificates to specific securities clearance accounts. Euroclear acts under the Terms and Conditions
only on behalf of Euroclear Participants, and has no record of or relationship with persons holding through
Euroclear Participants.
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Distributions with respect to Capital Securities held beneficially through Euroclear will be credited to
the cash accounts of Euroclear Participants in accordance with the Terms and Conditions.
Clearstream, Luxembourg holds securities for its participating organizations (“Clearstream
Participants”) and facilitates the clearance and settlement of securities transactions between Clearstream
Participants through electronic book-entry changes in accounts of Clearstream Participants, thereby eliminating
the need for physical movement of certificates. Clearstream, Luxembourg provides to Clearstream Participants,
among other things, services for safekeeping, administration, clearance and settlement of internationally traded
securities and securities lending and borrowing. Clearstream, Luxembourg interfaces with domestic markets in
several countries.
Clearstream, Luxembourg is registered as a bank in Luxembourg, and as such is subject to regulation by
the Commission de Surveillance du Secteur Financier, and the Banque Centrale du Luxembourg, which supervise
and oversee the activities of Luxembourg banks. Clearstream Participants are world-wide financial institutions
including underwriters, securities brokers and dealers, banks, trust companies and clearing corporations, and may
include the Initial Purchasers or their affiliates. Indirect access to Clearstream, Luxembourg is available to other
institutions that clear through or maintain a custodial relationship with a Clearstream Participant. Clearstream,
Luxembourg has established an electronic bridge with Euroclear in Brussels to facilitate settlement of trades
between Clearstream, Luxembourg and Euroclear.
Distributions with respect to the Capital Securities held beneficially through Clearstream, Luxembourg
will be credited to cash accounts of Clearstream Participants in accordance with its rules and procedures, to the
extent received by the Common Depositary for Clearstream, Luxembourg.
Transfers between Euroclear Participants and Clearstream Participants will be effected in the ordinary
way in accordance with their respective rules and operating procedures.
The information in this section concerning Euroclear and Clearstream, Luxembourg has been obtained
from sources that QBE believes to be reliable, but QBE takes no responsibility for the accuracy of the
information.
Payment
Payments of cash and any issue of QBE Preferred Securities with respect to the Capital Securities
represented by the Global Certificates will be made to DTC, Euroclear and Clearstream, Luxembourg, which will
credit their relevant accounts on the scheduled payment and issuance dates.
Registrar, Paying Agents and Exchange Agent
Citibank, N.A., will act as the Registrar, Transfer and Paying Agent and Exchange Agent for the Capital
Securities. Citibank International PLC will act as Irish Paying Agent for the Capital Securities. Citibank, N.A.,
and Citibank International PLC will be permitted to resign from any of those positions upon 30 days’ written
notice to the General Partner. In that event, the General Partner will appoint a successor to fill the relevant
position, which will be a bank or trust company.
Exchange Trustee and Guarantee Trustee
Citibank, N.A. will initially act as Exchange Trustee and will enter into and perform its obligations
under the Exchange Agreement for the benefit of the holders of the Capital Securities. Subject to certain
conditions, if an event of default under the Exchange Agreement known to a responsible officer of the Exchange
Trustee has occurred and is continuing, the Exchange Trustee will enforce the Exchange Agreement for the
benefit of the holders of the Capital Securities. The Exchange Trustee may resign at any time, but such
resignation will not take effect until a successor Exchange Trustee has been appointed.
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Under the Capital Securities Guarantee Agreement, subject to certain conditions, the Guarantee Trustee
will represent the interests of the holders of the Capital Securities and, in doing so, will exercise on behalf of the
holders of the Capital Securities the right of the Guarantee Trustee under the Limited Partnership Agreement to
access appropriate and relevant information relating to the assets of the Issuer. See “Description of the Capital
Securities Guarantee Agreement.”
No Set-Off
A holder of Capital Securities may not exercise or seek to exercise or take any proceedings for the
exercising of any right of set-off or counterclaim against the Issuer, the General Partner, QBE or QBE UK under
the Capital Securities, the Limited Partnership Agreement or the Exchange Agreement with respect to any claim
by the Issuer, the General Partner, QBE or QBE UK against that holder.
Governing Law
The Limited Partnership Agreement and the Capital Securities will be governed by, and construed in
accordance with, Jersey law. The Exchange Agreement will be governed by, and construed in accordance with,
New York law.
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DESCRIPTION OF THE CAPITAL SECURITIES GUARANTEE AGREEMENT
The Capital Securities Guarantee Agreement will be executed and delivered by QBE and the Guarantee
Trustee for the benefit of the holders from time to time of the Capital Securities. The following summarizes
some, but not all, of the material terms of the Capital Securities Guarantee Agreement and is subject to, and
qualified by reference to, all of the provisions of the Capital Securities Guarantee Agreement.
General
Under the Capital Securities Guarantee Agreement, QBE will irrevocably and unconditionally agree, on
a subordinated basis and to the extent set forth in the Capital Securities Guarantee Agreement, to pay in full to
the holders of the Capital Securities, except to the extent paid by the Issuer, as and when due, regardless of any
defense, right of set-off or counterclaim that the Issuer may have or assert, the following payments (the “Capital
Securities Guarantee Payments”), without duplication,
• any accrued but unpaid distributions that are payable by the Issuer on any Distribution Payment Date
in accordance with the terms of the Limited Partnership Agreement,
• the Par Redemption Price or the Make Whole Redemption Price, as the case may be, with respect to
any Capital Securities called for redemption by the Issuer,
• in the event of the liquidation, dissolution or winding-up of the Issuer (other than in the context of a
redemption of the Capital Securities), the liquidation distribution or the Relevant Proportion thereof
described under “Description of the Capital Securities—Rights Upon Liquidation, Dissolution or
Winding-up of the Issuer,” and
• any Additional Amounts on the above.
Under the Capital Securities Guarantee Agreement, (i) prior to the date, if any, on which the Exchange
Event occurs, QBE will be obligated to make Capital Securities Guarantee Payments only to the extent that the
Issuer has funds available for distribution to holders of the Capital Securities, and (ii) after the date, if any, on
which the Exchange Event occurs, QBE will be obligated to make Capital Securities Guarantee Payments (if the
Capital Securities remain outstanding) whether or not the Issuer has funds available for distribution to holders of
the Capital Securities, in the case of (i) or (ii), so long as no QBE Australia Stopper or APRA Condition with
respect to that payment exists; provided that, if the Exchange Event is the failure of the Issuer to pay a
distribution in full on or within twenty (20) Business Days after a Distribution Payment Date, the only reason for
such failure is the failure of QBE UK to pay interest in full on the UK Capital Securities on the corresponding
Interest Payment Date and no QBE Australia Stopper or APRA Condition exists with respect to that distribution,
QBE will be deemed to have guaranteed payment of that distribution whether or not the Issuer has sufficient
available funds.
QBE’s obligation to make a Capital Securities Guarantee Payment may be satisfied by direct payment of
the required amounts by QBE to the holders of the Capital Securities or by causing the Issuer to pay these
amounts to the holders of the Capital Securities.
The Capital Securities Guarantee will be a guarantee on a subordinated basis with respect to the Capital
Securities. Prior to the Exchange Event, QBE is only obligated to make Capital Securities Guarantee Payments to
the extent the Issuer has funds available for distribution to holders of the Capital Securities. If QBE UK fails to
make a payment with respect to the UK Capital Securities in full, the Issuer will lack sufficient available funds
for the payment of amounts owing on the Capital Securities. In addition, even if the Issuer has funds to pay
amounts owing on the Capital Securities, the Issuer will not be required to pay those amounts to the extent
prevented from doing so by a QBE Australia Stopper or an APRA Condition as described under “Description of
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the Capital Securities—Limitations on Payments with respect to Distributions.” If either the Issuer lacks
available funds for the payment of amounts owing on the Capital Securities or a QBE Australia Stopper or an
APRA Condition then exists, holders of the Capital Securities will not be entitled to receive payment from QBE
under the Capital Securities Guarantee Agreement for payment of those amounts. To the extent that QBE under
the Capital Securities Guarantee Agreement may make a partial payment while a QBE Australia Stopper or an
APRA condition exists with respect to a Capital Securities Guarantee Payment, QBE will pay to the holders of
the Capital Securities, pro rata, the Relevant Proportion of that payment. No holder of Capital Securities,
however, will have any claim with respect to any Capital Securities Guarantee Payment or part thereof not
payable as a result of the QBE Australia Stopper or APRA condition.
The Capital Securities Guarantee, when taken together with the obligations of QBE UK under the UK
Capital Securities and the Issuer’s obligations under the Capital Securities, constitutes a guarantee to the extent
described herein by QBE of the payments owing with respect to the Capital Securities in accordance with their
terms. Prior to the Exchange Event, the Capital Securities Guarantee does not apply, however, to current
distributions, redemptions or liquidation payments by the Issuer except to the extent the Issuer has funds legally
available for distribution. In such circumstances, you are relying on QBE, as the parent of QBE UK, to ensure
that QBE UK makes payments on the UK Capital Securities in accordance with their terms. In addition, because
the distributions on the Capital Securities are non-cumulative, except as described above, the Capital Securities
Guarantee Agreement does not apply to distributions that have not been paid by the Issuer within twenty
(20) Business Days after a Distribution Payment Date.
Notwithstanding any other provision of the Capital Securities Guarantee Agreement, accrued
distributions will not be payable under the Capital Securities Guarantee Agreement to the extent that and so long
as such payment would be prohibited by any indebtedness of or instrument issued by QBE.
Additional Amounts
All payments with respect to the Capital Securities Guarantee Agreement will be made without
withholding or deduction for or on account of any Relevant Tax of whatever nature imposed or levied by or on
behalf of a Relevant Jurisdiction unless the withholding or deduction for or on account of that Relevant Tax is
required by law. In that event, QBE will pay such Additional Amounts as may be necessary in order that the net
amounts received by the holders of the Capital Securities after that withholding or deduction will equal the
amount which would have been received with respect to the Capital Securities Guarantee Agreement in the
absence of that withholding or deduction, except that no Additional Amounts will be payable to a holder of the
Capital Securities (or a third party on its behalf) with respect to any Capital Securities to the extent that the
Relevant Tax is imposed or levied by virtue of that holder (or the beneficial owner of those Capital Securities):
• having some connection with the Relevant Jurisdiction, other than being a holder (or beneficial
owner) of those Capital Securities;
• not having made a declaration of non-residence in, or other lack of connection with, the Relevant
Jurisdiction or any similar claim for exemption, if the General Partner or its agent has provided the
beneficial owner of those Capital Securities or its nominee with at least 60 days prior written notice of
any opportunity to make that declaration or claim;
• presenting a Capital Security for payment (whenever presentation is required) more than 30 days after
the date on which that payment first becomes due;
• presenting a Capital Security for payment (whenever presentation is required) to a paying agent in a
Member State of the European Union where that holder would have been able to avoid such
withholding or deduction by presenting that Capital Security to another paying agent in a Member
State of the European Union; or
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• being subject to a withholding or deduction made pursuant to, or in relation to, European Council
Directive 2003/48/EC or any other Directive on implementing the conclusions of the ECOFIN
Council meeting of 26-27 November 2000 on the taxation of savings income or any law
implementing or complying with, or introduced in order to conform to, or in relation to, such
Directive.
Covenants of QBE
QBE will covenant under the Capital Securities Guarantee Agreement that, so long as any of the Capital
Securities are outstanding to:
• not permit, or take any action that would or might cause, the liquidation, dissolution or winding-up of
the Issuer or the General Partner except in accordance with the Limited Partnership Agreement;
• ensure that the General Partner fulfills its covenants under the Limited Partnership Agreement and
will at all times be itself or one of its directly or indirectly wholly owned subsidiaries;
• ensure that QBE UK makes payments on the UK Capital Securities, but only to the extent QBE UK is
required to make a payment in accordance with the terms of the UK Capital Securities;
• use its reasonable best efforts to ensure that, for so long as the Capital Securities remain outstanding,
(i) an Investment Company Event does not occur and (ii) the Issuer will be treated as a partnership
and will not file any election to be treated as anything other than a partnership for United States
federal income tax purposes; and
• take all reasonable steps to ensure that it will at all times have a sufficient number of authorized but
unissued QBE Preferred Securities to permit the exchange thereof for all outstanding Capital
Securities pursuant to the Exchange Agreement and all reasonable steps to ensure that all corporate
authorizations will have been taken for the allotment and issue of the QBE Preferred Securities free
from pre-emptive rights.
Events of Default; Enforcement of Capital Securities Guarantee Agreement
An event of default under the Capital Securities Guarantee Agreement will occur upon (a) the failure by
QBE to perform any of its payment obligations under the Capital Securities Guarantee Agreement and (b) the
failure or default by QBE to perform any of its other obligations under the Capital Securities Guarantee
Agreement that remains unremedied for 30 days.
Each holder of the Capital Securities will be entitled to the benefits of the Capital Securities Guarantee
Agreement. The holders of a majority of the aggregate liquidation preference of the outstanding Capital
Securities have the right to direct the time, method and place of conducting any proceeding for any remedy
available to the Guarantee Trustee or to direct the exercise of any trust or power conferred upon the Guarantee
Trustee under the Capital Securities Guarantee Agreement upon providing to the Guarantee Trustee such security
and indemnity, satisfactory to the Guarantee Trustee, against the reasonable costs, expenses (including attorneys’
fees and expenses and the expenses of the Guarantee Trustee’s agents, nominees or custodians) and liabilities
that might be incurred by it in complying with that request or direction, including such advances as may be
requested by the Guarantee Trustee. If the Guarantee Trustee fails to enforce its rights under the Capital
Securities Guarantee Agreement after a holder of the Capital Securities has made a written request, the holder
may institute a legal proceeding directly against QBE to enforce the Guarantee Trustee’s rights under the Capital
Securities Guarantee Agreement, without first instituting a legal proceeding against the Guarantee Trustee or any
other person or entity. Notwithstanding the foregoing, upon the occurrence of an event of default under the
Capital Securities Guarantee Agreement, a holder of the Capital Securities may directly institute a legal
proceeding in the holder’s own name against QBE for enforcement of the Capital Securities Guarantee
Agreement, without involving the Guarantee Trustee or instituting a legal proceeding against the Issuer, the
General Partner or any other person or entity.
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The holders of a majority of the aggregate liquidation preference of the outstanding Capital Securities
may, by vote, waive any past event of default under the Capital Securities Guarantee Agreement and its
consequences. Upon such waiver, any such event of default will cease to exist, and any event of default arising
therefrom will be deemed to have been cured, for every purpose of the Capital Securities Guarantee Agreement,
but no such waiver will extend to any subsequent or other default or event of default or impair any right
consequent thereon.
The Guarantee Trustee will, within 90 days after the occurrence of an event of default under the Capital
Securities Guarantee Agreement, transmit by mail, first class postage prepaid, to the holders of the Capital
Securities, notices of all events of default under the Capital Securities Guarantee Agreement known by a
responsible officer of the Guarantee Trustee, unless such defaults have been cured before the giving of such
notice. The Guarantee Trustee will not be deemed to have knowledge of any event of default unless a responsible
officer of the Guarantee Trustee has received written notice of such event of default.
Status of Capital Securities Guarantee; Subordination
The Capital Securities Guarantee Agreement will constitute an unsecured and subordinated obligation of
QBE. QBE’s obligations under the Capital Securities Guarantee Agreement will rank senior to the claims of the
holders of ordinary shares of QBE, equally with the claims of holders of securities and instruments of QBE that
rank equally with the Capital Securities Guarantee Agreement, if any, and junior to the claims of creditors of
QBE.
Accordingly, the rights of the holders of the Capital Securities to receive payments under the Capital
Securities Guarantee Agreement will be subject to the rights of the holders of any obligations of QBE that are
senior in priority to QBE’s obligations under the Capital Securities Guarantee Agreement. The terms of the
Capital Securities provide that each holder of the Capital Securities, by acceptance thereof, agrees to the
subordination provisions and other terms of the Capital Securities Guarantee Agreement.
The obligations of QBE under the Capital Securities Guarantee Agreement are obligations exclusively
of QBE. QBE is a holding company and, accordingly, receives substantially all of its cash from distributions and
loans made to it by its subsidiaries. As a result, QBE’s cash flow and ability to service its debt, including its
obligations under the Capital Securities Guarantee Agreement, is dependent upon the earnings of its subsidiaries.
In addition, QBE is dependent on the distribution of revenues by its subsidiaries to it.
QBE’s subsidiaries are separate and distinct legal entities. QBE’s subsidiaries have no obligation to pay
any amounts due on the Capital Securities or the Capital Securities Guarantee Agreement. QBE’s right to receive
any assets of any of its subsidiaries upon their liquidation or reorganization, and therefore the right of the holders
of the Capital Securities to participate in those assets, will be structurally subordinated to the claims of that
subsidiary’s creditors.
As of December 31, 2005, we had outstanding borrowings of approximately A$3.1 billion (or £1.3
billion) which would rank senior to the Capital Securities Guarantee Agreement in a winding-up of us.
The Capital Securities Guarantee Agreement will constitute a guarantee of payment and performance
and not of collection. That is, upon the occurrence of an event of default under the Capital Securities Guarantee
Agreement the guaranteed party may directly institute a legal proceeding against QBE to enforce its rights under
the Capital Securities Guarantee Agreement without instituting a legal proceeding against any other person or
entity.
Restrictions on Certain Payments
If, for any reason:
• the Issuer fails and we, as guarantor, fail to pay in full a distribution on the Capital Securities on any
Distribution Payment Date; or
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• the applicable redemption price with respect to any Capital Securities called for redemption is not
paid in full on the applicable redemption date,
then, unless the holders of a majority of the aggregate liquidation preference of the outstanding Capital Securities
otherwise consent, we may not:
unless and until,
• declare or pay any dividends, interest or other distributions on any other of our shares, debt
instruments or other instruments or securities that by their terms rank equally with or junior to the
Capital Securities Guarantee Agreement with respect to dividends, interest or other similar payments
other than proportionate payments on the Capital Securities Guarantee Agreement and such other
shares, debt instruments and other instruments and securities that rank equally therewith with respect
to dividends, interest or other similar payments, or set aside any sum for those payments; or
• make a principal, liquidation or premium payment with respect to, or repurchase, redeem or otherwise
acquire for value legal or beneficial ownership of any other of our shares, debt instruments or other
instruments or securities that by their terms rank equally with or junior to the Capital Securities
Guarantee Agreement with respect to our liquidation or winding-up, other than proportionate
payments on or repurchase of the Capital Securities, the Capital Securities Guarantee Agreement and
such other shares, debt instruments and other instruments and securities that rank equally with the
Capital Securities Guarantee Agreement with respect to our liquidation or winding-up, or set aside
any sum or establish a sinking fund for that purpose,
• in the case of a failure to pay a distribution in full on a Distribution Payment Date, the Issuer or we, as
guarantor, have paid that distribution in full on or within twenty (20) Business Days after that
Distribution Payment Date;
• if the Exchange Event has occurred and the Capital Securities remain outstanding, the Issuer or QBE,
as guarantor, has paid, with the prior written consent of APRA, if required, in the case of a failure to
pay a distribution in full on a Distribution Payment Date (i) distributions on the Capital Securities in
full on each Distribution Payment Date during a 12 consecutive calendar month period or (ii) an
optional distribution on the Capital Securities (an “Optional Distribution”) equal to the unpaid amount
of the scheduled distributions on the Capital Securities for the period of 12 months prior to the date of
payment of the Optional Distribution; and
• if the Exchange Event has occurred and the Capital Securities remain outstanding, in the case of any
failure to pay in full the applicable redemption price with respect to any Capital Securities called for
redemption, the applicable redemption price has been paid in full.
However the foregoing restrictions do not apply to:
• repurchases (including buy-backs), redemptions or other acquisitions of our shares in connection with
(i) any employment contract, benefit plan or other similar arrangement with or for the benefit of any
one or more employees, officers, directors or consultants of ours or any entity we control, (ii) a
dividend reinvestment plan, dividend election plan or shareholder share purchase plan or (iii) the
issuance of our shares, or securities convertible into or exercisable for our shares, as consideration in
an acquisition entered into prior to the application of the restrictions;
• an exchange, redemption or conversion of any class or series of our shares, or any shares of a
subsidiary of ours, for any class of our shares, or of any class or series of our indebtedness for any
class or series of our shares;
• the purchase of fractional interests in our shares under the conversion or exchange provisions of the
shares or the security being converted or exchanged;
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• any payment or declaration of a dividend in connection with any shareholder’s rights plan, or the
issuance of rights, shares or other property under any shareholder’s rights plan, or the redemption or
repurchase of rights pursuant to the plan; or
• any dividend in the form of shares, warrants, options or other rights where the dividend shares or the
shares issuable upon exercise of those warrants, options or other rights are the same class or series of
shares as those on which the dividend is being paid or rank equal or junior to those shares.
Amendments and Assignment
Except with respect to any changes that do not materially adversely affect the rights of holders of the
Capital Securities, in which case no action will be required, the Capital Securities Guarantee Agreement may be
amended only with the prior approval of the holders of a majority of the aggregate liquidation preference of the
outstanding Capital Securities; provided that, no amendment shall be made if such amendment would (i) cause
the Issuer to be treated as other than partnership for United States federal income tax purposes, (ii) require the
Issuer to register as an investment company under the Investment Company Act or (iii) affect the treatment by
APRA of the Capital Securities as Tier 1 capital of QBE unless APRA consents to the amendment. The Capital
Securities Guarantee Agreement may not be amended to remove the rights of holders of the Capital Securities to
institute a direct action without the prior written consent of all the holders of the Capital Securities. In addition,
no amendment may be made to the Capital Securities Guarantee Agreement (including, without limitation, any
amendment to any definition of any defined term contained in any other agreement and incorporated therein) to
the extent that amendment would affect the rights or obligations of the Guarantee Trustee without the previous
written consent of the Guarantee Trustee. The manner of obtaining any approval of holders of the Capital
Securities will be as set forth under “Description of the Capital Securities—Action by Holders of the Capital
Securities.”
All guarantees and agreements contained in the Capital Securities Guarantee Agreement will bind the
successors, assigns, receivers, trustees and representatives of QBE and will inure to the benefit of the holders of
the Capital Securities then outstanding. Except in connection with a permitted merger or consolidation of QBE
with or into another entity or a permitted sale, transfer or lease of QBE’s assets to another entity in which the
surviving corporation, if other than QBE, assumes QBE’s obligations under the Capital Securities Guarantee
Agreement, QBE may not assign its rights or delegate its obligations under the Capital Securities Guarantee
Agreement without the prior approval of the holders of a majority of the aggregate liquidation preference of the
outstanding Capital Securities and the Guarantee Trustee.
Consolidation, Merger, Sale or Conveyance
QBE may not merge or consolidate with any entity or sell, assign, transfer, lease or convey all or
substantially all of its properties and assets to any person, firm, corporation or entity unless:
• it is the continuing entity or the successor entity expressly assumes the obligations of QBE under the
Capital Securities Guarantee Agreement;
• neither QBE nor the successor entity is, immediately after the merger, consolidation, sale,
assignment, transfer, lease or conveyance, in default in the performance of the Capital Securities
Guarantee Agreement;
• the merger, consolidation, sale, assignment, transfer, lease or conveyance will not (i) cause the Issuer
to be treated as other than a partnership for United States federal income tax purposes, (ii) require the
Issuer to register as an investment company under the Investment Company Act or (iii) affect the
treatment by APRA of the Capital Securities unless APRA otherwise approves in writing;
• in the case of a successor entity, if that successor entity is not organized and validly existing under the
laws of Australia, that successor entity expressly agrees:
• to indemnify each holder of the Capital Securities against any tax, assessment or governmental
charge required to be withheld or deducted from any payment to that holder as a consequence of
that merger, consolidation, sale, assignment, transfer, lease or conveyance; and
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• that all payments pursuant to the Capital Securities Guarantee Agreement will be made without
withholding or deduction for or on account of any Relevant Tax of whatever nature imposed or
levied by or on behalf of the jurisdiction of organization of the successor entity, or any political
subdivision or taxing authority thereof or therein, unless the withholding or deduction for or on
account of that Relevant Tax is required by law, in which case the successor entity will pay such
Additional Amounts in order that the net amounts received by the holders of the Capital Securities
after that withholding or deduction will equal the amount which would have been received with
respect to the Capital Securities Guarantee Agreement in the absence of that withholding or
deduction, subject to the same exceptions as would apply with respect to the payment by QBE of
Additional Amounts with respect to the Capital Securities Guarantee Agreement (substituting the
jurisdiction of organization of the successor entity for the Relevant Jurisdiction) (see “—Additional
Amounts”); and
• it has obtained an opinion of counsel stating that (i) such merger, consolidation, sale, conveyance or
transfer complies with the Capital Securities Guarantee Agreement and that all conditions precedent
therein provided for relating to such transaction have been complied with and (ii) such merger,
consolidation, sale, conveyance or transfer will not (A) cause the Issuer to be treated as other than a
partnership for United States federal income tax purposes or (B) require the Issuer to register as an
investment company under the Investment Company Act.
Upon any permitted merger, consolidation, sale, assignment, transfer, lease or conveyance, the
successor entity formed by that merger, consolidation, sale, assignment, transfer, lease or conveyance will
succeed to and be substituted for QBE in the Capital Securities Guarantee Agreement.
Termination of the Capital Securities Guarantee Agreement
upon:
The Capital Securities Guarantee Agreement will terminate as to each holder of the Capital Securities
• redemption of all the Capital Securities pursuant to the Limited Partnership Agreement;
• issuance of the QBE Preferred Securities in exchange for all the Capital Securities pursuant to the
Exchange Agreement; or
• full payment of the amounts payable pursuant to the Limited Partnership Agreement upon the
liquidation, dissolution or winding-up of the Issuer.
The Capital Securities Guarantee Agreement will continue to be effective or will be reinstated, as the
case may be, if at any time any holder of the Capital Securities must restore payment of any sum paid under the
Capital Securities or the Capital Securities Guarantee Agreement or return any QBE Preferred Securities
delivered pursuant to the Exchange Agreement.
Stamp Duty
In the event that QBE Preferred Securities are issued to the holders of the Capital Securities following
the occurrence of the Exchange Event, QBE will pay any stamp duty payable to the Australian Capital Territory
(or any other jurisdiction in which QBE is then incorporated) in connection with the issuance and delivery of the
QBE Preferred Securities to the holders of the Capital Securities. If any stamp duty or similar charge is payable
to the Australian Capital Territory (or any other jurisdiction in which QBE is then incorporated) with respect to
the transfer of the QBE Preferred Securities and the QBE Preferred Securities are not listed on the Irish Stock
Exchange or another qualifying exchange, QBE will use its commercially reasonable best efforts to cause the
QBE Preferred Securities to be listed on the Irish Stock Exchange or another qualifying exchange or take such
other measures as may be necessary to ensure that the transfer of QBE Preferred Securities will not be chargeable
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with, or will be exempt from, any such stamp duty or similar charge. If QBE Preferred Securities are issued to
holders of the Capital Securities following the occurrence of the Exchange Event, under the laws of the
Australian Capital Territory (being the place of incorporation of QBE), as of the date of this Offering
Memorandum, share transfer duty at the rate of 0.6% of the greater of the consideration paid for or the
unencumbered value of the QBE Preferred Securities would be payable with respect to a transfer of the QBE
Preferred Securities unless the QBE Preferred Securities are listed on the Irish Stock Exchange or another
qualifying exchange or otherwise exempt.
No Set-Off
A person claiming under or in connection with the Capital Securities Guarantee Agreement may not
exercise or seek to exercise or take any proceedings for the exercising of any right of set-off or counterclaim
against the Issuer, the General Partner, QBE or QBE UK under the Capital Securities Guarantee Agreement with
respect to any claim by the Issuer, the General Partner, QBE or QBE UK against that holder.
Guarantee Trustee
Citibank, N.A. will initially act as Guarantee Trustee and will enter into and perform its obligations
under the Capital Securities Guarantee Agreement for the benefit of the holders of the Capital Securities. Subject
to certain conditions, if an event of default actually known to a responsible officer of the Guarantee Trustee has
occurred and is continuing, the Guarantee Trustee will enforce the Capital Securities Guarantee Agreement for
the benefit of the holders of the Capital Securities. Subject to the terms and conditions of the Capital Securities
Guarantee Agreement, the Guarantee Trustee will represent the interests of the holders of the Capital Securities
and, in doing so, will exercise on behalf of the holders of the Capital Securities the right of the Guarantee Trustee
under the Limited Partnership Agreement to access appropriate and relevant information relating to the assets of
the Issuer.
The Guarantee Trustee may resign at any time, but such resignation will not take effect until a successor
Guarantee Trustee has been appointed.
Governing Law
The Capital Securities Guarantee Agreement will be governed by, and construed in accordance with, the
laws of the State of New York. The Capital Securities Guarantee Agreement has been duly authorized, executed
and delivered by QBE. Any proceeding before an Australian court involving the authorization or execution of the
Capital Securities Guarantee Agreement by QBE, or the external administration, insolvency or liquidation of
QBE, would likely be governed by and construed in accordance with the laws of the Commonwealth of
Australia.
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DESCRIPTION OF THE UK CAPITAL SECURITIES
The following summarizes some, but not all, of the material provisions of the UK Capital Securities.
The following summary does not purport to be complete and is subject to, and qualified by reference to, all of the
provisions of the UK Capital Securities.
General
The UK Capital Securities will be issued in denominations of £50,000 and will be limited in aggregate
principal amount to £300,000,000. The UK Capital Securities will be issued in registered form in the name of the
Issuer. The UK Capital Securities contain no sinking fund provisions and have no stated maturity date.
The obligations of QBE UK under the UK Capital Securities will be unsecured, junior subordinated
obligations of QBE UK that will rank senior to the claims of holders of ordinary shares of QBE UK, equally with
the most senior class of preference shares of QBE UK, if any, and junior to the claims of senior QBE UK
creditors, including holders of Upper Tier 2 securities, under the FSA’s regulations, of QBE UK, if any.
Interest
The UK Capital Securities will be listed on the Channel Islands Stock Exchange.
The interest rate on the UK Capital Securities will be a fixed rate per annum (the “Fixed Interest Rate”)
of 6.857 per cent. of the principal amount of £50,000 per UK Capital Security per year from and including the
Closing Date to but excluding the Step Up Date and thereafter a floating rate per annum (the “Floating Interest
Rate”) equal to the sum of 2.86 per cent. and LIBOR of the principal amount of £50,000 per UK Capital Security
per year. The interest payable on the UK Capital Securities for any Interest Payment Period will be computed on
the basis of a 365 or 366 day year, as the case may be, and the actual number of days in the Interest Payment
Period.
Subject to no QBE UK Stopper and no APRA Condition then existing and the UK Solvency Condition
having been satisfied on the date on which any interest payment is due, interest will be payable at the Fixed
Interest Rate semi-annually in arrear on January 18 and July 18 of each year until the Step Up Date, commencing
January 18, 2007 (each, a “Fixed Rate Interest Payment Date”). If any Fixed Rate Interest Payment Date falls on
a day that is not a Business Day, the interest otherwise payable on that Fixed Rate Interest Payment Date will be
payable on the next succeeding day that is a Business Day, without adjustment of the amount of that interest for
interest or any other payment with respect to that delay, with the same force and effect as if made on that Fixed
Rate Interest Payment Date. Subject to no QBE UK Stopper and no APRA Condition then existing and the UK
Solvency Condition being satisfied, interest will be payable at the Floating Interest Rate quarterly in arrear on
January 18, April 18, July 18 and October 18 of each year, from and including October 18, 2016 (each a
“Floating Rate Interest Payment Date,” provided that, if any Floating Rate Interest Payment Date would
otherwise fall on a day that is not a Business Day, that Floating Rate Distribution Payment Date will be the next
succeeding day that is a Business Day, unless it would fall into the next calendar month, in which case it which
case it will be the next preceding day that is a Business Day).
The Fixed Rate Interest Payment Dates and the Floating Rate Interest Payment Dates are referred to
herein collectively as “Interest Payment Dates.” The period from and including the Closing Date to but excluding
the first Interest Payment Date and each period thereafter from and including an Interest Payment Date to but
excluding the next following Interest Payment Date is referred to herein as an “Interest Payment Period.” The
record date for the payment of interest will be the day, whether or not a Business Day, immediately preceding the
relevant Interest Payment Date.
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Notwithstanding whether or not QBE UK has funds available to pay interest on the UK Capital
Securities, QBE UK will not be required to pay any interest on any Interest Payment Date if and so long as a
QBE UK Stopper or an APRA Condition with respect to that payment exists or the UK Solvency Condition has
not been satisfied.
If an interest payment is not paid on or within twenty (20) Business Days after an Interest Payment Date
due to the existence of a QBE UK Stopper or an APRA Condition or the UK Solvency Condition has not been
satisfied, then such interest payment will be satisfied on redemption of the UK Capital Securities in accordance
with the Alternative Interest Settlement Mechanism described below.
If the UK Capital Securities cease to constitute regulatory capital of QBE UK then, subject to QBE UK
giving at least one month’s prior written notice to, and receiving no objection from the FSA (or such shorter
period as the FSA may accept and so long as there is a requirement to give such notice) and notwithstanding any
other provision of the UK Capital Securities, the payment of interest will no longer be subject to the condition
that no QBE UK Stopper or APRA Condition then exists or the UK Solvency Condition being satisfied.
Notwithstanding any other provision of the UK Capital Securities, accrued interest will not be payable
under the UK Capital Securities to the extent that and so long as such payment would be prohibited by any
indebtedness of or instrument issued by QBE UK that ranks senior or equal to the UK Capital Securities with
respect to payments of distributions, interest or similar payments.
Alternate Interest Settlement Mechanism
The aggregate of all deferred interest payments and any other interest payment that QBE UK elects (by
giving due notice as described below) to satisfy by means of the Alternate Interest Settlement Mechanism
(“AISM”) described below (collectively, “AISM Payments”) will be satisfied in full by QBE UK only through
the issue of AISM Securities to QBE on behalf of, and as trustee for, UK Capital Securities holders in accordance
with the terms of the UK Capital Securities. QBE UK shall notify the UK Capital Securities holders not less than
sixteen (16) Business Days prior to the due date for redemption of the UK Capital Securities that an AISM
Payment is to be satisfied on such redemption. “AISM Securities” means securities issued by QBE UK that
comply with the then current requirements of the FSA in relation to Tier 1 Capital (as defined by the FSA from
time to time) and which may, subject to applicable law and without limitation, be in the form of ordinary shares,
preference shares, preferred securities or subordinated debt.
If an AISM Payment is required then, except as described below, by close of business on or before the
seventh (7th) Business Day prior to the redemption date for the UK Capital Securities called for redemption on
which that AISM Payment is due (the “Subject UK Capital Securities”), QBE UK will issue to QBE on behalf of,
and as trustee for, the UK Capital Securities holders such number of AISM Securities as, in the determination of
QBE UK, will have a market value that is as near as practicable equal to, but not less than, the amount of that
AISM Payment. QBE UK shall procure that QBE will purchase those AISM Securities by making payment
therefor in cash to QBE UK or its agent. In the event a majority of the aggregate principal amount of the
outstanding UK Capital Securities disagrees with the determination of QBE UK, then QBE UK will appoint an
independent investment bank in London to make such determination and the decision of such independent
investment bank will be binding on the holders of the UK Capital Securities and QBE UK.
If the amount of the proceeds of the sale of AISM Securities will not, in the opinion of QBE UK, except
as described below, at least equal the AISM Payment due on redemption date for the Subject UK Capital
Securities, QBE UK will, and will procure that QBE will, take such steps as are reasonably necessary to ensure,
so far as practicable, that through issuing additional AISM Securities and following, mutatis mutandis, the
procedures described above, the sum of the proceeds of the sale of all AISM Securities issued to fund that AISM
Payment is as near as practicable equal to, but not less than, the amount of that AISM Payment.
If QBE UK is required to make an AISM Payment by issuing AISM Securities and issues a sufficient
amount of AISM Securities to do so, such issue will satisfy that AISM Payment or, as the case may be, in the
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circumstances referred in the next paragraph, the relevant part of that AISM Payment, if the proceeds of those
AISM Securities are paid to holders of the applicable UK Capital Securities as described herein. QBE UK shall
procure that the purchase monies for AISM Securities purchased by QBE shall be paid by QBE to QBE UK or its
agent, who shall make payment thereof to the UK Capital Securities holders in respect of the applicable AISM
Payment on redemption of the applicable UK Capital Securities.
Notwithstanding the foregoing, QBE UK shall not be entitled to redeem any of the UK Capital
Securities until such time as QBE UK has available for, and the board of directors of QBE UK have the
corresponding authority to, issue a sufficient number of AISM Securities as is required to be issued for the
purposes of satisfying in full any AISM Payment required to be satisfied in connection with any such redemption
of the UK Capital Securities.
Redemption
QBE UK may, provided the UK Solvency Condition is satisfied and no APRA condition exists, subject
to QBE giving at least one month’s prior written notice to, and receiving no objection from the FSA (or such
shorter period as the FSA may accept and so long as there is a requirement to give such notice) and, subject to the
prior written approval of APRA, if required, and any other applicable regulatory approval (if required under the
laws and guidelines then applicable) subject to QBE UK being in compliance with any capital resources
requirements applicable to it from time to time (and a certificate from any two directors of QBE UK confirming
such compliance will be conclusive evidence of such compliance), and subject to QBE UK being able to issue a
sufficient number of AISM Securities (if applicable), redeem the UK Capital Securities:
• on any Interest Payment Date, in whole or in part, on or after the Step Up Date on one or more
occasions, or, prior to the Step Up Date, on any Business Day, in whole but not in part, following the
occurrence and during the continuance of a UK Capital Securities Tax Event, in each case, at the UK
Capital Securities Par Redemption Price; or
• prior to the Step Up Date, on any Business Day following the occurrence and during the continuance
of a UK Capital Securities Regulatory Event, in whole but not in part, at the UK Capital Securities
Make Whole Redemption Price,
provided, however, that the right of QBE UK to redeem the UK Capital Securities due to a UK Capital Securities
Tax Event or a UK Capital Securities Regulatory Event is subject to the condition that, if at the time there is
available to QBE, QBE UK or the Issuer, as applicable, the opportunity to eliminate, within 90 days of the
occurrence of that event, the UK Capital Securities Tax Event or UK Capital Securities Regulatory Event by
taking some ministerial action, such as filing a form or making an election, or pursuing some other similar
reasonable measure that in the absolute discretion of QBE UK has or will cause no adverse effect on QBE, any of
QBE’s subsidiaries or affiliates, the Issuer or the holders of the Capital Securities and will involve no material
cost, QBE will pursue or will cause QBE UK or the Issuer to pursue that measure in lieu of redemption. QBE UK
may not redeem any of the UK Capital Securities prior to the expiration of the earlier of (i) 90 days from the date
of the UK Capital Securities Tax Event or UK Capital Securities Regulatory Event and (ii) the date that QBE UK
determines in its absolute discretion that not redeeming the UK Capital Securities has or will cause an adverse
effect on QBE, any of QBE’s subsidiaries or affiliates, the Issuer or the holders of the Capital Securities or will
involve material cost.
The “UK Capital Securities Par Redemption Price” means an amount per £50,000 principal amount of
UK Capital Securities equal to the sum of (i) £50,000, (ii) any accrued but unpaid interest thereon, including any
deferred interest, which shall be paid in accordance with the Alternative Interest Settlement Mechanism; and
(iii) any Additional Amounts on the above.
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The “UK Capital Securities Make Whole Redemption Price” means an amount per £50,000 principal
amount of UK Capital Securities equal to the sum of:
Ranking
• the greater of (i) £50,000 and (ii) the price, expressed as a percentage (rounded to four decimal
places, 0.00005 being rounded upwards), of the principal amount of the UK Capital Security at which
the Gross Redemption Yield on the UK Capital Security on the Reference Date (assuming for this
purpose that the UK Capital Securities are to be redeemed at their principal amount on the Step Up
Date) is equal to the Gross Redemption Yield (determined by reference to the middle market price) at
3:00 p.m., London time, on the Reference Date of the Benchmark Gilt plus 0.75 per cent.;
• any accrued but unpaid interest thereon, including any deferred interest, which shall be paid in
accordance with the Alternative Interest Settlement Mechanism; and
• any Additional Amounts on the above.
For purposes of the foregoing definition:
• “Benchmark Gilt” means, in relation to any determination of the UK Capital Securities Make Whole
Redemption Price, the 4 per cent. Treasury Stock due September, 2016 or, if such stock is no longer
in issue, such other United Kingdom government security having a maturity date as near as possible
to the Step Up Date as the Calculation Agent, with the advice of the Reference Market Makers, may
determine to be appropriate;
• “Gross Redemption Yield” means, with respect to a security, the gross redemption yield on such
security, as calculated by the Calculation Agent on the basis set out by the United Kingdom Debt
Management Office in the paper “Formulae for Calculating Gilt Prices from Yields,” page 4, Section
One: Price/Yield Formulae “Conventional Gilts; Double dated and Undated Gilts with Assumed (or
Actual) Redemption on a Quasi Coupon Date” (published June 8, 1998, as amended or updated from
time to time) on a semi-annual compounding basis (converted to an annualized yield and rounded up,
if necessary, to four decimal places);
• “Reference Date” means the third Business Day prior to the applicable redemption date for the UK
Capital Securities; and
• “Reference Market Makers” means three brokers of gilts and/or gilt edged market makers selected by
the Calculation Agent in consultation with QBE UK.
The indebtedness of QBE UK evidenced by the UK Capital Securities (including principal, interest and
any Additional Amounts) will, in a winding-up of QBE UK, constitute direct, unsecured and subordinated
obligations of QBE UK. The rights and claims under the UK Capital Securities, prior to and in a winding up of
QBE UK, will rank senior to the claims of holders of the ordinary shares of QBE UK, equally with the claims of
holders of the most senior class of preference shares of QBE UK, if any, and junior to the claims of all Senior
Creditors (as defined in the definition of UK Solvency Condition), including holders of Upper Tier 2 securities,
under the FSA’s regulations, of QBE UK, if any.
Additional Amounts
All payments with respect to the UK Capital Securities will be made without withholding or deduction
for or on account of any Relevant Tax of whatever nature imposed or levied by or on behalf of a Relevant
Jurisdiction unless the withholding or deduction for or on account of that Relevant Tax is required by law. In that
event, QBE UK will pay such Additional Amounts as may be necessary in order that the net amounts received by
the holders of the UK Capital Securities after that withholding or deduction will equal the amount which would
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have been received with respect to the UK Capital Securities, in the absence of that withholding or deduction,
except that no Additional Amounts will be payable to a holder of the UK Capital Securities (or a third party on its
behalf) with respect to any UK Capital Securities to the extent that the Relevant Tax is imposed or levied by
virtue of that holder (or the beneficial owner of those UK Capital Securities):
• having some connection with the Relevant Jurisdiction, other than being a holder (or beneficial
owner) of those UK Capital Securities;
• not having made a declaration of non-residence in, or other lack of connection with, the Relevant
Jurisdiction or any similar claim for exemption, if QBE UK or its agent has provided the beneficial
owner of those UK Capital Securities or its nominee with at least 60 days’ prior written notice of any
opportunity to make that a declaration or claim;
• presenting a UK Capital Security for payment (whenever presentation is required) more than 30 days
after the date on which that payment first becomes due;
• presenting a UK Capital Security for payment (whenever presentation is required) to a paying agent
in a Member State of the European Union where that holder would have been able to avoid such
withholding or deduction by presenting that UK Capital Security to another paying agent in a
Member State of the European Union; or
• being subject to a withholding or deduction made pursuant to, or in relation to, European Council
Directive 2003/48/EC or any other Directive on implementing the conclusions of the ECOFIN
Council meeting of 26-27 November 2000 on the taxation of savings income or any law
implementing or complying with, or introduced in order to conform to, or in relation to, such
Directive.
Consolidation, Merger, Sale or Conveyance
QBE UK may not merge or consolidate with any entity or sell, assign, transfer, lease or convey all or
substantially all of its properties and assets to any person, firm, corporation or entity unless:
• it is the continuing entity or the successor entity expressly assumes its obligations under the UK
Capital Securities;
• neither it nor the successor entity is, immediately after the merger, consolidation, sale, assignment,
transfer, lease or conveyance, in default in the performance of the UK Capital Securities;
• the merger, consolidation, sale, assignment, transfer, lease or conveyance will not require QBE, QBE
UK or the Issuer to register as an investment company under the Investment Company Act; and
• in the case of a successor entity, if that successor entity is not organized and validly existing under the
laws of the United Kingdom, that successor entity expressly agrees:
• to indemnify each holder of the UK Capital Securities against any tax, assessment or governmental
charge required to be withheld or deducted from any payment to that holder as a consequence of
that merger, consolidation, sale, assignment, transfer, lease or conveyance; and
• that all payments pursuant to the UK Capital Securities will be made without withholding or
deduction for or on account of any Relevant Tax of whatever nature imposed or levied by or on
behalf of the jurisdiction of organization of the successor entity, or any political subdivision or
taxing authority thereof or therein, unless the withholding or deduction for or on account of that
Relevant Tax is required by law, in which case the successor entity will pay such additional
amounts in order that the net amounts received by the holders of the UK Capital Securities after
that withholding or deduction will equal the amount which would have been received with respect
to the UK Capital Securities in the absence of that withholding or deduction, subject to the same
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exceptions as would apply with respect to the payment by QBE UK of Additional Amounts with
respect to the UK Capital Securities (substituting the jurisdiction or organization of the successor
entity for the Relevant Jurisdiction) (see “—Additional Amounts”).
Upon any permitted merger, consolidation, sale, assignment, transfer, lease or conveyance, the
successor entity formed by that merger, consolidation, sale, assignment, transfer, lease or conveyance will
succeed to and be substituted for QBE UK as the obligor under the UK Capital Securities.
Event of Default
An event of default with respect to the UK Capital Securities will occur only if QBE UK consents to, or
a court or other governmental agency enters a decree or order for, the appointment of a receiver or liquidator in
any liquidation, insolvency or similar proceeding with respect to QBE UK or all of its property, and, in the case
of a decree or order, such decree or order shall have remained in force for a period of 60 or more days but it will
not be an event of default if it is under or in connection with a compromise arrangement or a scheme of
amalgamation or reconstruction not involving a bankruptcy or insolvency. The holder of the UK Capital
Securities will not be able to petition for the winding-up of QBE UK in the event of non-payment on the UK
Capital Securities, but will be limited to proving the debt in an insolvency of QBE UK.
Amendments
Except with respect to any amendments that will not materially adversely affect the rights of holders of
the UK Capital Securities, in which case no action will be required, the UK Capital Securities may be amended
only with the prior approval of the FSA and the holders of a majority of the aggregate principal amount of the
outstanding UK Capital Securities. In addition, if any of the Capital Securities are outstanding, the consent in
writing of the holders of at least a majority of the aggregate liquidation preference of the outstanding Capital
Securities or the sanction of a resolution, passed by holders of at least a majority of the aggregate liquidation
preference of the Capital Securities present or represented at a separate meeting at which a quorum is present or
represented holding at least one-third of the aggregate liquidation preference of the outstanding Capital
Securities, will be required in order to amend the UK Capital Securities so as to materially adversely affect the
rights of the holders of the UK Capital Securities or the Capital Securities.
No amendment or modification to the UK Capital Securities that will affect the treatment by APRA of
the Capital Securities may be made unless APRA consents to the amendment or modification.
No Set-Off
Subject to applicable law, a person claiming under or in connection with the UK Capital Securities may
not exercise or claim or plead any right of set-off, compensation or retention with respect to any amount owed to
it by QBE UK and each holder will have been deemed to have waived all such rights of set-off, compensation or
retention.
Governing Law
The UK Capital Securities will be governed by, and construed in accordance with, the laws of England
and Wales.
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DESCRIPTION OF THE QBE PREFERRED SECURITIES
The following summarizes some, but not all, of the material provisions of the QBE Preferred Securities.
The following summary does not purport to be complete and is subject to, and qualified by reference to, all of the
provisions of our constitution, the Exchange Agreement and the terms of issue of the QBE Preferred Securities.
General
Our constitution is largely comparable to the articles of incorporation and by-laws of a corporation
organized in the United States. Under our constitution, our board of directors is authorized to provide for the
issue of shares with such preferred, deferred or other rights as to dividends, entitlement to profit, voting, return of
capital or otherwise as our board of directors, in its discretion, may determine in accordance with the
requirements of our constitution. Our board of directors may also issue redeemable preference shares.
Our board of directors has authorized the creation and issue of the QBE Preferred Securities, which
constitute a class of our preference shares. As of the date of this Offering Memorandum, we have no other
preference shares outstanding. We may authorize additional issues of preference shares in the future, including
additional preference shares ranking equally with or senior or junior to the QBE Preferred Securities.
Pursuant to the Exchange Agreement, we will issue each QBE Preferred Security at an issue price equal
to £50,000. Upon issue, each QBE Preferred Security will be fully paid. We will pay dividends, if any, on the
QBE Preferred Securities in pounds sterling. Payments, if any, on our liquidation will be payable in pounds
sterling but may, in certain circumstances, be payable in Australian dollars. Upon issue, the amount paid up on
each QBE Preferred Security will be deemed to be £50,000.
The QBE Preferred Securities will be redeemable by us in our absolute discretion in the circumstances
described below under “—Redemption, Buy-back or Cancellation.” The QBE Preferred Securities will have the
dividend, voting, liquidation and other rights described below.
Except as described in this Offering Memorandum, a holder of QBE Preferred Securities will have no
further right to participate in our profits or surplus assets. Additionally, a holder of QBE Preferred Securities will
have no right to participate in our dividend plans or in any other new issues of securities issued by us to holders
of our ordinary shares.
If any stamp duty or similar charge is payable to the Australian Capital Territory (or any other
jurisdiction in which QBE is then incorporated) with respect to the transfer of the QBE Preferred Securities, QBE
will use its commercially reasonable best efforts to cause the QBE Preferred Securities to be listed on the Irish
Stock Exchange or another qualifying exchange or take such other measures as may be necessary to ensure that
the transfer of QBE Preferred Securities will not be chargeable with, or will be exempt from, any such stamp
duty or similar charge.
Initial Issuance
If the Exchange Event has occurred, we will, unless we are then prohibited by applicable statute,
governmental rule or regulation or court or administrative ruling, order or decree from allotting and issuing the
QBE Preferred Securities, as soon as practicable following the occurrence of the Exchange Event, deliver to
Citibank, N.A., as custodian for DTC and the Common Depositary, the number of QBE Preferred Securities
equal to the number of outstanding Rule 144A Capital Securities and Regulation S Capital Securities,
respectively, with instructions to credit the accounts of the holders of the Rule 144A Capital Securities and
Regulation S Capital Securities, respectively. Notwithstanding the above, we will not issue the QBE Preferred
Securities unless and until the QBE Preferred Securities are qualified for book-entry clearing and settlement
through the facilities of DTC, Euroclear and Clearstream, Luxembourg. See “Description of the Capital
Securities—Exchange Event.”
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Limitations on Issuance
If the Exchange Event is the appointment by APRA of a statutory manager or the assumption of control
of us by APRA, or we are otherwise prohibited by law from allotting and issuing the QBE Preferred Securities,
QBE we will only issue the QBE Preferred Securities if and when we cease to be under the control of a statutory
manager, under the control of APRA or otherwise prohibited by law from allotting and issuing the QBE
Preferred Securities.
Dividend Rights
Upon the occurrence of the Exchange Event and the issuance of the QBE Preferred Securities to the
holders of the Capital Securities, if, when and to the extent declared by our board of directors or an authorized
committee thereof, the holders of QBE Preferred Securities will be entitled to receive non-cumulative
preferential dividends on each QBE Preferred Security at a fixed rate per annum (the “Fixed Dividend Rate”) of
6.857 per cent. of the liquidation preference of £50,000 from and including the Distribution Payment Date on or
immediately preceding the day on which the Exchange Event occurred to but excluding the Step Up Date and
thereafter at a floating rate per annum (the “Floating Dividend Rate”) equal to the sum of 2.86 per cent. and
LIBOR of the liquidation preference of £50,000. The dividends payable on the QBE Preferred Securities for any
Dividend Period will be computed on the basis of a 365 or 366 day year, as the case may be, and the actual
number of days in the Dividend Period.
Dividends will, if payable, be paid at the Fixed Dividend Rate semi-annually in arrear on January 18 and
July 18 of each year until the Step Up Date, commencing January 18, 2007 (each, a “Fixed Rate Dividend
Payment Date”). If any Fixed Rate Dividend Payment Date falls on a day that is not a Business Day, the dividend
otherwise payable on that date may be paid on the next succeeding day that is a Business Day, without
adjustment of the amount of that dividend for interest or any other payment with respect to that delay, with the
same force and effect as if made on that Fixed Rate Dividend Payment Date. Dividends will, if payable, be paid
at the Floating Dividend Rate quarterly in arrear on January 18, April 18, July 18 and October 18 of each year,
from and including October 18, 2016 (each a “Floating Rate Dividend Payment Date,” provided that, if any
Floating Rate Dividend Payment Date would otherwise fall on a day that is not a Business Day, that Floating
Rate Dividend Payment Date will be the next succeeding day that is a Business Day, unless it would fall into the
next calendar month, in which case it will be the next preceding day that is a Business Day).
The Fixed Rate Dividend Payment Dates and the Floating Rate Dividend Payment Dates are referred to
herein collectively as “Dividend Payment Dates.” The period from and including the Distribution Payment Date
on or immediately preceding the day on which the Exchange Event occurs to but excluding the first Dividend
Payment Date and each period thereafter from and including a Dividend Payment Date to but excluding the next
following Dividend Payment Date is referred to herein as a “Dividend Period.” The record date for the payment
of a dividend will be the day, whether or not a Business Day, immediately preceding the relevant Dividend
Payment Date or, in the case of a Special Optional Dividend or an Optional Dividend, the scheduled date of
payment of that Special Optional Dividend or an Optional Dividend.
Dividends on the QBE Preferred Securities are not cumulative. This means that if our board of directors
or an authorized committee thereof does not declare or pay all or any part of a dividend payable on any Dividend
Payment Date or all or any part of such a dividend is not payable because an APRA Condition exists with respect
to that payment, then holders of the QBE Preferred Securities will have no right to receive that dividend at any
time, even if we pay other dividends in the future. If and to the extent we do not pay a dividend in full on any
Dividend Payment Date, unless we pay a Special Optional Dividend or an Optional Dividend, you will not
receive that dividend and will have no claim or entitlement (including, without limitation, on the winding-up of
QBE) to that dividend in the future, whether or not we subsequently pay dividends or have funds to pay
subsequent dividends. We will not be permitted to pay a dividend on the QBE Preferred Securities if an APRA
Condition exists unless otherwise approved in writing by APRA. In addition, our board of directors will not
declare a dividend to be payable if, in their opinion, making the payment would result in QBE becoming, or
being likely to become, insolvent for the purposes of the Corporation Act.
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Ranking
The QBE Preferred Securities will rank upon liquidation or winding-up and with respect to the
entitlement to dividends, (i) senior to the claims of the holders of ordinary shares of QBE, (ii) equally with the
claims of the holders of equally ranked securities and instruments of QBE, if any, and (iii) junior to the claims of
creditors of QBE.
QBE reserves the right to issue further QBE Preferred Securities, preference shares (whether
redeemable or not) or other securities which rank equally with or junior or senior to QBE Preferred Securities,
whether in respect of dividends (whether cumulative or not), return of capital on a liquidation or winding-up of
QBE or otherwise. Such an issue will not constitute a variation or cancellation of the rights attached to the then
existing QBE Preferred Securities.
Restrictions on Certain Payments
If:
• the Issuer fails and we, as guarantor, fail to pay in full a distribution on the Capital Securities on any
Distribution Payment Date;
• we fail to pay in full a dividend on the QBE Preferred Securities on any Dividend Payment Date; or
• the applicable redemption price with respect to any Capital Securities or QBE Preferred Securities
called for redemption is not paid in full on the applicable redemption date,
then, unless the holders of a majority of the aggregate liquidation preference of the outstanding Capital Securities
or the QBE Preferred Securities, as the case may be, otherwise consent, we may not:
unless and until,
• declare or pay any dividends, interest or other distributions on any other of our shares, debt
instruments or other instruments or securities that by their terms rank equally with or junior to the
Capital Securities Guarantee Agreement or the QBE Preferred Securities with respect to dividends,
interest or other similar payments other than proportionate payments on the Capital Securities
Guarantee Agreement, the QBE Preferred Securities and such other shares, debt instruments and other
instruments and securities that rank equally therewith with respect to dividends, interest or other
similar payments, or set aside any sum for those payments; or
• make a principal, liquidation or premium payment with respect to, or repurchase, redeem or otherwise
acquire for value legal or beneficial ownership of any other of our shares, debt instruments or other
instruments or securities that by their terms rank equally with or junior to the Capital Securities
Guarantee Agreement and the QBE Preferred Securities with respect to our liquidation or winding-up,
other than proportionate payments on or repurchase of the Capital Securities, Capital Securities
Guarantee Agreement, the QBE Preferred Securities and such other shares, debt instruments and other
instruments and securities that rank equally with the Capital Securities Guarantee Agreement and the
QBE Preferred Securities with respect to our liquidation or winding-up, or set aside any sum or
establish a sinking fund for that purpose,
• in the case of any failure to pay in full a distribution on the Capital Securities on any Distribution
Payment Date, we have paid with the prior written consent of APRA, if required, a dividend on the
QBE Preferred Securities on or within 21 Business Days after that Distribution Payment Date in an
aggregate amount equal to the unpaid amount of that distribution (a “Special Optional Dividend”);
• in the case of any failure to pay in full a distribution on the Capital Securities on any Distribution
Payment Date, we have paid (i) dividends on the QBE Preferred Securities in full on each Dividend
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Payment Date during a 12 consecutive calendar month period or (ii) with the prior written consent of
APRA, if required, an optional dividend on the QBE Preferred Securities (an “Optional Dividend”)
equal to the unpaid amount of the scheduled dividends on the QBE Preferred Securities and scheduled
distributions on the Capital Securities for the period of 12 months prior to the date of payment of the
Optional Dividend;
• in the case of any failure to pay in full a dividend on the QBE Preferred Securities on any Dividend
Payment Date, we have paid (i) dividends on the QBE Preferred Securities in full on each Dividend
Payment Date during a 12 consecutive calendar month period or (ii) with the prior written consent of
APRA, if required, an Optional Dividend equal to the unpaid amount of the scheduled dividends on
the QBE Preferred Securities for the period of 12 months prior to the date of payment of the Optional
Dividend; or
• in the case of any failure to pay in full the applicable redemption price with respect to any Capital
Securities or QBE Preferred Securities called for redemption, the applicable redemption price has
been paid in full.
However the foregoing restrictions do not apply to:
• repurchases (including buy-backs), redemptions or other acquisitions of our shares in connection with
(i) any employment contract, benefit plan or other similar arrangement with or for the benefit of any
one or more employees, officers, directors or consultants of ours or any entity we control, (ii) a
dividend reinvestment plan, dividend election plan or shareholder share purchase plan or (iii) the
issuance of our shares, or securities convertible into or exercisable for our shares, as consideration in
an acquisition entered into prior to the application of the restrictions;
• an exchange, redemption or conversion of any class or series of our shares, or any shares of a
subsidiary of ours, for any class of our shares, or of any class or series of our indebtedness for any
class or series of our shares;
• the purchase of fractional interests in our shares under the conversion or exchange provisions of the
shares or the security being converted or exchanged;
• any payment or declaration of a dividend in connection with any shareholder’s rights plan, or the
issuance of rights, shares or other property under any shareholder’s rights plan, or the redemption or
repurchase of rights pursuant to the plan; or
• any dividend in the form of shares, warrants, options or other rights where the dividend shares or the
shares issuable upon exercise of those warrants, options or other rights are the same class or series of
shares as those on which the dividend is being paid or rank equal or junior to those shares.
Subject to the foregoing and applicable law, including, without limitation, United States federal
securities laws and the Corporations Act, and APRA’s prior written approval, if required, we and our subsidiaries
may at any time and from time to time after the Closing Date purchase outstanding QBE Preferred Securities by
tender (or buy-back), in the open market or by private agreement.
Additional Amounts
We will make all payments with respect to the QBE Preferred Securities without withholding or
deduction for or on account of any relevant tax of whatever nature imposed or levied by or on behalf of Australia
or any other jurisdiction from which a payment thereon is made (or any respective political subdivision or taxing
authority thereof or therein) unless the withholding or deduction is required by law. In that event, we will pay
additional amounts as may be necessary so that the net amount received by the holders of the QBE Preferred
Securities after that withholding or deduction will equal the amount which would have been received with
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espect to the QBE Preferred Securities in the absence of that withholding or deduction, except that no additional
amounts will be payable to a holder of the QBE Preferred Securities (or a third party on its behalf) with respect to
any QBE Preferred Securities to the extent that the relevant tax is imposed or levied by virtue of that holder (or
the beneficial owner of those QBE Preferred Securities):
• having some connection with Australia or any other jurisdiction from which a payment thereon is
made (or any respective political subdivision or taxing authority thereof or therein), other than being a
holder (or beneficial owner) of those QBE Preferred Securities;
• not having made a declaration of non-residence in, or other lack of connection with, Australia or any
other jurisdiction from which a payment thereon is made (or any respective political subdivision or
taxing authority thereof or therein) or any similar claim for exemption, if we or our agent has
provided the beneficial owner of those QBE Preferred Securities or its nominee with at least 60 days’
prior written notice of any opportunity to make that a declaration or claim; or
• presenting a QBE Preferred Security for payment (whenever presentation is required) more than 30
days after the date on which that payment first becomes due.
Limitation on the Payment of Dividends
The payment of dividends is subject to our board of directors or an authorized committee thereof in their
sole discretion resolving or declaring to pay a dividend on the QBE Preferred Securities. Payment of dividends is
also subject to there being no APRA Condition then existing.
Under Australian law, dividends may only be paid out of the profits of a company.
Redemption, Buy-back or Cancellation
We have the right, subject to complying with all applicable laws and obtaining the prior written
approval of APRA, if required, to redeem the QBE Preferred Securities:
• in whole or in part, on the Step Up Date or any Dividend Payment Date thereafter, or, prior to the
Step Up Date on any Business Day, in whole but not in part, following the occurrence and during the
continuance of a QBE Tax Event, at the QBE Preferred Securities Par Redemption Price; or
• on any Business Day prior to the Step Up Date, in whole but not in part, following the occurrence and
during the continuance of a QBE Regulatory Event at the QBE Preferred Securities Make Whole
Redemption Price,
provided, however, that our right to redeem the QBE Preferred Securities due to a QBE Tax Event or a QBE
Regulatory Event is subject to the condition that, if at the time there is available to us the opportunity to
eliminate, within 90 days of the occurrence of that event, the QBE Tax Event or QBE Regulatory Event by taking
some ministerial action, such as filing a form or making an election, or pursuing some other similar reasonable
measure that in our absolute discretion has or will cause no adverse effect on us, any of our subsidiaries or
affiliates or the holders of the QBE Preferred Securities and will involve no material cost to any of these parties,
we will pursue that measure in lieu of redemption. We may not redeem any of the QBE Preferred Securities prior
to the expiration of the earlier of (i) 90 days from the date of the QBE Tax Event or QBE Regulatory Event and
(ii) the date that we determine in our absolute discretion that not redeeming the QBE Preferred Securities has or
will cause an adverse effect on us, any of our subsidiaries or affiliates or the holders of the QBE Preferred
Securities or will involve material cost to any of these parties.
In addition, upon the occurrence of an Acquisition Event, QBE will, subject to the prior written approval
of APRA, if required, redeem the QBE Preferred Securities in whole on any Business Day at least five (5) but not
more than twenty (20) Business Days after the occurrence of the Acquisition Event at the QBE Preferred
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Securities Make Whole Redemption Price. Upon the occurrence of an Acquisition Event after the occurrence of
the Exchange Event, we must notify holders of the QBE Preferred Securities of the occurrence thereof as soon as
practicable after becoming aware that an Acquisition Event has occurred.
QBE may also redeem the QBE Preferred Securities, subject to regulatory approval as described above,
in whole but not in part, at a price per QBE Preferred Security equal to the QBE Preferred Securities Make
Whole Redemption Price, on any Business Day prior to the Step Up Date if the Exchange Event was not QBE
exercising its right to cause the Exchange Event in its absolute discretion.
The “QBE Preferred Securities Par Redemption Price” means an amount per £50,000 liquidation
preference of QBE Preferred Securities equal to the sum of (i) £50,000, (ii) any declared but unpaid dividends for
the then current Dividend Period to but excluding the redemption date and, if the redemption date is on or within
twenty (20) Business Days following a Dividend Payment Date, any declared but unpaid dividends for the
immediately preceding Dividend Period and (iii) any additional amounts with respect to withholdings or
deductions on the above.
The “QBE Preferred Securities Make Whole Redemption Price” means an amount per £50,000
liquidation preference of QBE Preferred Securities equal to the sum of:
• the greater of (i) £50,000 and (ii) the price, expressed as a percentage (rounded to four decimal
places, 0.00005 being rounded upwards), of the liquidation preference of the QBE Preferred Security
at which the Gross Redemption Yield on the QBE Preferred Security on the Reference Date
(assuming for this purpose that the QBE Preferred Securities are to be redeemed at their liquidation
preference on the Step Up Date) is equal to the Gross Redemption Yield (determined by reference to
the middle market price) at 3:00 p.m., London time, on the Reference Date of the Benchmark Gilt
plus 0.75 per cent.;
• any declared but unpaid dividends for the then current Dividend Period to but excluding the
redemption date;
• if the redemption date is on or within twenty (20) Business Days following a Dividend Payment Date,
any declared but unpaid dividends for the immediately preceding Dividend Period; and
• any additional amounts with respect to withholdings or deductions on the above.
For purposes of the foregoing definition:
• “Benchmark Gilt” means, in relation to any determination of the QBE Preferred Securities Make
Whole Redemption Price, the 4 per cent. Treasury Stock due September, 2016 or, if such stock is no
longer in issue, such other United Kingdom government security having a maturity date as near as
possible to the Step Up Date as the Calculation Agent, with the advice of the Reference Market
Makers, may determine to be appropriate;
• “Gross Redemption Yield” means, with respect to a security, the gross redemption yield on such
security, as calculated by the Calculation Agent on the basis set out by the United Kingdom Debt
Management Office in the paper “Formulae for Calculating Gilt Prices from Yields,” page 4, Section
One: Price/Yield Formulae “Conventional Gilts (Double dated and Undated Gilts with Assumed (or
Actual) Redemption on a Quasi Coupon Date”) published June 8, 1998, as amended or updated from
time to time) on a semi-annual compounding basis (converted to an annualized yield and rounded up,
if necessary, to four decimal places);
• “Reference Date” means the third Business Day prior to the applicable redemption date for the QBE
Preferred Securities; and
• “Reference Market Makers” means three brokers of gilts and/or gilt edged market makers selected by
the Calculation Agent in consultation with QBE.
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We may not buy-back or cancel the QBE Preferred Securities, except in the case of buy-backs in the
open market, prior to the Step Up Date other than in cases where we could also have redeemed the QBE
Preferred Securities as described above.
We must give notice of any redemption, buy-back or cancellation, except in the case of buy-backs on
the open market, not less than 30 nor more than 60 days prior to the date fixed for the redemption, buy-back or
cancellation. We must mail the notice by first-class mail to the registered address of the holders of the QBE
Preferred Securities. Each notice of redemption, buy-back or cancellation of QBE Preferred Securities must state
(i) the redemption, buy-back or cancellation date, (ii) if less than all outstanding QBE Preferred Securities are
subject to redemption, buy-back or cancellation, the identification of the QBE Preferred Securities subject to
redemption, buy-back or cancellation, (iii) that, as from the redemption, buy-back or cancellation date, dividends
will cease to be calculated and payable and the only rights holders of QBE Preferred Securities will have will be
to obtain the applicable redemption, buy-back or cancellation price payable in accordance with the terms of issue
of the QBE Preferred Securities, (iv) the place or places where the certificates, if any, for the QBE Preferred
Securities may be submitted, (v) which, or which combination of redemption, buy-back or cancellation we intend
to do and in each case the applicable redemption, buy-back or cancellation price and (vi) any other information
required by any stock exchange or quotation system where the QBE Preferred Securities are then listed or quoted
as otherwise required by applicable law.
If we give a notice of redemption with respect to the QBE Preferred Securities, which notice will be
irrevocable, then, by 12:00 noon, London time, on the redemption date, we will irrevocably deposit with DTC,
Euroclear and Clearstream, Luxembourg cash sufficient to pay the amount payable on redemption of the QBE
Preferred Securities to be redeemed and will give DTC, Euroclear and Clearstream, Luxembourg irrevocable
instructions and authority to pay the redemption amount to holders of the QBE Preferred Securities to be
redeemed. See “Description of the Capital Securities—The Depository Trust Company” and “—Euroclear and
Clearstream, Luxembourg.”
If fewer than all of the outstanding QBE Preferred Securities are redeemed, the QBE Preferred
Securities will be redeemed on a proportionate basis in accordance with the procedures of DTC, Euroclear and
Clearstream, Luxembourg or any successor depository. In the case of any partial buy-back, we or our registrar
will select the QBE Preferred Securities for buy-back in compliance with the requirements of the principal
securities exchange or quotation system, if any, on which the QBE Preferred Securities are then listed or quoted,
or if the QBE Preferred Securities are not listed on a securities exchange, proportionately, by lot or such other
method as we, in our sole discretion, deem fair and appropriate. In the case of a partial redemption or buy-back,
the number of QBE Preferred Securities remaining after the redemption or buy-back must be not less than the
minimum number of shares required to maintain any listing or quotation of the QBE Preferred Securities on any
stock exchange on which they are listed or any quotation system on which they are quoted immediately prior to
the partial redemption or buy-back.
If we have given notice of redemption, buy-back or cancellation and have deposited cash as required,
then immediately prior to the close of business on the day preceding the redemption, buy-back or cancellation,
dividends will cease to accrue on the QBE Preferred Securities redeemed, bought-back or cancelled and all rights
of holders of any QBE Preferred Securities called for redemption, buy-back or cancellation will cease, except the
right of the holders of those QBE Preferred Securities to receive the applicable redemption, buy-back or
cancellation price, and those QBE Preferred Securities will cease to be outstanding. If any date fixed for
redemption, buy-back or cancellation of the QBE Preferred Securities is not a Business Day, then we will pay the
amount payable on the next succeeding day that is a Business Day, without any interest or other payment with
respect to the amount payable.
If we improperly withhold or refuse payment of the applicable redemption, buy-back or cancellation
price with respect to a redemption, buy-back or cancellation of the QBE Preferred Securities, interest at the
annual rate in effect for the current Dividend Period, or if the date fixed for redemption, buy-back or cancellation
is a Dividend Payment Date, the immediately preceding Dividend Period, will accrue on the applicable
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edemption, buy-back or cancellation price from the date on which the redemption, buy-back or cancellation was
due to the date of payment.
Each holder of QBE Preferred Securities from time to time agrees with us on terms set out in the buyback
agreement, that, upon us determining to buy-back the QBE Preferred Securities and following the
procedures for buy-back in the terms of issue of the QBE Preferred Securities (including the giving of a buy-back
notice), they will be deemed to have sold to us the QBE Preferred Securities that are the subject of that buy-back.
This agreement will have no force or effect with respect to any QBE Preferred Securities until we have sent a
buy-back notice and procured all necessary approvals in accordance with the terms of issue of the QBE Preferred
Securities.
If we determine to cancel any QBE Preferred Securities as described above, we must obtain all consents,
including any applicable approval by our shareholders and any regulatory consents, required to cancel the QBE
Preferred Securities and we must give notice to holders of the QBE Preferred Securities to be cancelled.
The Corporations Act provides that redeemable preference shares, which include the QBE Preferred
Securities, may be redeemed only if they are fully paid up and then only out of profits or out of the proceeds of
an allotment of unissued shares made for purposes of the redemption.
Depending on the circumstances relating to a proposed buy-back, our right to elect to buy-back any of
the QBE Preferred Securities may be subject to the approval of our ordinary shareholders by a special resolution.
No variation to the rights attached to the QBE Preferred Securities that will affect the treatment by
APRA of the QBE Preferred Securities may be made unless APRA consents to the amendment or modification.
Rights Upon Liquidation
On our liquidation or winding-up (other than with respect to a solvent reconstruction in relation to
forming a holding company), whether voluntary or otherwise, before any distribution of surplus assets to holders
of our ordinary shares or any other class of our shares ranking junior to the QBE Preferred Securities, the holders
of the QBE Preferred Securities will be entitled to receive a liquidation preference out of surplus assets per QBE
Preferred Security equal to the sum of (i) £50,000, (ii) any declared but unpaid dividends for the then current
Dividend Period to but excluding the day of liquidation or winding-up and, if the liquidation or winding-up date
is on or within twenty (20) Business Days following a Dividend Payment Date, any declared and unpaid
dividends for the immediately preceding Dividend Period and (iii) any additional amounts with respect to
withholdings or deductions.
A holder of QBE Preferred Securities will have no further or other right to participate in our profits or
assets or a return of capital in our liquidation or winding-up.
Foreign Currency
Where any sum is payable by us to a holder of QBE Preferred Securities in a currency other than
Australian dollars and that sum is not paid when due or we have commenced a liquidation or winding-up (other
than with respect to a solvent reconstruction in relation to forming a holding company), that holder may elect by
notice in writing to us to require instead payment of an amount in Australian dollars equal to, if a sum is not paid
when due, that foreign currency amount calculated by applying the spot settlement rate (on the date of payment
of the amount in Australian dollars or, if that day is not a Business Day, on the Business Day immediately
preceding the date of payment) for the purchase of the relevant currency with Australian dollars.
Notices and meetings
The holders of QBE Preferred Securities will have the same rights as holders of ordinary shares of QBE
to receive accounts, reports and notice of meetings and to attend any general meetings of QBE.
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Voting rights
The holders of QBE Preferred Securities will be entitled to speak and vote at general meeting of QBE
only in the following circumstances:
• during a period in which a dividend (or part of a dividend) in respect of the QBE Preferred Securities
is in arrears;
• on a proposal to reduce QBE’s share capital;
• on a resolution to approve the terms of a buy-back agreement;
• on a proposal that affects rights attached to the QBE Preferred Securities;
• on a proposal to wind-up QBE;
• on a proposal for the disposal of the whole of the property, business and undertaking of QBE; and
• during the winding-up of QBE.
In these situations, the holder of a QBE Preferred Security has the same right to vote (both on a show of
hands and a poll) as the holder of an ordinary share of QBE.
We will cause a notice of any meeting at which holders of the QBE Preferred Securities are entitled to
vote and any voting forms to be mailed to each holder of record of the QBE Preferred Securities. Each notice will
include a statement setting forth (i) the date, time and place of the meeting, (ii) a description of any resolution to
be proposed for adoption at the meeting on which the holders of the QBE Preferred Securities are entitled to vote
and (iii) instructions for the delivery of proxies.
Variation of Rights Attached to the QBE Preferred Securities
In general, the rights and privileges attached to the QBE Preferred Securities may not be varied or
abrogated except with any required regulatory or governmental approvals and with (i) the approval of a
resolution passed at a meeting of the holders of the QBE Preferred Securities by the affirmative vote of holders
holding at least 75% of the issued QBE Preferred Securities or (ii) if a quorum for a meeting of the holders of the
QBE Preferred Securities is not obtained or if an approving resolution is not carried at a meeting of those holders,
the consent in writing of the holders holding at least 75% of the issued QBE Preferred Securities. The provisions
of QBE’s constitution relating to general meetings apply to meetings of the holders of QBE Preferred Securities
so far as they are capable of application, and with any necessary modifications. However, subject to complying
with all applicable laws, we may without the authority, assent or approval of the holders of the QBE Preferred
Securities amend or add to the terms of issue of the QBE Preferred Securities if we consider that such
amendment or addition:
• is of a formal, minor or technical nature;
• is made to correct a manifest error; or
• is not likely (taken as a whole and in conjunction with all other modifications, if any, to be made
contemporaneously with that modification) to be materially prejudicial to the interests of the holders
of the QBE Preferred Securities.
No variation to the rights attached to the QBE Preferred Securities that will affect the treatment by
APRA of the QBE Preferred Securities may be made unless APRA consents to the amendment or modification.
No Restriction on Further Issues of Preference Shares by QBE
The allotment or issue of preference shares, or the conversion of existing shares into preference shares,
whether entitled to cumulative or non-cumulative dividends, or a redemption, buy-back or return or distribution
of capital with respect to any share capital other than a preference share, whether ranking equally with or senior
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or junior to the QBE Preferred Securities, is expressly permitted and authorized and does not constitute a
modification or variation of the rights or privileges to the QBE Preferred Securities then on issue. The approval
of the holders of the QBE Preferred Securities will not be required for such allotment or issue of preference
shares or the conversion of existing shares into preference shares.
Registration of Transfer and Exchange
Subject to our constitution, and as described under “Notice to Investors,” interests in QBE Preferred
Securities held in book-entry form will be subject to the same transfer restrictions applicable to the Capital
Securities to the extent applicable in the circumstances existing at that time as described under “Description of
the Capital Securities—Registration of Transfer and Exchange.”
Any share certificates for QBE Preferred Securities delivered following the Exchange Event will be held
by Citibank, N.A., as custodian for DTC and the Common Depositary, and will also be in the form of one or
more Global Certificates representing the aggregate liquidation preference of the QBE Preferred Securities and
will be registered in the name of Cede & Co. or Citivic. Holders of the QBE Preferred Securities will hold those
shares as beneficiary and in book-entry form in the same way (to the extent applicable) as the Capital Securities
are held as described under “Description of the Capital Securities—The Depository Trust Company” and “—
Euroclear and Clearstream, Luxembourg.”
No Set-Off
A holder of QBE Preferred Securities may not exercise or seek to exercise or take any proceedings for
the exercising of any right of set-off or counterclaim against us under the QBE Preferred Securities with respect
to any claim by us against that holder.
Restrictions on Ownership and Transfer
Mergers, acquisitions and divestments of Australian public companies listed on the Australian Stock
Exchange (the “ASX”) are regulated by detailed and comprehensive legislation and the rules and regulations of
the ASX.
One way in which a controlling shareholding is acquired in an Australian public company listed on the
ASX is by an offer under a takeover bid. The form and content of the documentation is regulated by Australian
law. Australian law may apply to transactions outside Australia with respect to non-Australian companies if that
transaction affects the control of voting shares in an Australian company.
Australian law also regulates the acquisition of shares in Australian companies by foreigners and
acquisitions which would have the effect, or be likely to have the effect, of substantially lessening competition in
a market in Australia or in a State or Territory thereof.
Takeover and Substantial Shareholder Provisions
Except through certain means of acquisition (including an acquisition under a takeover bid pursuant to a
Corporations Act regulated takeover bid), section 606 of the Corporations Act prohibits a person from acquiring
a relevant interest in issued voting shares of a company listed on the ASX, if the person acquires the relevant
interest through a transaction in relation to securities entered into by, or on behalf of, the person and as a result of
the transaction the person’s (together with its associates) voting power in the company or managed investment
scheme increases:
• from 20% or below to more than 20%; or
• from a starting point that is above 20% and below 90%.
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In addition, if the person (together with its associates) begins to have a relevant interest in 5% or more
of the total number of votes attached to voting shares in a listed company, that person will also be required to
make disclosures as to its substantial holdings under section 671B of the Corporations Act and will be a
“substantial holder.” A substantial holder is also required to make disclosure if there is an increase or decrease of
at least 1% in its (together with its associates) holding of votes attached to voting shares in a listed company.
Generally, the concept of a voting share does not include certain types of preference shares with limited
voting rights. The QBE Preferred Securities are not voting shares for these purposes.
Foreign Acquisitions and Takeovers Act 1975
The Foreign Acquisitions and Takeovers Act 1975 (“FATA”) empowers the Treasurer of Australia (the
“Treasurer”) to prohibit a proposed acquisition of shares in an Australian corporation where the result of the
acquisition will be that a foreign person (together with its associates) would have an interest of not less than 15%
of the issued shares in the corporation, or two or more foreign persons (together with their associates) would in
aggregate have an interest of not less than 40% of the issued shares in the corporation. Where such an acquisition
has already occurred, the Treasurer has the power to order a person who acquired the shares to dispose of them.
The concepts of acquisition, interest, associate and foreign person are widely defined in FATA. In addition,
FATA requires certain persons who propose to make such acquisitions first to notify the Treasurer of their
intention to do so.
Financial Sector (Shareholdings) Act 1998
Under the Financial Sector (Shareholdings) Act 1998 (the “FSSA”) a person is prohibited from
acquiring, or acquiring an interest in, one or more voting shares of a financial sector entity such as us if the
person, and any associates of the person, will have in aggregate a stake that exceeds 15% of the voting power of
that entity. Contravention of this provision constitutes an offence. Furthermore, in the event that a person
contravenes this provision, the Treasurer is empowered to apply to the Federal Court of Australia for an order,
among others, directing the sale of such shares.
The Treasurer is empowered under the FSSA to approve the holding of a stake of more than 15% if the
applicant satisfies the Treasurer that it is in the national interest of Australia to approve the applicant holding
such a stake.
Governing Law
The QBE Preferred Securities will be governed by, and construed in accordance with, the laws of New
South Wales, Australia.
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TAXATION
Certain United States Federal Income Tax Consequences
IRS Circular 230 Disclosure
To ensure compliance with Internal Revenue Service Circular 230, prospective investors are hereby
notified as follows: any discussion of United States federal tax matters set forth in this Offering Memorandum
(a) is not intended or written to be legal or tax advice to any prospective investor or other person and is not
intended or written to be used or relied on, and cannot be used or relied on, by any such person for the purpose of
avoiding any United States federal tax penalties that may be imposed on such person, and (b) is written in
connection with the promotion and marketing by QBE and the Issuer of the Capital Securities and the QBE
Preferred Securities. Each prospective investor should seek advice based on its particular circumstances from an
independent tax advisor.
Discussion
This section describes certain material United States federal income tax consequences of purchasing,
owning, and disposing of the Capital Securities and the QBE Preferred Securities. It applies only to holders that
acquire the Capital Securities in this offering and that hold the Capital Securities or the QBE Preferred Securities
as capital assets for tax purposes. This section does not apply to a holder that is a member of a class of holders
subject to special rules, such as dealers in securities or currencies, traders in securities that elect to use a
mark-to-market method of accounting, banks, regulated investment companies, real estate investment trusts,
tax-exempt organizations, persons liable for the alternative minimum tax, life insurance companies, persons that
own the Capital Securities or the QBE Preferred Securities as part of a hedge, straddle, integrated transaction or
conversion transaction for tax purposes, or US holders (as defined below) whose functional currency for tax
purposes is not the US dollar.
This section is based on the Internal Revenue Code of 1986, as amended (the “Code”), its legislative
history, existing and proposed Treasury Regulations, published Internal Revenue Service (“IRS”) rulings and
court decisions, all as currently in effect. These laws are subject to change, possibly with retroactive effect.
As used herein, the term “US holder” means a beneficial owner of the Capital Securities or the QBE
Preferred Securities that is (i) a citizen or resident of the United States, (ii) a corporation or other entity treated as
a corporation that is created or organized in or under the laws of the United States or any state, (iii) an estate
whose income is subject to United States federal income tax regardless of its source, or (iv) a trust if a United
States court can exercise primary supervision over the trust’s administration and one or more United States
persons are authorized to control all substantial decisions of the trust. In addition, to the extent provided in
Treasury Regulations, certain trusts in existence on August 20, 1996 and treated as United States persons prior to
that date that elect to continue to be treated as United States persons also will be US holders. As used herein, the
term “non-US holder” means a beneficial owner of the Capital Securities or the QBE Preferred Securities that is
not a US holder.
If a partnership holds the Capital Securities or the QBE Preferred Securities, the United States federal
income tax treatment of a partner will generally depend on the status of the partner and the tax treatment of the
partnership. A partner in a partnership holding the Capital Securities or the QBE Preferred Securities should
consult its tax advisor with regard to the United States federal income tax treatment of an investment in the
Capital Securities or the QBE Preferred Securities.
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Prospective investors should consult their own tax advisors concerning the United States federal
income tax consequences of purchasing, owning, and disposing of the Capital Securities or the QBE
Preferred Securities, as well as the effect of any state, local, and foreign tax laws, in light of their particular
circumstances.
US Holders
General
Under current law and assuming full compliance with the terms of the Limited Partnership Agreement
and the timely filing by the Issuer with the IRS of an appropriate entity classification election form, the Issuer
will be treated as a partnership for United States federal income tax purposes, and not as a publicly traded
partnership or an association taxable as a corporation. As a partnership, the Issuer will not be a taxable entity for
United States federal income tax purposes and will incur no United States federal income tax liability. The
Capital Securities will be treated as partnership interests in the Issuer. By holding the Capital Securities , each US
holder will be considered a partner in a partnership and will be required to take into account its distributive share
(as determined for United Stated federal income tax purposes) of income, gain, loss, deduction, expense and
credit of the Issuer, regardless of the actual amounts that are distributed to the US holder. Accordingly, each US
holder must include in income its allocable share of the Issuer’s income, gain and loss with respect to the UK
Capital Securities, subject to the Foreign Currency Rules discussed below. As the Issuer is a foreign partnership,
it will not file IRS Form 1065 and will not deliver Schedule K-1s to US holders. However, the General Partner
shall, upon the request of any US holder, provide equivalent information to enable such US holder to report its
allocable share of the items of the Issuer on the US holder’s United States federal income tax returns.
The tax treatment of any payments made pursuant to the Capital Securities Guarantee Agreement
(including any Additional Amounts paid in respect of foreign taxes) is not entirely certain. Accordingly, US
holders should consult their own tax advisors regarding the tax treatment of any payments received pursuant to
the Capital Securities Guarantee Agreement.
Distributions on the UK Capital Securities
Although there is no statutory, judicial or administrative authority that directly addresses the United
States federal income tax treatment of an issuance of securities similar to the UK Capital Securities, it is likely
that the UK Capital Securities will be treated as equity in QBE UK for United States federal income tax
purposes. The discussion below assumes that the UK Capital Securities will be so treated. Subject to the passive
foreign investment company (“PFIC”) rules and the Foreign Currency Rules discussed below, the gross amount
of any distributions on the UK Capital Securities to the Issuer (including any Additional Amounts paid in respect
of foreign taxes) that are allocable to a US holder will be subject to United States federal income taxation. Any
amount withheld from a distribution in respect of foreign withholding taxes must be included in this gross
amount even though it is not in fact received. Although it is not certain, any such distribution, to the extent
received by an individual in a taxable year beginning on or before December 31, 2010, should be eligible for the
preferential rate of taxation generally applicable to dividends received by individual investors, subject to the
PFIC rules discussed below. However, distributions on the UK Capital Securities will not be eligible for the
dividends-received deduction generally allowed to United States corporations in respect of dividends received
from other United States corporations.
Distributions on the UK Capital Securities that are allocated to a US holder will be treated as income
from sources outside the United States. Distributions on the UK Capital Securities that are made in taxable years
beginning on or before December 31, 2006 generally will constitute either passive income or financial services
income, each of which is treated separately from other types of income for purposes of computing the foreign tax
credit allowable to a US holder. Distributions on the UK Capital Securities that are made in taxable years
beginning after December 31, 2006 will constitute either passive income or general category income for purposes
of computing the foreign tax credit allowable to a US holder.
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Redemption of the UK Capital Securities
Subject to the PFIC rules and the Foreign Currency Rules discussed below, upon the redemption of the
UK Capital Securities, a US holder generally will recognize capital gain or loss for United States federal income
tax purposes equal to such US holder’s allocated share of the difference between the US dollar value of the
amount realized by the Issuer upon the redemption and the Issuer’s adjusted tax basis, determined in US dollars,
in the UK Capital Securities.
Distributions on the Capital Securities
Subject to the Foreign Currency Rules discussed below, nonliquidating distributions made to a US
holder by the Issuer with respect to the Capital Securities will generally not be taxable to the US holder but rather
will reduce the US holder’s tax basis in the Capital Securities (determined in the manner described below under
“—Sale, Exchange, Redemption, or Other Disposition of the Capital Securities”). If a US holder receives a
nonliquidating distribution with respect to the Capital Securities that is in excess of the US holder’s aggregate tax
basis in the Capital Securities, the US holder will recognize gain in an amount equal to such excess, treated in the
manner described below under “—Sale, Exchange, Redemption, or Other Disposition of the Capital Securities.”
Sale, Exchange, Redemption, or Other Disposition of the Capital Securities
Subject to the PFIC rules and the Foreign Currency Rules discussed below, a US holder generally will
recognize gain or loss on the sale, exchange, redemption, or other disposition of the US holder’s Capital
Securities (including a disposition of the UK Capital Securities upon the liquidation of the Issuer) equal to the
difference between the fair market value of the amount the US holder receives on the sale, exchange, redemption,
or other disposition and the US holder’s tax basis in the Capital Securities, both valued in US dollars. A US
holder’s tax basis in the Capital Securities generally will be equal to the amount such US holder paid for the
Capital Securities, (i) increased by the amount of income and gain allocated to the US holder, and (ii) decreased
by the amount of cash or other property distributed to the US holder and by the amount of any loss allocated to
the US holder.
Gain or loss from the sale, exchange, redemption, or other disposition of the Capital Securities generally
will be treated as capital gain or loss. Capital gain of a noncorporate US holder that is recognized in taxable years
beginning before January 1, 2011 generally will be taxed at a maximum rate of 15 percent if the US holder has a
holding period that is greater than one year. The deductibility of capital losses is subject to limitations.
PFIC Rules
As discussed above, it is likely that the UK Capital Securities will be treated as equity in QBE UK for
United States federal income tax purposes. The Issuer believes, however, that QBE UK is not a PFIC. This
conclusion is a factual determination that is made annually and thus may be subject to change. For purposes of
the PFIC rules, stock owned by a partnership such as the Issuer is treated as proportionately owned by its
partners. If QBE UK were to be treated as a PFIC, and subject to the Foreign Currency Rules discussed below,
gain realized on the direct or indirect sale, exchange, redemption, or other disposition of the UK Capital
Securities in general would not be treated as capital gain. Instead, a US holder generally would be treated as if
the US holder had realized gain on the direct or indirect disposition of the UK Capital Securities as well as
certain “excess distributions” ratably over the US holder’s holding period for the UK Capital Securities and
would be taxed at the highest tax rate in effect for each such year to which the gain or the excess distributions
were allocated, together with an interest charge in respect of the tax attributable to each such year. In addition,
any distribution on the UK Capital Securities would not be eligible for the preferential rate of taxation generally
applicable to dividends received by individual investors. With certain exceptions, the UK Capital Securities will
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e treated as stock in a PFIC with respect to a US holder if QBE UK were a PFIC at any time during such US
holder’s holding period in the UK Capital Securities. If a US holder owns the Capital Securities during any year
that QBE UK is a PFIC with respect to such US holder, such US holder generally will be required to file IRS
Form 8621.
QBE Preferred Securities
The substitution of the QBE Preferred Securities for the Capital Securities upon the occurrence of an
Exchange Event will be a taxable event for United States federal income tax purposes. Thus, a US holder
generally would recognize gain or loss on the substitution as described above under “—Sale, Exchange,
Redemption, or Other Disposition of the Capital Securities.” A US holder’s initial tax basis in the QBE Preferred
Securities received upon the occurrence of an Exchange Event will equal the fair market value of its QBE
Preferred Securities on the date of the substitution.
The gross amount of any distributions received by a US holder (before reduction for any foreign
withholding taxes) with respect to the QBE Preferred Securities, valued in US dollars, will be subject to United
States federal income tax. Although it is not certain, such dividends, to the extent received by an individual in a
taxable year beginning on or before December 31, 2010, should be eligible for the preferential rate of taxation
generally applicable to dividends received by individual investor, subject to the PFIC rules discussed below.
However, any such dividends will not be eligible for the dividends received deduction generally allowed to
United States corporations in respect of dividends received from other United States corporations.
Distributions on the QBE Preferred Securities that are received by a US holder will be treated as income
from sources outside the United States. Distributions on the QBE Preferred Securities that are paid in taxable
years beginning on or before December 31, 2006 generally will constitute either passive income or financial
services income, which is treated separately from other types of income for purposes of computing the foreign
tax credit allowable to a US holder. Distributions on the QBE Preferred Securities that are paid in taxable years
beginning after December 31, 2006 will constitute either passive income or general category income for purposes
of computing the foreign tax credit allowable to a US holder.
Upon a sale, exchange, redemption, or other disposition of the QBE Preferred Securities, a US holder
generally will recognize capital gain or loss equal to the difference between the amount realized on the
disposition and the US holder’s adjusted tax basis in the QBE Preferred Securities, both valued in US dollars,
subject to the discussion below with respect to the potential application of the PFIC rules. Any such capital gain
or loss generally will be long-term capital gain or loss if the US holder held the QBE Preferred Securities for
more than one year immediately prior to the disposition. Long-term capital gain of non-corporate US holders
recognized in taxable years beginning before January 1, 2011 generally will be taxed at a maximum rate of 15
percent. The deductibility of capital losses is subject to limitations.
The Issuer believes that QBE is not a PFIC. This conclusion is a factual determination that is made
annually and thus may be subject to change. If QBE were to be treated as a PFIC, gain realized on the sale,
exchange, redemption, or other disposition of the QBE Preferred Securities generally would not be treated as
capital gain. Instead, a US holder generally would be treated as if the US holder had realized gain on the
disposition of the QBE Preferred Securities as well as certain “excess distributions” ratably over the US holder’s
holding period for the QBE Preferred Securities and would be taxed at the highest tax rate in effect for each such
year to which the gain or the excess distributions were allocated, together with an interest charge in respect of the
tax attributable to each such year. In addition, any distribution on the QBE Preferred Securities would not be
eligible for the preferential rate of taxation generally applicable to dividends received by individual investors.
With certain exceptions, the QBE Preferred Securities will be treated as stock in a PFIC with respect to a US
holder if QBE were a PFIC at any time during such US holder’s holding period in the QBE Preferred Securities.
If a US holder owns the QBE Preferred Securities during any year that QBE is a PFIC with respect to such US
holder, such US holder generally will be required to file IRS Form 8621.
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Foreign Currency Rules
The US tax rules governing transactions involving foreign currency (in this case, pounds sterling) (the
“Foreign Currency Rules”) are complex and uncertain in many respects. Accordingly, the tax treatment of the
foreign currency aspects of an investment in the Capital Securities and the QBE Preferred Securities is not free
from doubt, and investors are urged to consult their own tax advisors.
As discussed above, in general a US holder must include in income its annual allocations of items of
taxable income, gain, deduction and loss from a partnership such as the Issuer. These allocations will be made in
pounds sterling, because that is the Issuer’s functional currency. They should be translated from pounds sterling
into US dollars at the weighted average exchange rate for the taxable year. The precise rules that would apply to
a US holder in connection with translating the annual allocations described above from pounds sterling into US
dollars are unclear.
Under one possible analysis, a US holder’s interest in the Issuer may be subject to the “branch
transaction” rules of section 987 of the Code. These rules apply to any taxpayer having a “qualified business
unit” (“QBU”) with a functional currency other than the US dollar. Among other things, in order to constitute a
QBU, an entity must conduct activities which constitute a trade or business and the entity must maintain a
separate set of books and records with respect to those activities. A partnership is treated as a QBU of each
partner for this purpose. The Issuer’s functional currency is pounds sterling, and therefore section 987 of the
Code may apply to a US holder of the Capital Securities.
Section 987 of the Code generally requires that a taxpayer having a QBU make “proper adjustments (as
prescribed by the Secretary) for transfers of property between QBUs having different functional currencies.” The
Code also (i) treats gain or loss recognized pursuant to section 987 of the Code (“section 987 gain or loss”) as
ordinary income or loss, (ii) treats remittances from the QBU as made pro rata out of the QBU’s post-1986
accumulated earnings and (iii) sources any resulting gain or loss by reference to the source of the income out of
which it was made.
In 1991, the Treasury issued proposed regulations with respect to provisions of section 987 of the Code
(the “Proposed Regulations”) that are relevant to the present transaction, but they have not been finalized and the
IRS has indicated dissatisfaction with the Proposed Regulations. Nevertheless, the Proposed Regulations are the
only administrative guidance available for many of the foreign currency issues raised for US holders. Moreover,
the Proposed Regulations generally require that transactions entered into prior to the issuance of final regulations
be reported “consistent with the principles” of the Proposed Regulations.
In general, the Proposed Regulations require taxpayers to maintain two accounts for purposes of
calculating section 987 gain or loss with respect to a non-US dollar QBU: an “equity pool,” which is kept in the
functional currency of the QBU (pounds sterling in this case), and a “basis pool,” which is kept in US dollars.
The equity pool is initially the adjusted basis of the assets transferred to the QBU on formation, less the amount
of the QBU’s liabilities on formation. The equity pool is adjusted annually to take into account the QBU’s profit
or loss, certain previously taxed amounts, and any amounts transferred to or from the QBU during the year, all
computed in the functional currency of the QBU (pounds sterling in this case). The basis pool is also initially the
amount transferred to the QBU on formation, but in US dollars, and is adjusted annually to take into account the
US dollar equivalent of the equity pool adjustments.
At the end of each year, a QBU’s income (or loss) is calculated in foreign currency and converted to US
dollars at the weighted average exchange rate. These amounts are added to (or subtracted from) the equity and
basis pools, respectively. Upon a “remittance” from the QBU (here, the Issuer), the taxpayer may recognize
section 987 gain or loss. The amount of such gain or loss is calculated as the difference between (i) the amount of
the remittance (in US dollars at the spot rate on the date the remittance is made) and (ii) the proportion of the
basis pool allocated to the remittance, which is the same as the product of (a) the amount of the remittance
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calculated in pounds sterling and (b) the ratio of the basis pool balance to the equity pool balance, each as
reduced by the amount of prior remittances. Thus, under the Proposed Regulations, a US holder will recognize
section 987 gain or loss on each distribution based on fluctuations in exchange rates between the time that
amounts are credited to the basis pool and the time of the distribution.
Section 987 of the Code is silent as to the treatment of “terminations” of QBUs. The Proposed
Regulations provide rules for recognition of gain or loss on such a “termination,” which may include a sale,
exchange, redemption or other disposition of the Capital Securities. A termination may result in the recognition
of section 987 gain or loss. Upon termination, the taxpayer makes adjustments to the equity pool and the basis
pool to take into account (i) the profit or loss determined through the termination date, (ii) transfers to or from the
QBU through that date and (iii) remittances made through that date. If the equity pool is greater than zero as of
the termination date, the taxpayer must recognize section 987 gain or loss equal to the difference between (a) the
amount of the equity pool translated into US dollars at the spot rate on the date of the termination and (b) the
amount of the QBU’s basis pool. If the equity pool is less than or equal to zero as of the termination date, the
taxpayer will be deemed to make a transfer to the QBU equal to the negative value of the equity pool, which will
increase the taxpayer’s basis pool in an amount equal to the deemed transferred amount translated into US dollars
at the spot rate on the date of the termination. The taxpayer will then be required to recognize section 987 gain
(or loss) equal to the negative (or positive) value of the basis pool.
The character of any section 987 gain or loss—i.e., any gain or loss from the remittances or terminations
described above—is ordinary. As for sourcing, the proposed regulations do not require exact tracing of all
sources of income of the QBU, as the Code may contemplate. Instead, the proposed regulations provide that the
taxpayer must determine the source of all section 987 gain or loss by using the same method it uses to allocate
and apportion its interest expense under section 861 of the Code (i.e., gross income or assets), but taking into
account only the attributes of the QBU.
Despite the foregoing, due to the uncertainty discussed above, alternative methods for translating
allocations of items of taxable income, gain, deduction and loss of the Issuer may apply to a US holder and,
therefore, US holders should consult their own tax advisors in this regard.
Treasury Regulations Requiring Disclosure of Reportable Transactions
Treasury Regulations require United States taxpayers to report certain transactions that give rise to a
loss in excess of certain thresholds (“Reportable Transactions”). Under these regulations, a US holder that
disposes of the Capital Securities or the QBE Preferred Securities and recognizes a loss with respect to such
disposition would be required to report the loss on IRS Form 8886 if the loss were to exceed the thresholds set
forth in the Treasury Regulations. This loss threshold is US$10 million in any single taxable year or US$20
million in any combination of taxable years for corporations and US$2 million in any single taxable year or
US$4 million in any combination of taxable years for most partnerships, individuals, S corporations or trusts. US
holders should consult with their tax advisors regarding any tax filing and reporting obligation that may apply in
connection with acquiring, owning and disposing of the Capital Securities or the QBE Preferred Securities.
Reporting of Purchase and Disposition of the Capital Securities
A US holder generally will be required to file IRS Form 8865 with the United States tax authorities if
such US holder purchases the Capital Securities from the Issuer in an aggregate amount greater than US$100,000
over a 12-month period, or such US holder purchases the Capital Securities from the Issuer and owns directly or
indirectly 10 percent or more of the Issuer after the purchase. A US holder will also generally be required to file
IRS Form 8865 if such US holder has a “reportable event.” A US holder will generally have a reportable event if:
(i) the US holder acquires or disposes of the Capital Securities and the US holder’s direct interest in the Issuer
has increased or decreased, respectively, by at least a 10 percent interest in the Issuer since the US holder’s last
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eportable event, (ii) the US holder’s direct proportional interest in the Capital Securities changed in an amount
equivalent to at least a 10 percent interest in the Issuer since the US holder’s last reportable event, or (iii) the US
holder’s direct interest in the Issuer increases from below 10 percent to at least 10 percent or from at least 10
percent to below 10 percent. A US holder may also be required to file IRS Form 8865 if the US holder held 10
percent or more of the Capital Securities at any time during the Issuer’s taxable year.
Non-US Holders
The Issuer intends to operate such that it will not derive United States source income or income
effectively connected with the conduct of a trade or business in the United States for United States federal
income tax purposes. Accordingly, subject to the discussion of backup withholding below, a non-US holder will
not be subject to United States federal income tax (including withholding tax) on any income in respect of the
Capital Securities or the QBE Preferred Securities, or on any gain realized by the non-US holder on the sale,
exchange or redemption of the Capital Securities or the QBE Preferred Securities unless (i) such income or gain
is effectively connected with the conduct of a trade or business by the non-US holder in the United States (and, if
a treaty applies, is attributable to a permanent establishment that the non-US holder maintains in the United
States), or (ii) in the case of gain realized by an individual non-US holder, the non-US holder is present in the
United States for 183 days or more in the taxable year and certain other conditions are met.
Information Reporting and Backup Withholding
The Issuer generally intends to treat payments on the Capital Securities made to a noncorporate US
holder within the United States as subject to information reporting requirements. Information reporting
requirements generally will also apply to the payment of proceeds to a noncorporate US holder from the sale of
Capital Securities effected at a United States office of a broker. In addition, payments on the QBE Preferred
Securities made to a noncorporate US holder within the United States, and the payment of proceeds to a
noncorporate US holder from the sale of the QBE Preferred Securities effected at a United States office of a
broker, generally will be subject to information reporting requirements.
Additionally, backup withholding may apply to payments on the Capital Securities and the QBE
Preferred Securities if a holder is a noncorporate US holder that fails to provide an accurate taxpayer
identification number, is notified by the IRS that such holder has failed to report all interest and dividends
required to be shown on its federal income tax returns, or in certain circumstances, fails to comply with
applicable certification requirements.
A non-US holder is generally exempt from backup withholding and information reporting requirements
with respect to payments on the Capital Securities and the QBE Preferred Securities made to such non-US holder
outside the United States by a non-United States payor.
In addition, the payment to a non-US holder of the proceeds from the sale of the Capital Securities or
the QBE Preferred Securities effected at a United States office of a broker also will not be subject to backup
withholding and information reporting requirements, as long as the income associated with such payments is
otherwise exempt from United States federal income tax, and either (i) the payor or broker does not have actual
knowledge or reason to know that the holder is a United States person and the non-US holder has furnished the
payor or broker either (A) an IRS Form W-8BEN or an acceptable substitute form upon which the holder
certifies, under penalties of perjury, that the holder is a non-United States person, or (B) other documentation
upon which the payor or broker may rely to treat the payments as made to a non-United States person in
accordance with Treasury Regulations, or (ii) the holder otherwise establishes an exemption.
Payment of the proceeds from the sale of the Capital Securities or the QBE Preferred Securities effected
at a foreign office of a broker generally will not be subject to information reporting or backup withholding.
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However, a sale of the Capital Securities or the QBE Preferred Securities that is effected at a foreign office of a
broker will be subject to information reporting and backup withholding if (i) the proceeds are transferred to an
account maintained by the holder in the United States, (ii) the payment of proceeds or the confirmation of the
sale is mailed to the holder at a United States address, or the sale has some other specified connection with the
United States as provided in Treasury Regulations, unless the broker does not have actual knowledge or reason to
know that the holder is a United States person and the documentation requirements described above are met or
the holder otherwise establishes an exemption.
In addition, a sale of the Capital Securities or the QBE Preferred Securities effected at a foreign office of
a broker will be subject to information reporting if the broker is (i) a United States person, (ii) a controlled
foreign corporation for United States federal income tax purposes, (iii) a foreign person 50 percent or more of
whose gross income is effectively connected with the conduct of a United States trade or business for a specified
three-year period, or (iv) a foreign partnership, if at any time during its tax year either (A) one or more of its
partners are “US persons,” as defined in Treasury Regulations, that in the aggregate hold more than 50 percent of
the income or capital interest in the partnership, or (B) such foreign partnership is engaged in the conduct of a
United States trade or business, unless the broker does not have actual knowledge or reason to know that the
holder is a United States person and the documentation requirements described above are met or the holder
otherwise establishes an exemption. Backup withholding will apply if the sale is subject to information reporting
and the broker has actual knowledge that the holder is a United States person.
A holder generally may obtain a refund of any amounts withheld under the backup withholding rules
that exceed such holder’s income tax liability by filing a refund claim with the IRS.
Certain Australian Tax Consequences
The following summary describes the principal Australian tax considerations relating to the acquisition,
ownership and disposal of the Capital Securities and QBE Preferred Securities, which will be issued to holders of
the Capital Securities following the occurrence of the Exchange Event. This summary does not consider all
Australian tax consequences in relation to the acquisition, ownership and disposal of the Capital Securities or
QBE Preferred Securities that may be relevant to particular holders. In particular, it does not address the tax
consequences that may arise for a holder of Capital Securities or QBE Preferred Securities that is a resident of
Australia for Australian tax purposes or a non-resident of Australia that carries on business at or through a
permanent establishment in Australia, or otherwise has or had some connection with Australia other than owning
the Capital Securities or QBE Preferred Securities, or receiving payments under the Capital Securities or QBE
Preferred Securities. Therefore, all prospective investors are advised to obtain independent taxation advice in
relation to their own particular circumstances.
This summary represents the opinion of Allens Arthur Robinson, Australian legal counsel to QBE. The
summary is based on the current provisions of the Income Tax Assessment Act 1936 of Australia and the Income
Tax Assessment Act 1997 of Australia, and administrative pronouncements and judicial decisions now in effect,
all of which are subject to change or differing interpretations, possibly on a retroactive basis.
Taxation of Issuer
No Australian withholding tax, income tax or capital gains tax will be payable by the Issuer with respect
to distributions paid to it by QBE UK on the UK Capital Securities.
Taxation of Holders of Capital Securities and QBE Preferred Securities
Holders of Capital Securities
No Australian withholding tax, income tax or capital gains tax will be payable by holders of the Capital
Securities who are non-residents of Australia for Australian tax purposes with respect to distributions paid to
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them by the Issuer. Australian income tax will only be payable by holders of the Capital Securities with respect
to any payments made to them by QBE under the Capital Securities Guarantee Agreement if such payments
represent Australian sourced income. Under Australian tax law, the source of income is determined as a practical
matter of fact having regard to all of the surrounding circumstances. If the Capital Securities Guarantee
Agreement is executed outside Australia, the events which trigger any payments being made under the Capital
Securities Guarantee Agreement occur outside Australia and the payments themselves are made outside
Australia, the payments should not have an Australian source.
Any receipt or profit on the redemption, exchange, sale or other disposal of the Capital Securities will
only be subject to Australian income tax for the holder if the receipt or profit has an Australian source and
protection from Australian tax is not provided by a tax treaty between Australia and the country in which the
holder of the Capital Securities is resident. Whether or not the receipt or profit from a disposal of the Capital
Securities has an Australian source will depend on all of the circumstances surrounding the disposal. However, if
any contract or agreement relating to the disposal is made outside Australia, the payment with respect to the
disposal is received outside Australia and the disposal is not connected with a business carried on in Australia,
the receipt or profit should not have an Australian source.
For a holder of Capital Securities that is resident of a country that has a tax treaty with Australia, such as
the United Kingdom, and who is entitled to the benefits conferred by that treaty, Australian income tax will not
be payable on any Australian sourced receipt or profit on the disposal of the Capital Securities if the receipt or
profit represents business profits of the holder that is not attributable to a business carried on at or through a
permanent establishment situated in Australia.
Any receipt or profit with respect to the redemption, exchange, sale or other disposal of the Capital
Securities will not be subject to Australian capital gains tax, unless the Capital Securities are held by the holder
in connection with carrying on a business at or through a permanent establishment in Australia.
Holders of QBE Preferred Securities
Upon the Exchange Event occurring, the issuance of the QBE Preferred Securities will not of itself give
rise to any Australian income tax consequences for the holder. Dividends paid by QBE to holders of the QBE
Preferred Securities who are non-residents of Australia for Australian tax purposes may be subject to Australian
dividend withholding tax, but only to the extent that the dividends are not paid out of previously taxed profits
earned by QBE. If dividends are paid entirely out of taxed profits, the dividends will be fully franked and
dividend withholding tax will not be payable. If dividends are paid partly out of taxed profits, the dividends will
be partly franked and dividend withholding tax will be payable on the unfranked portion of the dividend.
Dividend withholding tax is payable at a rate of 30%, unless that rate is reduced under a treaty between Australia
and the holder’s country of residence. The rate specified in Australia’s tax treaties differs from treaty to treaty,
but a 15% rate is the most common. If dividends are paid entirely out of untaxed profits, the dividends will be
unfranked and dividend withholding tax will be payable on the entire dividend at the applicable withholding tax
rate.
Holders of QBE Preferred Securities who hold their shares on revenue account will be subject to
Australian income tax on any Australian sourced profit or gain arising on the disposal of those shares, unless
protection from Australian tax is available under a tax treaty between Australia and the country in which the
holder of the QBE Preferred Securities is a resident. Whether the profit or gain on the disposal of the shares has
an Australian source will be a question of fact which will depend on factors like the place where any contract or
agreement relating to the disposal was entered into, the place of receipt of payment and the place at which any
relevant business of the holder was carried on. Protection from Australian tax will not be available under a tax
treaty if the QBE Preferred Securities are held by the holder in connection with a business carried on by the
holder at or through a permanent establishment in Australia. Similarly, holders of the QBE Preferred Securities
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who hold their shares on capital account will only be subject to Australian capital gains tax if the shares are held
in connection with a business carried on by the holder at or through a permanent establishment in Australia.
Certain Capital Securities Tax Events and QBE Tax Events
The Capital Securities may be redeemed if, among other things, there is more than an insubstantial risk
that interest payments on the UK Capital Securities or distributions on the Capital Securities are treated as
frankable distributions under Australian tax law. Under Australian tax law, a frankable distribution is a dividend
paid on a share which is not a debt interest, or a distribution paid, on a security which is not a share but which is
classified as an equity interest for Australian tax purposes, which in either case qualifies to confer certain tax
benefits on the recipient share or security holder, those tax benefits being determined in each particular case
primarily by reference to the amount of Australian income tax paid by the company paying the dividend or
making the distribution. Under existing Australian tax law and regulations, interest paid on the UK Capital
Securities and distributions paid on the Capital Securities will not be not frankable distributions and we are not
aware of any legislative developments or other initiatives to the contrary.
The QBE Preferred Securities may be redeemed if a QBE Tax Event occurs. In particular, a QBE Tax
Event may occur if, amongst other things, there is more than an insubstantial risk that the rate of Australian
dividend withholding tax payable on the dividends (or any part of the dividends) in respect of the QBE Preferred
Securities is or will be increased to a rate that is greater than 30% or, in the case of dividends paid to any person
who is resident in the United Kingdom or United States, the rate of Australian dividend withholding tax is or will
be increased to a rate that is greater than 15%.
Based on the current law, dividends paid by QBE to holders of the QBE Preferred Securities who are
non-residents of Australia for Australian tax purposes will only be subject to Australian dividend withholding tax
to the extent that the dividend is unfranked. In these circumstances, dividend withholding tax is payable on the
unfranked portion of the dividend at a rate of 30%, unless that rate is reduced under a tax treaty between
Australia and the holder’s country of residence, and the holder is entitled to the benefit of that treaty. The rate
specified in Australia’s tax treaties differs from treaty to treaty, but in most cases, including Australia’s tax
treaties with the United Kingdom and the United States, the rate is reduced to 15%. We are not aware of any
legislative developments or initiatives to change or amend the foregoing.
Other Taxes
No ad valorem stamp duty, issue, registration or similar taxes are payable in Australia in connection
with the issue or transfer of the Capital Securities or in connection with the issue of the QBE Preferred Securities.
Stamp duty will not be payable in connection with the transfer of the QBE Preferred Securities if the shares are
listed on a qualifying exchange. If, however, the QBE Preferred Securities are not listed under the laws of the
Australian Capital Territory (being the place of incorporation of QBE), stamp duty will be payable with respect
to a transfer of the shares at the rate of 0.6% of the greater of the consideration paid for the QBE Preferred
Securities or the unencumbered value of the QBE Preferred Securities. At present, qualifying exchanges include
the Australian Stock Exchange Limited and the Irish Stock Exchange. The issue or sale of the Capital Securities
or QBE Preferred Securities will not give rise to a liability for goods and services tax in Australia.
In relation to holders of the QBE Preferred Securities, if a holder earns income from activities other than
the holding or sale of the QBE Preferred Securities and is liable for Australian tax with respect to that other
income, the Commissioner of Taxation of the Commonwealth of Australia may give a direction under
section 255 of the Income Tax Assessment Act 1936 of Australia or Part 4-15 of the Taxation Administration
Act 1953 of Australia requiring the QBE to deduct from any payment to the holder an amount with respect to that
liability.
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Certain United Kingdom Tax Consequences
In this section, the term “UK Investors” means persons who are resident (or in the case of individuals,
ordinarily resident) or who carry on a trade, profession or vocation to which the Capital Securities are attributable
in the UK for taxation purposes and persons carrying on a trade in the UK through a permanent establishment in
the UK to which the Capital Securities are attributable.
Classification of the Issuer
QBE has been advised that the Issuer should be classified as a partnership for UK tax purposes.
Accordingly, UK Investors in Capital Securities should, broadly, be taxed as if they are partners in the Issuer and
as if they hold their proportionate share of the UK Capital Securities. The remainder of this section assumes this
will be the case. However, it is possible that H.M. Revenue & Customs may seek to treat UK Investors as
holding interests in a “unit trust scheme” and/or apply the “offshore fund” rules. This may have disadvantages for
certain UK Investors. Investors who are in any doubt as to their tax position with respect to the Capital Securities
are strongly recommended to take independent professional advice.
Corporate UK Investors
UK Investors within the charge to corporation tax should be treated as being entitled to, for the purposes
of the “loan relationship rules” in Part IV of the Finance Act 1996, an appropriate share of the total debits and
credits arising with respect to the Issuer’s ownership of the UK Capital Securities. Such Investors would also be
liable to corporation tax as income under the same rules on profits arising to them on a disposal (including
exchange) of their Capital Securities including, without limitation, any substitution of the Capital Securities with
QBE Preferred Securities and any redemption of the UK Capital Securities.
Individual UK Investors
Taxation of returns
Individual UK Investors should be subject to UK income tax with respect to distributions on the Capital
Securities. UK individuals disposing of Capital Securities (including a substitution of QBE Preferred Securities
for the Capital Securities) may in practice be treated as if they had disposed of their underlying share of the UK
Capital Securities held by the Issuer.
The UK Capital Securities will be non-qualifying corporate bonds for individual UK Investors with the
result that a disposal of the Capital Securities may, depending on the UK Investor’s individual circumstances
(including the availability of exemptions, reliefs and allowable losses), give rise to a chargeable gain or
allowances loss for the purposes of UK taxation of capital gains.
A transfer of a Capital Security by an individual could also give rise to a charge under the “accrued
income scheme.”
UK Pension Funds
Exempt approved pension funds should not be subject to UK tax on any return from their holding of
Capital Securities (including any profit on transfer, redemption or conversion), provided that such returns do not
constitute trading profits.
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UK Withholding Tax on Interest on the UK Capital Securities
The UK Capital Securities will constitute “quoted Eurobonds” provided they are and continue to be
listed on a recognised stock exchange. The Channel Islands Stock Exchange is a recognised stock exchange for
these purposes. Accordingly, while the UK Capital Securities are and continue to be quoted Eurobonds,
payments of interest on the UK Capital Securities may be made without withholding or deduction for or on
account of UK tax.
UK Withholding Tax on Distributions on the Capital Securities
On the basis that UK Investors should be taxed as if they had a proportionate share of the UK Capital
Securities, payments of Distributions on the Capital Securities may be made without withholding or deduction
for or on account of UK tax provided the UK Capital Securities are and remain quoted Eurobonds.
Persons in the UK paying interest to or receiving interest on behalf of another person may be required to
provide certain information to H.M. Revenue & Customs regarding the identity of the payee or person entitled to
the interest and, in certain circumstance, such information may be exchanged with tax authorities in other
countries.
Payments Under the Capital Securities Guarantee Agreement
Although the position is not entirely clear, payments made under the Capital Securities Guarantee
Agreement should not be subject to UK withholding tax. In the event that there is a UK withholding tax liability
with respect to payments made under the Capital Securities Guarantee Agreement, QBE would, subject to certain
exceptions, be obliged to pay additional amounts so that UK Investors receive the amount they would have
received absent the withholding.
Dividends on the QBE Preferred Securities
UK Investors who hold QBE Preferred Securities will generally, depending upon the UK Investor’s
particular circumstances, be subject to UK income tax or corporation tax, as the case may be, on the gross
amount of any dividends paid by QBE on the QBE Preferred Securities, before deduction of any Australian tax
withheld. The above section “Certain Australian Tax Consequences” contains information on the Australian
withholding tax which may be deducted from dividends paid by QBE. A credit for any Australian withholding
tax would generally be given against any United Kingdom tax liability with respect to the dividends. For an
individual who is liable to United Kingdom income tax, the dividends will (depending on the amount of the
holder’s overall taxable income) be taxable at the current rate of 10% or to the extent that the amount of the gross
dividend when treated as the top slice of his or her income exceeds the threshold for higher rate tax, at the current
rate of 32.5%.
Disposal of QBE Preferred Securities
A disposal of QBE Preferred Securities by a UK Investor may, depending on the UK Investor’s
individual circumstance (including the availability of exemptions, reliefs and allowable losses), give rise to a
chargeable gain or allowable loss for the purposes of UK taxation of capital gains.
Stamp Duty and Stamp Duty Reserve Tax (“SDRT”)
No UK stamp duty or SDRT will be payable on the issue of Capital Securities or QBE Preferred
Securities.
No UK stamp duty will be payable on a transfer of Capital Securities or QBE Preferred Securities,
provided that the instrument of transfer is executed and remains at all times outside of the UK.
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No UK SDRT will be payable on an agreement to transfer Capital Securities or QBE Preferred
Securities.
Certain Jersey, Channel Island Tax Consequences
The Issuer is a Jersey limited partnership and as such, for the purposes of Jersey taxation, it is not
treated as a legal entity separate from its partners; accordingly, investors in the Capital Securities who are not
resident in Jersey for the purposes of taxation will only be liable to Jersey tax with respect to the income of the
Issuer, to the extent that such income is derived from Jersey source income (other than, by concession, Jersey
bank interest). It is not expected that the Issuer will receive any such Jersey source income.
Distribution payments on the Capital Securities may be made by the Issuer without withholding or
deduction for, or on account of, and without any payment of Jersey income tax.
There are no stamp duties payable in Jersey on the issue, acquisition, ownership, disposal or transfer of
the Capital Securities. However, in the event of the death of an individual holder of Capital Securities (we expect
that the only holders of the Capital Securities will be Cede & Co., DTC’s nominee, and Citivic, the Common
Depositary’s nominee) it may be necessary to obtain a grant of probate or letters of administration in Jersey in
order to transfer those Capital Securities; in such cases, Jersey stamp duty is payable on those Capital Securities
at rates of up to 0.75% of the value.
EU Savings Tax Directive—Interest Payments
On June 2, 2003, the European Union Council of Economic and Finance Ministers adopted a directive
on the taxation of savings income in the form of interest payments (the “EU Savings Tax Directive”). With effect
from July 1, 2005, each Member State of the European Union will be required to provide to the tax authorities of
another Member State of the European Union information with respect to payments of interest (or other similar
income) paid by a person within its jurisdiction to or for the benefit of an individual resident in that other
Member State. However, Austria, Belgium and Luxembourg will apply instead a withholding tax system in
relation to such payments, deducting tax at rates rising to over 35 per cent., for a transitional period prior to the
implementation of a system of automatic communication among all Member States of the European Union of
information regarding interest payments. The transitional period is to terminate at the end of the first fiscal year
following agreement by certain non-EU countries to the exchange of information relating to such payments.
Also with effect from July 1, 2005, a number of non-EU countries (including Switzerland), and certain
dependent or associated territories of certain Member States of the European Union, have agreed to adopt similar
measures (either provision of information or transitional withholding) in relation to payments made by a person
within its jurisdiction to, or collected by such a person for, an individual resident in a Member State of the
European Union. In addition, the Member States of the European Union have entered into reciprocal provision of
information or transitional withholding arrangements with certain of those dependent or associated territories in
relation to payments made by a person in a Member State of the European Union to, or collected by such a
person for, an individual resident in one of those territories.
Jersey is not part of the European Union and is, therefore, not subject to the EU Savings Tax Directive
or other European Union fiscal legislation. However, in keeping with Jersey’s policy of constructive international
engagement, the States of Jersey has introduced a system which will permit, either:
• the disclosure of information concerning details of payments of interest (or other similar payments)
and the identity of an individual beneficial owner of the interest to the tax authority of the EU
jurisdiction where the owner of the interest payment is resident; or
• the imposition of a retention or withholding tax with respect to payments of interest (or other similar
income) made to an individual beneficial owner resident in a Member State of the European Union by
a paying agent situate in Jersey or a Member State of the European Union.
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(The terms “beneficial owner” and “paying agent” are defined in the agreements entered into between
Jersey and each of the Member States of the European Union relating to the treatment of savings income.) The
retention tax option would apply for a transitional period during which tax would be retained from such
payments, instead of communicating the details of such payments to the tax authorities of the Member State in
which the individual beneficial owner is resident. Under the retention tax arrangements the Issuer would not be
obliged to levy retention tax with respect to interest payments made by it to a paying agent. The requirements
with respect to information disclosure or retention tax will not apply to companies, partnerships or to most types
of trusts, nor will they apply to individuals who are resident outside the European Union.
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ERISA CONSIDERATIONS
To ensure compliance with US Treasury Department Circular 230, purchasers of the Capital Securities
are hereby notified that: (a) any discussion of US federal tax issues in this Offering Memorandum is not intended
or written to be relied upon, and cannot be relied upon, for the purpose of avoiding penalties that may be
imposed on purchasers of the Capital Securities under the Code; (b) such discussion is written in connection with
the promotion or marketing of the transactions or matters addressed herein by the Issuer and Initial Purchasers;
and (c) purchasers of the Capital Securities should seek advice based on their particular circumstances from
their own independent tax advisors.
The U.S. Employee Retirement Income Security Act of 1974, as amended (“ERISA”), and Section 4975
of the Code, impose requirements on employee benefit plans and on certain other benefit plans and arrangements,
including individual retirement accounts and annuities, Keogh plans and certain collective investment funds,
insurance company general or separate accounts and other entities in which “plan assets” of such plans, accounts
or arrangements are invested, that are subject to ERISA or Section 4975 of the Code (collectively, “Plans”) and
on persons who are fiduciaries with respect to “plan assets” of such Plans. The Capital Securities may not be
purchased or held by, on behalf of, or with “plan assets” of any Plan. Any purchaser or holder of the Capital
Securities or any interest therein will be required to represent, or will be deemed to have represented by its
purchase or holding thereof, that it is not a Plan and is not purchasing or holding Capital Securities on behalf of
or with “plan assets” of any Plan.
As a general rule, although government plans, church plans and foreign plans are not subject to ERISA’s
requirements, they may be subject to U.S. federal, state or local law or foreign law that regulates their
investments (“Similar Law”). Accordingly, fiduciaries of such plans, in consultation with their advisors, should
consider the impact of Similar Law on investments in the Capital Securities and the considerations discussed
above, to the extent applicable. Any such plan subject to Similar Law will be required to represent, or will be
deemed to represent by its purchase and holding of the Capital Securities or any interest therein, that its purchase,
holding and disposition of the Capital Securities (and any related transactions, including the Capital Securities
Guarantee) will not violate a Similar Law.
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PLAN OF DISTRIBUTION
Subject to the terms and conditions set forth in the purchase agreement (the “Purchase Agreement”)
dated July 11, 2006 among the Issuer, acting through the General Partner, QBE and the Initial Purchasers named
below, the Issuer has agreed to sell, and the Initial Purchasers have severally (and not jointly) agreed to purchase
from the Issuer, the respective liquidation preference of Capital Securities set forth opposite the names of the
Initial Purchasers below:
Liquidation
Name
Preference
Merrill Lynch International ........................................ £150,000,000
Citigroup Global Markets Limited. ................................... £150,000,000
Total ................................................ £300,000,000
Neither the Capital Securities nor the Capital Securities Guarantee or the QBE Preferred Securities
deliverable upon the Exchange Event have been or will be registered under the Securities Act or applicable state
securities laws and may not be offered or sold except to qualified institutional buyers in compliance with Rule
144A, outside the United States in compliance with Regulation S or in other transactions exempt from
registration under the Securities Act.
In the Purchase Agreement, the Initial Purchasers have agreed, subject to the terms and conditions set
forth therein, to purchase all the Capital Securities offered by this Offering Memorandum if any of the Capital
Securities are purchased.
The Initial Purchasers are offering the Capital Securities, subject to prior sale, when, as and if issued to
and accepted by them, subject to approval of legal matters by their counsel, and other conditions contained in the
Purchase Agreement, such as the receipt by the Initial Purchasers of officer’s certificates and legal opinions and
the commissions payable to the Initial Purchasers. The Initial Purchasers reserve the right to withdraw, cancel or
modify offers to investors and to reject orders in whole or in part.
QBE and the General Partner, on behalf of the Issuer, have agreed to indemnify the Initial Purchasers
against certain liabilities, including liabilities under the Securities Act, or to contribute to payments the Initial
Purchasers may be required to make in respect thereof.
Commissions
In the Purchase Agreement, the Initial Purchasers have agreed to purchase the Capital Securities at the
initial offering price set forth on the cover page of this Offering Memorandum and the General Partner, on behalf
of the Issuer, has agreed to pay the Initial Purchasers a commission equal to £400 per Capital Security. The
Initial Purchasers have advised QBE that they propose initially to offer the Capital Securities directly to investors
at the initial offering price.
Price Stabilization and Short Positions
Until the distribution of the Capital Securities is completed, the rules of the SEC may limit the ability of
the Initial Purchasers to bid for and purchase the Capital Securities. As an exception to these rules, the Initial
Purchasers are permitted to engage in certain transactions that stabilize the price of the Capital Securities. These
transactions consist of bids or purchases for the purpose of pegging, fixing or maintaining the price of the Capital
Securities.
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If the Initial Purchasers create a short position in the Capital Securities in connection with this offering,
that is, if they sell more Capital Securities than are set forth on the cover page of this Offering Memorandum, the
Initial Purchasers may reduce that short position by purchasing Capital Securities in the open market.
The Initial Purchasers also may impose a penalty bid on certain Initial Purchasers and selling group
members. This means that if an Initial Purchaser purchases Capital Securities in the open market to reduce its
short position or to stabilize the price of the Capital Securities, the Initial Purchasers imposing the penalty bid
may reclaim the selling concession from that Initial Purchaser and the selling group members who sold those
Capital Securities as part of the offering.
In general, purchasers of a security for the purpose of stabilization or to reduce a short position could
cause the price of a security to be higher than it might be in the absence of those purchases. The imposition of a
penalty bid might have an effect on the price of a security to the extent it were to discourage resales of the
security. Neither QBE nor the Issuer, the General Partner, QBE UK or the Initial Purchasers makes any
representation or prediction as to the direction or magnitude of any effect that the transactions described above
may have on the price of the Capital Securities. In addition, neither QBE nor the Issuer, the General Partner,
QBE UK or the Initial Purchasers make any representation that the Initial Purchasers will engage in those
transactions or that those transactions, once commenced, will not be discontinued without notice.
No Sale of Similar Securities
During a period of 90 days from the date of this Offering Memorandum, QBE, the Issuer and the
General Partner have agreed not to directly or indirectly, without the prior written consent of the Initial
Purchasers:
• offer, pledge, sell, contract to sell, sell any option or contract to purchase, purchase any option or
contract to sell, grant any option, right or warrant for the sale of, lend or otherwise dispose of or
transfer any preference shares, trust preferred securities, guarantees, convertible debentures or
preference shares issuable upon the redemption of trust preferred securities, preference shares or any
comparable securities that are identical or substantially identical to the Capital Securities
(collectively, the “Subject Securities”) of QBE, the Issuer or the General Partner or securities of any
subsidiaries of QBE, the Issuer or the General Partner convertible into or exercisable or exchangeable
for any Subject Securities (collectively with the Subject Securities, the “Additional Securities”), or
file a registration statement under the Securities Act relating to any Additional Securities; or
• enter into any swap or other agreement or any transaction that transfers, in whole or in part, directly
or indirectly, the economic consequence of ownership of Additional Securities whether any such
swap or transaction is to be settled by delivery of Additional Securities or other securities, in cash or
otherwise.
The foregoing restriction on sales does not apply to the sale of the Capital Securities to the Initial
Purchasers pursuant to the Purchase Agreement.
New Issue of Securities
The Capital Securities offered hereby are a new issue of securities with no established trading market.
QBE has been advised by the Initial Purchasers that they intend to make a market in the Capital Securities but the
Initial Purchasers are not obligated to do so and may discontinue market making at any time and without notice.
No assurance can be given as to the liquidity of the trading market for the Capital Securities.
215

Other Relationships
The Initial Purchasers and their respective affiliates have engaged in, and may in the future engage in,
investment banking and other commercial dealings in the ordinary course of business with QBE. The Initial
Purchasers received customary fees and commissions for these transactions.
Selling Restrictions
With respect to any sale of the Capital Securities, neither Initial Purchaser will take any action to permit
a public offering of the Capital Securities in any jurisdiction outside the United States where action would be
required for that purpose. The Initial Purchasers will not offer or sell any Capital Securities in any jurisdiction
outside the United States except under circumstances that will result in compliance with all applicable laws
thereof.
United States
Each Initial Purchaser has agreed that offers and sales of the Capital Securities will only be made (i) in
the United States in accordance with Rule 144A to persons whom it reasonably believes to be qualified
institutional buyers within the meaning of Rule 144A, (ii) to non-US persons outside the United States, as
defined in Regulation S, to whom it reasonably believes offers and sales of the Capital Securities may be made in
reliance upon Regulation S or (iii) in other transactions exempt from registration under the Securities Act. For a
description of certain restrictions on resale or transfer, see “Notice to Investors.”
Each Initial Purchaser has agreed that no general solicitation or general advertising (within the meaning
of Rule 502(c) under the Securities Act) will be used in the United States in connection with the offering of the
Capital Securities and to take reasonable steps to inform subsequent purchasers of the transfer restrictions
described above.
Prior to the expiration of the 40th day after the later of the Closing Date and the date the Capital
Securities were first offered to persons other than the Initial Purchasers, an offer or sale within the United States
by any initial purchaser (whether or not participating in this offering) of the securities initially sold pursuant to
Regulation S may violate the registration requirements of the Securities Act if that offer or sale is made other
than in accordance with Rule 144A.
Australia
Each Initial Purchaser has agreed that:
(i) no prospectus or product disclosure statement for the purposes of Chapter 6D or 7 of the
Corporations Act in relation to the Capital Securities or the QBE Preferred Securities has been or
will be lodged with the ASIC or the ASX;
(ii) no offer or invitation may be made in relation to the issue of Capital Securities in Australia;
(iii) no offer or invitation may be made in relation to the sale or purchase of any Capital Securities or
the issue, sale or purchase of any QBE Preferred Securities in Australia (including an offer or
invitation received by a person in Australia) and no Capital Securities or QBE Preferred Securities
may be sold in Australia, unless the offeree is required to pay at least an aggregate of A$500,000 or
its foreign currency equivalent for the Capital Securities or the QBE Preferred Securities
(disregarding amounts, if any, lent by QBE or its associates (within the meaning of those
expressions in Part 6D.2 or Part 7.1 of the Corporations Act)), or the offer or invitation otherwise
does not need disclosure to investors under Part 6D.2 or Division 2 of Part 7.9 of the Corporations
Act; and
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(iv) no prospectus or product disclosure statement may be circulated or issued or caused to be received
in Australia which requires lodging under Division 5 of Part 6D.2 of the Corporations Act or which
is required under Division 2 of Part 7.9 of the Corporations Act.
European Economic Area
Each Initial Purchaser has represented and agreed that in relation to each member state of the European
Economic Area which has implemented the Prospectus Directive (each, a “Relevant Member State”), with effect
from and including the date on which the Prospectus Directive is implemented in that Relevant Member State
(the “Relevant Implementation Date”) it has not made and will not make an offer of Capital Securities to the
public in that Relevant Member State prior to the publication of a prospectus in relation to the Capital Securities
which has been approved by the competent authority in that Relevant Member State or, where appropriate,
approved in another Relevant Member State and notified to the competent authority in that Relevant Member
State, all in accordance with the Prospectus Directive, except that each Initial Purchaser may, with effect from
and including the Relevant Implementation Date, make an offer of Capital Securities to the public in that
Relevant Member State at any time:
(i) to legal entities which are authorized or regulated to operate in the financial markets or, if not so
authorized or regulated, whose corporate purpose is solely to invest in securities;
(ii) to any legal entity which has two or more of (A) an average of at least 250 employees during the
last financial year, (B) a total balance sheet of more than €43,000,000 and (C) an annual net
turnover of more than €50,000,000, as shown in its last annual or consolidated accounts; or
(iii) in any other circumstances falling within Article 3(2) of the Prospectus Directive.
United Kingdom
Each Initial Purchaser has represented and agreed that:
(i)
(ii)
it has only communicated or caused to be communicated and will only communicate or cause to be
communicated an invitation or inducement to engage in investment activity (within the meaning of
Section 21 of the Financial Services and Markets Act 2000 (the “FSMA”)) received by it in
connection with the issue or sale of the Capital Securities in circumstances in which Section 21(1)
of the FSMA does not apply to the Issuer or QBE; and
it has complied and will comply with all applicable provisions of the FSMA with respect to
anything done by it in relation to the Capital Securities in, from or otherwise involving the United
Kingdom.
217

NOTICE TO INVESTORS
Because of the following restrictions, purchasers are advised to consult legal counsel prior to making
any offer, resale, pledge or transfer of any of the securities offered hereby. The following restrictions apply to,
and references to “securities” in this section mean the Capital Securities and any securities issuable or to be
distributed upon redemption or exchange of the Capital Securities unless the context requires otherwise.
Offers and Sales by the Initial Purchasers
The securities have not been and will not be registered under the Securities Act or any other applicable
securities laws, and may not be offered, sold or delivered in the United States or to, or for the account or benefit
of, any US person, except pursuant to an effective registration statement or in a transaction not subject to the
registration requirements of the Securities Act or in accordance with an applicable exemption from the
registration requirements and those other laws. Accordingly, the securities are being offered and sold only (i) to
qualified institutional buyers in a private sale exempt from the registration requirements of the Securities Act
pursuant to Rule 144A and any other applicable securities laws and (ii) outside the United States in compliance
with Regulation S.
Investors’ Representations and Restrictions on Resale
Each purchaser of the securities offered hereby will be deemed to have represented and agreed as
follows (terms used in this section that are defined in Rule 144A or in Regulation S are used in this section as
defined in those rules or regulations):
(i)
(ii)
the purchaser (A) is a qualified institutional buyer, is aware that the sale of the securities is being
made in reliance on an exemption from registration under the Securities Act and is acquiring the
securities for its own account or the account of one or more other qualified institutional buyers over
which it exercises sole investment discretion or (B) is acquiring the securities for its own account or
as a fiduciary or agent for others in a transaction outside the United States pursuant to Regulation S;
the purchaser understands that the securities have not been and will not be registered under the
Securities Act and they may not be offered, sold or delivered in the United States or to, or for the
account or benefit of, any US person except as set forth below;
(iii) the purchaser understands and agrees that the securities are being offered in a transaction not
involving any public offering within the meaning of the Securities Act, and that any future resale,
pledge or transfer of securities on which the legend set forth below appears may be made only to
QBE, QBE UK or to a person who the seller reasonably believes is a qualified institutional buyer
acquiring for its own account or for the account of one or more other qualified institutional buyers
in a transaction meeting the requirements of Rule 144A and to whom notice is given that such
resale, pledge or transfer is being made in reliance on Rule 144A, in a transaction outside the
United States meeting the requirements of Rule 904 of Regulation S, pursuant to an exemption
from registration under the Securities Act provided by Rule 144 (if available) or any other available
exemption under the Securities Act, or pursuant to an effective registration statement under the
Securities Act (which it acknowledges QBE, the Issuer, the General Partner and QBE UK are not
obligated to file and have declared effective), in each case in accordance with any applicable
securities laws of any state of the United States or other jurisdictions;
(iv) the purchaser will, and each subsequent purchaser is required to, notify any purchaser of securities
from it of the resale restrictions referred to in (iii) above, if then applicable;
(v)
the purchaser understands that (A) the securities initially offered outside the United States to
non-US persons will be represented by a Regulation S Global Certificate and (B) with respect to
218

any transfer of interests in the Regulation S Global Certificate, on or prior to the 40th day after the
later of the Closing Date or the date the securities were first offered to persons other than the Initial
Purchasers, if to a transferee who takes delivery in the form of an interest in a Rule 144A Global
Certificate, the Registrar will require written certification from the transferee or transferor, as the
case may be (in the form provided in the Limited Partnership Agreement), to the effect that (x) the
transferee is acquiring the interest in the Rule 144A Global Certificate for its own account or for
accounts as to which it exercises sole investment discretion and that it and, if applicable, each
account is a qualified institutional buyer within the meaning of Rule 144A, in each case, in a
transaction meeting the requirements of Rule 144A and in accordance with any applicable
securities laws of any state of the United States or any other jurisdiction or (y) the transferor did not
acquire the interest in the Regulation S Global Certificate as part of the initial distribution thereof
and the transfer is being effected pursuant to and in accordance with an applicable exemption from
the registration requirements of the Securities Act and the transferor has delivered to the Registrar
any additional evidence as the Registrar may require as to compliance with any available
exemption;
(vi) the purchaser understands and agrees that (A) the securities initially offered in the United States or
to US persons will be represented by a Rule 144A Global Certificate and (B) with respect to any
transfer of any interest in the Rule 144A Global Certificate, (1) if to a transferee that takes delivery
in the form of an interest in the Rule 144A Global Certificate, will not require any written
certification from the transferor or the transferee, and (2) if to a transferee that takes delivery in the
form of an interest in the Regulation S Global Certificate, the Registrar will require written
certification from the transferor (in the form provided in the Limited Partnership Agreement), the
form of which may be obtained from the Registrar, to the effect that the transfer complies with Rule
903 or Rule 904 of Regulation S under the Securities Act;
(vii) the purchaser understands that the Rule 144A Global Certificate for the securities will bear a legend
to the following effect unless otherwise agreed by us:
“NEITHER THE SECURITIES EVIDENCED BY THIS GLOBAL CERTIFICATE NOR ANY
BENEFICIAL INTEREST HEREIN OR ANY SECURITY WHICH MAY BE DELIVERED
UPON REDEMPTION HEREOF HAS BEEN REGISTERED UNDER THE US SECURITIES
ACT OF 1933, AS AMENDED (THE “SECURITIES ACT”). EACH HOLDER HEREOF AND
EACH HOLDER OF A BENEFICIAL INTEREST HEREIN, BY HOLDING THIS GLOBAL
CERTIFICATE AND ACQUIRING THE BENEFICIAL INTERESTS HEREIN,
RESPECTIVELY, AGREES FOR THE BENEFIT OF QBE CAPITAL FUNDING L.P. (THE
“ISSUER”), QBE (JERSEY) GP LIMITED (THE “GENERAL PARTNER”), QBE
INTERNATIONAL HOLDINGS (UK) PLC (“QBE UK”) AND QBE INSURANCE GROUP
LIMITED (“QBE,” AND, COLLECTIVELY WITH THE ISSUER, THE GENERAL PARTNER
AND QBE UK, THE “ISSUERS”), THAT THE SECURITIES EVIDENCED BY THIS GLOBAL
CERTIFICATE AND BENEFICIAL INTERESTS HEREIN MAY BE RESOLD, PLEDGED OR
OTHERWISE TRANSFERRED ONLY (1) TO THE ISSUER OR QBE, (2) SO LONG AS THIS
CERTIFICATE IS ELIGIBLE FOR RESALE PURSUANT TO RULE 144A UNDER THE
SECURITIES ACT (“RULE 144A”), TO A PERSON WHO THE SELLER REASONABLY
BELIEVES IS A QUALIFIED INSTITUTIONAL BUYER AS DEFINED IN RULE 144A IN
ACCORDANCE WITH RULE 144A AND TO WHOM NOTICE IS GIVEN THAT SUCH
RESALE, PLEDGE OR TRANSFER IS BEING MADE IN RELIANCE ON RULE 144A, (3) IN
A TRANSACTION OUTSIDE THE UNITED STATES IN ACCORDANCE WITH RULE 903
OR RULE 904 (AS APPLICABLE) OF REGULATION S UNDER THE SECURITIES ACT,
(4) PURSUANT TO AN EXEMPTION FROM REGISTRATION IN ACCORDANCE WITH
RULE 144 UNDER THE SECURITIES ACT (IF AVAILABLE) OR ANY OTHER AVAILABLE
EXEMPTION UNDER THE SECURITIES ACT OR (5) PURSUANT TO AN EFFECTIVE
REGISTRATION STATEMENT UNDER THE SECURITIES ACT, AND IN EACH OF SUCH
CASES IN ACCORDANCE WITH ANY APPLICABLE SECURITIES LAWS OF ANY STATE
219

OF THE UNITED STATES OR OTHER JURISDICTIONS. EACH OWNER OF A BENEFICIAL
INTEREST IN THIS GLOBAL CERTIFICATE, BY ACQUIRING SUCH BENEFICIAL
INTEREST, REPRESENTS AND AGREES FOR THE BENEFIT OF THE ISSUERS THAT IT
WILL NOTIFY ANY PURCHASER OF SUCH BENEFICIAL INTEREST FROM IT OF THE
RESALE RESTRICTIONS REFERRED TO ABOVE. THIS LEGEND WILL BE REMOVED
ONLY IN THE CIRCUMSTANCES SPECIFIED IN THE LIMITED PARTNERSHIP
AGREEMENT OF THE ISSUER.”
“EACH HOLDER HEREOF AND EACH HOLDER OF A BENEFICIAL INTEREST HEREIN, BY
ITS ACCEPTANCE HEREOF OR BY ACQUIRING A BENEFICIAL INTEREST HEREIN,
RESPECTIVELY, AGREES FOR THE BENEFIT OF THE ISSUERS, FROM THE DATE ON
WHICH THE HOLDER PURCHASES THE SECURITIES EVIDENCED BY THIS CERTIFICATE
OR PURCHASES A BENEFICIAL INTEREST HEREIN, THROUGH AND INCLUDING THE
DATE ON WHICH THE HOLDER DISPOSES OF ITS INTEREST IN THIS SECURITY, THAT
(I) IT IS NOT AN EMPLOYEE BENEFIT PLAN SUBJECT TO THE FIDUCIARY
RESPONSIBILITY PROVISIONS OF THE U.S. EMPLOYEE RETIREMENT INCOME
SECURITY ACT OF 1974, AS AMENDED, A PLAN SUBJECT TO SECTION 4975 OF THE U.S.
INTERNAL REVENUE CODE OF 1986, AS AMENDED, OR AN ENTITY IN WHICH “PLAN
ASSETS” OF ANY SUCH PLAN ARE INVESTED (COLLECTIVELY, A “PLAN”), AND IT IS
NOT PURCHASING OR HOLDING THIS SECURITY ON BEHALF OF OR WITH “PLAN
ASSETS” OF ANY PLAN, AND (II) IF IT IS A GOVERNMENTAL PLAN, CHURCH PLAN OR
FOREIGN PLAN SUBJECT TO U.S. FEDERAL, STATE OR LOCAL LAW OR FOREIGN LAW
THAT REGULATES ITS INVESTMENTS (“SIMILAR LAW”), ITS PURCHASE, HOLDING
AND DISPOSITION OF THE SECURITIES EVIDENCED BY THIS CERTIFICATE (AND ANY
RELATED TRANSACTIONS) WILL NOT VIOLATE A SIMILAR LAW.”
(viii) the purchaser understands that any securities transferred in reliance on Regulation S will be
represented by a Regulation S Global Certificate and the purchaser further understands that the
Regulation S Global Certificate will bear a legend to the following effect, unless QBE determines
otherwise in accordance with applicable law:
“THE SECURITIES EVIDENCED BY THIS CERTIFICATE HAVE NOT BEEN REGISTERED
UNDER THE SECURITIES ACT OF 1933, AS AMENDED (THE “SECURITIES ACT”), AND
MAY NOT BE OFFERED, SOLD OR DELIVERED IN THE UNITED STATES OR TO, OR FOR
THE ACCOUNT OR BENEFIT OF, ANY US PERSON, UNLESS THIS CERTIFICATE IS
REGISTERED UNDER THE SECURITIES ACT OR EXEMPTION FROM THE
REGISTRATION REQUIREMENTS THEREOF IS AVAILABLE. THE FOREGOING SHALL
NOT APPLY FOLLOWING THE EXPIRATION OF FORTY DAYS FROM THE LATER OF
THE DATE OF ISSUANCE OF THIS CERTIFICATE AND THE DATE THE SECURITIES
WERE FIRST OFFERED TO PERSONS OTHER THAN DISTRIBUTORS (AS DEFINED IN
REGULATION S UNDER THE SECURITIES ACT) OF THE SECURITIES.”
“EACH HOLDER HEREOF AND EACH HOLDER OF A BENEFICIAL INTEREST HEREIN,
BY ITS ACCEPTANCE HEREOF OR BY ACQUIRING A BENEFICIAL INTEREST HEREIN,
RESPECTIVELY, AGREES FOR THE BENEFIT OF QBE CAPITAL FUNDING L.P., QBE
(JERSEY) GP LIMITED, QBE INTERNATIONAL HOLDINGS (UK) PLC AND QBE
INSURANCE GROUP LIMITED, FROM THE DATE ON WHICH THE HOLDER PURCHASES
THE SECURITIES EVIDENCED BY THIS CERTIFICATE OR PURCHASES A BENEFICIAL
INTEREST HEREIN, THROUGH AND INCLUDING THE DATE ON WHICH THE HOLDER
DISPOSES OF ITS INTEREST IN THIS SECURITY, THAT (I) IT IS NOT AN EMPLOYEE
BENEFIT PLAN SUBJECT TO THE FIDUCIARY RESPONSIBILITY PROVISIONS OF THE
U.S. EMPLOYEE RETIREMENT INCOME SECURITY ACT OF 1974, AS AMENDED, A
PLAN SUBJECT TO SECTION 4975 OF THE U.S. INTERNAL REVENUE CODE OF 1986, AS
AMENDED, OR AN ENTITY IN WHICH “PLAN ASSETS” OF ANY SUCH PLAN ARE
220

INVESTED (COLLECTIVELY, A “PLAN”), AND IT IS NOT PURCHASING OR HOLDING
THIS SECURITY ON BEHALF OF OR WITH “PLAN ASSETS” OF ANY PLAN, AND (II) IF
IT IS A GOVERNMENTAL PLAN, CHURCH PLAN OR FOREIGN PLAN SUBJECT TO U.S.
FEDERAL, STATE OR LOCAL LAW OR FOREIGN LAW THAT REGULATES ITS
INVESTMENTS (“SIMILAR LAW”), ITS PURCHASE, HOLDING AND DISPOSITION OF
THE SECURITIES EVIDENCED BY THIS CERTIFICATE (AND ANY RELATED
TRANSACTIONS) WILL NOT VIOLATE A SIMILAR LAW.
(ix) with respect to Australia that:
• the purchaser understands that no prospectus or product disclosure statement for the purposes of
Chapter 6D or 7 of the Corporations Act in relation to the securities has been or will be lodged with
the ASIC or the ASX;
• no offer or invitation may be made in relation to the issue, sale or purchase of any securities in
Australia (including an offer or invitation received by a person in Australia), unless the offeree is
required to pay at least an aggregate of A$500,000 or its foreign currency equivalent for the securities
(disregarding amounts, if any, lent by QBE or its associates (within the meaning of those expressions
in Part 6D.2 or Part 7.1 of the Corporations Act)), or the offer or invitation otherwise does not need
disclosure to investors under Part 6D.2 or Division 2 of Part 7.9 of the Corporations Act;
• no prospectus or product disclosure statement may be circulated or issued or caused to be received in
Australia which requires lodging under Division 5 of Part 6D.2 of the Corporations Act or which is
required under Division 2 of Part 7.9 of the Corporations Act; and
• the purchaser will not hold and will not acquire interests or beneficial interests in the securities as the
trustee of a trust estate which is an Australian resident trust estate for Australian tax purposes;
(x)
with respect to the European Economic Area that, in relation to each Relevant Member State, with
effect from and including the Relevant Implementation Date, it has not made and will not make an
offer of securities to the public in that Relevant Member State prior to the publication of a
prospectus in relation to the securities which has been approved by the competent authority in that
Relevant Member State or, where appropriate, approved in another Relevant Member State and
notified to the competent authority in that Relevant Member State, all in accordance with the
Prospectus Directive, except that it may, with effect from and including the Relevant
Implementation Date, make an offer of securities to the public in that Relevant Member State at
any time:
• to legal entities which are authorized or regulated to operate in the financial markets or, if not so
authorized or regulated, whose corporate purpose is solely to invest in securities;
• to any legal entity which has two or more of (A) an average of at least 250 employees during the
last financial year, (B) a total balance sheet of more than €43,000,000 and (C) an annual net
turnover of more than €50,000,000, as shown in its last annual or consolidated accounts; or
• in any other circumstances falling within Article 3(2) of the Prospectus Directive.
For the purposes of this provision, the expression an “offer of securities to the public” in relation to any security
in any Relevant Member State means the communication in any form and by any means of sufficient information
on the terms of the offer and the securities to be offered so as to enable an investor to decide to purchase or
subscribe for the securities, as the same may be varied in that Relevant Member State by any measure
implementing the Prospectus Directive in that Relevant Member State and the expression “Prospectus Directive”
means Directive 2003/71/EC and includes any relevant implementing measure in each Relevant Member State;
221

(xi) with respect to the United Kingdom that:
• it has only communicated or caused to be communicated and will only communicate or cause to be
communicated an invitation or inducement to engage in investment activity (within the meaning of
Section 21 of the FSMA) received by it in connection with the issue or sale of the securities in
circumstances in which Section 21(1) of the FSMA does not apply to the Issuer or QBE; and
• it has complied and will comply with all applicable provisions of the FSMA with respect to anything
done by it in relation to the securities in, from or otherwise involving the United Kingdom;
(xii) the purchaser acknowledges that QBE, the Issuer, the General Partner, QBE UK, the Initial
Purchasers and others will rely upon the truth and accuracy of the foregoing acknowledgments,
representations, warranties and agreements and the ERISA representations set forth below, and
agrees that if any of the acknowledgments, representations or warranties made by it are no longer
accurate, it will promptly notify QBE, the Issuer, the General Partner, QBE UK and the Initial
Purchasers. If it is acquiring any security as a fiduciary or agent for one or more investor accounts,
it represents that it has sole investment discretion with respect to each account and it has full power
to make the foregoing representations, warranties and agreements on behalf of each account; and
(xiii) that by its purchase or holding of the securities or any interest therein that (A) it is not a Plan, and
it is not purchasing or holding securities on behalf of or with “plan assets” of any Plan, and (B) if it
is a governmental plan, church plan or foreign plan subject to Similar Law, its purchase, holding
and disposition of the Capital Securities (and any related transactions, including the Capital
Securities Guarantee) will not violate a Similar Law, and unless QBE, the General Partner and QBE
UK determine otherwise, the securities will bear a legend to the effect of the foregoing.
For further discussion of the requirements (including the presentation of transfer certificates) under the
Limited Partnership Agreement and the terms of issue of the QBE Preferred Securities to effect exchanges or
transfers of interests in Global Certificates, see “Description of the Capital Securities—Registration of Transfer
and Exchange” and “Description of the QBE Preferred Securities—Registration of Transfer and Exchange.”
None of DTC, Euroclear or Clearstream, Luxembourg in any way undertakes to, and none of DTC,
Euroclear or Clearstream, Luxembourg has any responsibility to, monitor or ascertain the compliance of any
transactions in the securities with any exemptions from registration under the Securities Act or of any other state
or federal securities law.
222

LEGAL MATTERS
The validity of the Capital Securities and certain other matters of New York law and United States
federal income tax law will be passed upon for us by Jones Day, Sydney, Australia and New York, New York.
Certain legal matters in connection with the offering will be passed upon for the Initial Purchasers by Sidley
Austin LLP. Certain matters governed by Australian law are being passed upon for us by Allens Arthur
Robinson, Sydney, Australia. Certain matters governed by English law will be passed upon for us by Linklaters,
London, England. Certain matters relating to the laws of Jersey will be passed upon for us by Voisin & Co.,
St. Helier, Jersey. Certain matters relating to taxation in the United Kingdom will be passed upon by Ernst &
Young. Jones Day and Sidley Austin LLP may rely as to matters of Australian law on the opinion of Allens
Arthur Robinson, as to matters of English law on the opinion of Linklaters, as to matters of Jersey law on the
opinion of Voisin & Co and as to matters of United Kingdom taxation on the opinion of Ernst & Young.
INDEPENDENT AUDITORS
Our financial statements as at and for the years ended December 31, 2005 and 2004 included in this
Offering Memorandum have been audited by PricewaterhouseCoopers, Australia our independent auditors of
address 201 Sussex Street, Sydney 2000, as stated in their report appearing elsewhere in this Offering
Memorandum. Certain partners and employees of PricewaterhouseCoopers are members of the Institute of
Chartered Accountants in Australia.
LIMITATION ON LIABILITY OF INDEPENDENT AUDITORS
The liability of PricewaterhouseCoopers, Australia, with respect to claims arising out of its audit report
described under “Independent Registered Public Accounting Firm” is subject to the limitations set forth in the
Professional Standards Act 1994 of New South Wales, Australia (the “Professional Standards Act”) and the
Accountants Scheme adopted by CPA Australia and The Institute of Chartered Accountants in Australia and
approved by the New South Wales Professional Standards Council pursuant to the Professional Standards Act
(the “NSW Accountants Scheme”). The Professional Standards Act and the Accounts Scheme limit the liability
of PricewaterhouseCoopers, Australia for damages with respect to certain civil claims arising in, or governed by
the laws of, New South Wales directly or vicariously from anything done or omitted in the performance of its
professional services to QBE, including, without limitation, its audits of QBE’s financial statements, to the lesser
of ten times the reasonable charge for the service by PricewaterhouseCoopers, Australia that gave rise to the
claim and A$20 million. The limit does not apply to claims for breach of trust, fraud or dishonesty.
GENERAL INFORMATION
Ratings
The Capital Securities have been assigned a BBB rating by S&P and a Baa2 rating by Moody’s.
Clearing Systems
The Rule 144A Capital Securities have been accepted for clearance through the facilities of DTC and
have been assigned a CUSIP of 74730FAA6, an ISIN of US74730FAA66 and a Common Code of 026194849.
The Regulation S Capital Securities have been accepted for clearance through the facilities of Euroclear and
Clearstream, Luxembourg and have been assigned an ISIN of XS0261573587 and a Common Code of
026157358.
Listing
Application has been made to the Irish Stock Exchange for the Capital Securities to be admitted to the
Official List and trading on its regulated market. We cannot guarantee that listing will be obtained on that
exchange. We expect that the total expenses relating to the application for admission of the Capital Securities to
the Official List of the Irish Stock Exchange and to trading on its regulated market will be approximately
€25,000.
The Irish listing agent is McCann FitzGerald Listing Services Limited, whose address is 2
Harbourmaster Place, International Financial Services Centre, Dublin 1, Ireland.
223

Acceptance of Responsibility
The Issuer accepts responsibility for the information contained in this Offering Memorandum. To the
best of the knowledge and belief of the Issuer (having taken all reasonable care to ensure that such is the case),
the information contained in this Offering Memorandum is in accordance with the facts and does not omit
anything likely to affect the import of such information. The Issuer accepts responsibility accordingly.
QBE accepts responsibility for the information contained in this Offering Memorandum relating to
QBE. To the best of the knowledge and belief of QBE (having taken all reasonable care to ensure that such is the
case), the information contained in this Offering Memorandum is in accordance with the facts and does not omit
anything likely to affect the import of such information. QBE accepts responsibility accordingly.
QBE UK accepts responsibility for the information contained in this Offering Memorandum relating to
QBE UK. To the best of the knowledge and belief of QBE UK (having taken all reasonable care to ensure that
such is the case), the information contained in this Offering Memorandum is in accordance with the facts and
does not omit anything likely to affect the import of such information. QBE UK accepts responsibility
accordingly.
Available Documents
For so long as the Capital Securities are listed on the Official List of the Irish Stock Exchange, the
following documents will be available at the registered offices of the Irish Paying Agent in electronic or physical
form: the Limited Partnership Agreement; the constitution of QBE; the Capital Securities Guarantee Agreement
and the historical financial information of QBE contained herein.
Conflicts of Interest
Litigation
There are no conflicts of interest that are material to the issuance of the Capital Securities.
The Issuer is not involved, and has not been involved since its organization, in any governmental, legal
or arbitration proceedings relating to claims on amounts which may have or have had a material effect on the
Issuer in the context of the issuance of the Capital Securities, nor, so far as the Issuer is aware, is any such
governmental, legal or arbitration involving it pending or threatened.
Authorization
The issuance of the Capital Securities will be authorized by the General Partner by resolutions passed
prior to their issue.
Reports
The Issuer does not intend to provide any post-issuance information in relation to the Capital Securities.
224

INDEX TO FINANCIAL STATEMENTS
QBE Insurance Group Limited A-IFRS Financial Statements
Page
Directors’ report for the years ended December 31, 2005 and 2004 ................................ F-2
Income Statements for the years ended December 31, 2005 and 2004 .............................. F-16
Balance Sheets as at December 31, 2005 and 2004 ............................................. F-17
Statements of recognized income and expense for the years ended December 31, 2005 and 2004 ........ F-18
Statements of cash flows for the years ended December 31, 2005 and 2004 ......................... F-19
Notes to the financial statements ........................................................... F-20
Directors’ declaration ................................................................... F-82
Independent audit report ................................................................. F-83
QBE Insurance Group Limited Historical Australian GAAP Financial Statements
Directors’ report for the years ended December 31, 2004 and 2003 ............................... F-84
Statements of financial performance for the years ended December 31, 2004 and 2003 ............... F-88
Statements of financial position as at December 31, 2004 and 2003 .............................. F-89
Statements of cash flows for the years ended December 31, 2004 and 2003 ........................ F-90
Notes to the financial statements .......................................................... F-91
Directors’ declaration .................................................................. F-137
Independent audit report ................................................................ F-138
F-1

Directors’ report
FOR THE YEAR ENDED 31 DECEMBER 2005
Your directors present their report on the consolidated entity consisting of QBE Insurance Group Limited and the entities it
controlled at the end of or during the year ended 31 December 2005.
DIRECTORS
The following directors held office during the whole of the financial year and up to the date of this report:
EJ Cloney (chairman)
LF Bleasel AM
The Hon NF Greiner AC
BJ Hutchinson
CLA Irby
IYL Lee
FM O’Halloran
Mr CP Curran AO retired on 8 April 2005. Ms IF Hudson was appointed as a director on 4 November 2005.
At the forthcoming AGM, Mr Cloney, Ms Hutchinson and Ms Lee will retire by rotation and offer themselves for re-election.
Ms Hudson retires in accordance with article 74 of the company’s constitution and offers herself for re-election.
Details of the directors and their qualifications are provided on page 39.
CONSOLIDATED RESULTS
Revenue
Premium revenue 9,171 8,571
Other revenue 2,946 1,771
Net fair value gains on financial assets 216 88
Realised gain on sale of controlled entities 11 –
Investment income – ABC financial assets pledged for funds at Lloyd’s 84 40
12,428 10,470
Expenses
Outward reinsurance premium expense 1,785 1,790
Gross claims incurred 6,744 5,327
Other expenses 2,179 2,061
Expenses – ABC securities for funds at Lloyd’s 101 83
Finance costs 96 94
Profit before income tax 1,523 1,115
Income tax expense 425 251
Profit after income tax 1,098 864
Net profit attributable to minority interest 7 7
Net profit after income tax attributable to members of the company 1,091 857
2005
$M
2004
$M
AUSTRALIAN EQUIVALENTS TO INTERNATIONAL FINANCIAL REPORTING STANDARDS
Adjustments as a result of the adoption of Australian equivalents to International Financial Reporting Standards (“AIFRS”) reduced
shareholders’ funds at 31 December 2004 by $388 million to $4,032 million. Adjustments as a result of the adoption of AIFRS
increased 2004 net profit after income tax from $820 million to $857 million. Details are provided in note 2 to the financial
statements.
SHAREHOLDERS’ FUNDS
Shareholders’ funds increased during the year by 26% to $5,093 million at 31 December 2005. The number of shares advised
to the Australian Stock Exchange increased from 745 million to 794 million mainly due to the reinvestment of dividends and the
conversion of hybrid securities.
PROFIT
The directors are pleased to announce an increase of 27% in net profit after income tax to $1,091 million for the year ended
31 December 2005 compared with $857 million last year, despite significant net claims from large catastrophes. The significant
increase in profit reflects the benefit of premium growth from acquisitions, the Group’s geographic and product diversification,
conservative reinsurance protections and improved investment yields.
46 F-2

Directors’ report continued
FOR THE YEAR ENDED 31 DECEMBER 2005
DIVIDENDS
The directors are also pleased to announce a final dividend of 38.0 cents per share, 50% franked, for the year ended 31 December
2005. The total dividend for 2005 is 71.0 cents per share compared with 54.0 cents per share for the year ended 31 December 2004.
The final dividend payout, including shares issued under the dividend reinvestment and election plans, will be $302 million compared
with $228 million last year. The directors suspended the discount of 2.5% on the Dividend Reinvestment and Dividend Election Plans
in August 2005. The franking account balance on a tax paid basis, after taking into account the final dividend franked at 50%, will be
a surplus of $148 million.
ACTIVITIES
The principal activities of the company and its controlled entities during the year were underwriting general insurance and
reinsurance risks, management of Lloyd’s syndicates and investment management.
REVIEW OF OPERATIONS
Gross earned premium was $9,171 million, up 7% from last year. Premium growth has been assisted by the acquisitions made in the
second half of 2004, primarily the acquisition on 30 June 2004 of ING’s 50% interest in the QBE Mercantile Mutual joint venture, and
a higher retention of business. Net earned premium increased 9% to $7,386 million. Reinsurance costs decreased from 21% to 19%
of gross earned premium primarily due to synergies from acquisitions and the restructure in the UK in 2004, partly offset by some
additional cost to reinstate covers following the catastrophes.
The ratio of claims, commissions and expenses to net earned premium (combined operating ratio) was 89.1% compared with
91.2% last year. The net claims ratio was 59.9% compared with 61.3% last year. The net claims ratio includes $515 million of large
catastrophe claims in 2005 (2004 $320 million). The commission ratio decreased slightly from 17.5% to 16.9%, reflecting a change
in the mix of business and the benefits from the acquisition of underwriting agencies in Australia in 2004. The expense ratio was
12.3%, down slightly from 12.4% last year. The reduction reflects further synergies from acquisitions and restructures, partly offset
by higher staff incentives for improved results, increased costs of corporate governance and compliance and one-off restructure
costs in the UK and Australia.
Australia Pacific Asia Central Europe
Australian general insurance combined operating ratio was 83.6% compared with 89.7% last year. The strong result was achieved
from a continued low frequency of claims, savings on prior year outstanding claims provisions and improved customer retention. Net
earned premium of $2,015 million was up 14% from the last year, reflecting improved customer retention ratios and the impact of
the acquisition of the remaining 50% of the QBE Mercantile Mutual joint venture in 2004. The claims ratio decreased from 61.4% to
56.1%. The commission ratio decreased from 13.8% to 12.7% mainly due to benefits from the acquisition of underwriting agencies
in 2004 and the change in the mix of business. The expense ratio increased slightly from 14.5% last year to 14.8% due to one-off
expenses relating to the restructure, higher information technology costs, statutory charges and compliance costs.
Pacific Asia Central Europe combined operating ratio was 82.3% compared with 86.4% last year, from the continuous focus on
portfolio profitability and the lower frequency of catastrophe claims. Premium growth was affected by the stronger Australian dollar,
a slight reduction in overall premium rates and increased competition. Net earned premium increased by 4% to $536 million. The
claims ratio decreased from 43.6% to 40.8% reflecting higher premium rates in recent years, improved terms and conditions, the
continued focus on underwriting profitability and the lower frequency of claims. The commission ratio increased from 18.1% to
18.7% reflecting a change in the geographic mix of business, and the expense ratio decreased from 24.7% to 22.8%. Expenses
benefited from the elimination of duplicate processes in key operations.
European Operations
QBE Insurance (Europe), which includes company operations in the UK, Ireland, France, Spain and Germany reported net earned
premium growth of 9% to $1,954 million, primarily due to the inclusion of the Ensign motor business, which was previously written
in the Lloyd’s division, and the increased participation on that business for 2005. The division produced a combined operating
ratio of 90.0% compared with 95.6% last year. The excellent combined operating ratio reflects the low frequency of claims on the
majority of portfolios and the relatively small net exposure to the US hurricanes. The net claims ratio was 62.3% compared with
67.3% last year reflecting the low claims frequency as well as the absence of the upgrades for 2001 and prior years that impacted
the 2004 result. The commission ratio decreased from 15.5% to 15.3% from a change in the mix of business, and the expense ratio
decreased from 12.8% last year to 12.4%. This reflects the synergies from the restructure announced in 2004, partly offset by an
increase in the general provision for doubtful debts and provisions for dilapidation and other costs incurred to achieve synergies by
consolidating the premises in the UK.
Lloyd’s division combined operating ratio was 94.5% compared with 91.6% last year, reflecting the material impact of catastrophe
losses during the year. Net earned premium increased 1% to $1,743 million primarily due to the transfer of the Ensign business to
QBE Insurance (Europe), slightly lower overall premium rates and increased competition. The claims ratio increased from 59.3%
to 63.6% reflecting the impact of net claims from catastrophe losses partly offset by a lower claims frequency on non-catastrophe
exposed classes, in particular syndicate 386. The commission ratio decreased from 21.0% to 20.3% due to a change in the mix of
business. The expense ratio decreased from 11.3% last year to 10.6%. Higher incentive costs on increased profits from syndicate
386 and additional property costs associated with the restructure in 2004 were more than offset by increased profit commission
from external capital providers to syndicate 386.
F-3
QBE INSURANCE GROUP ANNUAL REPORT 2005
47

Directors’ report continued
FOR THE YEAR ENDED 31 DECEMBER 2005
the Americas
This division reported net earned premium growth of 10% to $843 million following a slight overall increase in premium rates, a
higher retention of business and the impact of the acquisitions in the second half of the year. The combined operating ratio was
92.9% compared with 93.5% last year. The combined operating ratio improved despite 2005 being the worst year on record for
catastrophe claims. The net claims ratio increased from 59.3% to 60.0%. The commission ratio decreased from 27.0% last year to
25.5% mainly due to profit and overriding commissions from the proportional reinsurance protections. The expense ratio increased
slightly from 7.2% to 7.4% due to the higher expense ratio on acquisitions in the year, higher staff incentives from improved
insurance profitability and increased costs of information technology, compliance and risk management.
The provision for outstanding claims is determined after consultation with internal and external actuaries. The outstanding claims
assessment takes into account the statistical analysis of past claims, allowance for claims incurred but not reported, recoveries and
future interest and inflation factors. As in previous years, the directors consider that substantial prudential margins are required in
addition to actuarial central estimates to cover uncertainties such as latency claims, changes in interest rates and superimposed
inflation. The APRA prudential standards provide that, for our Australian licensed insurers, outstanding claims must be set at a level
that provides a probability of at least 75% that the provision for outstanding claims will be adequate to settle claims as they become
payable in the future. The directors and management have set an internal target range of 85% to 94% and the directors have
satisfied themselves that the probability of adequacy of the Group’s outstanding claims provision is at the high end of this range.
Net investment income increased 38% to $718 million, reflecting the higher US interest rates, continued strong cash flow from
operations, stronger equity markets and active management of the investment portfolio. The result includes net fair value gains on
equities of $129 million ($101 million gain last year) and foreign exchange gains of $3 million ($51 million gain last year principally
due to the impact of transition to AIFRS). The gross investment yield before borrowing costs, exchange gains and losses and
investment expenses was 5.2% compared with 4.8% last year.
Income tax expense for the period increased from 23% of profit before tax last year to 28%, primarily due to higher profits in
Australia, the US and the UK.
GROUP INDEMNITIES
Article 115 of the company’s constitution provides that the company indemnifies past and present directors, secretaries or officers
against any liability for serving in those capacities for the company or its controlled entities. This indemnity does not apply to any
liability (excluding legal costs):
• owed to the company or its controlled entities (e.g. breach of directors’ duties);
• for a pecuniary penalty or compensation order under the Corporations Act 2001; or
• which did not arise out of conduct in good faith.
The indemnity extends to legal costs other than where:
• an exclusion above applies;
• the person is subject to criminal penalties;
• the person is liable for civil remedies in proceedings brought by either ASIC or a liquidator; or
• the court does not grant relief after an application under the Corporations Act 2001 that, in relation to civil proceedings, the person
acted honestly and having regard to all the circumstances ought fairly to be excused for negligence, default, breach of trust or
breach of duty in civil proceedings.
Article 115 was approved at the 2003 AGM.
DIRECTORS’ AND OFFICERS’ INSURANCE
The consolidated entity pays a premium each year in respect of a contract insuring directors, secretaries, senior managers and
employees of the consolidated entity together with any natural person who is a trustee of a superannuation plan established for
the benefit of the consolidated entity’s employees against liabilities past, present or future. The officers of the consolidated entity
covered by the insurance contract include the directors listed on page 46, the secretary, DA Ramsay, and deputy secretaries, NG
Drabsch and PE Barnes. Other officers covered by the insurance contract are directors and secretaries of controlled entities who are
not also directors and secretaries of the ultimate parent and senior managers of the consolidated entity (“excluded officers”).
The functions of the excluded officers are management of insurance related operations, finance, investment and corporate services.
In accordance with normal commercial practice, disclosure of the total amount of premium payable under, and the nature of
liabilities covered by, the insurance contract is prohibited by a confidentiality clause in the contract.
No such insurance cover has been provided for the benefit of any external auditor of the consolidated entity.
48 F-4

Directors’ report continued
FOR THE YEAR ENDED 31 DECEMBER 2005
DECLARATIONS BY THE CHIEF EXECUTIVE OFFICER AND CHIEF FINANCIAL OFFICER
The chief executive officer and the chief financial officer have provided declarations to the directors stating that the financial records
and annual financial statements are in compliance with the Corporations Act 2001 and applicable accounting standards. Reference is
included on page 126 of the financial report.
SIGNIFICANT CHANGES
There were no significant changes in the state of affairs of the consolidated entity during the financial year.
EVENTS SUBSEQUENT TO BALANCE DATE
There is, at the date of this report, no matter or circumstance that has arisen since 31 December 2005 that has significantly affected,
or may significantly affect:
• the consolidated entity’s operations in future financial years;
• the results of those operations in future financial years; or
• the consolidated entity’s state of affairs in future financial years.
LIKELY DEVELOPMENTS
Information on likely developments in the consolidated entity’s operations in future financial years and the expected results of those
operations has not been included in this report because disclosure of the information would be likely to result in unreasonable
prejudice to the consolidated entity.
MEETINGS OF DIRECTORS
FULL MEETINGS
OF DIRECTORS (1)
MEETINGS OF COMMITTEES
AUDIT CHAIRMAN’S INVESTMENT REMUNERATION
Number of meetings held 8 4 2 3 4
Number attended
LF Bleasel AM 8 4 – – 4
EJ Cloney 8 – 2 2 4
CP Curran AO (2) 2 – 1 1 1
The Hon NF Greiner AC 8 4 – – 4
IF Hudson (3) 1 – – – –
BJ Hutchinson 8 3 1 3 –
CLA Irby 8 – – 3 –
IYL Lee 8 4 – 3 –
FM O’Halloran 8 – 2 3 –
(1) Included a five day review meeting in London. In addition, directors attended quarterly meetings for each of the Australian regulated insurance
companies.
(2) Mr Curran retired on 8 April 2005.
(3) Ms Hudson was appointed on 4 November 2005.
During the April, June, July, August and September 2005 board meetings, the board also met as the nomination committee to
consider issues relevant to the appointment of non-executive directors. In addition, further meetings occurred during the year
including meetings of the chairman and chief executive officer, meetings of the directors with management and regulators,
and meetings of non-executive directors. From time to time, directors attend meetings of committees of which they are not
currently members.
F-5
QBE INSURANCE GROUP ANNUAL REPORT 2005
49

Directors’ report continued
FOR THE YEAR ENDED 31 DECEMBER 2005
DIRECTORSHIPS OF LISTED COMPANIES HELD BY THE MEMBERS OF THE BOARD
From 1 January 2003 to 31 December 2005 the directors also served as directors of the following listed companies:
POSITION DATE APPOINTED DATE CEASED
LF Bleasel AM
Foodland Associated Limited Chairman (1) 11 March 2004 24 November 2005
St George Bank Limited Director 27 May 1993 16 December 2005
EJ Cloney
Boral Limited Director 3 March 1998 –
Patrick Corporation Limited Director 1 May 2003 –
The Hon NF Greiner AC
Bradken Limited Chairman 13 April 2004 –
McGuigan Simeon Wines Limited Director 11 September 1992 –
Stockland Trust Group Deputy chairman 1 September 1992 –
BJ Hutchinson
Coles Myer Ltd Director 23 September 2005 –
Crane Group Limited Director 1 September 1997 9 June 2004
TAB Limited Director 11 July 1997 6 July 2004
Telstra Corporation Limited Director 16 November 2001 –
CLA Irby
Aberdeen Asset Management plc Chairman 1 August 1999 –
Great Portland Estates plc Director 1 April 2004 –
North Atlantic Smaller Companies
Director 10 December 2002 –
Investment Trust plc
IYL Lee
Beyond International Limited Director 30 September 1986 25 November 2004
BioTech Capital Limited Director 14 June 2000 1 July 2004
Mariner Financial Limited Director 5 September 1985 –
Record Funds Management Limited Director 14 May 2002 31 August 2005
Record Investments Limited Director 16 January 2001 –
Ten Network Holdings Limited Director 13 October 2000 –
(1) Mr Bleasel was appointed as a director of Foodland Associated Limited on 10 April 2002.
QUALIFICATIONS AND EXPERIENCE OF COMPANY SECRETARIES
DA Ramsay LLB, LLM, FANZIIF, FCIS
Mr Ramsay is general counsel and company secretary of QBE Insurance Group Limited. His legal career commenced in March 1986
with Freehills, where he worked in the general commercial and litigation area. In June 1993, he joined QBE as general counsel. Since
May 2001 he has acted as general counsel and company secretary for the consolidated entity. He is also a director or secretary of a
number of QBE controlled entities and acts as chairman and a trustee respectively of the QBE superannuation plans in Australia and
New Zealand.
NG Drabsch FCA, FAICD, FCIS
Mr Drabsch was appointed chief financial officer in 1994 and acts as deputy company secretary of QBE Insurance Group Limited in
addition to being a director of a number of QBE controlled entities. He joined QBE in 1991 and was the company secretary for the
consolidated entity from 1992 to 2001. Mr Drabsch has over 39 years experience in insurance and reinsurance management, finance
and accounting, including 24 years as a practising chartered accountant. He is a member of the Finance & Advisory Committee to
the Insurance Council of Australia (“ICA”). He was previously a member of other representative committees for the ICA in relation to
the development of Australian accounting standards for general insurance.
PE Barnes FCA
Mr Barnes is deputy company secretary of QBE Insurance Group Limited and company secretary of selected controlled entities
in Australia. Mr Barnes has been company secretary of many of QBE’s Australian companies since November 1991. He has been
responsible for taxation matters in QBE’s Australian operations for the past 17 years and was formerly accounting manager in QBE’s
international division. Prior to joining QBE 18 years ago, Mr Barnes was a manager in the chartered accounting firm Horwath and
Horwath. He has for the past 12 years been chairman of the ICA’s taxation committee.
50 F-6

Directors’ report continued
FOR THE YEAR ENDED 31 DECEMBER 2005
DIRECTORS’ INTERESTS AND BENEFITS
(A) Ordinary share capital
Directors’ interests, including the interests of their personally related entities, in the ordinary share capital of the company at the
date of this report are as follows:
DIRECTOR
2005
NUMBER
2004
NUMBER
LF Bleasel AM 43,403 42,768
EJ Cloney 734,917 720,410
The Hon NF Greiner AC (1) 55,505 53,716
IF Hudson – –
BJ Hutchinson 27,446 27,446
CLA Irby 15,000 15,000
IYL Lee 13,956 10,467
FM O’Halloran 1,079,602 1,160,741
(1) Includes 10,000 warrants to purchase ordinary shares.
(B) Conditional rights and options
At the date of this report, Mr O’Halloran had 138,038 (2004 89,033) conditional rights to ordinary shares of the company and 344,165
(2004 225,578) options over ordinary shares of the company under the Long Term Incentive (“LTI”) scheme. Details of the LTI are
provided in note 27 to the financial statements.
The names of all persons who currently hold options granted under the Employee Share and Option Plan (“the Plan”) and conditional
rights are entered in the registers kept by the company pursuant to section 173 of the Corporations Act 2001 and the registers may
be inspected free of charge.
(C) Share loans
At the date of this report, Mr O’Halloran had a non-recourse loan of $4,335,692 (2004 $4,335,692) for the purchase of shares in QBE
Insurance Group Limited. Under AIFRS, non-recourse loans and the shares they purchased are derecognised and treated as options.
(D) Related entity interests
Details of directors’ and executives’ interests with related parties are provided in note 28(D) to the financial statements.
REMUNERATION REPORT
Current regulatory requirements are incorporated into this annual report as set out below.
REQUIREMENT
Corporations Act 2001
Remuneration policy
Elements of remuneration for each specified individual
AASB 1046: Director and Executive Disclosures by Disclosing Entities
Director and executive remuneration disclosures
Director and executive equity instrument disclosures
ASX Corporate Governance Council: Principle 9
Remunerate fairly and responsibly
Refer remuneration report
Refer remuneration report
Refer remuneration report
Refer note 28 to the financial statements
Refer remuneration report
F-7
QBE INSURANCE GROUP ANNUAL REPORT 2005
51

Directors’ report continued
FOR THE YEAR ENDED 31 DECEMBER 2005
(A) Details of specified directors and specified executives
During the financial year the specified directors and the executives (other than the chief executive officer) with the greatest authority
for strategic direction and management of the consolidated entity (“specified executives”) were:
Non-executive directors
EJ Cloney (chairman)
LF Bleasel AM
CP Curran AO (retired 8 April 2005)
The Hon NF Greiner AC
IF Hudson (appointed 4 November 2005)
BJ Hutchinson
CLA Irby
IYL Lee
Executive director
FM O’Halloran
Executives (1)
SP Burns (2)
NG Drabsch
PE Grove (2)
MD ten Hove (3)
RL Jones (4)
TM Kenny
V McLenaghan
EG Tollifson
POSITION EMPLOYER EMPLOYMENT START DATE
Chief executive officer,
QBE Insurance Group Limited
Chief executive officer,
European operations
Chief financial officer,
QBE Insurance Group Limited
Chief underwriting officer,
European operations
Group general manager, investments,
QBE Insurance Group Limited
Group general manager,
business development,
QBE Insurance Group Limited
President and chief executive officer,
the Americas
Chief executive officer,
Australia Pacific Asia Central Europe
Chief risk officer,
QBE Insurance Group Limited
QBE Management Services Pty Limited 28 June 1976
QBE Management (UK) Limited 1 January 1987
QBE Management Services Pty Limited 20 September 1991
QBE Management (UK) Limited 1 August 1982
QBE Management Services Pty Limited 1 March 1999
QBE Management Services Pty Limited 1 April 1994
QBE Reinsurance Corporation 28 November 1994
QBE Management Services Pty Limited 14 August 1995
QBE Management Services Pty Limited 14 February 1994
(1) All of the above persons were also specified executives during the year ended 31 December 2004. Mr Glen, managing director, European company
operations was also a specified executive in the year ended 31 December 2004 until his employment was terminated by way of redundancy on 30
September 2004.
(2) Messrs Burns and Grove were previously employed by Limit Underwriting Limited.
(3) Mr ten Hove was employed by QBE Management (UK) Limited in London from 1 March 2002 until 31 December 2004. With effect from 1 January
2005, he relocated to Australia and is employed by QBE Management Services Pty Limited.
(4) Mr Jones was managing director, Australian operations until 1 May 2005. At that date, the Australian operations and Pacific Asia Central Europe
operations were brought together under the leadership of Mr McLenaghan.
The five highest paid executives of the consolidated entity are also specified executives of the consolidated entity. No executives are
employed by the parent company.
(B) Remuneration framework
The remuneration committee of the board oversees remuneration practices. The committee assesses the appropriateness of
remuneration policies and practices in order to fairly and responsibly reward executives, ensuring rewards are commensurate
with performance and delivered results, and that remuneration levels are market competitive in the various markets in which the
consolidated entity operates.
(i) Non-executive directors
Non-executive director remuneration reflects the consolidated entity’s desire to attract, motivate and retain high quality directors
and to ensure their active participation in the consolidated entity’s affairs for the purposes of corporate governance, regulatory
compliance and other matters. The consolidated entity aims to provide a level of remuneration for non-executive directors
comparable with its peers, which include multi-national financial institutions. The board seeks the advice of independent
remuneration consultants to ensure that remuneration levels are appropriate.
52 F-8

Directors’ report continued
FOR THE YEAR ENDED 31 DECEMBER 2005
(ii) Executives
REMUNERATION AND REWARD PHILOSOPHY
Remuneration practices vary in each of the markets within which the consolidated entity operates, and therefore the diversity of
individual roles and the complexity of each operating environment is considered. The remuneration committee recognises that the
consolidated entity operates in a competitive environment, where the key to achieving sustained performance is to generally align
executive reward with increasing shareholder wealth.
The guiding principles applied in managing remuneration and reward for executives combine:
• linking individual performance objectives to achievement of financial targets and business strategies;
• the achievement of short term and long term financial business targets that deliver sustained growth in value for shareholders
(e.g. return on equity, insurance profit, return on capacity for our Lloyd’s business and investment performance); and
• using market data to set fixed annual remuneration levels.
The remuneration committee seeks the advice of independent remuneration consultants to ensure that remuneration and reward
levels are appropriate and are in line with market conditions in the various markets in which the consolidated entity operates. The
remuneration committee endeavours to have remuneration structures in place that encourage the achievement of a return for
shareholders in terms of both dividends and growth in share price.
SHORT TERM INCENTIVE SCHEME
The Short Term Incentive (“STI”) scheme is a short term incentive arrangement in the form of an annual cash bonus, designed to
reward both executives and the majority of staff. The STI aims to recognise the contributions and achievements of individuals when
business targets relating to the performance of the business unit, the division or the consolidated entity as appropriate are achieved
or exceeded.
LONG TERM INCENTIVE SCHEME
Executives are also eligible to participate in an annual long term incentive arrangement under the LTI. The LTI aims to reward the
achievement of excellent results in the financial year, retain key executives and increase shareholder value by motivating executives.
It provides executives with the opportunity to acquire equity in the form of conditional rights to fully paid shares without payment
by the executive, and options to subscribe for shares at market value at the grant date. Further details are provided in note 27 to the
financial statements.
The remuneration committee reviews and approves the STI and the LTI rules annually, and approves the quantum of short term and
long term incentives for executives based on the applicable audited results.
TOTAL REWARD MIX
Consistent with market practice, the mix of total remuneration is dependent on the level of seniority of the executive. Total reward
mix assuming achievement of maximum incentives under the STI and the LTI is as follows:
BASE SALARY/TRC (1)
AT RISK ELEMENT
%
STI
%
LTI
%
Chief executive officer 31 42 27
Chief financial officer 34 40 26
Other specified executives 31–39 37–42 24–27
(1) Total remuneration cost
F-9
QBE INSURANCE GROUP ANNUAL REPORT 2005
53

Directors’ report continued
FOR THE YEAR ENDED 31 DECEMBER 2005
(C) Director and executive remuneration disclosures
(i) Elements of non-executive director remuneration and reward structure
Remuneration packages contain the following key elements:
Fees
Other benefits
Superannuation
Other retirement
benefits
ELEMENT
Annual cash remuneration. The aggregate amount approved by shareholders at the 2004 AGM was
$2,200,000 per annum. The amount paid to individual non-executive directors may vary according to
specific responsibilities, including involvement on the committees of the board.
Non-executive directors do not receive any performance based remuneration such as cash bonuses or
equity incentives. Under the company’s constitution, non-executive directors are entitled to be paid all
travel and related expenses properly incurred in connection with the business of the company.
Annual cost of superannuation or superannuation contributions. The consolidated entity pays superannuation
of 9% to eligible non-executive directors. The portion representing the superannuation guarantee charge is
excluded from the shareholder approved remuneration cap under the company’s constitution.
Non-executive directors previously received a retirement allowance based on their period of service. The
allowance was limited to the aggregate of the director’s fees in the last three years of service, subject to a
minimum of 10 years service. Where service was less than 10 years, a pro-rata amount was paid. With effect
from 31 December 2003, the board terminated the retirement allowance to non-executive directors. Directors’
fees were increased by 30% as compensation. Accrued retirement benefits at 31 December 2003 are preserved
until retirement and are subject to an annual increase equal to the average five year Australian government
bond rate. Shareholders approved an increase in non-executive directors’ remuneration and the company’s
constitution was amended at the 2004 AGM to recognise this change.
(ii) Elements of executive remuneration and reward structure
Remuneration packages contain the following key elements:
STRUCTURE COMPONENT DESCRIPTION
Total remuneration Base salary Annual gross cash salary.
cost (“TRC”)
Other benefits Benefits such as motor vehicles, long service leave, health insurance, life assurance
and personal accident insurance, and the applicable taxes thereon.
Superannuation Annual cost of employer superannuation contributions.
At risk remuneration Short term
incentive
Annual cash award delivered under the STI terms based on the achievement of
specific financial targets and individual performance objectives.
Long term
incentive
Annual deferred equity award delivered under the LTI terms, granting conditional
rights to fully paid shares and options to subscribe for shares at market value. The
annual equity award is linked to STI.
The LTI award quantum is restricted to the lesser of 66.67% of the STI award in that
year or 100% of base salary or TRC as at 31 December in the financial year prior to
the year in which the STI award is paid.
The LTI award quantum is used to acquire conditional rights to fully paid shares and
options respectively as follows:
• conditional rights to shares to the value of 60% of the LTI award; and
• options over ordinary shares to the value of 40% of the LTI award, with the resulting
number multiplied by four in 2005, reducing to a multiplier of three in 2006.
Conditional rights and options relating to the achievement of targets in a financial
year are granted in March of the following year. Interest free personal recourse loans
are available on terms permitted by the Plan to persons in the employment of the
company who hold options under the LTI, to fund the exercise of the options.
Conditional rights and options issued in 2004 and prior financial years are exercisable
after three years. Options issued in 2005 and future financial years are exercisable
after five years, with the exception of options for staff in the Group investment
division, which continue to be exercisable after three years.
54 F-10

Directors’ report continued
FOR THE YEAR ENDED 31 DECEMBER 2005
(iii) Incentive structure – FM O’Halloran
Consistent with other executives, Mr O’Halloran is entitled to an annual cash incentive payment under the STI, calculated as a
percentage of TRC, if specified targets are achieved. Mr O’Halloran’s incentives are based on the achievement of the following
range of target returns on opening shareholders’ funds adjusted for dividends and increases in share capital (“return on equity”) for
the 2005 financial year, and are based on the consolidated entity’s management basis of accounting which spreads realised and
unrealised gains on equities and properties evenly over a period of seven years (“seven year spread basis”).
The table below outlines the terms of Mr O’Halloran’s STI scale:
GROUP RETURN
STI AS A
ON EQUITY %
% OF TRC
Minimum target 13 15
Maximum target 20 134
Achieved 26 134
Subject to the approval by shareholders at the 2006 AGM, Mr O’Halloran, on a basis consistent with other specified executives, is
also entitled to receive conditional rights to fully paid shares and options to subscribe for shares under the LTI in relation to 2005
performance. These will be exercisable in three and five years respectively, or on Mr O’Halloran’s retirement, whichever is earlier.
(iv) Incentive structure – specified executives
For each of the specified executives, the table below summarises the financial targets which are generally consistent with the
targets in the table above, the result used for determining incentive payments and the maximum STI that can be earned for the 2005
financial year generally expressed as a percentage of base salary or TRC as appropriate.
FINANCIAL TARGET RESULT BASIS
MAXIMUM STI
AS A % OF
REMUNERATION (1)
SP Burns
European operations
Financial year result
133% x TRC
insurance profit %
NG Drabsch QBE Group return on equity Financial year result (seven year spread basis) 117% x TRC
PE Grove
European operations
insurance profit %
Financial year result
75% x TRC
MD ten Hove
RL Jones
TM Kenny
V McLenaghan
Limit syndicate 566
Investment income as a
% of budget income and
actual performance as a %
of Group investment division
benchmark including
individual performance
measures
Australian operations return
on equity
the Americas insurance
profit %
Australia Pacific Asia Central
Europe operations return on
equity
Underwriting year result
Financial year result
Financial year result
Financial year result
Financial year result
Between 1.5% and
2.5% of syndicate
566 profits
125% x base salary
100% x TRC
133% x base salary
100% x TRC
EG Tollifson QBE Group return on equity Financial year result (seven year spread basis) 94% x TRC
(1) Payable based on base salary or TRC at the end of the financial year.
(D) Employment agreements
The executive director and specified executives are employed by various controlled entities within the consolidated entity on a
permanent full time basis with an open ended contract. Upon termination of employment, the executive director and specified
executives receive their statutory entitlements of accrued annual and long service leave (where applicable), together with any
superannuation benefits. Written notice is usually required in the event of termination of employment. In the case of a voluntary
termination prior to retirement age, specified executives forfeit all conditional rights to ordinary shares not yet vested and
unexercised options under the LTI.
F-11
QBE INSURANCE GROUP ANNUAL REPORT 2005
55

Directors’ report continued
FOR THE YEAR ENDED 31 DECEMBER 2005
In the event that the contract of employment is terminated through redundancy, retirement through ill health or age, or death and no
disciplinary procedure is pending, the specified executive is entitled to the outstanding STI and LTI awards for previous years plus a
pro rata share of the STI and LTI awards for the current financial year.
For certain specified executives, the controlled entities have entered into employment agreements that provide for payment of
benefits in the event that the agreement is terminated by either the controlled entity or the specified executive. The agreements
generally provide for the following.
• A notice period up to one year.
• Where the controlled entity terminates the agreement, a payment comprised of TRC or base salary as appropriate plus STI for the
relevant period.
• In certain circumstances, where the controlled entity or the specified executive terminates the contract due to material diminution
in role, a payment of up to one year’s TRC or base salary as appropriate plus STI for the relevant period.
The exceptions to the general provisions are described below.
In the event of material diminution in role or responsibility, in certain circumstances Mr ten Hove is entitled to a payment equivalent
to TRC from the date of termination to 1 January 2008 plus one year’s STI based on the average payment in the preceding three
years, plus the accelerated vesting of all conditional rights and options.
In the event of material diminution in role or responsibility, in certain circumstances Mr Kenny is entitled to a payment equivalent to
two years’ TRC plus the accelerated vesting of all conditional rights and options that would otherwise have vested in the two years
following the termination date.
Subject to the achievement of financial hurdles, Mr Kenny will receive a contractually agreed bonus payment on 12 May 2011, being
one year’s base salary plus 100,000 future performance options to be granted in tranches of 20,000 over a five year period from
1 January 2006.
Subject the achievement of financial hurdles, Mr Burns will receive a contractually agreed bonus payment on 31 December 2010
being one year’s TRC plus 100,000 future performance options to be granted in tranches of 20,000 over a five year period from
1 January 2006.
(E) Remuneration details
The following tables provide details of the remuneration of the specified directors and specified executives for the financial year.
PRIMARY BENEFITS POST EMPLOYMENT BENEFITS TOTAL
YEAR
(1)
DIRECTORS’ FEES
$’000
SUPERANNUATION
$’000
(2)
RETIREMENT BENEFITS
$’000
$’000
Non-executive directors
LF Bleasel AM 2005 187 17 6 210
2004 182 17 5 204
EJ Cloney 2005 494 44 26 564
2004 468 42 23 533
CP Curran AO (3) 2005 53 5 5 63
2004 202 18 19 239
The Hon NF Greiner AC 2005 194 17 20 231
2004 189 18 19 226
IF Hudson (4) 2005 28 3 – 31
2004 – – – –
BJ Hutchinson 2005 189 17 13 219
2004 189 18 12 219
CLA Irby 2005 206 – 5 211
2004 205 – 5 210
IYL Lee 2005 187 17 4 208
2004 182 17 3 202
Total 2005 1,538 120 79 1,737
2004 1,617 130 86 1,833
(1) Includes fees paid for services on board committees.
(2) Retirement benefits reflect the adjustment to the amounts preserved at 31 December 2003, being an annual increase equal to the
five year Australian government bond rate.
(3) Mr Curran retired on 8 April 2005.
(4) Ms Hudson was appointed on 4 November 2005.
56 F-12

Directors’ report continued
FOR THE YEAR ENDED 31 DECEMBER 2005
PRIMARY BENEFITS
POST
EMPLOYMENT
BENEFITS
LTI/
EQUITY COMPENSATION (2)
TERMINATION
BENEFITS
TOTAL
YEAR
BASE
SALARY
$’000
(3)
OTHER
$’000
(6)
STI
$’000
SUPER-
ANNUATION
$’000
CONDITIONAL
RIGHTS
$’000
OPTIONS
$’000 $’000 $’000
Executive director
FM O’Halloran 2005 1,115 203 1,816 167 496 201 – 3,998
2004 984 139 1,651 147 267 581 – 3,769
Specified executives
SP Burns (1) 2005 1,074 253 1,914 45 594 350 – 4,230
2004 963 40 1,484 131 286 189 – 3,093
NG Drabsch 2005 668 93 967 98 300 261 – 2,387
2004 638 78 938 94 164 340 – 2,252
PE Glen (4) 2005 – – – – – – 317 317
2004 597 46 – 124 177 100 2,110 3,154
PE Grove (1) 2005 907 973 2,512 272 530 295 – 5,489
2004 874 181 3,124 262 294 190 – 4,925
MD ten Hove (1,5) 2005 697 154 897 137 117 53 – 2,055
2004 941 223 955 38 594 847 – 3,598
RL Jones 2005 530 125 720 85 294 175 – 1,929
2004 499 80 700 81 230 436 – 2,026
TM Kenny (1) 2005 971 1,151 1,291 35 460 289 – 4,197
2004 863 104 1,117 32 304 173 – 2,593
V McLenaghan 2005 590 92 750 88 193 104 – 1,817
2004 530 100 675 79 114 279 – 1,777
EG Tollifson 2005 479 23 517 71 157 111 – 1,358
2004 443 12 484 65 86 197 – 1,287
Total specified 2005 5,916 2,864 9,568 831 2,645 1,638 317 23,779
executives
2004 6,348 864 9,477 906 2,249 2,751 2,110 24,705
(1) Mr Kenny is located in New York and Messrs Burns and Grove are located in London. Mr ten Hove was located in London during 2004 and relocated
to Sydney effective 1 January 2005. Their remuneration has been converted to Australian dollars using the cumulative average rates of exchange for
the year.
(2) The fair value at grant date of options and conditional rights is calculated using a binomial model. The fair value of each option and conditional right
is earned evenly over the period between grant and vesting. Details of grants of conditional rights and options are provided in note 28 to the financial
statements.
(3) “Other” includes the deemed value of the provision of motor vehicles, long service leave, health insurance, life assurance and personal accident
insurance and the applicable taxes thereon. Directors’ and officers’ liability insurance has not been included in other remuneration since it is not
possible to determine an appropriate allocation basis.
(4) Mr Glen’s employment was terminated through redundancy on 30 September 2004. Included in 2004 termination benefits is the cost attributable
to the accelerated recognition of conditional rights and options, where the remuneration committee used its discretion to permit exercise of these
instruments before the original exercise date. During 2005, Mr Glen became entitled to a further allocation of conditional rights to ordinary shares in
QBE on the fulfilment of certain conditions in his redundancy arrangements.
(5) As part of Mr ten Hove’s revised contractual arrangements effective 1 January 2005 following relocation from London to Sydney, the remuneration
committee used its discretion to permit Mr ten Hove to receive his conditional rights and exercise his options before the original exercise date. The
accelerated cost of these conditional rights and options is included as a 2004 benefit in the table above.
(6) STI is the accrued entitlement for the financial year.
(7) Comparatives have been restated to reflect the reclassification of non-recourse loans as options under AIFRS. Refer note 28(C) to the financial
statements. In 2004, the notional interest of $795,000 on non-recourse loans was included in “Other”. This amount has now been reversed and
replaced with a notional cost of options in the table above. The valuation of these loans as options has increased the 2004 option component of
remuneration by $1,829,000.
F-13
QBE INSURANCE GROUP ANNUAL REPORT 2005
57

Directors’ report continued
FOR THE YEAR ENDED 31 DECEMBER 2005
ENVIRONMENTAL REGULATION
The consolidated entity’s operations are not subject to any significant environmental regulations under either Commonwealth or
state legislation.
AUDITOR
PricewaterhouseCoopers, Chartered Accountants, continues in office in accordance with section 327 of the Corporations Act 2001.
NON-AUDIT SERVICES
During the year PricewaterhouseCoopers has performed certain other services in addition to its statutory duties.
The board of directors has considered the position and, in accordance with the advice received from the audit committee, is
satisfied that the provision of the non-audit services is compatible with the general standard of independence for auditors imposed
by the Corporations Act 2001. The directors are satisfied that the provision of non-audit services by the auditor, as provided in note
30 to the financial statements, did not compromise the auditor independence requirements of the Corporations Act 2001 for the
following reasons:
• all non-audit services have been reviewed by the audit committee to ensure that they do not impact the impartiality and objectivity
of the auditor; and
• none of the services undermine the general principles relating to auditor independence as set out in Professional Statement F1,
including reviewing or auditing the auditor’s own work, acting in a management or a decision making capacity for the company,
acting as advocate for the company or jointly sharing economic risk and rewards.
A copy of the auditor’s independence declaration required under section 307C of the Corporations Act 2001 is set out on page 59.
Details of amounts paid or payable to PricewaterhouseCoopers for audit and non-audit services are provided in note 30 to the
financial statements.
ROUNDING OF AMOUNTS
The company is of a kind referred to in the ASIC class order 98/0100 dated 10 July 1998 (as amended by class order 04/667 dated 15
July 2004) relating to the “rounding off” of amounts in the directors’ report. Amounts have been rounded off in the directors’ report to
the nearest million dollars or, in certain cases, to the nearest thousand dollars in accordance with that class order.
Signed in SYDNEY this 23rd day of February 2006 in accordance with a resolution of the directors.
EJ Cloney
Director
FM O’Halloran
Director
58 F-14

Directors’ report continued
FOR THE YEAR ENDED 31 DECEMBER 2005
AUDITOR’S INDEPENDENCE DECLARATION FOR THE YEAR ENDED 31 DECEMBER 2005
As lead auditor of QBE Insurance Group Limited for the year ended 31 December 2005, I declare that, to the best of my
knowledge and belief, there have been:
(a) no contraventions of the auditor independence requirements of the Corporations Act 2001 in relation to the audit; and
(b) no contraventions of any applicable code of professional conduct in relation to the audit.
This declaration is in respect of QBE Insurance Group Limited and the entities it controlled during the period.
RD Deutsch
Partner
SYDNEY
23 February 2006
PricewaterhouseCoopers
Liability limited by a scheme approved under the Professional Standards Legislation.
F-15
QBE INSURANCE GROUP ANNUAL REPORT 2005
59

Income statements
FOR THE YEAR ENDED 31 DECEMBER 2005
NOTE
2005
$M
THE COMPANY
2004
$M
2005
$M
CONSOLIDATED
Revenue
Premium revenue – – 9,171 8,571
Other revenue 520 1,940 2,946 1,771
Net fair value gains on financial assets – – 216 88
Realised gain on sale of controlled entities 629 – 11 –
Investment income – ABC financial assets
pledged for funds at Lloyd’s 48 48 84 40
6 1,197 1,988 12,428 10,470
Expenses
Outward reinsurance premium expense – – 1,785 1,790
Gross claims incurred – – 6,744 5,327
Other expenses 7(C) 6 51 2,179 2,061
Expenses – ABC securities for funds at Lloyd’s 45 45 101 83
Finance costs 93 76 96 94
Profit before income tax 7 1,053 1,816 1,523 1,115
Income tax (credit) expense 8 (7) (18) 425 251
Profit after income tax 1,060 1,834 1,098 864
Net profit attributable to minority interest – – 7 7
Net profit after income tax attributable
to members of the company 1,060 1,834 1,091 857
2004
$M
CONSOLIDATED
NOTE
2005
CENTS
2004
CENTS
Basic earnings per share 37 144.3 123.4
Diluted earnings per share 37 134.4 109.9
The above income statements should be read in conjunction with the accompanying notes.
60 F-16

Balance sheets
AS AT 31 DECEMBER 2005
NOTE
2005
$M
THE COMPANY
2004
$M
2005
$M
CONSOLIDATED
CURRENT ASSETS
Cash and cash equivalents 10 14 9 1,061 1,121
Receivables 11 1,928 3,443 3,607 3,146
Reinsurance and other recoveries on outstanding claims 20 – – 1,357 805
Deferred insurance costs 12 – – 1,446 1,358
Financial assets at fair value through the income statement 13 40 – 9,411 6,548
Derivative financial instruments 15 11 1 82 78
Current tax assets – – – 2
Other current assets – – 4 2
Total current assets 1,993 3,453 16,968 13,060
NON-CURRENT ASSETS
Reinsurance and other recoveries on outstanding claims 20 – – 2,856 2,338
Shares in controlled entities 6,427 3,644 – –
Financial assets at fair value through the income statement 13 – – 7,092 7,274
Investment properties 14 – – 33 32
ABC financial assets pledged for funds at Lloyd’s 35 – – 1,032 998
Property, plant and equipment 17 – – 232 186
Intangible assets 18 – – 1,382 1,039
Deferred tax assets 24 – – 67 73
Retirement benefit surplus 29 – – 2 2
Other non-current assets 56 47 1 34
Total non-current assets 6,483 3,691 12,697 11,976
Total assets 8,476 7,144 29,665 25,036
CURRENT LIABILITIES
Trade and other payables 19 1,457 1,619 1,282 1,084
Outstanding claims 20 – – 4,904 3,670
Unearned premium 21 – – 4,287 3,948
Interest bearing liabilities 22 400 – 400 –
Derivative financial instruments 15 4 8 35 53
Current tax liabilities 144 84 162 73
Provisions – – 2 –
Total current liabilities 2,005 1,711 11,072 8,828
NON-CURRENT LIABILITIES
Outstanding claims 20 – – 10,179 8,935
Interest bearing liabilities 22 745 742 1,730 1,805
Swaps relating to ABC securities 35 5 5 29 30
ABC securities for funds at Lloyd’s 35 – – 1,015 968
Deferred tax liabilities 24 10 27 251 122
Provisions 23 13 27 62 54
Retirement benefit obligations 29 – – 168 202
Total non-current liabilities 773 801 13,434 12,116
Total liabilities 2,778 2,512 24,506 20,944
Net assets 5,698 4,632 5,159 4,092
EQUITY
Share capital 25(A) 3,195 2,780 3,195 2,780
Equity component of hybrid securities 25(B) 108 108 108 108
Reserves 26(A) 33 15 (20) (29)
Retained profits 26(B) 2,362 1,729 1,810 1,173
Shareholders’ funds 5,698 4,632 5,093 4,032
Minority interest 16 – – 66 60
Total equity 5,698 4,632 5,159 4,092
The above balance sheets should be read in conjunction with the accompanying notes.
2004
$M
F-17
QBE INSURANCE GROUP ANNUAL REPORT 2005
61

Statements of recognised income and expense
FOR THE YEAR ENDED 31 DECEMBER 2005
NOTE
2005
$M
THE COMPANY
2004
$M
2005
$M
CONSOLIDATED
Amounts recognised in equity
Net decrease in foreign currency translation reserve 26(A) – – (24) (48)
Actuarial losses on defined benefit superannuation
plans, net of tax 26(B) – – (27) (25)
Cash flow hedges, net of tax 26(A) (5) – (5) (2)
Gains (losses) on revaluation of owner occupied
properties, net of tax 26(A) – – 2 (1)
Employee share options, net of tax 26(A) 23 11 36 15
Net income (expense) recognised directly in equity 18 11 (18) (61)
Amounts recognised in income statement
Net profit after income tax 1,060 1,834 1,098 864
Total recognised income and expense for the year 1,078 1,845 1,080 803
Attributable to:
Equity holders 1,078 1,845 1,073 796
Minority interest – – 7 7
1,078 1,845 1,080 803
The above statements of recognised income and expense should be read in conjunction with the accompanying notes.
2004
$M
62 F-18

Statements of cash flows
FOR THE YEAR ENDED 31 DECEMBER 2005
NOTE
2005
$M
THE COMPANY
2004
$M
2005
$M
CONSOLIDATED
OPERATING ACTIVITIES
Premium received – – 8,756 8,598
Reinsurance and other recoveries received – – 1,309 907
Outward reinsurance paid – – (1,479) (1,664)
Claims paid – – (4,620) (4,006)
Insurance costs paid – – (1,748) (1,629)
Other underwriting costs – – (343) (374)
Interest received 3 – 562 471
Dividends received 262 435 44 50
Other operating income – – – 18
Other operating payments (23) (15) (208) (16)
Interest paid (49) (33) (115) (103)
Income taxes paid (6) (39) (171) (142)
Net cash flows from operating activities 39 187 348 1,987 2,110
INVESTING ACTIVITIES
Proceeds on sale of equity investments – – 1,403 1,526
Proceeds on sale of investment property – – 1 9
Proceeds on sale of property, plant and equipment – – 2 4
Payments for purchase of equity investments – – (589) (1,498)
Proceeds from foreign exchange transactions – – 188 30
Payments for purchase of other financial assets (40) – (2,755) (1,620)
Payments for purchase of ABC financial assets – – – (295)
Payments for purchase of controlled entities
and business acquired (1) (54) (795) (402) (877)
Proceeds on disposal of controlled entities – – 35 –
Payments for purchase of investment property – – (4) –
Payments for purchase of property, plant and equipment – – (82) (38)
Net cash flows from investing activities (94) (795) (2,203) (2,759)
FINANCING ACTIVITIES
Payments to controlled entities (417) (234) – –
Proceeds from issue of shares 154 390 – 3
Share issue expenses (2) – (4) –
Proceeds from settlement of staff share loans – – 34 33
Proceeds from interest bearing liabilities 400 1,240 400 1,796
Proceeds from issue of ABC securities – – – 294
Repayment of interest bearing liabilities – (800) (45) (932)
Dividends paid (224) (141) (224) (141)
Net cash flows from financing activities (89) 455 161 1,053
NET INCREASE (DECREASE) IN CASH AND CASH
EQUIVALENTS HELD 4 8 (55) 404
Cash and cash equivalents at the beginning of the financial year 9 1 1,121 717
Effect of exchange rate changes on opening cash and cash
equivalents 1 – (5) –
Cash and cash equivalents at the end of the financial year 14 9 1,061 1,121
(1) Consolidated is net of cash acquired.
The above statements of cash flows should be read in conjunction with the accompanying notes.
2004
$M
F-19
QBE INSURANCE GROUP ANNUAL REPORT 2005
63

Notes to the financial statements
FOR THE YEAR ENDED 31 DECEMBER 2005
1
SUMMARY OF SIGNIFICANT
ACCOUNTING POLICIES
The principal accounting policies adopted
in the preparation of the financial report
are set out below. These policies have
been consistently applied to all the years
presented, unless otherwise stated.
The financial report includes separate
financial statements for QBE Insurance
Group Limited (“the company”) as an
individual entity and the consolidated
entity consisting of QBE Insurance Group
Limited and its controlled entities.
(A) Basis of preparation
This general purpose financial report
has been prepared in accordance with
accounting standards, other authoritative
pronouncements of the Australian
Accounting Standards Board (“AASB”),
Urgent Issues Group interpretations
corresponding to the interpretations
approved by the International Accounting
Standards Board (“IASB”) and the
Corporations Act 2001.
Until 31 December 2004, financial
statements of the consolidated entity were
prepared in accordance with previous
Australian Generally Accepted Accounting
Principles (“AGAAP”). From 1 January
2005, the financial statements have been
prepared in accordance with current
AGAAP which includes the Australian
equivalents to International Financial
Reporting Standards (“AIFRS”). For the
consolidated entity the date of adoption of
AIFRS was 1 January 2004, which is the
start of the comparative period.
This is the first annual report to be
prepared by the consolidated entity in
accordance with AIFRS. AASB 1: First
Time Adoption of Australian Equivalents to
International Financial Reporting Standards
(“AASB 1”) has been applied in preparing
these financial statements. When preparing
this annual report, management has
amended certain accounting and valuation
methods applied in the previous AGAAP
financial statements to comply with AIFRS
and the comparative figures have been
restated to reflect these adjustments.
The half year report of the consolidated
entity, for the period to 30 June 2005, was
prepared in accordance with AIFRS.
The consolidated entity has taken the
exemption available under AASB 1 to
apply AASB 3: Business Combinations
(“AASB 3”) from 1 January 2004. The
consolidated entity has also taken
the exemption under AASB 1 to apply
AASB 2: Share-based Payment (“AASB 2”)
to options and conditional rights issued
after 7 November 2002 and vesting after
1 January 2005. Accordingly, no expense
is recognised in respect of instruments
granted before 7 November 2002 and/or
vested before 1 January 2005.
The consolidated entity has elected to
apply AASB 119: Employee Benefits
(“AASB 119”), issued December 2004, to
reporting periods beginning on or after 1
January 2005. This includes applying AASB
119 to the comparatives in accordance
with AASB 108: Accounting Policies,
Changes in Accounting Estimates and
Errors. In addition, the consolidated entity
has elected to apply AASB 124: Related
Party Disclosures to reporting periods
beginning on or after 1 January 2005.
The consolidated entity has not taken
the exemptions available under AASB 1
in respect of the restatement of
comparative figures on application of:
• AASB 132: Financial Instruments:
Disclosure and Presentation
(“AASB 132”);
• AASB 139: Financial Instruments:
Recognition and Measurement
(“AASB 139”);
• AASB 4: Insurance Contracts
(“AASB 4”); and
• AASB 1023: General Insurance
Contracts (“AASB 1023”).
Consequently, comparative figures have
been restated.
Reconciliations and descriptions of the
effect of transition from previous AGAAP
to AIFRS on the consolidated entity’s
equity and net profit after income tax are
provided in note 2.
These financial statements have
been prepared under the historical
cost convention, as modified by the
revaluation of:
• financial assets and liabilities (including
derivative instruments) at fair value
through the income statement;
• certain classes of property, plant and
equipment; and
• investment property.
(B) Principles of consolidation
The consolidated financial statements
incorporate the assets and liabilities of
all entities controlled by the company
as at 31 December 2005 and the results
of all controlled entities for the financial
year then ended. The company and
64 F-20
its controlled entities together are
referred to in this financial report as the
“consolidated entity”. The effects of
all transactions between entities in the
consolidated entity are eliminated in full.
Minority interest in the results and equity
of controlled entities is shown separately
in the consolidated income statement
and balance sheet.
Where control of an entity commences
during a financial year, its results are
included in the consolidated income
statement from the date on which the
control commences. Where control of an
entity ceases during a financial year, its
results are included for that part of the
year during which the control existed.
The purchase method of accounting is
used to account for the acquisition of
controlled entities by the consolidated
entity. The cost of an acquisition is
measured as the fair value of the assets
acquired, equity instruments issued
and liabilities incurred or assumed
at the date of exchange, plus costs
directly attributable to the acquisition.
Identifiable assets acquired and liabilities
and contingent liabilities assumed in
a business combination are measured
initially at their fair values at the
acquisition date, irrespective of the extent
of any minority interest. The excess
of the cost of acquisition over the fair
value of the consolidated entity’s share
of the identifiable net assets acquired
is recorded as goodwill. If the cost of
acquisition is less than the fair value of
the net assets of the controlled entity
acquired, the difference is recognised
directly in the income statement.
(C) Premium revenue
Direct and inward reinsurance premium
comprises amounts charged to
policyholders, excluding taxes collected
on behalf of third parties. The earned
portion of premium received and
receivable, including unclosed business,
is recognised as revenue. Premium on
unclosed business is brought to account
based upon the pattern of booking of
renewals and new business.
(D) Unearned premium
Unearned premium is calculated based
on the term of the risk which closely
approximates the pattern of risks
underwritten using either the daily pro
rata method or the 24ths method.
At each balance date, the adequacy
of the unearned premium liability is
assessed on a net of reinsurance

Notes to the financial statements continued
FOR THE YEAR ENDED 31 DECEMBER 2005
1
SUMMARY OF SIGNIFICANT
ACCOUNTING POLICIES CONTINUED
basis against the present value of the
expected future cash flows relating
to potential future claims in respect
of the relevant insurance contracts,
plus an additional risk margin to reflect
the inherent uncertainty of the central
estimate. The assessment is carried out
at the divisional business segment level,
being a portfolio of contracts that are
broadly similar and managed together
as a single portfolio. If the unearned
premium liability, less related intangible
assets and deferred acquisition costs, is
deficient, then the resulting deficiency is
recognised in the income statement of
the consolidated entity.
(E) Outward reinsurance
Premium ceded to reinsurers is
recognised as an expense in accordance
with the pattern of reinsurance service
received. Accordingly, a portion of
outward reinsurance premium is treated
as a prepayment at the balance date.
(F) Claims
The provision for outstanding claims
is measured as the central estimate of
the present value of expected future
claims payments plus a risk margin. The
expected future payments include those
in relation to claims reported but not yet
paid; claims incurred but not reported
(“IBNR”); claims incurred but not enough
reported (“IBNER”); and estimated claims
handling costs.
The expected future payments are
discounted to present value using a risk
free rate.
A risk margin is applied to the central
estimate, net of reinsurance and other
recoveries, to reflect the inherent
uncertainty in the central estimate. This
risk margin increases the probability that
the net liability is adequate to a minimum
of 85%.
(G) Reinsurance and other recoveries
Reinsurance and other recoveries on
paid claims, reported claims not yet
paid, IBNR and IBNER are recognised as
revenue.
Amounts recoverable are assessed in
a manner similar to the assessment
of outstanding claims. Recoveries are
measured as the present value of the
expected future receipts, calculated
on the same basis as the provision for
outstanding claims.
(H) Acquisition costs
A portion of acquisition costs relating
to unearned premium is deferred in
recognition that it represents a future
benefit. Deferred acquisition costs are
measured at the lower of cost and
recoverable amount. Deferred acquisition
costs are amortised over the financial years
expected to benefit from the expenditure.
(I) Investment income
Interest income is recognised on an
accruals basis. Dividends are recognised
when due. Investment income includes
realised and unrealised gains or losses
on financial assets which are reported on
a combined basis as fair value gains or
losses on financial assets.
Investment income on ABC financial
assets pledged for funds at Lloyd’s and
expenses from ABC securities for funds
at Lloyd’s, both of which are separately
identified, include fair value gains and
losses on the ABC swaps.
(J) Taxation
The income tax expense for the period
is the tax payable on the current period’s
taxable income based on the notional
income tax rate for each jurisdiction,
adjusted by changes in deferred tax assets
and liabilities attributable to temporary
differences between the tax bases of
assets and liabilities and their carrying
amounts in the financial statements.
Deferred tax assets and liabilities are
recognised for temporary differences
at the tax rate expected to apply when
the assets are recovered or liabilities are
settled, based on those tax rates which
are enacted or substantively enacted for
each jurisdiction. The relevant tax rates
are applied to the cumulative amounts
of deductible and taxable temporary
differences to measure the deferred
tax asset or liability. An exception is
made for certain temporary differences
arising from the initial recognition of an
asset or liability. No deferred tax asset
or liability is recognised in relation to
these temporary differences if they arose
in a transaction, other than a business
combination, that at the time of the
transaction did not affect accounting
profit or loss.
Deferred tax assets are recognised for
deductible temporary differences and
unused tax losses only if it is probable
that future taxable amounts will be
available to utilise those temporary
differences and losses.
F-21
Deferred tax liabilities and assets are not
recognised for temporary differences
between the carrying amount and tax
bases of investments in controlled
entities where the parent entity is able to
control the timing of the reversal of the
temporary differences and it is probable
that the differences will not reverse in
the near future.
Current and deferred tax balances
attributable to amounts recognised
directly in equity are also recognised
directly in equity.
The company and all of its Australian
wholly owned controlled entities have
implemented the tax consolidation
legislation.
(K) Cash and cash equivalents
Cash and cash equivalents includes cash
at bank and on hand and deposits at call
which are readily convertible to cash on
hand and which are used in the cash
management function on a day to day
basis, net of bank overdrafts.
(L) Financial assets
(i) Classification of policyholders’ and
shareholders’ funds
Policyholders’ funds are those financial
assets which are held to fund the
insurance provisions of the consolidated
entity. The remaining financial assets,
including equities, and investment
properties (refer note 1M) represent
shareholders’ funds. Insurance profit
is derived by adding investment
income on policyholders’ funds to the
underwriting result.
(ii) Policyholders’ funds
In accordance with AASB 1023, the
consolidated entity is required to
measure financial assets held to fund
insurance provisions at fair value through
the income statement.
(iii) Shareholders’ funds
AASB 139 has an option to measure
all financial assets at fair value through
the income statement. Shareholders’
funds constitutes a group of financial
assets which are managed, and their
performance evaluated, on a fair value
basis in accordance with the consolidated
entity’s documented investment strategy.
Information prepared on this basis is
provided to the consolidated entity’s
senior management. The consolidated
entity has therefore elected to measure all
financial assets that do not fund insurance
provisions at fair value through
QBE INSURANCE GROUP ANNUAL REPORT 2005
65

Notes to the financial statements continued
FOR THE YEAR ENDED 31 DECEMBER 2005
1
SUMMARY OF SIGNIFICANT
ACCOUNTING POLICIES CONTINUED
the income statement upon initial
recognition and at the date of transition
to AIFRS.
(iv) Basis of valuation
Fair value for each type of financial asset
is determined as follows:
Listed investments – by reference to the
closing bid price of the instrument at the
balance date.
Unlisted investments – the fair value of
financial assets not traded on an active
market is determined using valuation
techniques including reference to:
• the fair value of recent arm’s length
transactions involving the same
instrument or instruments that are
substantially the same;
• discounted cash flow analysis; and
• option pricing models.
All purchases and sales of financial
assets that require delivery of the asset
within the time frame established by
regulation or market convention (“regular
way” transactions) are recognised at
trade date, being the date on which the
consolidated entity commits to buy or
sell the asset.
Financial assets are derecognised when
the right to receive future cash flows
from the assets has expired, or has been
transferred, and the consolidated entity
has transferred substantially all the risks
and rewards of ownership.
(M) Investment properties
Investment properties are valued by
reference to external market valuation at
fair value through the income statement.
(N) Derivative financial instruments
The consolidated entity is subject to
currency, cash flow, interest rate, price,
credit and liquidity risks. Derivative
financial instruments (“derivatives”)
are used to manage these risks. The
consolidated entity does not enter into,
issue or hold derivatives for speculative
trading purposes.
Derivatives are initially recognised at fair
value on the date a derivative contract
is entered into and are subsequently
remeasured to their fair value. The
method of recognising the resulting
gain or loss depends on whether the
derivative is designated as a hedging
instrument and the nature of the item
being hedged. Derivatives which are
not part of a hedging relationship are
valued at fair value through the income
statement. Derivatives which are part
of a hedging relationship are accounted
for as provided in note 1(O). The fair
value of forward exchange contracts is
determined using forward exchange rates
at the balance date.
(O) Hedging transactions
Derivatives held for risk management
purposes which meet the criteria
specified in AASB 139 are accounted
for by the consolidated entity using
fair value hedge accounting, cash flow
hedge accounting or hedging of a net
investment in a foreign operation as
appropriate to the risks being hedged.
When a financial instrument is
designated as a hedge, the consolidated
entity formally documents the
relationship between the hedging
instrument and hedged item as well
as its risk management objectives and
its strategy for undertaking the various
hedging transactions. The consolidated
entity also documents its assessment,
both at hedge inception and on an
ongoing basis, of whether the derivatives
that are used for hedging are highly
effective in offsetting changes in fair
values or cash flows of hedged items.
Hedge accounting is discontinued when:
• it is determined that a derivative is not,
or has ceased to be, highly effective as
a hedge;
• the derivative expires, or is sold,
terminated or exercised; or
• the hedged item matures, is sold or
repaid.
(i) Fair value hedge accounting
Changes in the fair value of derivatives
that qualify and are designated as fair
value hedges are recorded in the income
statement, together with changes in the
fair value of the hedged asset or liability
that are attributable to the hedged risk. If
the hedge no longer meets the criteria for
hedge accounting, the fair value hedging
adjustment cumulatively made to the
carrying value of the hedged item is, for
items carried at amortised cost, amortised
over the period to maturity of the previously
designated hedge relationship using the
effective interest method. If the hedged
item is sold or repaid, the unamortised fair
value adjustment is recognised immediately
in the income statement.
(ii) Cash flow hedge accounting
For qualifying cash flow hedges, the
fair value gain or loss associated with
the effective portion of the cash flow
hedge is recognised initially directly in
shareholders’ equity and recycled to the
income statement in the periods when
the hedged item will affect profit or loss.
The gain or loss on any ineffective portion
of the hedging instrument is recognised
in the income statement immediately.
When a hedging instrument expires
or is sold, or when a hedge no longer
meets the criteria for hedge accounting,
any cumulative gain or loss existing in
equity at that time remains in equity and
is recognised when the hedged item
affects the income statement. When
a transaction is no longer expected to
occur, the cumulative gain or loss that
was recognised in equity is immediately
transferred to the income statement.
(iii) Hedges of net investments in foreign
operations
Hedges of net investments in foreign
operations, including monetary items
that are accounted for as part of the
net investment, are accounted for in a
manner similar to cash flow hedges. The
gain or loss on the effective portion of
the hedging instrument is recognised
directly in equity and the gain or loss
on the ineffective portion is recognised
immediately in the income statement.
The cumulative gain or loss previously
recognised in equity is recognised in the
income statement on the disposal or
partial disposal of the foreign operation.
(P) Receivables
Receivables are measured at fair value
through the income statement and form
part of policyholders’ funds.
(Q) Property, plant and equipment
Owner occupied properties are measured
at fair value by reference to external
market valuations. When a revaluation
increases the carrying value of a property,
the increase is credited to the revaluation
reserve in equity. To the extent that the
increase reverses a decrease previously
recognised in the income statement, the
increase is first recognised in the income
statement. When an asset’s carrying
amount is decreased as a result of a
revaluation, the decrease is recognised
in the income statement. To the extent
that the decrease reverses an increase
previously recognised in equity, the
decrease is first recognised in equity.
66 F-22

Notes to the financial statements continued
FOR THE YEAR ENDED 31 DECEMBER 2005
1
SUMMARY OF SIGNIFICANT
ACCOUNTING POLICIES CONTINUED
All other property, plant and equipment is
stated at historical cost less depreciation.
Leasehold improvements, office
equipment, fixtures and fittings and motor
vehicles are depreciated using the straight
line method over the estimated useful life
to the consolidated entity of each class of
asset. Estimated useful lives are between
three and 10 years.
An asset’s carrying amount is written
down to its recoverable amount if the
asset’s carrying amount is greater than
its estimated recoverable amount. Refer
note 1(S).
(R) Intangible assets
(i) Goodwill
Goodwill represents the excess of the
cost of an acquisition over the fair value
of the consolidated entity’s share of the
net identifiable assets acquired. Goodwill
acquired in a business combination is
tested for impairment and is not subject
to amortisation.
(ii) Intangible assets
Intangible assets are measured at
cost. Those with a finite useful life are
amortised using the straight line method
over the estimated useful life. Intangible
assets are tested for impairment annually
or more often if there is an indication of
impairment.
(S) Impairment of assets
Assets, including goodwill and
intangibles, that have an indefinite useful
life are tested annually for impairment
or more frequently when changes in
circumstances indicate that the carrying
amount may not be recoverable. Assets
that are subject to amortisation are
reviewed for impairment whenever
events or changes in circumstances
indicate that the carrying amount may
not be recoverable. An impairment loss
is recognised as the amount by which
the asset’s carrying amount exceeds its
recoverable amount. The recoverable
amount is the higher of an asset’s fair
value less costs to sell and its value
in use. For the purposes of assessing
impairment, assets are grouped in cash
generating units which are the lowest
levels for which there are separately
identifiable cash flows.
(T) Financial liabilities
Financial liabilities are initially measured
at fair value and are subsequently
measured at amortised cost. Any
difference between the proceeds
and the redemption amount is
recognised in the income statement over
the period of the financial liability using
the effective interest method.
On issue of hybrid securities, the fair
value of the liability component, being
the obligation to make future payments
of principal and interest to investors, is
calculated using a market interest rate
for an equivalent non-convertible note.
The residual amount, representing the
fair value of the conversion option, is
included in equity with no recognition
of any change in the value of the option
in subsequent periods. The liability is
included in financial liabilities and carried
on an amortised cost basis with interest
on the securities recognised as financing
costs on an effective interest method
until the liability is extinguished on
conversion or maturity of the securities.
Financial liabilities are classified as
current liabilities unless the consolidated
entity has an unconditional right to defer
settlement of the liability for at least
12 months after the balance date.
(U) Foreign currency translation
(i) Functional and presentation currency
Items included in the financial statements
of controlled entities are measured using
the currency of the primary economic
environment in which the entity operates
(“the functional currency”). The
consolidated entity’s financial statements
are presented in Australian dollars, being
the functional and presentation currency
of the company.
(ii) Transactions and balances
Foreign currency transactions are
translated into functional currencies
at the rates of exchange at the dates
of the transactions. At the balance
date, amounts payable and receivable
in foreign currencies are translated at
the rates of exchange prevailing at that
date. Exchange gains and losses on
operational foreign currency transactions
and the translation of amounts receivable
and payable in foreign currencies are
included in the income statement.
The results and financial position of all
overseas controlled entities that have a
functional currency different from the
presentation currency are translated into
the presentation currency as follows:
• assets and liabilities are translated
at the closing balance date rates of
exchange;
F-23
• income and expenses are translated at
cumulative average rates of exchange;
and
• all resulting exchange differences are
recognised as a separate component
of equity.
On consolidation, exchange differences
arising from the translation of the net
investment in overseas controlled entities,
and of financial liabilities and other
instruments designated as hedges of such
investments, are taken to shareholders’
equity. When an overseas controlled entity
is sold, these exchange differences are
recognised in the income statement as
part of the gain or loss on sale.
(V) Equity
Ordinary shares are classified as equity.
Incremental costs directly attributable to
the issue of new shares or options are
shown in equity as a deduction from the
proceeds, net of tax. Incremental costs
directly attributable to the issue of new
shares or options, or for the acquisition
of a business, are included in the cost
of acquisition as part of the purchase
consideration.
The equity component of hybrid
securities is calculated and disclosed as
provided in note 1(T).
(W) Earnings per share
(i) Basic earnings per share
Basic earnings per share is determined
by dividing net profit after income tax
attributable to members of the company,
adjusted for the cost of servicing equity
other than ordinary shares, by the
weighted average number of ordinary
shares outstanding during the financial
year, adjusted for bonus elements in
ordinary shares issued during the year.
(ii) Diluted earnings per share
Diluted earnings per share adjusts the
earnings figure used in the determination
of basic earnings per share to exclude
the after income tax effect of interest
and other financing costs associated
with potential dilutive ordinary shares
and the weighted average number of
shares assumed to have been issued
for no consideration. It also adjusts the
weighted average number of shares to
include potential dilutive ordinary shares
and instruments with a mandatory
conversion feature.
QBE INSURANCE GROUP ANNUAL REPORT 2005
67

Notes to the financial statements continued
FOR THE YEAR ENDED 31 DECEMBER 2005
1
SUMMARY OF SIGNIFICANT
ACCOUNTING POLICIES CONTINUED
(X) Dividends
Dividends are recognised when declared
or determined. No provision is made for a
proposed dividend.
(Y) Employee benefits
(i) Superannuation
The consolidated entity participates
in a number of superannuation plans
and contributes to these plans in
accordance with plan rules and actuarial
recommendations, which are designed to
ensure that each plan’s funding provides
sufficient assets to meet its liabilities.
DEFINED CONTRIBUTION PLANS
For defined contribution plans,
contributions are expensed as incurred.
DEFINED BENEFIT PLANS
The liability recognised in the balance
sheet in respect of defined benefit
superannuation plans is the present
value of the defined benefit obligation
at the balance date less the fair
value of plan assets, adjusted for any
unrecognised past service costs. The
defined benefit obligation is calculated
annually by independent actuaries using
the projected unit credit method. The
present value of the defined benefit
obligation is determined by discounting
the estimated future cash outflows using
interest rates of high quality corporate or
government bonds that are denominated
in the currency in which the benefits
will be paid, and that have a term to
maturity approximating the term of the
related superannuation liability. Actuarial
gains and losses arising from experience
adjustments and changes in actuarial
assumptions are recognised directly in
equity. Past service costs are recognised
immediately in income, unless the
changes to the superannuation plan are
conditional on the employees remaining
in service for a specified period of time
(the vesting period) in which case the
past service costs are amortised on a
straight line basis over the vesting period.
(ii) Share based compensation
The consolidated entity operates an
equity settled, share based compensation
plan. The fair value of the employee
services received in exchange for the
grant of the options and conditional rights
is recognised as an expense. The total
amount to be expensed over the vesting
period is determined by reference to the
fair value of the instruments granted,
excluding the impact of any non-market
vesting conditions. The fair value at grant
date of the options and conditional rights
is calculated using a binomial model. The
fair value of each instrument is earned
evenly over the period between grant
and vesting dates. Non-market vesting
conditions are included in assumptions
about the number of instruments that
are expected to become exercisable. At
each balance date, the entity revises its
estimates of the number of options that
are expected to become exercisable.
It recognises the impact of the revision
of original estimates, if any, in the
income statement, with a corresponding
adjustment to equity.
(iii) Profit-sharing and bonus plans
The consolidated entity recognises a
liability and an expense for bonuses
and profit-sharing, based on a formula
that takes into consideration the
profit attributable to the company’s
shareholders after certain adjustments.
(iv) Termination benefits
Termination benefits are payable when
employment is terminated before the
normal retirement date or when an
employee accepts voluntary redundancy
in exchange for these benefits.
The consolidated entity recognises
termination benefits when it has
demonstrably committed to either:
• terminating the employment of current
employees according to a detailed
formal plan without possibility of
withdrawal; or
• providing termination benefits as a
result of an offer made to encourage
voluntary redundancy.
Benefits falling due more than 12 months
after the balance date are discounted to
present value.
(Z) Leases
Leases in which a significant portion of
the risks and rewards of ownership are
retained by the lessor are classified as
operating leases. Payments made under
operating leases (net of any incentives
received from the lessor) are charged to
the income statement on a straight line
basis over the period of the lease.
(AA) Rounding of amounts
The company is of a kind referred to in
the ASIC class order 98/0100 dated
10 July 1998 (as amended by class order
04/667 dated 15 July 2004) relating to
the “rounding off” of amounts in the
financial statements. Amounts have been
rounded off in the financial statements
to the nearest million dollars or, in certain
cases, to the nearest thousand dollars in
accordance with that class order.
(AB) Australian Accounting Standards issued but not yet effective
TITLE
OPERATIVE DATE
2005-1 Amendments to Australian Accounting Standard (AASB 139) 1 January 2006
2005-5 Amendments to Australian Accounting Standards (AASB 1 and AASB 139) 1 Janaury 2006
2005-6 Amendments to Australian Accounting Standard (AASB 3) 1 January 2006
2005-7 Amendments to Australian Accounting Standard (AASB 134) 30 June 2005
2005-9 Amendments to Australian Accounting Standards (AASB 4, AASB 1023, AASB 139 and AASB 132) 1 January 2006
2005-10 Amendments to Australian Accounting Standards (AASB 132, AASB 101, AASB 114, AASB 117, 1 January 2007
AASB 133, AASB 139, AASB 1, AASB 4, AASB 1023 and AASB 1038)
AASB 7 Financial Instruments: Disclosures 1 January 2007
These amendments are not effective for the year ended 31 December 2005 and have not been applied in preparing the
consolidated entity’s financial statements. The impact of the application of these standards is disclosure only.
The consolidated entity will apply these standards for the annual reporting periods beginning on or after the operative dates
set out above.
68 F-24

Notes to the financial statements continued
FOR THE YEAR ENDED 31 DECEMBER 2005
2
IMPACT OF THE ADOPTION OF AIFRS
In preparing the opening AIFRS compliant balance sheet, a number of adjustments have been made to the figures previously
reported in the 31 December 2004 financial report. The impacts of the adoption of AIFRS on total equity brought forward and 2004
profit after income tax reported under previous AGAAP are illustrated below. All amounts have been tax effected in accordance
with AASB 112: Income Taxes.
(A) Reconciliation of total equity under previous AGAAP to that under AIFRS:
31 DEC
2004
$M
THE COMPANY CONSOLIDATED
1 JAN
31 DEC
2004
2004
$M
$M
Brought forward equity under previous AGAAP 4,711 2,513 4,480 3,368
Defined benefit superannuation plan obligations (1) – – (142) (117)
Shares issued under the Employee Share and Option Plan
derecognised (2) (90) (76) (90) (76)
Impairment (3) – – (49) (62)
Risk free rate adjustment (4) – – (64) (70)
Non-monetary assets/liabilities adjustment (5) – – (8) (19)
Cash flow hedges (6) – – (17) (15)
Swaps relating to ABC securities (7) (3) 2 (20) (2)
Fair value of financial assets (8) – – (4) (2)
Share based payments (9) 15 4 7 1
Amortisation of financing costs using effective interest rate method (10) (1) – (1) –
(79) (70) (388) (362)
Brought forward equity under AIFRS 4,632 2,443 4,092 3,006
The consolidated entity has elected to apply an exemption in AASB 1 which permits the cumulative translation differences in respect
of all foreign operations represented in the foreign currency translation reserve to be deemed to be zero at the date of adoption of
AIFRS. At 1 January 2004, the $130 million debit balance in the foreign currency translation reserve was reduced to zero with an
equivalent adjustment to retained profits.
Under previous AGAAP, the company recognised current and deferred tax amounts relating to transactions and balances of the
Australian tax-consolidated group. Under AIFRS, the company only recognises the current tax payable and deferred tax assets arising
from unused tax losses assumed from controlled entities in the tax-consolidated group. There is no impact on the consolidated
entity. For the company, deferred tax liabilities decreased by $643 million with an equivalent adjustment to intercompany balances.
(B) Reconciliation of net profit after tax for the year ended 31 December 2004 under previous AGAAP to that under AIFRS:
THE COMPANY
2004
$M
1 JAN
2004
$M
CONSOLIDATED
2004
$M
Net profit after income tax under previous AGAAP 1,840 820
Defined benefit superannuation plan obligations (1) – 3
Reversal of goodwill amortisation (3) – 13
Risk free rate adjustment (4) – 6
Non-monetary assets/liabilities adjustment (5) – 11
Swaps relating to ABC securities (7) (5) (18)
Fair value of financial assets (8) – (2)
Share based payments (9) – (9)
Amortisation of financing costs using effective interest rate method (10) (1) (1)
Interest component of forward contracts used for hedging (11) – 34
(6) 37
Net profit after income tax under AIFRS 1,834 857
F-25
QBE INSURANCE GROUP ANNUAL REPORT 2005
69

Notes to the financial statements continued
FOR THE YEAR ENDED 31 DECEMBER 2005
2
IMPACT OF THE ADOPTION OF AIFRS CONTINUED
(C) Impact of AIFRS on cash flows
There are no material differences to the statement of cash flows presented under AIFRS from that presented under previous AGAAP.
Notes
(1) Under AIFRS, the net deficit or surplus on defined benefit superannuation plan obligations must be recognised on the balance sheet. Under
previous AGAAP, deficits or surpluses were not recognised. An asset or liability, as determined by reference to external valuations, has been
recognised where the present value of the employees’ accrued benefits is less than or exceeds the net market value of the superannuation plans’
assets.
(2) A non-recourse loan issued under the Plan is treated as an option under AASB 2. As a result, the employee loans and related shares issued to date
are derecognised under AIFRS. The share capital will be reinstated onto the balance sheet when the loans are repaid by employees. Consequently,
the issued share capital on the balance sheet of the consolidated entity differs from issued share capital as notified to the Australian Stock
Exchange.
(3) Under previous AGAAP, goodwill was amortised over its estimated useful life whilst intangible assets were subject to ongoing impairment review.
Under AIFRS, goodwill and intangible assets with an indefinite life must be tested for impairment and are no longer amortised. Intangible assets
with a finite life are reviewed periodically for impairment and amortised over the estimated useful life. The process for impairment testing under
AIFRS is more prescriptive than under previous AGAAP resulting in an impairment to goodwill.
(4) Under AIFRS, the outstanding claims provision must be discounted at a risk free rate. Under previous AGAAP, the consolidated entity discounted the
outstanding claims provision with reference to market risk related returns.
(5) AASB 121: The Effects of Changes in Foreign Exchange Rates requires non-monetary assets, liabilities and transactions measured in terms of
historical cost to be translated to the functional currency using the rates of exchange prevailing at the transaction date. This is a change from
previous market practice at Lloyd’s.
(6) The consolidated entity has designated certain derivatives as cash flow hedges. These instruments are initially recognised at fair value on the date
the contract is entered into and are subsequently remeasured at fair value at each balance date. The derivatives have qualified for hedge accounting
and therefore the portion of the instrument determined to be an effective hedge has been recognised directly in equity. Such instruments were
previously accounted for on an accruals basis.
(7) The interest rate and cross-currency interest rate swaps in relation to the ABC securities are initially valued at fair value and are subsequently
remeasured at fair value through the income statement.
(8) The fair value of quoted financial assets is based on closing bid prices. Under previous AGAAP, the consolidated entity used trade price as the basis
of valuation.
(9) Under AASB 2, the consolidated entity is required to recognise an expense for those options and conditional rights to shares that were issued to
employees under share based compensation plans after 7 November 2002 and that had not vested by 1 January 2005.
(10) Interest bearing liabilities are valued at amortised cost using the effective interest rate method. Under previous AGAAP, interest bearing liabilities
were carried at their principal amount and financing costs were expensed on a straight line basis over the period of the financial liabilities.
(11) As permitted under AASB 139, the spot component of a forward contract is designated as a hedge in the consolidated entity’s hedging of net
investments in foreign operations. The interest component of the forward contract is included in the income statement. The effective portion of the
spot component of the forward contract is transferred to equity.
3
CRITICAL ACCOUNTING ESTIMATES AND JUDGMENTS
The consolidated entity is an international general insurance and reinsurance group underwriting most major commercial and
personal lines classes of business through operations in 41 countries. The class of business mix and an analysis of the consolidated
entity’s gross written and net earned premium from insurance and reinsurance business is shown on page 9. The head office
function is located in Australia and exists to support the activities of divisional operations as follows:
• Australia Pacific Asia Central Europe (“APACE”), which comprises general insurance operations in 25 countries under a single
management structure;
• European operations, which comprises reinsurance business written in the UK and Ireland, general insurance business written in
the UK, France, Spain and Germany and both general insurance and reinsurance business written through Lloyd’s of London; and
• QBE the Americas, which comprises general insurance and reinsurance operations in the US and a number of Latin American
countries.
In view of this geographic and product diversity, the consolidated entity has developed a strong, centralised risk management and
policy framework designed to ensure consistency of approach across a number of operational activities, subject to the specific
requirements of local markets, legislation and regulation. Such operational activities include underwriting, claims management,
actuarial assessment of the claims provision and investment management. In addition, the assessment of the risk margin
undertaken at a divisional level is subject to detailed head office review and the consolidated entity’s probability of adequacy is
determined by the Group actuary.
Given the centralised approach to many of its activities and the product and geographical diversification, sensitivity analyses in
respect of critical accounting estimates and judgments are presented at the consolidated entity level in order to provide a level of
analysis which is meaningful, relevant, reliable and comparable year on year. It is considered that disclosure at business segment or
product level would not provide a meaningful overview given the complex interrelationships between the variables underpinning the
consolidated entity’s operations.
70 F-26

Notes to the financial statements continued
FOR THE YEAR ENDED 31 DECEMBER 2005
3
CRITICAL ACCOUNTING ESTIMATES AND JUDGMENTS CONTINUED
The consolidated entity makes estimates in respect of certain key assets and liabilities. Such estimates are determined by qualified
and experienced employees with reference to historical data and reasoned expectations of future events. The key areas in which
critical estimates and judgments are applied are described below.
(A) Ultimate liability arising from claims made under insurance contracts
Provision is made for the estimated cost of claims incurred but not settled at the balance date. The estimated cost of claims
includes direct expenses that are expected to be incurred in settling those claims.
The estimation of IBNR is generally subject to a greater degree of uncertainty than the estimation of the cost of settling claims
already notified to the consolidated entity, where more information about the claims is generally available. Liability and other long
tail classes of business, where claims settlement may not happen for many years after the event giving rise to the claim, typically
display greater variability between initial estimates and final settlement due to delays in reporting claims, uncertainty in respect of
court awards and future claims inflation. Claims in respect of property and other short tail classes are typically reported and settled
sooner after the claim event, giving rise to more certainty. The estimation techniques and assumptions used in determining the
outstanding claims provision and the associated reinsurance and other recoveries are described below.
(i) Insurance risk assumptions
The consolidated entity’s process for establishing the outstanding claims provision involves extensive consultation with internal and
external actuaries, claims managers, underwriters and other senior management. This process includes quarterly internal claims
review meetings attended by senior divisional management and one or both of the chief risk officer and Group actuary, and detailed
review by external actuaries at least annually. The risk management procedures related to the actuarial function are explained further
in note 4.
The determination of the amounts that the consolidated entity will ultimately pay for claims arising under insurance and reinsurance
contracts involves a number of critical assumptions. Some of the uncertainties impacting these assumptions are as follows:
• changes in patterns of claims incidence, reporting and payment;
• volatility in the estimation of future costs for long tail insurance classes due to the longer period of time that elapses before a
definitive determination of the ultimate claims cost can be made;
• incidence of catastrophic events close to the balance date;
• changes in the legal environment, including the interpretation of liability laws and the quantum of damages; and
• social and economic trends, for example price and wage inflation and interest rates.
The potential impact of changes in key assumptions on the consolidated entity’s income statement and balance sheet are
summarised in note 3(A)(vii).
(ii) Central estimates
The outstanding claims provision comprises the central estimate and a risk margin which is added to the central estimate to achieve
a desired probability of adequacy. The outstanding claims provision is discounted at risk free rates of return to reflect the time value
of money.
A central estimate is an estimate of the level of claims provision that is intended to contain no intentional under or over estimation.
In simple terms, the central estimate is equally likely to be too high (more than adequate) or too low (inadequate) and is commonly
described as providing a 50% probability of adequacy. As the consolidated entity requires a higher probability that estimates will be
adequate over time, a risk margin is added to the central estimate of outstanding claims.
Central estimates for each class of business are determined by reference to a variety of estimation techniques, generally based on
a statistical analysis of historical experience which assumes an underlying pattern of claims development and payment. The final
selected central estimates are based on a judgmental consideration of the results of each method and qualitative information, for
example, the class of business, the maturity of the portfolio and the expected term to settlement of the class. Projections are based
on both historical experience and external benchmarks where relevant.
Central estimates are calculated gross of any reinsurance recoveries. A separate estimate is made of the amounts recoverable from
reinsurers based on the gross outstanding claims provision.
(iii) Risk margin
The determination of the appropriate level of risk margin takes into account the uncertainty or variability of each class of business
and the diversification benefits achieved by writing a number of classes of business in a number of geographic locations.
The measurement of variability by class of business uses techniques similar to those used in determining the central estimate.
These techniques determine a range of possible outcomes of ultimate payments and assign a likelihood to outcomes at
different levels. The use of a range of outcomes allows a determination of the risk margin required to provide an estimate at a
given probability of adequacy, e.g. nine times in 10 (a 90% probability of adequacy). These techniques use standard statistical
distributions, and the measure of variability is referred to as the standard deviation or the coefficient of variation.
F-27
QBE INSURANCE GROUP ANNUAL REPORT 2005
71

Notes to the financial statements continued
FOR THE YEAR ENDED 31 DECEMBER 2005
3
CRITICAL ACCOUNTING ESTIMATES AND JUDGMENTS CONTINUED
The risk margin required to provide a given probability of adequacy for two or more classes of business or for two or more
geographic locations combined is likely to be less than the sum of the risk margins for the individual classes. This reflects the
benefit of diversification in general insurance. The statistical measure used to determine diversification is called the correlation or
covariance. The higher the correlation between two classes of business, the more likely it is that a negative outcome in one class
will correspond to a negative outcome in the other class. For example, high correlation exists in classes of business affected by
court cases involving bodily injury claims such as motor third party liability (CTP), workers’ compensation and public liability.
Whilst there are estimation techniques for determining correlations, they are difficult to apply. The correlations adopted by the
consolidated entity are normally derived from industry analysis, the consolidated entity’s historical experience and the judgment of
experienced and qualified actuaries.
The risk margin for the consolidated entity is determined by analysing the variability of each class of business and the correlation
between classes of business and divisions. Correlations are determined for aggregations of classes of business, where appropriate, at
the divisional level. Applying correlations between divisions results in a further diversification benefit to the consolidated entity with a
consequent impact on the consolidated entity’s risk margin.
The potential impact of changes in the coefficient of variation assumptions on the consolidated entity’s income statement and
balance sheet is summarised in note 3(A)(vii).
(iv) Assets arising from contracts with reinsurers
Assets arising from contracts with the consolidated entity’s reinsurers are determined using the same methods described above.
In addition, the recoverability of these assets is assessed at each balance date to ensure that the balances properly reflect the
amounts that will ultimately be received, taking into account counterparty and credit risk.
(v) Expected present value of future cash flows for future claims
The expected present value of future cash flows for future claims and risk margin used in the liability adequacy test are determined
using the same methods described above.
(vi) Financial assumptions used to determine outstanding claims provisions
The outstanding claims provision is discounted to net present value using a risk free rate of return. Details of risk free rates applied are
as follows:
2005
%
2004
%
SUCCEEDING
YEAR
SUBSEQUENT
YEARS
SUCCEEDING
YEAR
SUBSEQUENT
YEARS
Australia Pacific Asia Central Europe 2.70–13.40 2.70–13.40 0.60–7.85 1.66–10.35
European operations 4.30–4.40 4.30–4.40 3.00–4.50 3.00–4.50
the Americas 4.40 4.40 3.00 3.00
Equator Re 4.30–5.53 4.30–5.38 3.00–5.22 3.00–5.49
The potential impact of a change in discount rates on the consolidated entity’s income statement and balance sheet is summarised
in note 3(A)(vii).
The weighted average terms to settlement of net outstanding claims at the balance date are as follows:
2005
YEARS
Australia Pacific Asia Central Europe 2.8 3.1
European operations 3.0 3.1
the Americas 2.2 2.3
Equator Re 1.9 1.8
Consolidated entity 2.9 3.0
The potential impact of a change in the weighted average term to settlement on the consolidated entity’s income statement and
balance sheet is summarised in note 3(A)(vii).
The sensitivity of the consolidated entity’s exposure to interest rate risk in respect of financial assets is also considered in note 5(A)(ii).
2004
YEARS
72 F-28

Notes to the financial statements continued
FOR THE YEAR ENDED 31 DECEMBER 2005
3
CRITICAL ACCOUNTING ESTIMATES AND JUDGMENTS CONTINUED
(vii) Impact of changes in key variables on the outstanding claims provision
The impact of changes in key outstanding claims variables are summarised below. Each change has been calculated in isolation of the
other changes and each change shows the after tax impact on profit and equity assuming that there is no change to:
• Any of the other variables – This is considered unlikely as, for example, an increase in interest rates is normally accompanied by an
increase in the rate of inflation. As can be seen from the table below, the impact of a change in discount rates is largely offset by
the impact of a change in the rate of inflation. The impact of a change in interest rates on financial assets is shown in note 5(D).
• The probability of adequacy – The directors and management have set an internal target range of 85% to 94% for the probability
of adequacy of the outstanding claims provision. It is likely that if, for example, the central estimate was to increase by 5%, at least
part of the increase would result in a decrease in the probability of adequacy, which is currently estimated to be 94%. Likewise, if
the coefficient of variation were to increase by 1%, it is likely that the probability of adequacy would reduce from its current level
and that the change would therefore impact the amount of risk margins held rather than net profit after tax or equity.
MOVEMENT
IN VARIABLE
%
PROFIT
(LOSS)
$M
FINANCIAL IMPACT (1)
EQUITY
$M
Central estimate +5 (337) (337)
–5 337 337
Inflation rate +1 (211) (211)
–1 200 200
Discount rate +1 180 180
–1 (193) (193)
Coefficient of variation +1 (113) (113)
–1 112 112
Weighted average term to settlement +10 99 99
–10 (101) (101)
(1) Determined at the consolidated entity level net of reinsurance and taxation at the prima facie rate of 30%.
(B) Superannuation plan obligations
The present value of the obligations arising from the consolidated entity’s defined benefit superannuation plans is determined by
external actuaries based on discount rate, mortality, salary growth and investment return assumptions. Key assumptions are set out in
note 29.
The discount rate applied to the various plans is the interest rate on high quality corporate bonds (where there is a sufficiently deep
market) or the appropriate government bond rate. The surplus or deficit at each balance date varies to reflect changes in interest rates.
Mortality assumptions are affected by experience which indicates increasing longevity, particularly for certain age groups of the
population. The consolidated entity has considered the consensus of professional opinions from a number of external actuaries in
respect of the appropriateness of the mortality tables selected for use in the valuation of the superannuation obligations for each of
the consolidated entity’s plans.
The potential impact of a change in the most sensitive assumption on the consolidated entity’s income statement and balance sheet
is summarised below.
MOVEMENT
IN VARIABLE
%
PROFIT
(LOSS)
$M
FINANCIAL IMPACT (1)
Discount rate –1 – (108)
(1) Determined at the consolidated entity level net of taxation at the prima facie rate relevant to the superannuation plan.
(C) Intangible assets
Goodwill and intangible assets with an indefinite useful life are tested annually for impairment, or more frequently when changes in
circumstances indicate that the carrying amount may not be recoverable. Intangible assets subject to amortisation are reviewed for
impairment whenever events or changes in circumstances indicate that the carrying value may not be recoverable. The impairment
review is based on the net present value of estimated future cash flows of the relevant cash generating unit, which is determined by
reference to, amongst other factors, the estimated combined operating ratio in the business plan.
If the combined operating ratio applied in these calculations was increased by one per cent over management’s estimates at
31 December 2005, the consolidated entity would have no requirement to reflect an impairment write down.
EQUITY
$M
F-29
QBE INSURANCE GROUP ANNUAL REPORT 2005
73

Notes to the financial statements continued
FOR THE YEAR ENDED 31 DECEMBER 2005
4
INSURANCE CONTRACTS – RISK MANAGEMENT POLICIES AND PROCEDURES
An overview of the consolidated entity’s risk management framework is provided in the risk management statement on pages 14
and 15 and in the risk management section of the corporate governance statement on pages 43 to 44. The consolidated entity’s risk
management objectives are to:
• avoid unwelcome surprises by reducing uncertainty and volatility;
• achieve competitive advantage through better understanding the risk environment in which the consolidated entity operates; and
• optimise risk and more effectively allocate capital and resources by assessing the balance of risk and reward.
A fundamental part of the consolidated entity’s overall risk management strategy is the effective governance and management
of the risks that impact the amount, timing and uncertainty of cash flows arising from insurance contracts. These risks include
insurance and reinsurance risks, financial risks and other risks such as regulatory and capital risks.
One of the cornerstones of the consolidated entity’s risk management framework is the recruitment and retention of high quality
people who are entrusted with appropriate levels of autonomy within the parameters of disciplined risk management practices.
The consolidated entity operates a system of delegated authorities based on expertise and proven performance, and compliance is
closely monitored.
(A) Insurance and reinsurance risks
The consolidated entity has established protocols to manage its insurance risks across the underwriting, claims and actuarial
disciplines.
(i) Underwriting risks
SELECTION AND PRICING OF RISKS
Underwriting authority is delegated to experienced underwriters for the forthcoming year following a detailed retrospective and
prospective analysis of each class of business as part of the consolidated entity’s annual business planning process. Delegated
authorities reflect the level of risk which the consolidated entity is prepared to take. The authorities include reference to some
combination of:
• gross written premium;
• premium per contract;
• sum insured per contract;
• aggregate exposures per zone;
• probable maximum loss and realistic disaster scenarios (“RDSs”);
• levels and quality of reinsurance protection;
• geographic exposures; and/or
• classes of business and types of product that may be written.
Limits in respect of each of the above are set at a portfolio, divisional and consolidated entity level and are included within business
plans for individual classes of business. They are adjusted at a local level to reflect a risk factor in respect of each controlled entity
depending on previous underwriting results, the economic environment and other potential drivers of volatility.
Insurance and reinsurance policies are written in accordance with local management practices and regulations within each
jurisdiction taking into account the consolidated entity’s risk tolerance and underwriting standards. Non-standard and long term
policies may only be written if expressly included in the delegated authorities. No individual long term or non-standard policy is
material to the consolidated entity.
Pricing of risks is controlled by use of in-house pricing models relevant to the specific portfolio and markets in which the
consolidated entity operates. Experienced underwriters and actuaries maintain historical pricing and claims analysis for each
portfolio and this is combined with a detailed knowledge of the current developments in the respective markets and classes
of business.
CONCENTRATION RISK
The consolidated entity’s exposure to concentrations of insurance risk is mitigated by a portfolio diversified across 41 countries and
hundreds of classes of business. Product diversification is achieved through a strategy of developing strong underwriting skills in a
wide variety of classes of business. A combination of core and specialty products under the control of proven employees skilled in
underwriting such products allows the consolidated entity to lead underwrite in many of the markets in which it operates.
The consolidated entity has potential exposure to catastrophe losses that may impact more than one operating division. Each
year, the consolidated entity sets its tolerance to concentration risk. RDSs, using industry standard and QBE determined probable
maximum losses and various catastrophe models, are calculated for each portfolio during the business planning process. These
RDSs are aggregated across all portfolios and divisions to determine the consolidated entity’s maximum event retention (“MER”)
which is the estimated maximum net loss from major natural catastrophes with an approximate return period of 250 years. The
MER must be less than the consolidated entity’s concentation risk tolerance; otherwise, steps such as the purchase of additional
reinsurance are taken to limit the exposure.
74 F-30

Notes to the financial statements continued
FOR THE YEAR ENDED 31 DECEMBER 2005
4
INSURANCE CONTRACTS – RISK MANAGEMENT POLICIES AND PROCEDURES CONTINUED
In 2005, the net cost of large catastrophes, being catastrophes with an individual net cost of more than $10 million to the
consolidated entity, was $515 million before tax (2004 $320 million).
REINSURANCE RISK
The consolidated entity’s strategy in respect of the selection, approval and monitoring of reinsurance arrangements is addressed by the
following protocols.
• Treaty or facultative reinsurance is placed in accordance with the requirements of the consolidated entity’s reinsurance
management strategy and Group security committee guidelines.
• Reinsurance arrangements are regularly reassessed to determine their effectiveness based on current exposures, historic losses and
potential future losses based on RDSs and the consolidated entity’s MER.
The consolidated entity’s exposure to reinsurance counterparties and the credit quality of those counterparties is actively monitored.
(ii) Claims management and claims provisioning risks
The consolidated entity’s approach to determining the outstanding claims provision and the related sensitivities are set out in note 3.
The consolidated entity seeks to ensure the adequacy of its outstanding claims provision by reference to the following controls.
• Experienced claims managers work with underwriters on coverage issues and operate within the levels of authority delegated to them
in respect of the settlement of claims.
• Processes exist to ensure that all claims advices are captured and updated on a timely basis and with a realistic assessment of the
ultimate claims cost.
• Initial IBNR estimates are set by experienced internal actuaries in conjunction with the local product managers and underwriters for each
class of business in each business unit.
• The aggregate outstanding claims provision for each controlled entity is assessed in a series of quarterly internal claims review
meetings, which are attended by senior divisional management and one or both of the chief risk officer and Group actuary in order to
ensure consistency of provisioning practices across all divisions.
• Over 90% of the consolidated entity’s outstanding claims provision is reviewed by external actuaries at least annually.
Despite the rigour involved in the establishment and review of the outstanding claims provision, the provision is subject to significant
uncertainty for the reasons set out in note 3.
(B) Financial risks arising from insurance contracts
The consolidated entity is exposed to the risk that interest rate movements may materially impact the value of the outstanding
claims provision. Historically, there has been a high correlation between changes in discount rates and the movement in claims
inflation. The financial impact of changing interest rates on outstanding claims is therefore expected to be offset in the longer term
by similar changes in claims inflation.
(C) Other risks arising from insurance contracts
The consolidated entity is exposed to a number of other risks arising from insurance contracts.
(i) Capital and regulatory risks
Australian and overseas controlled entities are subject to extensive prudential regulation in the jurisdictions in which they conduct
business. Prudential regulation is generally designed to protect policyholders. Regulation covers a number of areas including
solvency, change in control and capital movement limitations. The regulatory environment in Australia and overseas continues to
evolve in response to economic, political and industry developments. The consolidated entity works closely with regulators and
monitors regulatory developments across its global operations to assess their potential impact on its ability to meet solvency and
other requirements.
(ii) Acquisition risks
The consolidated entity’s strategy of growth by acquisition exposes it to additional risks. Acquisition risks are principally
managed by the consolidated entity’s controls over the due diligence and subsequent integration processes. The consolidated
entity has experienced due diligence teams in each of the divisions and has documented minimum requirements for carrying out
due diligence.
F-31
QBE INSURANCE GROUP ANNUAL REPORT 2005
75

Notes to the financial statements continued
FOR THE YEAR ENDED 31 DECEMBER 2005
5
FINANCIAL RISK MANAGEMENT
The activities of the consolidated entity expose it to financial risks such as market risk (including currency risk, cash flow and fair
value interest rate risk and price risk), credit risk and liquidity risk. The consolidated entity’s risk management framework recognises
the unpredictability of financial markets and seeks to minimise potential adverse effects on the financial performance of the Group.
The key objectives of the consolidated entity’s asset and liability management strategy are to ensure sufficient liquidity is
maintained at all times to meet the consolidated entity’s obligations, including its settlement of insurance liabilities and, within these
parameters, to optimise investment returns for policyholders and shareholders.
(A) Market risk
(i) Currency risk
The consolidated entity is exposed to foreign currency risk in respect of its net foreign currency exposures. This risk is managed as follows.
• Each controlled entity manages the volatility arising from changes in foreign exchange rates by matching liabilities with assets of
the same currency, thus ensuring that any exposures to overseas currencies are minimised.
• Forward foreign exchange contracts are used to protect residual currency positions. These forward foreign exchange contracts are
accounted for in accordance with the derivatives accounting policy set out in note 1(N).
• The consolidated entity manages the foreign currency exposures arising from the revaluation of net investments in foreign
operations to Australian dollars using either foreign currency interest bearing liabilities designated as hedging instruments or
forward foreign exchange contracts designated as hedging instruments.
Those arrangements which meet the hedging criteria set out under AASB 139 are accounted for in accordance with the accounting
policy provided in note 1(O). The effectiveness of the currency management processes and the related use of derivatives is actively
monitored by the Group treasurer and Group chief financial officer.
The risk management process covering forward foreign exchange contracts and hedges involves close senior management scrutiny,
including regular board and other management reporting. All forward foreign exchange contracts and hedge transactions are subject
to delegated authority levels provided to management, and the levels of exposure are reviewed on an ongoing basis.
All instruments that are designated as hedges are tested for effectiveness on both a prospective and retrospective basis. These
tests are performed at least quarterly.
(ii) Cash flow and fair value interest rate risk
The consolidated entity is exposed to interest rate risk arising on interest bearing assets. Assets with floating rate interest expose
the consolidated entity to cash flow interest rate risk. Fixed interest rate assets expose the consolidated entity to fair value interest
rate risk. The consolidated entity’s strategy is to invest in high quality, liquid fixed interest securities and cash and to actively manage
duration. The investment portfolios are actively managed to achieve a balance between cash flow interest rate risk and fair value
interest rate risk bearing in mind the need to meet the liquidity requirements of the insurance business.
The consolidated entity is also exposed to interest rate risk arising from long term interest bearing liabilities.
Eurobonds issued at variable interest rates expose the consolidated entity to cash flow interest rate and foreign currency risk. The
consolidated entity manages this cash flow interest rate risk by using floating to fixed cross currency interest rate swaps, details of
which are set out in note 22.
The consolidated entity is exposed to fair value interest rate and currency risk in respect of ABC securities and exposed to cash flow
interest rate risk on the ABC financial assets pledged. The consolidated entity manages these risks by using floating to fixed interest
rate swaps and floating to fixed cross currency interest rate swaps, details of which are set out in note 35.
All other long term interest bearing liabilities are generally fixed interest rate borrowings valued at amortised cost and therefore do
not expose the entity to cash flow or fair value interest rate risk.
The consolidated entity’s exposure to interest rate risk and the effective weighted average interest rate for each significant class of
interest bearing financial asset and liability is provided on the opposite page.
76 F-32

Notes to the financial statements continued
FOR THE YEAR ENDED 31 DECEMBER 2005
5
FINANCIAL RISK MANAGEMENT CONTINUED
2005
FLOATING
INTEREST
RATE
1 YEAR
OR LESS
1 TO 2
YEARS
FIXED INTEREST RATE MATURING IN
(i) Net interest bearing financial
assets (excluding ABC financial
assets and ABC securities)
Interest bearing securities $M 3,100 9,376 1,803 526 217 360 447 15,829
Weighted average
interest rate % 4.3 4.7 4.8 5.0 5.4 5.5 5.8 4.7
Financial liabilities $M (400) – – – (404) (344) (982) (2,130)
Weighted average
interest rate % 5.8 – – – 5.7 8.8 3.4 5.2
Net interest bearing
financial assets $M 2,700 9,376 1,803 526 (187) 16 (535) 13,699
(ii) ABC financial assets
and ABC securities
ABC financial assets pledged
for funds at Lloyd’s (1) $M – – – 750 282 – – 1,032
Weighted average
interest rate % – – – 3.5 3.2 – – 3.4
ABC securities for funds
at Lloyd’s $M – – – (720) (295) – – (1,015)
Weighted average
interest rate % – – – 4.8 4.7 – – 4.8
Net ABC financial assets
and ABC securities $M – – – 30 (13) – – 17
(1) Weighted average interest rate is net of swap income.
2 TO 3
YEARS
3 TO 4
YEARS
4 TO 5
YEARS
OVER 5
YEARS
TOTAL
FIXED INTEREST RATE MATURING IN
2004
FLOATING
INTEREST
RATE
1 YEAR
OR LESS
1 TO 2
YEARS
2 TO 3
YEARS
3 TO 4
YEARS
4 TO 5
YEARS
OVER 5
YEARS TOTAL
(i) Net interest bearing financial
assets (excluding ABC financial
assets and ABC securities)
Interest bearing securities $M 2,542 6,055 1,792 1,035 181 180 654 12,439
Weighted average
interest rate % 3.8 4.4 4.7 5.0 5.0 4.6 4.8 4.4
Financial liabilities $M – – – – – (427) (1,378) (1,805)
Weighted average
interest rate % – – – – – 5.6 4.7 4.9
Net interest bearing
financial assets $M 2,542 6,055 1,792 1,035 181 (247) (724) 10,634
(ii) ABC financial assets
and ABC securities
ABC financial assets pledged
for funds at Lloyd’s (1) $M – – – – 703 295 – 998
Weighted average
interest rate % – – – – 3.5 3.2 – 3.4
ABC securities for funds
at Lloyd’s $M – – – – (691) (277) – (968)
Weighted average
interest rate % – – – – 4.8 4.7 – 4.8
Net ABC financial assets
and ABC securities $M – – – – 12 18 – 30
(1) Weighted average interest rate is net of swap income.
F-33
QBE INSURANCE GROUP ANNUAL REPORT 2005
77

Notes to the financial statements continued
FOR THE YEAR ENDED 31 DECEMBER 2005
5
FINANCIAL RISK MANAGEMENT CONTINUED
(iii) Reconciliation of net financial assets to net assets
Net financial assets
Interest bearing 13,699 10,634
ABC financial assets pledged for funds at Lloyd’s 1,032 998
ABC securities for funds at Lloyd’s (1,015) (968)
Non-interest bearing and other 1,401 2,136
Net insurance liabilities (11,267) (9,854)
Net non-financial assets 1,309 1,146
Net assets 5,159 4,092
The potential impact of movements in interest rates on the consolidated entity’s income statement and balance sheet in relation
to the valuation of financial assets is summarised in note 5(D).
(iii) Price risk
The consolidated entity is exposed to price or market value risk on its investment in equities and fixed interest securities and
uses forward contracts and options to manage this exposure. The risk management processes over these forward contracts and
options are the same as those explained in note 5(A)(i) in respect of forward foreign currency contracts.
Equities are held mainly against shareholders’ funds. At 31 December 2005, 3.7% (2004 8.9%) of the consolidated entity’s
financial assets were held in listed equities. The potential impact of movements in the market value of equities on the
consolidated entity’s income statement and balance sheet was therefore immaterial as shown in note 5(D).
(B) Credit risk
Credit risk exposures are calculated regularly and compared with authorised credit limits before further transactions are
undertaken with each counterparty.
77% (2004 74%) of total financial assets and cash is with counterparties having a Moody’s rating of Aa3 or better. The
consolidated entity does not expect any investment counterparties to fail to meet their obligations given their strong credit
ratings and therefore does not require collateral or other security to support derivatives. The consolidated entity only uses
derivatives in highly liquid markets.
(C) Liquidity risk
In addition to treasury cash held for working capital requirements, a minimum percentage of the consolidated entity’s total
financial assets is held in liquid, short term money market securities to ensure there are sufficient liquid funds available to meet
obligations. Details of the consolidated entity’s financial assets are provided in note 13. At 31 December 2005, the mean term of cash
and fixed interest investments was 0.6 years (2004 0.6 years).
The consolidated entity limits the risk of liquidity shortfalls resulting from a mismatch in the timing of claims payments and
receipt of claims recoveries by negotiating cash call clauses in reinsurance contracts and seeking accelerated settlements for
large claims.
(D) Impact of changes in key variables
MOVEMENT
IN VARIABLE
%
2005
$M
PROFIT
(LOSS)
$M
2004
$M
FINANCIAL IMPACT (1)
Interest rate movement – impact on fair value of fixed interest securities +1 (66) (66)
–1 66 66
Market value of equities +1 5 5
–1 (5) (5)
(1) Determined at the consolidated entity level net of taxation at the prima facie rate of 30%.
EQUITY
$M
78 F-34

Notes to the financial statements continued
FOR THE YEAR ENDED 31 DECEMBER 2005
6
REVENUE
Premium revenue
2005
$M
THE COMPANY
2004
$M
2005
$M
CONSOLIDATED
Direct – – 7,076 6,583
Inward reinsurance – – 2,095 1,988
Other revenue
2004
$M
– – 9,171 8,571
Reinsurance and other recoveries – – 2,327 1,171
Interest and dividend income 520 1,940 616 549
Foreign exchange gains – – 3 51
520 1,940 2,946 1,771
Net fair value gains on financial assets (1) – – 216 88
Realised gain on sale of controlled entities 629 – 11 –
Investment income – ABC financial assets pledged for funds at Lloyd’s 48 48 84 40
Revenue 1,197 1,988 12,428 10,470
(1) Consolidated includes realised gains of $155 million (2004 $23 million).
7
PROFIT BEFORE INCOME TAX
(A) Profit before income tax (consolidated)
Gross written premium 9,408 8,766
Unearned premium movement (237) (195)
Gross earned premium 9,171 8,571
Outward reinsurance premium (1,785) (1,781)
Deferred reinsurance premium movement – (9)
Outward reinsurance premium expense (1,785) (1,790)
Net earned premium 7,386 6,781
Gross claims incurred (6,744) (5,327)
Reinsurance and other recoveries 2,327 1,171
Net claims incurred 9 (4,417) (4,156)
Net commission (1,251) (1,184)
Other acquisition costs (428) (439)
Underwriting and other expenses (482) (405)
NOTE
2005
$M
2004
$M
(6,578) (6,184)
Underwriting profit 808 597
Investment income on policyholders’ funds 480 331
Insurance profit 1,288 928
Investment income on shareholders’ funds 238 188
Amortisation of intangibles and impairment of goodwill/intangibles (3) (1)
Profit before income tax 1,523 1,115
F-35
QBE INSURANCE GROUP ANNUAL REPORT 2005
79

Notes to the financial statements continued
FOR THE YEAR ENDED 31 DECEMBER 2005
7
PROFIT BEFORE INCOME TAX CONTINUED
(B) Net investment and other income
2005
$M
THE COMPANY
2004
$M
2005
$M
CONSOLIDATED
Dividends from controlled entities 445 1,867 – –
Dividends from non-related entities – – 41 52
Interest received or receivable from controlled entities 65 58 – –
Interest received or receivable from non-related entities 1 1 567 483
Other investment income 9 14 8 14
Interest and dividend income 520 1,940 616 549
Investment income - ABC financial assets pledged for funds at Lloyd’s 48 48 84 40
Realised gains - equities – – 94 54
Realised gains (losses) - fixed interest and other – – 61 (31)
Unrealised gains - equities – – 35 47
Unrealised gains - fixed interest and other – – 26 18
Realised gains on sale of controlled entity 629 – 11 –
Foreign exchange gains – – 3 51
Investment and other income 1,197 1,988 930 728
Expenses - ABC securities for funds at Lloyd’s (45) (45) (101) (83)
Finance costs paid or payable to controlled entities (49) (39) – –
Finance costs paid or payable to non-related entities (44) (37) (96) (94)
Investment expenses (1) (4) (15) (32)
Foreign exchange losses (5) (47) – –
Net investment and other income 1,053 1,816 718 519
Investment income on policyholders’ funds 480 331
Investment income on shareholders’ funds 238 188
Net investment and other income 718 519
(C) Other expenses
2005
$M
THE COMPANY
2004
$M
2005
$M
CONSOLIDATED
Net commission – – 1,251 1,184
Other acquisition costs – – 428 439
Underwriting and other expenses – – 482 405
Investment expenses 1 4 15 32
Amortisation of intangibles – – 3 1
Foreign exchange losses 5 47 – –
Other expenses 6 51 2,179 2,061
(D) Specific items
THE COMPANY
CONSOLIDATED
Defined contribution superannuation plan expense – – 24 24
Payments on operating leases – – 31 23
Depreciation of assets – – 40 53
2005
$M
2004
$M
2005
$M
2004
$M
2004
$M
2004
$M
80 F-36

Notes to the financial statements continued
FOR THE YEAR ENDED 31 DECEMBER 2005
8
INCOME TAX
(A) Reconciliation of prima facie tax to income tax expense
2005
$M
THE COMPANY
2004
$M
2005
$M
CONSOLIDATED
Profit before income tax 1,053 1,816 1,523 1,115
Prima facie tax payable at 30% 316 545 457 335
Tax effect of permanent differences:
Untaxed dividends (335) (563) (11) (15)
Differences in tax rates 15 9 (1) (11)
Other, including non-allowable expenses and non-taxable income (2) (8) (20) (31)
Prima facie tax adjusted for permanent differences (6) (17) 425 278
Overprovision in prior years (1) (1) – (27)
Income tax (credit) expense (7) (18) 425 251
Analysed as follows:
Current tax (15) (12) 486 153
Deferred tax 9 (5) (61) 125
Overprovision in prior years (1) (1) (1) – (27)
(7) (18) 425 251
(1) Overprovision in prior years includes current and deferred tax components.
2004
$M
(B) Tax consolidation
Effective 1 January 2003, the company became the head entity in a tax-consolidated group comprising the company and all of its
Australian wholly owned controlled entities (“Australian entities”) and the requirements of the relevant accounting standards have
been applied.
The directors of the company and its Australian entities have entered into a tax sharing and tax funding agreement that requires
the Australian entities to make contributions to the company for current tax liabilities and deferred tax balances in respect of tax
losses arising from external transactions occurring after the implementation of tax consolidation. The contributions are allocated
by reference to the notional taxable income of each Australian entity.
The company has formally notified the Australian Taxation Office that the tax consolidation regime has been adopted by the
Australian entities.
Details of franking credits available to shareholders are shown in note 25(D).
F-37
QBE INSURANCE GROUP ANNUAL REPORT 2005
81

Notes to the financial statements continued
FOR THE YEAR ENDED 31 DECEMBER 2005
9
CLAIMS INCURRED (CONSOLIDATED)
(A) Claims analysis
Gross claims incurred and related expenses
Direct 4,384 3,962
Inward reinsurance 2,360 1,365
6,744 5,327
Reinsurance and other recoveries
Direct 1,125 843
Inward reinsurance 1,202 328
2,327 1,171
Net claims incurred 4,417 4,156
(B) Claims development
Current year claims relate to risks borne in the current reporting year. Prior year claims relate to a reassessment of the risks borne in
all previous reporting years.
CURRENT
YEAR
$M
2005
$M
2005 2004
PRIOR
CURRENT
PRIOR
YEARS
TOTAL
YEAR YEARS
$M
$M
$M
$M
Gross claims incurred and related expenses
Undiscounted 7,533 (651) 6,882 5,808 (205) 5,603
Discount (659) 521 (138) (541) 265 (276)
6,874 (130) 6,744 5,267 60 5,327
Reinsurance and other recoveries
Undiscounted 2,458 (33) 2,425 1,322 (65) 1,257
Discount (233) 135 (98) (153) 67 (86)
2,225 102 2,327 1,169 2 1,171
Net claims incurred
Undiscounted 5,075 (618) 4,457 4,486 (140) 4,346
Discount (426) 386 (40) (388) 198 (190)
4,649 (232) 4,417 4,098 58 4,156
The development of net undiscounted outstanding claims for the five most recent accident years is shown in note 20.
2004
$M
TOTAL
$M
82 F-38

Notes to the financial statements continued
FOR THE YEAR ENDED 31 DECEMBER 2005
10
CASH AND CASH EQUIVALENTS
2005
$M
THE COMPANY
2004
$M
2005
$M
CONSOLIDATED
Cash at bank and in hand 12 4 317 349
Overnight money 2 5 162 253
Cash management trusts – – 129 252
Term deposits – – 416 224
Commercial paper – – 37 43
2004
$M
14 9 1,061 1,121
Included in cash and cash equivalents are amounts totalling $31 million (2004 $107 million) not available for use by the consolidated
entity which are held within Lloyd’s syndicates as funds at Lloyd’s.
11
RECEIVABLES – CURRENT
Trade debtors
2005
$M
THE COMPANY
2004
$M
2005
$M
CONSOLIDATED
Premium (1) – – 917 736
Reinsurance and other recoveries (2) – – 547 565
Unclosed premium – – 1,412 1,273
2004
$M
– – 2,876 2,574
Other debtors – 1 505 404
Treasury receivables 27 46 2 2
Investment receivables 10 5 224 166
Amounts due from controlled entities 1,891 3,391 – –
1,928 3,443 3,607 3,146
(1) Premium receivable is net of a provision for impairment of $52 million (2004 $37 million).
(2) Reinsurance and other recoveries are net of a provision for impairment of $87 million (2004 $75 million).
(3) A provision for impairment of reinsurance and other recoveries on outstanding claims of $152 million (2004 $88 million) is included in note 20.
F-39
QBE INSURANCE GROUP ANNUAL REPORT 2005
83

Notes to the financial statements continued
FOR THE YEAR ENDED 31 DECEMBER 2005
12
DEFERRED INSURANCE COSTS (CONSOLIDATED)
Deferred reinsurance premium 582 566
Deferred net commission 653 586
Deferred acquisition costs 211 206
2005
$M
2004
$M
1,446 1,358
DEFERRED NET
COMMISSION
$M
DEFERRED
ACQUISITION
COSTS
$M
Deferred costs at 1 January 2004 463 170
Acquisitions 70 15
Costs deferred in financial year 507 182
Amortisation of costs deferred in previous financial years (456) (159)
Foreign exchange 2 (2)
Deferred costs at 31 December 2004 586 206
Acquisitions 25 –
Costs deferred in financial year 570 182
Amortisation of costs deferred in previous financial years (528) (174)
Foreign exchange – (3)
Deferred costs at 31 December 2005 653 211
13
FINANCIAL ASSETS
(A) Financial assets at fair value through the income statement
2005
$M
THE COMPANY
2004
$M
2005
$M
CONSOLIDATED
Short term money 40 – 8,292 5,482
Government bonds – – 3,866 2,848
Corporate bonds – – 1,919 2,396
Floating rate notes and other – – 1,634 1,698
Fixed interest trusts – – 68 5
Mortgages – – 50 10
40 – 15,829 12,439
Equities
Listed – – 654 1,333
Unlisted – – 33 50
Equity derivatives (forward contracts) – – (13) –
– – 674 1,383
40 – 16,503 13,822
Current 40 – 9,411 6,548
Non-current – – 7,092 7,274
40 – 16,503 13,822
ABC financial assets pledged for funds at Lloyd’s are not included in this analysis. Details of ABCs are included in note 35(C).
2004
$M
84 F-40

Notes to the financial statements continued
FOR THE YEAR ENDED 31 DECEMBER 2005
13
FINANCIAL ASSETS CONTINUED
(B) Unlisted equities
The fair value movement in unlisted equities was a gain of $4.3 million (2004 $nil).
(C) Investments maturing within 12 months
Non-current investments include amounts maturing within 12 months of $1,722 million (2004 $1,408 million) which, in the normal
course of business, will be reinvested and not used for working capital.
(D) Charges over investments and other assets
A controlled entity has given fixed and floating charges over certain of its investments and other assets in order to secure the
obligations of the consolidated entity’s corporate members at Lloyd’s of London as described in note 31. Details of the fixed and
floating charges over ABC financial assets pledged for funds at Lloyd’s are provided in note 35(C).
14
INVESTMENT PROPERTIES (CONSOLIDATED)
At 1 January 32 38
Additions 4 –
Disposals (2) (8)
Fair value (losses) gains (1) 2
At 31 December 33 32
The principal investment properties are valued by the directors based on the independent valuation of various qualified employees of
Knight Frank (Australia) Pty Limited. Minor investment properties are included at the independent valuation of other licensed valuers.
All investment properties were valued on the basis of capitalisation of net market rentals allowing for costs of reletting, having
regard to comparable on-market sales and discounted future cash flows.
15
DERIVATIVE FINANCIAL INSTRUMENTS
(A) Derivative financial instruments – fair value
2005
$M
THE COMPANY
2004
$M
2005
$M
2005
$M
CONSOLIDATED
Current assets
Forward foreign exchange contracts 11 1 69 66
Eurobonds swaps – – 13 12
11 1 82 78
Current liabilities
Forward foreign exchange contracts (4) (8) (35) (53)
7 (7) 47 25
Swaps relating to ABC securities are included in note 35(C).
2004
$M
2004
$M
F-41
QBE INSURANCE GROUP ANNUAL REPORT 2005
85

Notes to the financial statements continued
FOR THE YEAR ENDED 31 DECEMBER 2005
15
DERIVATIVE FINANCIAL INSTRUMENTS CONTINUED
(i) Foreign currency risk
Foreign currency risk arises from the translation of net investments in foreign operations to Australian dollars, being both
the presentation currency for the consolidated entity and the functional currency of the parent entity. The consolidated entity uses
foreign currency interest bearing liabilities and forward foreign exchange contracts to mitigate this risk.
The consolidated entity is also exposed to foreign currency risk on its net position in foreign currencies arising from foreign currency
transactions. The consolidated entity uses derivatives to help manage this exposure by entering into forward foreign exchange
contracts, some of which involve the exchange of two foreign currencies according to the needs of controlled foreign entities.
Contractual amounts for foreign exchange derivatives outstanding at the balance date include forward foreign exchange contracts to
purchase $6,778 million (2004 $5,162 million).
The maturity profile of these derivatives is as follows:
Less than one year 6,766 4,962
More than one but less than five years – –
More than five years 12 200
6,778 5,162
(ii) Market risk
The consolidated entity is exposed to market risk on its investment in equities and fixed interest securities and uses forward contracts
and options to help manage this exposure. All derivative positions entered into by the consolidated entity are for economic hedging
purposes but do not, in all cases, meet the criteria for hedge accounting. Contractual amounts for written options outstanding at the
balance date were $nil (2004 $nil). There were no amounts outstanding for purchased options (2004 $12 million).
The derivative risk management process is subject to regular internal audit and close senior management scrutiny, including regular
board and other management reporting. All derivative transactions are subject to authority levels provided to management and the
levels of exposure are reviewed on an ongoing basis.
(B) Hedging arrangements
The consolidated entity has designated the following derivatives as hedges:
TYPE OF HEDGE DESCRIPTION OF INSTRUMENT NATURE OF RISKS
Fair value
Cash flow
Cash flow
Net investments in
foreign operations
Interest rate swaps – ABC securities
(due 2008)
Cross currency interest rate swaps
– Eurobonds
Cross currency interest rate swaps
– ABC securities (due 2009)
Forward foreign exchange contracts
– spot component
2005
$M
2005
$M
FAIR VALUE
2004
$M
2004
$M
Changes in fair value of financial
liability due to interest rate risk (28) –
Variability of functional currency cash
flows due to interest rate and foreign
currency risk 13 12
Variability of functional currency cash
flows due to interest rate and foreign
currency risk (1) –
Currency risk
(21) 117
At the balance date, $nil (2004 $908 million) non-derivative interest bearing liabilities were designated as hedges of net investments
in foreign operations. During 2005, these hedging instruments were replaced as hedges by forward foreign exchange contracts.
86 F-42

Notes to the financial statements continued
FOR THE YEAR ENDED 31 DECEMBER 2005
16
INVESTMENTS IN CONTROLLED ENTITIES
COUNTRY OF
INCORPORATION/FORMATION
2005
%
EQUITY HOLDING
(A) Parent entity
QBE Insurance Group Limited
Australia
(B) Controlled entities
AIS Green Slip Group Pty Limited Australia 100.00 100.00
Atlasz Real Estate and Management Company Limited Hungary 100.00 100.00
Atlasz Utasbiztositási Egyes Ügynöki Kft Hungary 100.00 100.00
Australian Aviation Underwriting Pool Pty Limited Australia 100.00 100.00
Bankside Insurance Holdings Limited (in liquidation) UK 100.00 100.00
Bankside Underwriting Agencies Limited (in liquidation) UK 100.00 100.00
BIDV – QBE Insurance Company Limited (1) Vietnam 50.00 50.00
British Marine Holdings Limited UK 100.00 –
British Marine Holdings SA Luxembourg 100.00 –
British Marine Holdings II SA Luxembourg 100.00 –
British Marine Luxembourg SA Luxembourg 100.00 –
British Marine Managers Limited UK 100.00 –
CHU Underwriting Agencies Pty Ltd Australia 100.00 100.00
Concord Accident and Health Underwriting Agencies Pty Limited (1) Australia 49.90 49.90
Concord Accident and Health Underwriting Agencies (SA) Pty Limited (1) Australia 49.90 49.90
Concord Sports Insurance Agencies Pty Limited (1) Australia 49.90 49.90
Concord Underwriting Agencies (NSW) Pty Limited (1) Australia 49.90 49.90
Concord Underwriting Agencies (SA) Pty Limited (1) Australia 49.90 49.90
Concord Underwriting Agencies Pty Limited (1) Australia 49.90 49.90
Compania Central de Seguros SA Colombia 97.00 –
Compania Internationale de Asigurari QBE ASITO SA Moldova 72.60 72.60
Corporate Underwriting Agencies Pty Ltd Australia 100.00 100.00
DA Constable Syndicate (Ireland) Limited Ireland 100.00 100.00
DA Constable Syndicate Limited UK 100.00 100.00
DA Constable Syndicate Pty Limited Australia 100.00 100.00
Energy Insurance Services Limited UK 100.00 100.00
Ensign Dedicated 1 Limited UK 100.00 100.00
Ensign Holdings Limited UK 100.00 100.00
Ensign Plus Insurance Services Limited (in liquidation) UK 100.00 100.00
Equator Investments Pty Limited Australia 100.00 100.00
Equator Reinsurances Limited Bermuda 100.00 100.00
European Claims Organisation Limited (in liquidation) UK 100.00 100.00
FAI Insurances (Fiji) Limited Fiji 100.00 100.00
Greenhill Baia Underwriting GmbH Germany 100.00 –
Greenhill International Insurance Holdings Limited UK 100.00 –
Greenhill Sturge Underwriting Limited UK 100.00 –
Greenhill Underwriting Espana Limited UK 100.00 –
Hyfield Company Limited (1) Thailand 49.00 49.00
Icon Schemes Limited UK 100.00 100.00
Insurance Consult SRL Moldova 100.00 100.00
Invivo Medical Pty Ltd Australia 50.00 –
Iron Trades Management Services Ltd UK 100.00 100.00
Limit (Insurance and Reinsurance) Services Limited (in liquidation) UK 100.00 100.00
Limit Corporate Members Limited UK 100.00 100.00
Limit Holdings Limited UK 100.00 100.00
2004
%
F-43
QBE INSURANCE GROUP ANNUAL REPORT 2005
87

Notes to the financial statements continued
FOR THE YEAR ENDED 31 DECEMBER 2005
16
INVESTMENTS IN CONTROLLED ENTITIES CONTINUED
COUNTRY OF
INCORPORATION/FORMATION
2005
%
EQUITY HOLDING
Limit No 1 Limited UK 100.00 100.00
Limit No 2 Limited UK 100.00 100.00
Limit No 3 Limited UK 100.00 100.00
Limit No 4 Limited UK 100.00 100.00
Limit No 5 Limited UK 100.00 100.00
Limit No 6 Limited UK 100.00 100.00
Limit No 7 Limited UK 100.00 100.00
Limit No 10 Limited UK 100.00 100.00
Limit plc UK 100.00 100.00
Limit Properties Limited UK 100.00 100.00
Limit Technology and Commercial Underwriting Limited UK 100.00 100.00
Limit Underwriting Limited UK 100.00 100.00
Mantis Reef Limited (2) Cayman Is – –
Mantis Reef Pledge Limited (2) Cayman Is – –
Mantis Reef II Limited (2) Cayman Is – –
Mantis Reef II Pledge Limited (2) Cayman Is – –
MBP Holdings Limited UK 100.00 –
MiniBus Plus Limited UK 100.00 –
Minster Court Asset Management Limited UK 100.00 100.00
MMIA Pty Limited Australia 100.00 100.00
MMNSW Pty Limited Australia 100.00 100.00
MMWC Pty Limited Australia 100.00 100.00
National Credit Insurance (Brokers) NZ Limited NZ 100.00 –
National Credit Insurance (Brokers) Pty Ltd Australia 100.00 –
National Farmers Union Property and Casualty Company US 100.00 –
Pitt Nominees Pty Limited Australia 100.00 100.00
PT Asuransi QBE Pool Indonesia Indonesia 60.00 60.00
QBE (PNG) Pty Limited PNG 100.00 100.00
QBE (Singapore) Pte Ltd Singapore 100.00 100.00
QBE Aseguradora de Riesgos del Trabajo SA Argentina 83.00 83.00
QBE Atlasz Biztosító zrt Hungary 100.00 100.00
QBE Australia Pty Limited Australia 100.00 100.00
QBE Brasil Seguros SA Brazil 100.00 100.00
QBE Corporate Capital Holdings plc UK 100.00 100.00
QBE Corporate Holdings Ltd UK 100.00 100.00
QBE Corporate Limited UK 100.00 100.00
QBE Employee Share Trust (2) Australia – –
QBE Equities Pty Limited Australia 100.00 100.00
QBE Finance Pty Limited Australia 100.00 100.00
QBE Funding Limited Jersey 100.00 100.00
QBE Funding II Limited Jersey 100.00 100.00
QBE Funding III Limited Jersey 100.00 100.00
QBE Funding Trust (2) US – –
QBE Funding Trust II (2) US – –
QBE Funding Trust III (2) US – –
QBE Holdings (UK) Limited UK 100.00 100.00
QBE Holdings Inc US 100.00 100.00
QBE Hongkong & Shanghai Insurance Limited Hong Kong 74.47 74.47
2004
%
88 F-44

Notes to the financial statements continued
FOR THE YEAR ENDED 31 DECEMBER 2005
16
INVESTMENTS IN CONTROLLED ENTITIES CONTINUED
COUNTRY OF
INCORPORATION/FORMATION
2005
%
EQUITY HOLDING
QBE Insurance (Australia) Limited Australia 100.00 100.00
QBE Insurance (Europe) Limited UK 100.00 100.00
QBE Insurance (Fiji) Limited Fiji 100.00 100.00
QBE Insurance (Hong Kong) Limited (in liquidation) Hong Kong 100.00 100.00
QBE Insurance (International) Limited Australia 100.00 100.00
QBE Insurance (Malaysia) Berhad Malaysia 51.00 51.00
QBE Insurance (Philippines) Inc Philippines 59.00 59.00
QBE Insurance (PNG) Limited PNG 100.00 100.00
QBE Insurance (Thailand) Co Ltd (1)
Thailand
Thai resident entities 23.67 23.67
Non-Thai resident entities 24.87 24.87
QBE Insurance (Vanuatu) Limited Vanuatu 100.00 100.00
QBE Insurance Company (UK) Limited UK 100.00 100.00
QBE Insurance Corporation US 100.00 100.00
QBE International (Investments) Pty Limited Australia 100.00 100.00
QBE International Holdings (UK) plc UK 100.00 100.00
QBE International Holdings Limited Hong Kong 100.00 100.00
QBE Investments (North America) Inc US 100.00 100.00
QBE Investments Pty Limited Australia 100.00 100.00
QBE Irish Share Incentive Plan (2) Ireland – –
QBE IT Services Pty Limited Australia 100.00 100.00
QBE Kindlustuse Eesti AS Estonia 100.00 –
QBE Makedonija (3) Macedonia 65.25 65.25
QBE Management Company (Bermuda) Limited Bermuda 100.00 100.00
QBE Management (UK) Limited UK 100.00 100.00
QBE Management Inc US 100.00 100.00
QBE Management Services Pty Ltd Australia 100.00 100.00
QBE Marine Underwriting Agency Pte Limited Singapore 70.00 70.00
QBE Nominees (PNG) Limited PNG 100.00 100.00
QBE Nominees Pty Limited Australia 100.00 100.00
QBE Pacific Insurance Limited PNG 100.00 100.00
QBE Poistovna AS Slovakia 100.00 100.00
QBE Re Services Pty Limited Australia 100.00 100.00
QBE Reinsurance (Bermuda) Limited Bermuda 100.00 100.00
QBE Reinsurance (Europe) Limited Ireland 100.00 100.00
QBE Reinsurance (UK) Limited UK 100.00 100.00
QBE Reinsurance Administration Pty Ltd Australia 100.00 100.00
QBE Reinsurance Corporation US 100.00 100.00
QBE Specialty Insurance Company US 100.00 100.00
QBE UK Finance I Limited UK 100.00 100.00
QBE UK Finance II Limited UK 100.00 –
QBE UK Share Incentive Plan (2) UK – –
QBE WorkAble Limited NZ 100.00 100.00
QBE Workers Compensation (NSW) Limited Australia 100.00 100.00
QBE Workers Compensation (SA) Limited Australia 100.00 100.00
QBE Workers Compensation (VIC) Limited Australia 100.00 100.00
QBEMM Pty Limited Australia 100.00 100.00
QBE-UGPB Insurance (1) Ukraine 50.00 50.00
2004
%
F-45
QBE INSURANCE GROUP ANNUAL REPORT 2005
89

Notes to the financial statements continued
FOR THE YEAR ENDED 31 DECEMBER 2005
16
INVESTMENTS IN CONTROLLED ENTITIES CONTINUED
COUNTRY OF
INCORPORATION/FORMATION
2005
%
EQUITY HOLDING
Queensland Insurance (Australia) Pty Limited Australia 100.00 100.00
Queensland Insurance (Investments) Limited Fiji 100.00 100.00
Ridgwell Fox & Partners (Underwriting Management) Limited UK 100.00 100.00
Sinkaonamahasarn Company Limited (1) Thailand 49.00 49.00
SRL Underwriting Limited UK 100.00 100.00
Star Trust (2) Cayman Is – –
Strakh-Consult Ukraine 100.00 100.00
Sukhothai Re Consultants Limited Thailand 100.00 100.00
The MiniBus & Coach Club Limited UK 100.00 –
Torch Dedicated Corporate Member Limited UK 100.00 100.00
Torch Insurance Services Limited (in liquidation) UK 100.00 100.00
Travelon Pty Limited Australia 100.00 100.00
Underwriting Marketing Services Pty Limited (1) Australia 49.90 49.90
United Security Insurance Company US 100.00 –
Universal Management Limited Ireland 100.00 100.00
Visionex 2000 Limited UK 100.00 –
(1) The following special conditions exist with respect to the consolidated entity’s equity holdings.
• For accounting purposes, the consolidated entity has effective control of QBE Insurance (Thailand) Co Ltd, QBE-UGPB Insurance, BIDV-QBE
Insurance Company Limited and the Concord group of companies.
• The issued share capital of Hyfield Company Limited and Sinkaonamahasarn Company Limited owned by the consolidated entity is held by
various controlled entities. Other controlled entities have the right to acquire the remaining share capital.
(2) In accordance with the requirements of UIG 112: Consolidation – Special Purpose Entities, Mantis Reef Limited, Mantis Reef II Limited, Mantis Reef
Pledge Limited, Mantis Reef II Pledge Limited, QBE Employee Share Trust, QBE Irish Share Incentive Plan, QBE UK Share Incentive Plan, Star Trust
and the QBE Funding Trusts have been included in the consolidated financial statements.
(3) The shareholding in QBE Makedonija equates to 73.50% (2004 73.50%) of the voting rights.
(C) Change of name
2004
%
CONTROLLED ENTITY
MMIA Pty Limited
MMNSW Pty Limited
MMWC Pty Limited
QBE Atlasz Biztosító zrt
QBE Equities Pty Limited
QBE Insurance (Europe) Limited
QBE UK Finance I Limited
QBE Workers Compensation (SA) Limited
QBE Workers Compensation (VIC) Limited
QBEMM Pty Limited
QBE (Singapore) Pte Ltd
FORMER NAME
Mercantile Mutual Insurance (Australia) Limited
Mercantile Mutual Insurance (NSW Workers Compensation) Pty Limited
Mercantile Mutual Insurance (Workers Compensation) Limited
QBE Atlasz Biztosító Rt
Mercantile Equities Pty Limited
QBE International Insurance Limited
Sandsale Limited
Mercantile Mutual Insurance (SA Workers Compensation) Limited
Mercantile Mutual Worksure Limited
QBE Mercantile Mutual Limited
QBE Insurance (Singapore) Pte Ltd
90 F-46

Notes to the financial statements continued
FOR THE YEAR ENDED 31 DECEMBER 2005
16
INVESTMENTS IN CONTROLLED ENTITIES CONTINUED
(D) Minority interest in controlled entities (consolidated)
Ordinary share capital 57 57
Reserves (6) (15)
Retained profits 15 18
2005
$M
2004
$M
66 60
(E) Equity
All equity in controlled entities is held in the form of shares or through contractual arrangements.
(F) Acquisitions
The following entities were acquired during the financial year:
• On 8 April 2005, a wholly owned entity acquired QBE Kindlustuse Eesti AS (formerly Nordicum Kindlustuse Eesti AS), a general
insurance business in Estonia.
• On 29 April 2005, a wholly owned entity acquired an underwriting agency, Greenhill Underwriting Group, which operates in France,
Germany and Spain producing property and liability insurance for the London market.
• On 31 May 2005, a wholly owned entity acquired Compania Central de Seguros SA, a general insurance business in Colombia.
• On 16 August 2005, a wholly owned entity acquired MBP Holdings Limited, the holding company of a UK underwriting agency,
MiniBus Plus.
• On 30 September 2005, a wholly owned entity acquired National Farmers Union Property and Casualty Company, a general
insurance business in the US.
• On 23 November 2005, a wholly owned entity acquired a specialist marine insurer, British Marine Holdings Limited. The purchase
price was US$199 million for net tangible assets of US$108 million.
• On 23 December 2005, a wholly owned entity acquired National Credit Insurance (Brokers) Pty Ltd.
(G) Fair value of net assets of controlled entities acquired
Cash and current financial assets 271 1,311
Receivables 113 321
Deferred insurance costs 36 129
Non-current financial assets 439 –
Property, plant and equipment 15 10
Trade and other payables (181) (187)
Net outstanding claims (255) (710)
Unearned premium (166) (412)
Provision for income tax (3) (9)
Net deferred income tax 5 9
Other provisions (15) (6)
259 456
Intangible assets 307 550
Cost of acquisitions 566 1,006
The net cash flow relating to acquisitions was as follows:
Cash consideration 536 953
Cash and current financial assets acquired (136) (123)
Net cash paid 400 830
The net contribution to the consolidated net profit after income tax for current year acquisitions is $11 million (2004 $42 million).
2005
$M
2004
$M
F-47
QBE INSURANCE GROUP ANNUAL REPORT 2005
91

Notes to the financial statements continued
FOR THE YEAR ENDED 31 DECEMBER 2005
17
PROPERTY, PLANT AND EQUIPMENT (CONSOLIDATED)
2005
FREEHOLD
BUILDINGS
$M
LEASEHOLD
IMPROVEMENTS
$M
OFFICE
EQUIPMENT/
FIXTURES &
FITTINGS
$M
MOTOR
VEHICLES
$M
Cost or valuation
At 1 January 2005 86 69 235 14 404
Acquisitions 7 1 7 – 15
Additions – 53 25 3 81
Revaluations (1) – – – (1)
Disposals (1) (9) (55) (3) (68)
Foreign exchange – (1) (2) – (3)
At 31 December 2005 91 113 210 14 428
Accumulated depreciation and impairment losses
At 1 January 2005 – 40 171 7 218
Disposals – (8) (50) (2) (60)
Depreciation charge for the year – 7 31 2 40
Foreign exchange – – (2) – (2)
At 31 December 2005 – 39 150 7 196
Carrying amount
At 1 January 2005 86 29 64 7 186
At 31 December 2005 91 74 60 7 232
Principal owner occupied properties are valued by the directors based on the independent valuation of various qualified employees of
Knight Frank (Australia) Pty Limited. Minor owner occupied properties are included at the independent valuation of other licensed valuers.
All owner occupied properties were valued on the basis of capitalisation of net market rentals allowing for costs of reletting, having
regard to comparable on-market sales and discounted future cash flows.
FREEHOLD LEASEHOLD
OFFICE
EQUIPMENT/
FIXTURES &
MOTOR
2004
BUILDINGS IMPROVEMENTS FITTINGS VEHICLES
TOTAL
$M
$M
$M
$M
$M
Cost or valuation
At 1 January 2004 81 65 219 13 378
Acquisitions – – 9 1 10
Additions 5 5 24 4 38
Revaluations (1) – – – (1)
Disposals – (1) (20) (4) (25)
Foreign exchange 1 – 3 – 4
At 31 December 2004 86 69 235 14 404
Accumulated depreciation and impairment losses
At 1 January 2004 – 34 145 7 186
Disposals – (1) (19) (3) (23)
Depreciation charge for the year – 7 43 3 53
Foreign exchange – – 2 – 2
At 31 December 2004 – 40 171 7 218
Carrying amount
At 1 January 2004 81 31 74 6 192
At 31 December 2004 86 29 64 7 186
TOTAL
$M
92 F-48

Notes to the financial statements continued
FOR THE YEAR ENDED 31 DECEMBER 2005
18
INTANGIBLE ASSETS (CONSOLIDATED)
GOODWILL IDENTIFIABLE INTANGIBLES TOTAL
PURCHASED
CAPACITY
2005
COSTS
OTHER
$M $M $M $M
Cost
At 1 January 2005 894 135 11 1,040
Acquisitions 265 – 42 307
Additions 43 3 – 46
Foreign exchange (1) (6) (1) (8)
At 31 December 2005 1,201 132 52 1,385
Amortisation and impairment losses
At 1 January 2005 – – 1 1
Amortisation for the year – – 2 2
At 31 December 2005 – – 3 3
Carrying amount
At 1 January 2005 894 135 10 1,039
At 31 December 2005 1,201 132 49 1,382
GOODWILL IDENTIFIABLE INTANGIBLES TOTAL
PURCHASED
CAPACITY
2004
COSTS
OTHER
$M $M $M $M
Cost
At 1 January 2004 356 91 – 447
Acquisitions 539 – 11 550
Additions – 41 – 41
Foreign exchange (1) 3 – 2
At 31 December 2004 894 135 11 1,040
Amortisation and impairment losses
At 1 January 2004 – – – –
Amortisation for the year – – 1 1
At 31 December 2004 – – 1 1
Carrying amount
At 1 January 2004 356 91 – 447
At 31 December 2004 894 135 10 1,039
F-49
QBE INSURANCE GROUP ANNUAL REPORT 2005
93

Notes to the financial statements continued
FOR THE YEAR ENDED 31 DECEMBER 2005
18
INTANGIBLE ASSETS (CONSOLIDATED) CONTINUED
(A) Identifiable intangibles
Purchased capacity costs, the most significant component of identifiable intangibles, relate to the acquisition of syndicate capacity
at Lloyd’s of London. Syndicate capacity is considered to have an indefinite useful life due to the planned long term commitment
to, and increasing size of, the consolidated entity’s operations in the Lloyd’s market. The relevant cash generating unit (“CGU”) is
Lloyd’s operating division. The recoverable amount of the purchased capacity costs is determined by reference to a value in use
calculation using cash flow projections for the next five years based on the latest business plan. Purchased capacity costs have
an indefinite useful life and therefore no amortisation is charged. The value in use over such a period is sufficient to validate the
carrying value of the purchased capacity costs.
Other identifiable intangible assets include:
• rights to manage the Ensign business in the UK, which are being amortised over 11 years from the date of acquisition in
February 2004;
• renewal rights in respect of the acquisition of Icon Schemes Limited in April 2004, which are being amortised over three years;
• insurance licences on the acquisition of National Farmers Union Property and Casualty Company in September 2005, which were
deemed to have an indefinite useful life are therefore not amortised; and
• renewal rights on the acquisition of the National Farmers Union Property and Casualty Company in September 2005, which are
being amortised over 20 years.
None of these is individually significant.
(B) Goodwill
The recoverable amount of all goodwill is determined by a value in use calculation using cash flow projections for the next five years
based on the latest business plan. The most significant CGUs are:
• Australian operations, which includes the acquisition of the remaining 50% of the QBE Mercantile Mutual joint venture on
30 June 2004;
• QBE Insurance (Europe), which includes the acquisitions of QBE Insurance Company (UK) Limited (formerly Iron Trades) in 1999,
MiniBus Plus in August 2005 and British Marine Holdings Limited in November 2005; and
• Limit, which comprises mainly the acquisition of the consolidated entity’s operations at Lloyd’s of London in 2000.
(C) Key assumptions
Key assumptions used in the determination of the value in use are as follows.
• Combined operating ratios from business plans are used.
• Risk adjusted discount rates are applied.
• Taxation is assumed at the relevant prima facie rate.
19
TRADE AND OTHER PAYABLES
2005
$M
THE COMPANY
2004
$M
2005
$M
CONSOLIDATED
Trade payables – – 838 652
Amounts due to controlled entities 1,431 1,597 – –
Other payables and accrued expenses 12 12 413 394
Treasury payables 8 6 13 11
Investment payables 6 4 18 27
1,457 1,619 1,282 1,084
2004
$M
94 F-50

Notes to the financial statements continued
FOR THE YEAR ENDED 31 DECEMBER 2005
20
OUTSTANDING CLAIMS (CONSOLIDATED)
(A) Net outstanding claims
Gross outstanding claims 16,694 14,172
Claims settlement costs 365 260
2005
$M
2004
$M
17,059 14,432
Discount to present value (1,976) (1,827)
Gross outstanding claims provision 15,083 12,605
Current 4,904 3,670
Non-current 10,179 8,935
Gross outstanding claims provision 15,083 12,605
Reinsurance and other recoveries on outstanding claims (1) 4,769 3,582
Discount to present value (556) (439)
Reinsurance and other recoveries on outstanding claims 4,213 3,143
Current 1,357 805
Non-current 2,856 2,338
Reinsurance and other recoveries on outstanding claims 4,213 3,143
Net outstanding claims 10,870 9,462
Central estimate 9,627 8,404
Risk margin 1,243 1,058
Net outstanding claims 10,870 9,462
(1) Reinsurance and other recoveries on outstanding claims are shown net of a provision for impairment of $152 million (2004 $88 million).
(B) Risk margin
The process used to determine the risk margin is explained in note 3(A)(iii). The probability of adequacy at 31 December 2005
is 94% (2004 94%) which is at the high end of our internal target range of 85% to 94%.
The risk margin included in net outstanding claims is 12.9% of the central estimate (2004 12.6%).
(C) Reconciliation of movement in discounted outstanding claims provision
GROSS
$M
2005 2004
REINSURANCE
NET
NET
$M
$M
$M
At 1 January 12,605 (3,143) 9,462 7,695
Increase in net claims incurred in current accident year 6,874 (2,225) 4,649 4,098
Movement in prior year claims provision (130) (102) (232) 58
Incurred claims recognised in the income statement 6,744 (2,327) 4,417 4,156
Acquisitions/disposals 387 (76) 311 759
Net claim payments (4,620) 1,309 (3,311) (3,099)
Foreign exchange (33) 24 (9) (49)
At 31 December 15,083 (4,213) 10,870 9,462
F-51
QBE INSURANCE GROUP ANNUAL REPORT 2005
95

Notes to the financial statements continued
FOR THE YEAR ENDED 31 DECEMBER 2005
20
OUTSTANDING CLAIMS (CONSOLIDATED) CONTINUED
(D) Claims development
(i) Net undiscounted outstanding claims for the five most recent accident years
2001
$M
Estimate of net ultimate claims cost:
At end of accident year 3,522 3,201 3,413 4,490 5,189
One year later 3,496 3,084 3,154 4,120 –
Two years later 3,599 3,004 2,921 – –
Three years later 3,737 2,965 – – –
Four years later 3,753 – – – –
2002
$M
Current estimate of
net cumulative claims cost 3,753 2,965 2,921 4,120 5,189
Cumulative net payments (2,883) (1,975) (1,474) (1,566) (873)
Net undiscounted outstanding
claims for the five most recent
accident years 870 990 1,447 2,554 4,316 10,177
The estimates of net ultimate claims cost and cumulative claims payments for the five most recent accident years have been
translated to Australian dollars using the closing rate of exchange at 31 December 2005.
(ii) Reconciliation of net undiscounted outstanding claims for the five most recent accident years to net outstanding claims
TOTAL
$M
Net undiscounted outstanding claims for the five most recent accident years 10,177
Outstanding claims – accident years 2000 and prior 1,734
Foreign exchange (164)
Discount on outstanding claims (1,420)
Claims settlement costs 365
Other 178
Net outstanding claims 10,870
(iii) Commentary
The claims development table is presented net of reinsurance. With operations in 41 countries, hundreds of products, various
reinsurance arrangements and with the consolidated entity’s risk tolerance managed on a consolidated net basis, it is not
considered meaningful or practicable to provide this information other than on a consolidated net accident year basis.
Outstanding claims in respect of acquisitions are included in the estimate of net ultimate claims cost in the accident year in
which the acquisition was made. The exception is increased participation in Lloyd’s syndicates, where the increased share of the
outstanding claims provision is allocated to the original accident year. The 2005 estimate of net ultimate claims cost includes $224
million from acquisitions in 2005.
2001 accident year deterioration was mainly the result of upgrades for US casualty risks, primarily relating to Enron, Worldcom and
financial laddering claims written in European operations, and the casualty facultative portfolio written in the Americas. We ceased
underwriting this business in 2002.
Favourable development of claims provisions for the 2002, 2003 and 2004 accident years was the result of our conservative claims
provisioning which gave rise to the release of risk margins, and in some cases excess central estimates, as the ultimate claims
costs were settled or became more certain.
2003
$M
2004
$M
2005
$M
TOTAL
$M
96 F-52

Notes to the financial statements continued
FOR THE YEAR ENDED 31 DECEMBER 2005
21
UNEARNED PREMIUM (CONSOLIDATED)
(A) Unearned premium
At 1 January 3,948 3,342
Acquisitions/disposals 166 412
Deferral of premium on contracts written in the period 3,849 3,555
Earning of premium written in previous periods (3,667) (3,301)
Foreign exchange (9) (60)
At 31 December 4,287 3,948
(B) Net premium liabilities
Unearned premium 4,287 3,948
Deferred insurance costs 12 (1,446) (1,358)
Net premium liabilities 2,841 2,590
(C) Expected present value of future cash flows for future claims including risk margin
Undiscounted central estimate 2,348 2,232
Risk margin 113 103
NOTE
2005
M
2005
$M
2005
$M
2004
$M
2004
$M
2004
$M
2,461 2,335
Discount to present value (280) (263)
Expected present value of future cash flows for future claims including risk margin 2,181 2,072
(D) Liability adequacy test
The probability of adequacy applied in the liability adequacy test differs from the probability of adequacy adopted in determining the
outstanding claims provision. The reason for the difference is that the former is a benchmark used only to test the sufficiency of
net premium liabilities whereas the latter is a measure of the adequacy of the outstanding claims provision actually carried by the
consolidated entity.
AASB 1023 requires the inclusion of a risk margin in insurance liabilities, but does not prescribe a minimum level of margin. Whilst
there is established practice in the calculation of the probability of adequacy of the claims provision, no such guidance exists in
respect of the level of risk margin to be used in determining the adequacy of net premium liabilities. The consolidated entity has
adopted a risk margin for the purposes of the liability adequacy test to produce a 75% probability of adequacy in respect of total
insurance liabilities. The 75% basis is a recognised industry benchmark in Australia, being the minimum probability of adequacy
required for Australian licensed insurers by APRA.
The application of the liability adequacy test in respect of the net premium liabilities identified a surplus at 31 December 2005 and 2004.
(E) Risk margin
The process used to determine the risk margin is explained in note 3(A)(iii).
The risk margin in expected future cash flows for future claims as a percentage of the central estimate is 5.5% (2004 5.2%). This is
the risk margin required to give a probability of adequacy of 75% for total insurance liabilities.
F-53
QBE INSURANCE GROUP ANNUAL REPORT 2005
97

Notes to the financial statements continued
FOR THE YEAR ENDED 31 DECEMBER 2005
22
INTEREST BEARING LIABILITIES
(A) Analysis of interest bearing liabilities
2005
$M
THE COMPANY
2004
$M
2005
$M
CONSOLIDATED
Repayable as follows:
Bank loans
27 February 2006 A$400 million 400 – 400 –
Senior debt
28 September 2009 £175 million 409 427 409 427
Eurobonds
2 August 2010 A$150 million/£58 million – – 149 149
2 August 2010 A$20 million/£8 million – – 20 20
2 August 2010 €115 million/£70 million – – 185 176
– – 354 345
Hybrid securities (1)
15 April 2022 US$201 million (2004 US$399 million) – – 165 294
21 September 2024 US$558 million – – 466 424
– – 631 718
Subordinated debt
1 July 2023 US$250 million 336 315 336 315
Total interest bearing liabilities (2) 1,145 742 2,130 1,805
Current 400 – 400 –
Non-current 745 742 1,730 1,805
Total interest bearing liabilities (2) 1,145 742 2,130 1,805
(1) Hybrid securities are shown net of the fair value of the equity conversion option. The US dollar principal amounts shown are the outstanding
amounts payable at the end of the 20 year term.
(2) ABC securities for funds at Lloyd’s are not included in this analysis. Details of ABCs are included in note 35(C).
(B) Finance costs
No finance costs have been capitalised in the year (2004 $18 million).
(C) Security and facility arrangements
In the normal course of business, bank loans are made to controlled entities and secured by guarantees or letters of comfort given
by the company.
The Eurobonds were issued by a controlled entity and secured by guarantees given by the company and another controlled entity.
The US$250 million subordinated debt was issued by the company. The claims of bondholders pursuant to both of these interest
bearing liabilities will be subordinated in right of payment to the claims of all senior creditors, including policyholders, of the relevant
controlled entity.
(D) Eurobonds
A controlled entity is exposed to interest rate and currency risk in respect of its three Eurobond financing arrangements. Accordingly,
the consolidated entity has entered into swap agreements which result in the consolidated entity’s financial liabilities being fixed at
sterling amounts until 2010, at which point the consolidated entity will be liable for the original Australian dollar and Euro amounts in
the underlying financing arrangements. The facility can be extended for a further 10 years to 2020. Under the swap agreements, the
variable interest rates of between 1.8% and 2.0% above the wholesale interbank rate are swapped to fixed rates of between 8.4%
and 8.6% payable quaterly until 2010. The timing of the payments under the swap agreements matches the dates on which interest
is payable on the underlying debt. The contracts are settled on a net basis.
The underlying financial liabilities are measured at amortised cost in original currency and translated to Australian dollars at the
closing rate of exchange. The swaps are measured at fair value. The swaps are designated as cash flow hedges and have satisfied
the relevant hedge effectiveness tests throughout the year and at the balance date. The gain or loss on the cash flow hedges
is recognised directly in equity. Any ineffectiveness in the cash flow hedges is recognised directly in the income statement.
Each financial year end, until the close out of the swap agreements in 2010, an amount is transferred from equity to the income
statement to offset:
• the differential between the fixed and variable interest payments; and
• the movement in the spot rate on the financial liabilities.
During the year, a gain of $1 million (2004 loss of $5 million) was recognised in equity relating to the movements in the fair value of the
swaps. During the year, a gain of $1 million (2004 loss of $3 million) was removed from equity and included in the income statement.
98 F-54
2004
$M

Notes to the financial statements continued
FOR THE YEAR ENDED 31 DECEMBER 2005
22
INTEREST BEARING LIABILITIES CONTINUED
(E) Hybrid securities
The hybrid securities are guaranteed by the company and a controlled entity. The claims of investors under these guarantees in
general will rank equally with all existing and future unsecured and unsubordinated indebtedness of the company and the controlled
entity. The liability component of the securities, being the obligation to make future payments of principal and interest to investors,
is included in interest bearing liabilities, and the fair value of the equity conversion option is included in equity.
(i) Hybrid securities due 2024
In 2004, a controlled entity issued US$375 million of 20 year hybrid securities. Investors have the option to convert the security if:
• the company calls for their redemption;
• the market value of the security is less than the market value of the underlying shares in the company for five consecutive trading
days; or
• certain corporate transactions occur (e.g. change in control).
In the event of conversion, up to 29 million shares will be issued.
(ii) Hybrid securities due 2022
In 2002, two controlled entities issued US$471 million of 20 year hybrid securities. Investors have the option to convert the security if:
• the company calls for their redemption;
• the market value of the security is less than the market value of the underlying shares in the company for two consecutive trading
days; or
• certain corporate transactions occur (e.g. change in control).
In 2005, 28 million shares (2004 54 million) were issued as a result of the conversion of 24% (2004 51%) of the hybrid securities due
2022. In the event of conversion of the remaining securities, up to 31 million shares will be issued.
(F) Fair value of interest bearing liabilities
2005
$M
THE COMPANY
2004
$M
2005
$M
CONSOLIDATED
Bank loans 400 – 400 –
Senior debt 423 438 423 438
Eurobonds – – 358 372
Hybrid securities – – 1,105 1,258
Subordinated debt 350 336 350 336
1,173 774 2,636 2,404
There has been no active trading of interest bearing liabilities during 2005. The fair value has been estimated using valuation
techniques based on market available data for similar debt instruments.
Hybrid securities have been valued using a convertible bond pricing model that takes into account credit spread, share price volatility,
interest rates, dividends and financing costs. The ability to convert the hybrid securities is restricted by the terms and conditions
included in note 22(E).
23
PROVISIONS – NON-CURRENT
2005
$M
THE COMPANY
2004
$M
2005
$M
CONSOLIDATED
Long service leave – – 18 16
Amounts payable under acquisition agreements 13 27 31 28
Other provisions – – 13 10
13 27 62 54
2004
$M
2004
$M
F-55
QBE INSURANCE GROUP ANNUAL REPORT 2005
99

Notes to the financial statements continued
FOR THE YEAR ENDED 31 DECEMBER 2005
24
DEFERRED INCOME TAX
2005
$M
THE COMPANY
2004
$M
2005
$M
CONSOLIDATED
Deferred tax assets – – 67 73
Deferred tax liabilities (10) (27) (251) (122)
Net (10) (27) (184) (49)
(A) Deferred tax assets – non-current
(i) The balance comprises temporary differences attributable to:
2005
$M
THE COMPANY
2004
$M
2005
$M
CONSOLIDATED
Amounts recognised in the income statement
Doubtful debts provision – – 12 11
Employee benefits – – 39 26
Defined benefit superannuation plans – – 29 47
Depreciation – – – 6
Insurance provisions – – 115 68
Deferred tax losses recognised 11 5 13 11
Other 3 6 15 10
14 11 223 179
Amounts recognised directly in equity
Cash flow hedges – – 7 7
Capitalised expenses 1 1 1 1
Defined benefit superannuation plans – – 19 10
Employee share options – – 17 4
1 1 44 22
15 12 267 201
Set-off of deferred tax liabilities (15) (12) (200) (128)
– – 67 73
(ii) Movements:
2005
$M
THE COMPANY
2004
$M
2005
$M
CONSOLIDATED
Balance at 1 January 12 23 201 171
Credited (charged) to the income statement 3 (11) 39 3
Credited to equity 1 – 23 15
Acquisitions – – 5 12
Reclassification (1) – (1) –
Balance at 31 December 15 12 267 201
(B) Tax losses
The consolidated entity has not brought to account $1 million of tax losses (2004 $4 million), which includes the benefit arising from
tax losses in overseas countries. This benefit will only be brought to account when the directors believe it is probable that it will be
realised. This benefit of tax losses will only be obtained if:
• the consolidated entity derives future assessable income of a nature and an amount sufficient to enable the benefit from the
deductions for the losses to be realised;
• the consolidated entity continues to comply with the conditions for deductibility imposed by tax legislation; and
• no changes in tax legislation adversely affect the consolidated entity in realising the benefit from the deductions for the losses.
Included in deferred tax assets is $13 million (2004 $11 million) relating to tax losses which the directors believe will probably
be realised.
2004
$M
2004
$M
2004
$M
100 F-56

Notes to the financial statements continued
FOR THE YEAR ENDED 31 DECEMBER 2005
24
DEFERRED INCOME TAX CONTINUED
(C) Deferred tax liabilities – non-current
(i) The balance comprises temporary differences attributable to:
2005
$M
THE COMPANY
2004
$M
2005
$M
CONSOLIDATED
2004
$M
Amounts recognised in the income statement
Insurance provisions – – (373) (215)
Foreign currency monetary items (24) (4) (26) (11)
Financial assets – fair value movements – (2) (41) (21)
Other provisions – (33) – –
Other items (1) – (11) (3)
(25) (39) (451) (250)
Set-off of deferred tax assets 15 12 200 128
(10) (27) (251) (122)
(ii) Movements:
2005
$M
THE COMPANY
2004
$M
2005
$M
CONSOLIDATED
Balance at 1 January (39) (41) (250) (77)
Charged to the income statement 14 2 (201) (170)
Acquisitions – – – (3)
Balance at 31 December (25) (39) (451) (250)
25
CONTRIBUTED EQUITY
(A) Share capital (company and consolidated)
Issued ordinary shares, fully paid 3,195 2,780
NUMBER OF SHARES
000 $M
Issued and fully paid at 1 January 2004 661,371 2,268
Shares issued under the Plan 4,030 33
Vendor options exercised 150 2
Shares issued under Dividend Reinvestment Plan 11,708 135
Shares issued under Dividend Election Plan 3,098 –
Shares issued to holders of hybrid securities 53,983 342
Shares issued under the LTI on vesting of conditional rights 269 –
Issued and fully paid at 31 December 2004 734,609 2,780
Shares issued under the Plan 3,701 30
Employee options exercised 319 4
Vendor options exercised 1,591 28
Shares issued under Dividend Reinvestment Plan 13,051 203
Shares issued under Dividend Election Plan 3,437 –
Shares issued to holders of hybrid securities 28,113 153
Shares issued under the LTI on vesting of conditional rights 472 –
Share issue expenses – (3)
Bonus shares 1 –
Issued and fully paid at 31 December 2005 785,294 3,195
Shares notified to the Australian Stock Exchange 793,510 3,263
Less: Plan shares subject to non-recourse
loans, derecognised under AIFRS (8,216) (68)
Issued and fully paid at 31 December 2005 785,294 3,195
2005
$M
2004
$M
2004
$M
F-57
QBE INSURANCE GROUP ANNUAL REPORT 2005
101

Notes to the financial statements continued
FOR THE YEAR ENDED 31 DECEMBER 2005
25
CONTRIBUTED EQUITY CONTINUED
Ordinary shares in the company have no par value and entitle the holder to participate in dividends and the proceeds on winding
up of the company in proportion to the number of shares held. Ordinary shareholders rank after all creditors and are entitled to any
residual proceeds.
(B) Equity component of hybrid securities
2005
$M
THE COMPANY
2004
$M
2005
$M
CONSOLIDATED
At 1 January 108 – 108 59
Movement during the period – 108 – 49
At 31 December 108 108 108 108
(C) Dividend Reinvestment and Dividend Election Plans
The company operates a Dividend Reinvestment Plan (“DRP”) and a Dividend Election Plan (“DEP”). The directors suspended the
2.5% discount on shares issued under these plans in August 2005.
The last date for receipt of election notices applicable to the final dividend is 7 March 2006 for the DRP and 22 February 2006 for
the DEP.
(D) Dividends (company and consolidated)
Previous year final dividend paid on ordinary shares
Franked at 50% – 15.0 cents (2004 6.6 cents) 114 44
Unfranked – 15.0 cents (2004 15.4 cents) 114 104
228 148
Interim dividend paid on ordinary shares
Franked at 50% – 16.5 cents (2004 12.0 cents) 127 82
Unfranked – 16.5 cents (2004 12.0 cents) 127 82
254 164
Dividend reinvested under the Dividend Election Plan (55) (36)
Total dividend paid 427 276
The interim dividend of $254 million was paid on 16 September 2005. On 23 February 2006, the directors declared a 50%
franked final dividend of 38.0 cents per share (2004 30.0 cents per share, 50% franked). The final dividend payout is $302 million
(2004 $228 million).
The franking account balance on a tax paid basis as at the balance date was a surplus of $213 million (2004 $113 million).
After taking into account the final dividend, the franking account balance will be a surplus of $148 million.
(E) Options issued to third parties
The consolidated entity has issued options to third parties in respect of acquisitions. These options are subject to performance
hurdles. Details of the movements in respect of such options during the year are as follows:
GRANT DATE
EXERCISE PRICE
BALANCE AT
1 JAN 2005
EXERCISED
IN THE YEAR
BALANCE AT
31 DEC 2005 EXPIRY DATE
1 December 2004 $0.00 5,000,000 2,000,000 3,000,000 30 November 2007
22 December 2004 $0.00 2,750,000 – 2,750,000 31 July 2006
7,750,000 2,000,000 5,750,000
The market value of the options outstanding at the balance date is $113 million (2004 $119 million), calculated by reference to the
quoted market value of the underlying shares at that date. During the financial year, two million (2004 nil) options were exercised,
resulting in the issue of 1,591,000 (2004 nil) shares.
2005
$M
2004
$M
2004
$M
102 F-58

Notes to the financial statements continued
FOR THE YEAR ENDED 31 DECEMBER 2005
26
OTHER RESERVES
(A) Reserves
Owner occupied property revaluation reserve (1)
2005
$M
THE COMPANY
2004
$M
2005
$M
CONSOLIDATED
At 1 January – – 6 7
Reversal of previous valuation increase – – – (1)
Valuation increase – – 2 –
At 31 December – – 8 6
Cash flow hedges reserve (2)
At 1 January – – (17) (15)
Other increase (5) – (5) (3)
Deferred tax – – – 1
At 31 December (5) – (22) (17)
Foreign currency translation reserve (3)
At 1 January – – (48) –
Losses on translation – – (48) (15)
Gains (losses) on forward foreign exchange contracts – – 26 (85)
Other (decrease) increase – – (2) 52
At 31 December – – (72) (48)
Options reserve (4)
At 1 January 15 4 19 4
Options expense 23 11 23 11
Deferred tax – – 13 4
At 31 December 38 15 55 19
General reserve (5)
At 1 January – – 5 5
Movement in the year – – – –
At 31 December – – 5 5
Realised capital profits reserve (6)
At 1 January – – 6 6
Movement in the year – – – –
At 31 December – – 6 6
Total reserves at 31 December 33 15 (20) (29)
(1) Used to recognise fair value movements in the carrying value of owner occupied property. Refer note 1(Q).
(2) Used to record gains or losses on a hedging instrument in a cash flow hedge that are recognised directly in equity. Refer note 1(O)(ii).
(3) Exchange gains and losses arising on translation of a foreign controlled entity and related hedging instruments are taken to the foreign currency translation
reserve. Refer note 1(U). In the event of the disposal of a relevant net investment, the movement in the reserve is recognised in the income statement.
(4) Used to recognise the fair value of instruments issued as share based payments.
(5) Established prior to 1989 for general purposes.
(6) Realised capital profits arising prior to the introduction of capital gains tax in Australia.
(B) Retained profits
NOTE
2005
$M
THE COMPANY
2004
$M
2005
$M
CONSOLIDATED
Retained profits at 1 January 1,729 171 1,173 617
Net profit after income tax attributable to
members of the company 1,060 1,834 1,091 857
Actuarial losses on defined benefit
superannuation plans, net of tax 29(C) – – (27) (25)
Total available for appropriation 2,789 2,005 2,237 1,449
Dividends paid (427) (276) (427) (276)
Retained profits at 31 December 2,362 1,729 1,810 1,173
2004
$M
2004
$M
F-59
QBE INSURANCE GROUP ANNUAL REPORT 2005
103

Notes to the financial statements continued
FOR THE YEAR ENDED 31 DECEMBER 2005
27
SHARE BASED PAYMENTS
(A) Share based remuneration plans
The company, at its 1981 AGM, approved the issue of shares from time to time under an Employee Share and Option Plan
(“the Plan”), up to 5% of the issued ordinary shares in the capital of the company. Any full-time or part-time employee of the
consolidated entity or equally owned joint ventures who is offered shares or options pursuant to the offer document of the
Plan is eligible to participate in the Plan.
Under the Plan, ordinary shares of the company are offered at the weighted average market price during the five trading days up to
the date of the offer. Likewise, the exercise price for options offered under the Plan is the weighted average market price during the
five trading days up to the date of the offer.
In accordance with the terms of the Plan, interest free loans are granted to employees to subscribe for shares issued under the
Plan. Prior to 20 June 2005, the terms of the loans were either personal recourse or non-recourse. With effect from 20 June 2005,
only personal recourse loans are granted to employees to subscribe for shares under the Plan. The loans are repayable in certain
circumstances as set out in the Plan, such as termination of employment or breach of condition.
Generally, all full-time or part-time employees of the consolidated entity with a minimum of one year’s service are invited to participate
in the Share Incentive Plan (“the SIP”). Under the SIP, directors can provide shares to employees without payment being made by
employees. The allocation of shares is based on the period of service. The shares are purchased on market and held in trust for the
employee for a minimum of three years or until cessation of employment, whichever is earlier. Further details are provided in note
27(D).
Senior management are invited to participate in the LTI scheme. Under the LTI, the directors can issue conditional rights to shares
and grant options to senior management who have already achieved predetermined performance criteria. The terms of the LTI may
vary to take into account the requirements and market conditions of the locations of senior management, but the general terms of
the LTI conditional rights and options are set out below.
• The conditional rights entitle relevant employees to receive shares on the third anniversary of the grant of the rights. Further
shares are issued in relation to the conditional rights to reflect dividends paid on ordinary shares of the company in the period
commencing from the date of the grant of the conditional rights. The shares issued pursuant to the conditional rights are issued
without payment being made by senior management (i.e. at a nil exercise price).
• The options are subject to the terms and conditions of the Plan. Options issued in 2004 and prior can be exercised after three
years, whilst any options issued in 2005 and thereafter will generally be exercisable after five years. They must be exercised
within a 12 month period of vesting. Interest free personal recourse loans are granted on the terms permitted by the Plan as
described above to persons who hold options to fund the exercise of options.
The shares issued pursuant to the conditional rights and options will only be issued if the individual has remained in the company's
service throughout this period (unless they leave due to redundancy, retirement through ill health or age, or death) and is not subject
to disciplinary proceedings on that date.
Shareholder approval of the LTI was given in 2003 for the purpose of ASX Listing Rule 7.2.
104 F-60

Notes to the financial statements continued
FOR THE YEAR ENDED 31 DECEMBER 2005
27
SHARE BASED PAYMENTS CONTINUED
(B) Employee options
During the year, the company granted to 340 (2004 478) qualifying employees options to subscribe for 3,747,896 (2004 3,918,197)
ordinary shares with a total market value of $55 million (2004 $44 million) being the quoted market price at the date the options
were granted.
At 31 December 2005, 10,738,590 (2004 8,952,849) options were outstanding with an exercise price of $118 million (2004 $83
million). The market value of the options outstanding at balance date is $210 million (2004 $137 million), calculated by reference
to the quoted market value of the underlying shares at that date. During the financial year, 1,517,237 (2004 1,710,906) options
were exercised, resulting in the issue of 1,517,237 (2004 1,710,906) shares. Details of the number of employee options granted,
exercised and forfeited or cancelled during the year, including those issued under the LTI, are as follows:
GRANT DATE
EXERCISE
PRICE
BALANCE AT
1 JAN 2005
GRANTED IN
THE YEAR
EXERCISED IN
THE YEAR
CANCELLED/
FORFEITED
IN THE YEAR (1)
BALANCE AT
31 DEC 2005 (2)
1 June 2000 $6.53 10,000 – (10,000) – –
1 July 2000 $7.62 10,000 – (10,000) – –
1 October 2000 $8.63 45,730 – (44,730) (1,000) –
1 November 2000 $8.90 50,000 – (50,000) – –
1 January 2001 $9.76 5,000 – (5,000) – –
2 April 2001 $10.72 67,728 – (36,814) (2,900) 28,014
25 May 2001 $10.65 335,000 – (17,500) – 317,500
1 June 2001 $10.69 155,000 – – – 155,000
10 December 2001 $7.27 965,000 – (130,000) (25,000) 810,000
18 March 2002 $7.49 745,070 – (707,649) (10,784) 26,637
14 November 2002 $7.37 100,000 – – – 100,000
13 March 2003 $8.04 2,755,728 1,094 (280,733) (75,371) 2,400,718
10 April 2003 $8.04 110,884 – – – 110,884
3 November 2003 $10.14 10,000 – – – 10,000
3 March 2004 $11.08 3,263,378 – (149,586) (127,457) 2,986,335
3 March 2004 $8.04 209,637 – – – 209,637
2 April 2004 $11.08 114,694 – – – 114,694
3 March 2005 $14.85 – 2,960,740 (75,225) (67,156) 2,818,359
3 March 2005 $11.08 – 207,182 – – 207,182
3 March 2005 $8.04 – 225,043 – – 225,043
15 March 2005 $15.13 – 135,250 – (135,250) –
8 April 2005 $14.85 – 118,587 – – 118,587
12 May 2005 $14.81 – 100,000 – – 100,000
8,952,849 3,747,896 (1,517,237) (444,918) 10,738,590
Weighted average exercise price $9.22 $14.24 $8.49 $12.06 $10.96
(1) 135,250 options were issued on 15 March 2005 and were subsequently cancelled. All other options were forfeited.
(2) At 31 December 2005, 100,000 future performance options have vested and are exercisable from 27 February 2006 until 13 March 2006 at $7.37
and 26,637 LTI options have vested and are exercisable immediately at $7.49. No other options are vested and exercisable.
The weighted average share price at the date of exercise of options during the year was $15.67 (2004 $12.59). The weighted average
remaining contractual life of total options outstanding at 31 December 2005 was 2.79 years (2004 2.57 years).
F-61
QBE INSURANCE GROUP ANNUAL REPORT 2005
105

Notes to the financial statements continued
FOR THE YEAR ENDED 31 DECEMBER 2005
27
SHARE BASED PAYMENTS CONTINUED
Employee options outstanding at 31 December 2005 are as follows:
YEAR OF EXPIRY FUTURE PERFORMANCE REGULAR LTI/STI TOTAL OPTIONS
2006 582,500 28,014 26,637 637,151
2007 810,000 – 2,603,262 3,413,262
2008 – – 3,147,756 3,147,756
2009 100,000 – 116,992 216,992
2010 – – 126,175 126,175
2011 – – 3,126,004 3,126,004
2024 – 71,250 – 71,250
1,492,500 99,264 9,146,826 10,738,590
The future performance options have been issued subject to the achievement of specific performance criteria. Examples of such
criteria are provided in the directors’ report.
Regular options issued under the Plan based on the achievement of past performance are exercisable at 20% per annum. If an
employee is entitled to exercise options in a particular year but does not, then the employee may exercise the options in the
following year. These options expire if not exercised within five years from the date of issue.
The assessed fair value at grant date of options issued during the year is in the range of $3.04 to $6.90 (2004 $1.96 to $3.61) per
option. The fair value of options is determined using a binomial model. The fair value of each option is earned evenly over the period
between grant and vesting.
Details of the number of options granted, exercised and forfeited or cancelled during 2004, including those issued under the LTI, are
as follows:
GRANT DATE
EXERCISE
PRICE
BALANCE AT
1 JAN 2004
GRANTED IN
THE YEAR
EXERCISED IN
THE YEAR
CANCELLED/
FORFEITED IN
THE YEAR
BALANCE AT
31 DEC 2004
1 October 1999 $5.84 196,100 – (196,100) – –
1 June 2000 $6.53 20,000 – (10,000) – 10,000
1 July 2000 $7.62 40,000 – (30,000) – 10,000
1 October 2000 $8.63 101,860 – (55,730) (400) 45,730
1 November 2000 $8.90 50,000 – – – 50,000
1 January 2001 $9.76 10,000 – (5,000) – 5,000
2 April 2001 $10.72 121,842 – (54,114) – 67,728
19 April 2001 $11.45 200,000 – (200,000) – –
25 May 2001 $10.65 655,000 – (320,000) – 335,000
1 June 2001 $10.69 155,000 – – – 155,000
30 June 2001 $11.50 150,000 – (150,000) – –
6 July 2001 $11.20 30,000 – (30,000) – –
10 December 2001 $7.27 965,000 – – – 965,000
28 February 2002 $7.79 24,000 – (24,000) – –
18 March 2002 $7.49 804,949 – (37,053) (22,826) 745,070
14 November 2002 $7.37 100,000 – – – 100,000
13 March 2003 $8.04 3,066,865 – (276,634) (34,503) 2,755,728
10 April 2003 $8.04 110,884 – – – 110,884
3 November 2003 $10.14 10,000 – – – 10,000
3 March 2004 $11.08 – 3,593,866 (322,275) (8,213) 3,263,378
3 March 2004 $8.04 – 209,637 – – 209,637
2 April 2004 $11.08 – 114,694 – – 114,694
6,811,500 3,918,197 (1,710,906) (65,942) 8,952,849
Weighted average exercise price $8.36 $10.92 $9.68 $8.23 $9.22
106 F-62

Notes to the financial statements continued
FOR THE YEAR ENDED 31 DECEMBER 2005
27
SHARE BASED PAYMENTS CONTINUED
Employee options outstanding at 31 December 2004 were as follows:
YEAR OF EXPIRY
FUTURE
PERFORMANCE REGULAR LTI/STI
TOTAL
OPTIONS
2005 295,000 115,730 – 410,730
2006 600,000 67,728 455,070 1,122,798
2007 965,000 167,082 2,751,697 3,883,779
2008 – 114,915 3,322,627 3,437,542
2024 – 98,000 – 98,000
1,860,000 563,455 6,529,394 8,952,849
(C) Conditional rights
Details of the number of employee entitlements to conditional rights to ordinary shares under the LTI granted, vested and
transferred to employees during the year, are as follows:
GRANT DATE DATE EXERCISABLE
VALUE PER
RIGHT AT
GRANT DATE
BALANCE AT
1 JAN 2005
GRANTED IN
THE YEAR
DIVIDENDS
ATTACHING IN
THE YEAR
VESTED AND
TRANSFERRED
TO EMPLOYEE
IN THE YEAR
CANCELLED IN
THE YEAR
BALANCE AT
31 DEC 2005
18 March 2002 17 March 2005 $8.40 193,441 – 3,537 (194,858) (2,120) –
13 March 2003 13 March 2006 $9.16 250,212 445 9,915 (10,774) (7,964) 241,834
13 March 2003 13 March 2006 $9.71 145,229 – 5,901 (2,226) (2,182) 146,722
13 March 2003 13 March 2006 $9.56 664,341 – 24,266 (93,368) (12,802) 582,437
10 April 2003 10 April 2006 $9.16 45,177 – 1,849 – – 47,026
3 March 2004 2 March 2007 $11.65 81,763 – 3,346 – – 85,109
3 March 2004 2 March 2007 $12.49 325,267 – 12,845 (14,103) (9,204) 314,805
3 March 2004 2 March 2007 $13.24 101,372 – 4,107 (2,927) (2,243) 100,309
3 March 2004 2 March 2007 $12.96 732,536 – 29,021 (53,152) (18,074) 690,331
2 April 2004 1 April 2007 $12.49 43,856 – 1,795 – – 45,651
3 March 2005 2 March 2008 $16.94 – 305,675 12,444 (9,246) (980) 307,893
3 March 2005 2 March 2008 $17.81 – 106,760 4,323 – (2,538) 108,545
3 March 2005 2 March 2008 $17.51 – 717,906 27,662 (91,304) (19,802) 634,462
3 March 2005 2 March 2008 $15.30 – 84,393 3,454 – – 87,847
3 March 2005 2 March 2008 $15.86 – 77,695 3,182 – – 80,877
8 April 2005 7 April 2008 $16.94 – 44,470 891 – – 45,361
2,583,194 1,337,344 148,538 (471,958) (77,909) 3,519,209
The weighted average share price at the date of vesting of conditional rights during the year ended 31 December 2005 was $15.87
(2004 $13.40).
The assessed fair value at grant date of conditional rights granted during the year is in the range of $15.15 to $17.81 (2004 $11.65
to $13.24) per conditional right. The fair value of conditional rights is determined using a binomial model. The fair value of each
conditional right is earned evenly over the period between grant and vesting.
(D) Share Incentive Plan
The SIP was introduced during 2005 and is a global reward scheme available to eligible permanent employees who have met
minimum service conditions at the annual grant date. Under the SIP, eligible employees may be offered up to $1,000 of fully paid
ordinary shares in the company annually for no cash consideration. The market value of shares issued under the SIP is expensed in
the period in which the shares are granted. The total number of shares issued under the SIP to participating employees in the year
was 235,450 (2004 nil). The weighted average market price on the issue date was $17.09.
F-63
QBE INSURANCE GROUP ANNUAL REPORT 2005
107

Notes to the financial statements continued
FOR THE YEAR ENDED 31 DECEMBER 2005
27
SHARE BASED PAYMENTS CONTINUED
(E) Share based payment expenses
Total expenses arising from share based payment transactions during the year included in underwriting expenses were as follows:
2005
$M
CONSOLIDATED
Options issued under the LTI 6 3
Conditional rights issued under the LTI 16 8
Shares issued under the SIP 4 –
26 11
28
DIRECTORS’ AND EXECUTIVES’ DISCLOSURES (COMPANY AND CONSOLIDATED)
This note discloses equity compensation for the executive director and specified executives. Disclosure of specified director and
specified executive remuneration is provided in the directors’ report on pages 51 to 57.
(A) Equity compensation
Details of the consolidated entity’s share based remuneration plans are provided in note 27.
Set out below are the holdings of equity benefits granted as remuneration to the executive director and specified executives in the
year. No equity compensation was provided to the non-executive directors.
(i) Conditional rights to ordinary shares under the LTI
The conditional rights entitle the executive director and specified executives to receive fully paid shares on the third anniversary of
the grant of the rights. Notional dividends on the conditional rights accrue during the three year period. These dividends will be paid
in ordinary shares in the company.
Details of conditional rights granted under the LTI during the year are:
NUMBER OF
RIGHTS GRANTED
IN THE YEAR GRANT DATE DATE EXERCISABLE
2004
$M
VALUE PER
RIGHT AT
GRANT DATE (3)
Executive director
FM O’Halloran 44,470 8 April 2005 7 April 2008 $16.94
Specified executives
SP Burns (1) 17,517 3 March 2005 2 March 2008 $17.51
SP Burns (1) 23,263 3 March 2005 2 March 2008 $15.30
SP Burns (1) 20,541 3 March 2005 2 March 2008 $15.86
NG Drabsch 25,256 3 March 2005 2 March 2008 $16.94
PE Glen (2) 21,340 3 March 2005 12 April 2005 $15.15
PE Grove (1) 23,741 3 March 2005 2 March 2008 $17.51
PE Grove (1) 11,755 3 March 2005 2 March 2008 $15.30
PE Grove (1) 10,620 3 March 2005 2 March 2008 $15.86
MD ten Hove 25,015 3 March 2005 2 March 2008 $16.94
RL Jones 18,856 3 March 2005 2 March 2008 $16.94
TM Kenny 28,406 3 March 2005 2 March 2008 $17.81
V McLenaghan 18,183 3 March 2005 2 March 2008 $16.94
EG Tollifson 13,027 3 March 2005 2 March 2008 $16.94
(1) Under the terms of Limit’s LTI, Mr Burns and Mr Grove are eligible to receive a portion of their long term incentive award based on the earning of
prior underwriting year results. The value of the conditional rights at grant date is based on the share price in the relevant prior underwriting year.
(2) Mr Glen’s employment was terminated through redundancy on 30 September 2004. Under the terms of the redundancy agreement, these
conditional rights were granted on 3 March 2005 and vested on 12 April 2005.
(3) The fair value at grant date of conditional rights is calculated using a binomial model. The fair value of each conditional right is earned evenly over
the three year period between grant and vesting.
108 F-64

Notes to the financial statements continued
FOR THE YEAR ENDED 31 DECEMBER 2005
28
DIRECTORS’ AND EXECUTIVES’ DISCLOSURES (COMPANY AND CONSOLIDATED) CONTINUED
Details of movements in the conditional rights to ordinary shares in the company provided as remuneration under the LTI to the
executive director and specified executives are provided below:
DIVIDENDS
ATTACHING IN
THE YEAR
VESTED AND
TRANSFERRED
IN THE YEAR
NUMBER OF RIGHTS
BALANCE AT
1 JAN 2005
GRANTED IN
THE YEAR
BALANCE AT
31 DEC 2005
Executive director
FM O’Halloran 89,033 44,470 4,535 – 138,038
Specified executives
SP Burns 89,601 61,321 6,179 – 157,101
NG Drabsch 52,094 25,256 3,165 – 80,515
PE Glen (1) – 21,340 437 (21,777) –
PE Grove 90,342 46,116 5,585 – 142,043
MD ten Hove – 25,015 1,024 – 26,039
RL Jones 76,332 18,856 3,548 (17,388) 81,348
TM Kenny 92,990 28,406 4,970 – 126,366
V McLenaghan 36,922 18,183 2,083 (8,586) 48,602
EG Tollifson 27,530 13,027 1,660 – 42,217
(1) Mr Glen’s employment was terminated through redundancy on 30 September 2004. Under the terms of the redundancy agreement, these
conditional rights were granted and vested on 12 April 2005.
(ii) LTI options
Details of options granted under the LTI during the year are:
NUMBER
OF OPTIONS
GRANTED
IN THE YEAR
DATE
EXERCISABLE
EXERCISE
PRICE
VALUE PER
OPTION AT
GRANT DATE (2)
GRANT DATE
EXPIRY DATE
Executive director
FM O’Halloran 118,587 8 April 2005 8 April 2010 7 April 2011 $14.85 $3.60
Specified executives
SP Burns (1) 46,711 3 March 2005 3 March 2010 2 March 2011 $14.85 $3.60
SP Burns (1) 62,035 3 March 2005 3 March 2010 2 March 2011 $8.04 $6.90
SP Burns (1) 54,776 3 March 2005 3 March 2010 2 March 2011 $11.08 $5.17
NG Drabsch 67,350 3 March 2005 3 March 2010 2 March 2011 $14.85 $3.60
PE Grove (1) 63,304 3 March 2005 3 March 2010 2 March 2011 $14.85 $3.60
PE Grove (1) 31,345 3 March 2005 3 March 2010 2 March 2011 $8.04 $6.90
PE Grove (1) 28,320 3 March 2005 3 March 2010 2 March 2011 $11.08 $5.17
MD ten Hove 66,707 3 March 2005 3 March 2008 2 March 2009 $14.85 $3.04
RL Jones 50,283 3 March 2005 3 March 2010 2 March 2011 $14.85 $3.60
TM Kenny 75,750 3 March 2005 3 March 2010 2 March 2011 $14.85 $3.46
V McLenaghan 48,487 3 March 2005 3 March 2010 2 March 2011 $14.85 $3.60
EG Tollifson 34,740 3 March 2005 3 March 2010 2 March 2011 $14.85 $3.60
(1) Under the terms of Limit’s LTI, Mr Burns and Mr Grove are eligible to receive a portion of their long term incentive award based on the earning of
prior underwriting year results. The value of the option at grant date is based on the share price in the relevant prior underwriting year.
(2) The fair value at grant date of options is calculated using a binomial model. The fair value of each option is earned evenly over the period between
grant and vesting.
F-65
QBE INSURANCE GROUP ANNUAL REPORT 2005
109

Notes to the financial statements continued
FOR THE YEAR ENDED 31 DECEMBER 2005
28
DIRECTORS’ AND EXECUTIVES’ DISCLOSURES (COMPANY AND CONSOLIDATED) CONTINUED
Details of the movements in options over ordinary shares in the company provided as remuneration under the LTI to the executive
director and specified executives are provided below:
NUMBER OF OPTIONS
BALANCE AT
1 JAN 2005
GRANTED IN
THE YEAR
EXERCISED
IN THE YEAR
FORFEITED/
CANCELLED
IN THE YEAR
BALANCE AT
31 DEC 2005 (1)
Executive director
FM O’Halloran 225,578 118,587 – – 344,165
Specified executives
SP Burns 226,244 163,522 – – 389,766
NG Drabsch 130,780 67,350 – – 198,130
PE Grove 226,569 122,969 – – 349,538
MD ten Hove – 66,707 – – 66,707
RL Jones 188,351 50,283 (40,087) – 198,547
TM Kenny 231,965 75,750 – – 307,715
V McLenaghan 91,891 48,487 (19,794) – 120,584
EG Tollifson 69,073 34,740 – – 103,813
(1) None of the options are vested and exercisable at 31 December 2005.
(iii) Future performance options
The executive director, Mr O’Halloran, has no future performance options at the balance date (2004 nil). The terms and conditions of
each grant of future performance options that affect remuneration of the specified executives in this or future reporting periods are
as follows:
NUMBER
OF OPTIONS
GRANTED GRANT DATE DATE EXERCISABLE PERFORMANCE CRITERIA
SP Burns 35,000
80,000
25 May 2001
10 December 2001
24 May 2006
31 March 2007
Limit to achieve an average 5% return on capacity
for five years from the 2001 underwriting year.
Limit to achieve an average 5% return on capacity
for five years from and including the 2002
underwriting year.
NG Drabsch 100,000 (1) 18 March 2002 31 March 2005 QBE Group to achieve an average annual 12.5%
increase in earnings per share over three years to
31 December 2004.
PE Glen 50,000 (2) 10 December 2001 31 March 2007 European company operations to achieve an average
5% insurance profit for five years from and including
the 2002 underwriting year.
PE Grove 35,000
60,000
100,000 (3) 25 May 2001
10 December 2001
14 November 2002
24 May 2006
31 March 2007
31 December 2005
Limit to achieve an average 5% return on capacity for
five years from the 2001 underwriting year.
Limit to achieve an average 5% return on capacity for
five years from and including the 2002 underwriting year.
Limit managed syndicates to achieve an average
return on capacity of 7% or more over the years
ending 2002 to 2005.
TM Kenny 30,000
100,000
100,000
1 June 2001
10 December 2001
12 May 2005
31 May 2006
31 March 2007
20% by December
each year until
31 December 2009
QBE the Americas to achieve an average insurance
profit of 6% for underwriting years 2001 to 2005.
QBE the Americas to achieve an average insurance
profit of 5% for underwriting years 2002 to 2006.
QBE the Americas to achieve an average insurance
profit of 7% of net earned premium for the five
underwriting years commencing 1 January 2001.
EG Tollifson 100,000 (1) 18 March 2002 31 March 2005 QBE Group to achieve an average annual 12.5%
increase in earnings per share over three years to
31 December 2004.
(1) These options were exercised during the financial year following the achievement of the relevant performance criteria.
(2) Mr Glen’s employment was terminated through redundancy on 30 September 2004. Under the terms of the redundancy agreement, he was eligible
to exercise these options in March 2005.
(3) These options vested on 31 December 2005 but will only be exercisable from 27 February 2006 until 13 March 2006.
110 F-66

Notes to the financial statements continued
FOR THE YEAR ENDED 31 DECEMBER 2005
28
DIRECTORS’ AND EXECUTIVES’ DISCLOSURES (COMPANY AND CONSOLIDATED) CONTINUED
Details of the movements in future performance options over ordinary shares in the company provided as remuneration to the
executive director and specified executives are provided below:
NUMBER OF OPTIONS
BALANCE AT
1 JAN 2005
GRANTED IN
THE YEAR
EXERCISED
IN THE YEAR
FORFEITED/
CANCELLED
IN THE YEAR
BALANCE AT
31 DEC 2005
VESTED AT
31 DEC 2005
Specified executives
SP Burns 115,000 – – – 115,000 –
NG Drabsch 100,000 – (100,000) – – –
PE Glen (1) 50,000 – (50,000) – – –
PE Grove 195,000 – – – 195,000 100,000 (3)
TM Kenny (2) 130,000 100,000 – – 230,000 20,000 (4)
EG Tollifson 100,000 – (100,000) – – –
(1) Mr Glen’s employment was terminated through redundancy on 30 September 2004. Under the terms of the redundancy agreement, he was eligible
to exercise these options in March 2005.
(2) 100,000 future performance options were granted to Mr Kenny on 12 May 2005 under the terms of an agreement entered into on 12 May 2000.
The fair value of these options at grant date was $2.32. The exercise price is $14.81.
(3) These options are exercisable from 27 February 2006 until 13 March 2006.
(4) These options were exercised on 31 January 2006. The shares issued as a result of this exercise have not been sold.
(iv) Regular options
Regular options issued under the Plan are based on the achievement of past performance hurdles and are exercisable at 20% per
annum. If the specified executive is entitled to exercise options in a particular year but does not, then he or she may exercise the
options in the following year. These options expire if not exercised within five years from the date of issue.
Regular options have been phased out and replaced with the long term incentive arrangement under the LTI.
Details of the movements in regular options that affect remuneration in this or future reporting periods are as follows:
NUMBER OF OPTIONS
BALANCE AT
1 JAN 2005
EXERCISED
IN THE YEAR
FORFEITED/
CANCELLED
IN THE YEAR
BALANCE AT
31 DEC 2005 (2)
Specified executives
PE Glen (1) 60,000 (60,000) – –
RL Jones 6,000 (4,500) – 1,500
TM Kenny 10,000 (10,000) – –
V McLenaghan 3,000 (2,250) – 750
EG Tollifson 4,000 (3,000) – 1,000
(1) Mr Glen’s employment was terminated through redundancy on 30 September 2004. Under the terms of the redundancy agreement, he was eligible
to exercise his remaining options in March 2005.
(2) None of the options are vested and exercisable at 31 December 2005.
F-67
QBE INSURANCE GROUP ANNUAL REPORT 2005
111

Notes to the financial statements continued
FOR THE YEAR ENDED 31 DECEMBER 2005
28
DIRECTORS’ AND EXECUTIVES’ DISCLOSURES (COMPANY AND CONSOLIDATED) CONTINUED
(B) Equity holdings and transactions
The movement during the year in the number of ordinary shares in the company held by each specified director and specified
executive, including their personally related entities, is provided below:
NUMBER OF SHARES
INTEREST IN
SHARES AT
1 JAN 2005
CONDITIONAL
RIGHTS VESTED
OPTIONS
EXERCISED
PURCHASED
(SOLD)
DIVIDENDS
REINVESTED IN
THE YEAR
INTEREST IN
SHARES AT
31 DEC 2005
INTEREST IN
SHARES AT
31 DEC 2005
SUBJECT TO
NON-RECOURSE
LOANS (3)
Non-executive directors
LF Bleasel AM 42,768 – – – 635 43,403 –
EJ Cloney 720,410 – – (14,485) 28,992 734,917 –
CP Curran AO 356,751 – – – 1,162 357,913 (1) –
The Hon NF Greiner AC 53,716 – – – 1,789 55,505 (2) –
IF Hudson – – – – – – –
BJ Hutchinson 27,446 – – – – 27,446 –
CLA Irby 15,000 – – – – 15,000 –
IYL Lee 10,467 – – 3,000 489 13,956 –
Executive director
FM O’Halloran 1,160,741 – – (124,000) 42,861 1,079,602 965,580
Specified executives
SP Burns 3,083 – – – 124 3,207 2,970
NG Drabsch 256,067 – 100,000 (75,000) 12,352 293,419 287,371
PE Grove 2,854 – – – 116 2,970 2,970
MD ten Hove 376,296 – – (60,000) 14,198 330,494 328,833
RL Jones 228,076 17,388 44,587 – 10,515 300,566 282,830
TM Kenny 150,749 – 10,000 (150,749) 3,022 13,022 13,022
V McLenaghan 198,116 8,586 22,044 – – 228,746 207,609
EG Tollifson 165,104 – 103,000 (60,000) 7,579 215,683 194,682
(1) Balance of ordinary shares held at 8 April 2005.
(2) Includes 10,000 warrants to purchase ordinary shares.
(3) Prior to 20 June 2005, non-recourse loans were provided by the consolidated entity to the executive director and specified executives on the
exercise of their options for the purchase of shares in the company. Under AIFRS, non-recourse loans and the related shares are derecognised
and are instead treated as options.
112 F-68

Notes to the financial statements continued
FOR THE YEAR ENDED 31 DECEMBER 2005
28
DIRECTORS’ AND EXECUTIVES’ DISCLOSURES (COMPANY AND CONSOLIDATED) CONTINUED
(C) Share loans to specified directors and specified executives
All share loans to the executive director and specified executives are secured over the relevant issued shares in the company. In
accordance with the terms of the Plan, which were approved at the 1981 AGM, share loans to employees do not accrue interest. The
amount shown for interest not charged in the table below is calculated using the fringe benefits tax benchmark interest rate for loans.
Details regarding the share loans made by the consolidated entity to the executive director and specified executives are as follows:
(i) Non-recourse share loans
BALANCE AT
1 JAN 2005
$’000
LOANS MADE
IN THE YEAR
$’000
REPAYMENTS
$’000
BALANCE AT
31 DEC 2005
$’000
INTEREST
NOT
CHARGED
$’000
HIGHEST
BALANCE
IN PERIOD
$’000
Executive director
FM O’Halloran 4,336 – – 4,336 306 4,336
Specified executives
SP Burns 22 – – 22 2 22
NG Drabsch 1,817 749 (128) 2,438 165 2,566
PE Grove 22 – – 22 2 22
MD ten Hove 3,465 – (98) 3,367 241 3,465
RL Jones 2,010 316 – 2,326 159 2,326
TM Kenny 947 65 (951) 61 15 947
V McLenaghan 1,326 156 (60) 1,422 100 1,474
EG Tollifson 977 760 (106) 1,631 106 1,737
Total specified executives 10,586 2,046 (1,343) 11,289 790
Prior to 20 June 2005, non-recourse loans were provided by the consolidated entity to the executive director and specified executives
for the purchase of shares in the company. Under AIFRS, non-recourse loans and the related shares are derecognised and are instead
treated as options.
(ii) Personal recourse share loans
Since 20 June 2005, total personal recourse loans of $56,000 (2004 $nil) have been provided to three specified executives. Interest not
charged amounted to $1,000 (2004 $nil). The amount outstanding at the balance date was $56,000 (2004 $nil).
(D) Other transactions with directors, executives and personally related entities
CP Curran AO – related entities
Mr Curran AO retired as a director of QBE Insurance Group Limited on 8 April 2005. During his directorship of the company he was also
non-executive chairman of Perpetual Trustees Australia Ltd, an entity whose controlled entity was used during the year, on an arm’s
length basis, for share registration purposes. During 2005, a controlled entity paid $738,000 (2004 $658,000) for these services.
MD ten Hove – apartment purchase arrangement
Mr ten Hove joined QBE in March 1999 as Group general manager, investments. He entered into a contractual arrangement with
a controlled entity at that time which provided him with an option to purchase an apartment in the Sydney CBD, already owned by
the consolidated entity, if he remained with QBE and decided to apply for permanent residence in Australia. The option agreement
enabled purchase of the apartment for $533,736, being the original purchase price to the controlled entity plus stamp duty and
improvements. Mr ten Hove paid market rent during his occupancy of the property until purchase. In January 2005, he returned to
Sydney from London, achieved permanent residence and subsequently purchased the apartment on 22 June 2005 for $610,000. The
most recent market valuation of the property was $610,000 in November 2004. Mr ten Hove was subsequently reimbursed $76,264,
being the difference between the market value at the date of purchase and the value of the original option agreement.
FM O’Halloran – retirement benefits
Mr O’Halloran joined QBE in June 1976. Eight of his years with the consolidated entity have been in the position of chief executive
officer, with four years as director of operations, seven years as director of finance, five years as chief financial officer and the
remainder as Group financial controller. On 1 January 1998, a controlled entity entered into a retirement benefit arrangement with
Mr O’Halloran, which is in addition to his entitlement under the Group staff superannuation plan. As Mr O’Halloran was employed by
the consolidated entity in May 2004, he will receive a lump sum payment of 150% of his total remuneration cost being his annual base
salary plus STI for the year prior to the date of his retirement. As a condition of this arrangement, Mr O’Halloran has entered into a
non-compete agreement for three years from the date of his retirement.
F-69
QBE INSURANCE GROUP ANNUAL REPORT 2005
113

Notes to the financial statements continued
FOR THE YEAR ENDED 31 DECEMBER 2005
29
RETIREMENT BENEFITS
Entities in the consolidated entity participate in a number of superannuation plans which have been established and are sponsored
by those entities. A number of these plans provide defined benefits to employees on retirement, disability or death. The benefits
are based on years of service and an average salary calculation.
Contributions are made to the plans by both employees and controlled entities, typically as a percentage of salary and within
the rules of the plans, and are based on funding schedules prepared by independent actuaries on the dates specified below. In
addition, the consolidated entity continues to meet applicable statutory minimum funding requirements set out by legislation in
the UK. The contribution rate in respect of defined benefit plans is agreed between the relevant controlled entity and the plans’
trustees and actuaries. The consolidated entity has no immediate legal obligation to settle the liability.
Independent actuarial assessments of all significant plans are completed at least once every three years. The main plans were
assessed by various qualified employees of Russell Employee Benefits, AON Consulting, Watson Wyatt Worldwide and Mercers.
All valuations have been updated for information available at 31 December 2005.
(A) Balance sheet amounts
The amounts recognised in the balance sheet for defined benefit superannuation plans are as follows:
DATE OF LAST
ACTUARIAL
VALUATION
FAIR VALUE OF PLAN
ASSETS
2005 2004
$M $M
PRESENT VALUE OF
PLAN OBLIGATIONS
2005 2004
$M $M
NET SURPLUS (DEFICIT)
2005 2004
$M $M
Non-current assets –
superannuation plan surplus
New Zealand superannuation plan 31 Dec 05 7 6 (5) (4) 2 2
Non-current liabilities –
superannuation plan obligations
QBE Group staff superannuation plan – closed 31 Dec 04 – 125 – (145) – (20)
QBE defined benefit plan 31 Dec 05 63 – (71) – (8) –
Iron Trades insurance staff trust 31 Dec 05 279 233 (349) (319) (70) (86)
European staff retirement benefit plan 31 Dec 05 13 10 (21) (16) (8) (6)
Janson Green final salary superannuation
scheme 31 Dec 05 162 120 (237) (208) (75) (88)
National Farmers Union 31 Dec 05 31 – (34) – (3) –
Other plans 5 4 (9) (6) (4) (2)
553 492 (721) (694) (168) (202)
Net liability recognised in the balance sheet 560 498 (726) (698) (166) (200)
On 28 October 2005, the consolidated entity announced the closure of the QBE Group staff superannuation plan. Members of
the plan were offered the option of either transferring to a new defined benefit plan with no pension entitlements or to a defined
contribution plan. The relevant controlled entity provided an incentive to those transferring to the defined contribution plan. The
consolidated entity has no further obligation in respect of the closed plan, but has an obligation in respect of those members
transferring to the new defined benefit plan. In order to determine the consolidated entity’s superannuation plan obligation at the
balance date, the number of members expected to transfer to the defined contribution plan was estimated by management and
independent actuaries as this information will not be finalised until 28 February 2006.
114 F-70

Notes to the financial statements continued
FOR THE YEAR ENDED 31 DECEMBER 2005
29
RETIREMENT BENEFITS CONTINUED
(B) Reconciliation
Wholly funded defined benefit obligation at 1 January 698 615
Current service cost 16 15
Interest cost 35 33
Experience losses on plan liabilities 75 42
Benefits and expenses paid (32) (23)
Past service cost 1 –
Contributions by plan participants 1 1
Transfer of defined benefit obligation from closed fund (80) –
Curtailments and settlements 1 –
Acquisitions 34 –
Foreign exchange (23) 15
Wholly funded defined benefit obligation at 31 December 726 698
Fair value of plan assets at 1 January 498 449
Expected return on plan assets 30 31
Actuarial gains on plan assets 39 7
Employer contributions 87 23
Contributions by plan participants 1 1
Benefits and expenses paid (32) (23)
Transfer of assets from closed fund (80)
Curtailments and settlements 3 –
Acquisitions 30 –
Foreign exchange (16) 10
Fair value of plan assets at 31 December 560 498
Net liability recognised in the balance sheet at 31 December 166 200
2005
$M
2004
$M
Net liability recognised in the balance sheet at 1 January 200 166
Amounts recognised in the income statement
Current service cost 16 15
Interest cost 35 33
Past service cost 1 –
Expected return on plan assets (30) (31)
Curtailments and settlements (2) –
2005
$M
2004
$M
20 17
Actuarial losses included in the statement of recognised income and expense 36 35
Employer contributions (87) (23)
Acquisitions 4 –
Foreign exchange (7) 5
Net liability recognised in the balance sheet at 31 December 166 200
The amount recognised in the income statement in the year of $20 million (2004 $17 million) has been included within underwriting
expenses. The actual return on plan assets was $69 million (2004 $38 million).
F-71
QBE INSURANCE GROUP ANNUAL REPORT 2005
115

Notes to the financial statements continued
FOR THE YEAR ENDED 31 DECEMBER 2005
29
RETIREMENT BENEFITS CONTINUED
(C) Amounts included in the statement of recognised income and expense
Cumulative actuarial gains and losses included in the statement of recognised income and expense are as follows:
Actuarial losses at 1 January 35 –
Actuarial losses recognised in year 36 35
Actuarial losses at 31 December 71 35
Deferred taxation on actuarial losses at 1 January (10) –
Deferred taxation credit on actuarial losses recognised in year (9) (10)
Deferred taxation on actuarial losses at 31 December (19) (10)
Net actuarial losses at 31 December 52 25
(D) Principal actuarial assumptions
Discount rate 3.9 – 6.1 4.0 – 6.6
Expected return on plan assets 5.2 – 8.0 5.5 – 8.0
Future salary increases 3.5 – 6.0 3.5 – 6.0
Future pension increases 0.0 – 2.8 0 – 2.8
The expected return on plan assets is based on historical and future expectations of returns for each of the major asset classes as
well as the expected and actual allocation of plan assets to these major classes.
(E) Analysis of plan assets
Equities 195 229
Bonds 319 203
Property 1 1
Other 45 65
560 498
(F) Historical summary
Experience losses arising on plan liabilities 75 42
Experience gains arising on plan assets 69 38
(G) Funding
Employer contributions to the defined benefit superannuation plans are based on recommendations by the plans’ actuaries. The
objective of the consolidated entity’s funding schedules is to ensure that benefit entitlements are fully funded at the time they
become payable. The key economic assumptions applied by the actuaries are shown in note 29(D).
2005
$M
2005
%
2005
$M
2005
$M
2004
$M
2004
%
2004
$M
2004
$M
116 F-72

Notes to the financial statements continued
FOR THE YEAR ENDED 31 DECEMBER 2005
30
REMUNERATION OF AUDITORS
PricewaterhouseCoopers – Australian firm (1)
Audit or review of financial reports of the parent entity 754 665
Audit of financial reports of controlled entities 2,251 1,865
Audit of statutory returns 442 515
Other audit assurance services 430 499
Taxation services 233 46
Advisory services (including business continuity management assistance) 151 –
Related practices of PricewaterhouseCoopers – Australian firm (1)
2005
$’000
2004
$’000
4,261 3,590
(including overseas PricewaterhouseCoopers firms)
Audit of financial reports of controlled entities 5,235 3,081
Audit of statutory returns 1,882 1,367
Other audit assurance services 15 123
Taxation services 427 327
Advisory services (including due diligence services) 1,001 66
Actuarial services – 15
Legal services – 897
8,560 5,876
12,821 9,466
Audit and assurance services 11,009 8,115
Other services 1,812 1,351
12,821 9,466
Other auditors
Audit of financial reports of controlled entities 410 866
(1) From 1 January 2003, the consolidated entity may engage PricewaterhouseCoopers for non-audit services, subject to the general principle that fees
for non-audit services should not exceed 30% of the total of all fees in any one year. Consistent with prior periods, PricewaterhouseCoopers cannot
provide the excluded services of preparing accounting records or financial reports, asset or liability valuations, acting in a management capacity,
acting as a custodian of assets or acting as share registrar.
31
CONTINGENT LIABILITIES
The company and the consolidated entity had the following contingent liabilities:
2005
$M
THE COMPANY
2004
$M
2005
$M
CONSOLIDATED
Guarantees of interest bearing liabilities in controlled entities 427 453 – –
Letters of credit issued in support of the consolidated entity’s
participation in Lloyd’s of London 352 245 352 294
Letters of credit issued in support of insurance provisions of
controlled entities 237 233 – –
Guarantees to investors in hybrid securities 701 796 – –
Guarantees to investors in ABC securities for funds at Lloyd’s (due 2008) 750 703 – –
Guarantees to investors in ABC securities for funds at Lloyd’s (due 2009) 300 281 – –
A controlled entity has entered into a number of deeds of covenant in respect of its controlled entities to meet part of their
obligations to Lloyd’s of London. The total guarantee given under these deeds of covenant amounts to $316 million (2004 $398
million). The obligations under the deeds of covenant are secured by a fixed and floating charge over certain investments and other
assets in favour of Lloyd’s of London. Refer note 13(D).
Details of the guarantees to investors in Eurobonds and hybrid securities and security arrangements in respect of interest bearing
liabilities are provided in note 22.
Details of contingent liabilities in respect of ABC securities for funds at Lloyd’s are included in note 35(C).
2004
$M
F-73
QBE INSURANCE GROUP ANNUAL REPORT 2005
117

Notes to the financial statements continued
FOR THE YEAR ENDED 31 DECEMBER 2005
32
CAPITAL EXPENDITURE COMMITMENTS
2005
$M
THE COMPANY
2004
$M
2005
$M
CONSOLIDATED
Capital expenditure commitments contracted but not provided
for in the financial statements (not later than one year) – – 14 3
33
OPERATING LEASE COMMITMENTS
2005
$M
THE COMPANY
2004
$M
2005
$M
CONSOLIDATED
Payable:
Not later than one year – – 27 33
Later than one year but not later than five years – – 80 86
Later than five years – – 166 80
Aggregate amounts contracted but not provided
for in the financial statements – – 273 199
34
NEW SOUTH WALES WORKERS’ COMPENSATION MANAGED FUNDS (CONSOLIDATED)
A controlled entity is a licensed insurer under the New South Wales Compensation Act 1987. In 2005, WorkCover New South Wales
issued a new licence to the controlled entity including new terms and conditions that do not require the controlled entity to establish
or maintain statutory funds. Prior to the issue of the new licence, in accordance with the requirements of the previous licence, the
controlled entity established and maintained statutory funds in respect of the issue and renewal of policies of insurance.
2004
$M
2004
$M
Statutory fund balance sheet
Current assets
Cash and short term deposits – 1,079
Debtors – 184
Non-current assets
Financial assets – market value – 445
Total assets – 1,708
Current liabilities
Creditors – 18
Unearned premium – 247
Statutory funds to meet outstanding claims and statutory transfers – 1,443
Total liabilities and statutory funds – 1,708
2005
$M
2004
$M
118 F-74

Notes to the financial statements continued
FOR THE YEAR ENDED 31 DECEMBER 2005
35
LLOYD’S DIVISION
(A) Non-aligned syndicates
A controlled entity acquired Limit plc and its controlled entities (“Limit”) in August 2000. From 1994 to 2000, Limit participated
in the results of a number of syndicates managed by other managing agents at Lloyd’s (non-aligned syndicates). In 2000, Limit sold
its right to participate in the results of these syndicates after 31 December 2000. In 2001, Limit sold the rights to manage
syndicate 318, previously managed by its controlled managing agency, to another managing agency at Lloyd’s but retained
participation in the syndicate until December 2004. The result of Limit’s participation on this syndicate has also been included
as non-aligned. Lloyd’s operates on a three year accounting basis and at the end of the third year the underwriting account is
normally closed by reinsurance into the following year of account. The runoff of these syndicates is expected to complete by
31 March 2007. The consolidated entity is expected to have to fund its share of the net outstanding claims of these operations,
as shown below, and therefore the assets and liabilities are included on a net basis in outstanding claims in the balance sheet.
Assets
Financial assets – market value 120 122
Other assets 115 119
235 241
Liabilities
Outstanding claims net of reinsurance recoveries 277 263
Other liabilities 13 17
290 280
Net liabilities 55 39
(B) Reinsurance to close
Since acquiring Limit in August 2000, the consolidated entity has purchased additional capacity in the syndicates managed by Limit,
taking its ownership share for all syndicates from 55% in 2000 to 90% for the 2006 underwriting year. These purchases of additional
capacity create an obligation for the consolidated entity to accept the additional share of insurance provisions in exchange for an
equal amount of investments and other assets. The amounts will be determined when the reinsurance to close is calculated on
31 December 2006 or subsequent dates. It is currently estimated that the amount of the net insurance provisions and matching
assets will exceed $557 million, which will be recognised in the years in which the reinsurance to close is expected to be finalised.
2005
$M
2004
$M
F-75
QBE INSURANCE GROUP ANNUAL REPORT 2005
119

Notes to the financial statements continued
FOR THE YEAR ENDED 31 DECEMBER 2005
35
LLOYD’S DIVISION CONTINUED
(C) Funds at Lloyd’s
(i) ABC securities (due 2009)
In October 2004, the company entered into an arrangement with Mantis Reef II Limited (“MR(II)L”) to issue US$220 million of
ABC (asset backed capital) securities to support funds at Lloyd’s (“FAL”) pursuant to Lloyd’s collateral requirements. This
arrangement substantially replaced bank letters of credit and assisted in meeting new FAL requirements. MR(II)L is a special
purpose entity incorporated with limited liability under the laws of the Cayman Islands. The consolidated entity has no ownership
interest in MR(II)L.
Proceeds from the sale of the ABC securities to investors have been swapped to sterling and then used to purchase shares in a
wholly owned controlled entity of MR(II)L, Mantis Reef II Pledge Limited (“MR(II)PL”). MR(II)PL is another special purpose entity
incorporated with limited liability under the laws of the Cayman Islands. The proceeds from the sale of shares in MR(II)PL have been
used to purchase eligible investments over which security interests, in the form of a fixed and floating charge, have been granted to
Lloyd’s in support of FAL requirements of some of the company’s controlled entities. Details of the eligible investments included in
the asset portfolio are shown below as ABC financial assets pledged for funds at Lloyd’s.
Under its arrangement with MR(II)L and MR(II)PL, the company makes fixed payments to MR(II)L and in return receives the
benefit of the earnings from the investment portfolio. As part of its agreement with MR(II)L and MR(II)PL the company can, if
the need arises, call on MR(II)PL to provide up to £120 million by the sale or transfer of its investment portfolio to meet certain
controlled entities’ cash call requirements from Lloyd’s, and at that time the company would assume a loan obligation including
servicing of interest payments and repayment of the principal. To achieve this, the company would issue debt securities to
MR(II)L with similar terms to the ABC securities. The company has entered into a fixed for floating cross currency interest rate swap
with a third party to service its fixed interest rate obligations.
(ii) ABC securities (due 2008)
In October 2003, the company entered into an arrangement with Mantis Reef Limited (“MRL”) to issue US$550 million of ABC
securities to support FAL pursuant to Lloyd’s collateral requirements. This arrangement substantially replaced bank letters of credit.
MRL is a special purpose entity incorporated with limited liability under the laws of the Cayman Islands. The consolidated entity has
no ownership interest in MRL.
Proceeds from the sale of the ABC securities to investors have been used to purchase shares in a wholly owned controlled entity of
MRL, Mantis Reef Pledge Limited (“MRPL”). MRPL is another special purpose entity incorporated with limited liability under the laws
of the Cayman Islands. The proceeds from the sale of shares in MRPL have been used to purchase eligible investments over which
security interests, in the form of a fixed and floating charge, have been granted to Lloyd’s in support of FAL requirements. Details of the
eligible investments included in the asset portfolio are shown below as ABC financial assets pledged for funds at Lloyd’s.
Under its arrangement with MRL and MRPL, the company makes fixed payments to MRL and in return receives the benefit of the
earnings from the investment portfolio. As part of its agreement with MRL and MRPL the company can, if the need arises, call on
MRPL to provide up to US$550 million by the sale or transfer of its investment portfolio to meet certain controlled entities’ cash call
requirements from Lloyd’s, and at that time the company would assume a loan obligation including servicing of interest payments
and repayment of the principal. To achieve this, the company would issue debt securities to MRL with similar terms to the ABC
securities. The company has entered into a fixed for floating interest rate swap with a third party to service its fixed interest rate
obligations.
(iii) Swaps relating to ABC securities
The consolidated entity is exposed to interest rate and currency risk in respect of the ABC securities and has therefore entered into
two swap agreements, being an interest rate swap agreement with a financial institution under which it is obliged to pay interest at
a variable rate and receive interest at a fixed rate and a cross currency interest rate swap agreement under which it is obliged to pay
variable rate interest on a sterling asset portfolio and receive a fixed amount of US dollar interest.
ABC securities (due 2009) are measured at amortised cost in original currency and translated to Australian dollars at the closing rate
of exchange. Under the swap agreement, the consolidated entity pays a margin of 1.7% above the wholesale interbank rate monthly
on £120 million and receives a fixed rate of 3.2% on US$220 million every six months to match the interest payment to investors.
The swap agreement currently comprises three swaps which are measured at fair value. Two of the swaps are designated as cash
flow hedges and have satisfied the effectiveness tests throughout the period from inception and at the balance date. The movement
in the fair value of the cash flow hedges is taken to equity. Any ineffectiveness in the cash flow hedges is recognised directly in the
income statement. An amount is transferred from equity and taken to the income statement to offset:
• the differential between the fixed and variable interest payments; and
• the foreign exchange gain or loss on translation of the financial liabilities.
During the year, a loss of $1 million (2004 $nil) was recognised in equity relating to the fair value movements on the cash flow
hedges. During the year, a gain of $4 million (2004 $nil) was transferred from equity to the income statement.
ABC securities (due 2008) are measured at amortised cost in original currency and translated to Australian dollars at the closing rate
of exchange. Under the swap agreement, the consolidated entity pays interest at the wholesale interbank rate and receives a fixed
rate of 3.5% on US$550 million every six months to match the interest payment to investors.
120 F-76

Notes to the financial statements continued
FOR THE YEAR ENDED 31 DECEMBER 2005
35
LLOYD’S DIVISION CONTINUED
The swap agreement comprises two swaps which are measured at fair value. The swaps are designated as fair value hedges and
have satisfied the relevant hedge effectiveness tests throughout the period and at the balance date. The fair value movement on
the swaps is recognised in the income statement. Any change in the value of the financial liabilities as a result of the hedged risk
adjusts the carrying amount of the hedged item and impacts the income statement.
2005
$M
THE COMPANY
2004
$M
2005
$M
CONSOLIDATED
ABC financial assets pledged for funds at Lloyd’s (1)
Due 2008 Interest bearing short term money US$550 million – – 750 703
Due 2009 Interest bearing short term money £120 million – – 282 295
– – 1,032 998
ABC securities for funds at Lloyd’s
Due 2008 US$550 million – – 720 691
Due 2009 US$220 million – – 295 277
– – 1,015 968
Swaps relating to ABC securities 5 5 29 30
5 5 1,044 998
(1) Under the terms of the ABC securities arrangements, all interest bearing short term money will be reinvested and it is therefore included in
non-current assets.
Fair value of ABC securities for funds at Lloyd’s
Due 2008 US$550 million 724 693
Due 2009 US$220 million 288 278
1,012 971
36
RELATED PARTIES (COMPANY AND CONSOLIDATED)
AASB 124: Related Party Disclosures (“AASB 124”) defines key management personnel as a collective term for the specified
directors and the specified executives of an entity. All material information required to be disclosed under AASB 124 has been
included in the financial statements as follows:
Reference
Dividends from controlled entities
Note 7(B)
Amounts due from controlled entities Note 11
Investments in controlled entities Note 16
Amounts due to controlled entities Note 19
Tax sharing agreement
Note 8(B)
Remuneration of key management personnel Directors’ report and note 28
Retirement allowances of key management personnel
Directors’ report
Shares and options held by key management personnel Note 28
Related party transactions with key management personnel Note 28
Retirement benefits Note 29
Guarantees in respect of related parties Note 31
In the ordinary course of business, various controlled entities receive dividends and purchase and sell investments in public entities
in which directors of the company are directors and shareholders.
2005
$M
2004
$M
2004
$M
F-77
QBE INSURANCE GROUP ANNUAL REPORT 2005
121

Notes to the financial statements continued
FOR THE YEAR ENDED 31 DECEMBER 2005
37
EARNINGS PER SHARE (CONSOLIDATED)
2005
CENTS
Basic earnings per share 144.3 123.4
Diluted earnings per share (1) 134.4 109.9
2004
CENTS
$M $M
Reconciliation of earnings used in calculating earnings per share
Net profit after income tax attributable to members of the company,
used in calculating basic earnings per share 1,091 857
Add: finance costs of hybrid securities 6 13
Earnings used in calculating diluted earnings per share 1,097 870
MILLIONS MILLIONS
Weighted average number of ordinary shares used as the denominator in calculating (2) :
Basic earnings per share 757 695
Diluted earnings per share 817 791
(1) Hybrid securities have been treated as dilutive if the contingent conversion conditions are met at the balance date. If all hybrid securities had been
considered dilutive at 31 December 2005, diluted earnings per share would have been 130.8 cents (2004 109.1 cents).
(2) Weighted average number of ordinary shares reflects shares adjusted to derecognise shares issued under the Plan. Basic earnings per share
calculated with reference to issued share capital notified to the ASX would have been 142.5 cents (2004 123.1 cents). Refer to note 25(A).
38
SEGMENT INFORMATION
(A) Business segments
AUSTRALIA
PACIFIC ASIA
CENTRAL EUROPE
EUROPEAN
OPERATIONS
THE
AMERICAS EQUATOR RE ELIMINATION TOTAL
2005 $M $M $M $M $M $M
Total assets 8,056 18,412 3,107 956 (866) 29,665
Total liabilities 6,060 15,835 2,717 760 (866) 24,506
Acquisition of property, plant and
equipment, intangibles and other
non-current segment assets 81 306 61 – – 448
Depreciation expense 16 21 3 – – 40
Other non-cash expenses 1 2 – – – 3
Total revenue 3,372 6,944 2,086 373 (347) 12,428
Gross written premium 3,122 4,794 1,492 353 (353) 9,408
Gross earned premium 3,093 4,643 1,435 347 (347) 9,171
Outward reinsurance premium expense (542) (946) (592) (52) 347 (1,785)
Net earned premium 2,551 3,697 843 295 – 7,386
Net claims incurred (1,349) (2,326) (506) (236) – (4,417)
Net commission (356) (651) (215) (29) – (1,251)
Underwriting and other expenses (420) (428) (62) – – (910)
Underwriting result 426 292 60 30 – 808
Investment income on policyholders’ funds 181 253 27 19 – 480
Insurance profit 607 545 87 49 – 1,288
Investment income on shareholders’ funds 50 171 10 7 – 238
Amortisation of intangibles (1) (2) – – – (3)
Profit before income tax 656 714 97 56 – 1,523
Income tax expense (187) (187) (34) (17) – (425)
Profit after income tax 469 527 63 39 – 1,098
Net profit attributable to minority interest (6) – (1) – – (7)
Net profit after income tax attributable to
members of the company 463 527 62 39 – 1,091
Intersegment transactions are priced on an arm’s length basis and are eliminated on consolidation.
122 F-78

Notes to the financial statements continued
FOR THE YEAR ENDED 31 DECEMBER 2005
38
SEGMENT INFORMATION CONTINUED
AUSTRALIA
PACIFIC ASIA
CENTRAL EUROPE
EUROPEAN
OPERATIONS
THE
AMERICAS EQUATOR RE ELIMINATION TOTAL
2004 $M $M $M $M $M $M
Total assets 7,269 15,445 2,156 596 (430) 25,036
Total liabilities 5,760 13,318 1,827 469 (430) 20,944
Acquisition of property, plant and
equipment, intangibles and other
non-current segment assets 540 95 4 – – 639
Depreciation expense 18 33 2 – – 53
Other non-cash expenses – 1 – – – 1
Total revenue 3,233 5,381 1,833 277 (254) 10,470
Gross written premium 2,774 4,610 1,382 278 (278) 8,766
Gross earned premium 2,798 4,419 1,354 254 (254) 8,571
Outward reinsurance premium expense (521) (912) (588) (23) 254 (1,790)
Net earned premium 2,277 3,507 766 231 – 6,781
Net claims incurred (1,306) (2,222) (454) (174) – (4,156)
Net commission (337) (640) (207) – – (1,184)
Underwriting and other expenses (382) (422) (55) 15 – (844)
Underwriting result 252 223 50 72 – 597
Investment income on policyholders’ funds 123 188 4 16 – 331
Insurance profit 375 411 54 88 – 928
Investment income on shareholders’ funds 32 141 10 5 – 188
Amortisation of intangibles – (1) – – – (1)
Profit before income tax 407 551 64 93 – 1,115
Income tax expense (84) (129) (20) (18) – (251)
Profit after income tax 323 422 44 75 – 864
Net profit attributable to minority interest (7) – – – – (7)
Net profit after income tax attributable to
members of the company 316 422 44 75 – 857
F-79
QBE INSURANCE GROUP ANNUAL REPORT 2005
123

Notes to the financial statements continued
FOR THE YEAR ENDED 31 DECEMBER 2005
38
SEGMENT INFORMATION CONTINUED
(B) External product segments
GENERAL INSURANCE INWARD REINSURANCE TOTAL
2005
$M
2004
$M
2005
$M
2004
$M
2005
$M
Total revenue 8,882 7,966 3,546 2,504 12,428 10,470
Net profit after income tax attributable
to members of the company 981 719 110 138 1,091 857
Total assets 21,637 18,303 8,028 6,733 29,665 25,036
Acquisition of property, plant and
equipment, intangibles and other
non-current segment assets 328 466 120 173 448 639
2004
$M
(C) Geographical analysis
AUSTRALIA
$M
ASIA-PACIFIC
$M
EUROPE
$M
THE AMERICAS
$M
Total revenue 2005 3,632 922 3,278 3,632 964 12,428
2004 2,728 836 3,077 3,313 516 10,470
Net profit after income tax 2005 404 140 418 68 61 1,091
attributable to members of 2004 243 94 181 280 59 857
the company
Total assets 2005 10,677 1,975 8,243 7,730 1,040 29,665
2004 7,923 1,779 8,634 5,783 917 25,036
Acquisition of property, plant 2005 81 – 170 197 – 448
and equipment, intangibles
and other non-current
segment assets
2004 540 – 95 4 – 639
OTHER
$M
TOTAL
$M
124 F-80

Notes to the financial statements continued
FOR THE YEAR ENDED 31 DECEMBER 2005
39
RECONCILIATION OF CASH FLOWS FROM OPERATING ACTIVITIES TO NET PROFIT AFTER INCOME TAX
ATTRIBUTABLE TO MEMBERS OF THE COMPANY
2005
$M
THE COMPANY
2004
$M
2005
$M
CONSOLIDATED
Cash flows from operating activities 187 348 1,987 2,110
Depreciation of assets – – (40) (53)
Amortisation of intangibles – – (3) (1)
Amortisation of premium/discount on fixed interest securities – – (9) (14)
Profit on sale of controlled entities 629 – 11 –
Loss on sale of plant and equipment – – (5) (1)
Net foreign exchange (losses) gains (5) (47) 3 51
Other gains on financial assets – – 219 89
Increase in net outstanding claims – – (836) (1,091)
Increase in unearned premium – – (236) (161)
Increase in deferred insurance costs – – 62 77
Increase in net amounts receivable from controlled entities 267 1,299 – –
Increase in trade debtors – – 350 149
Increase (decrease) in other operating assets 26 229 17 (283)
Increase in trade and other payables – – (263) (172)
(Increase) decrease in current tax liabilities (60) 5 (85) 41
Increase (decrease) in deferred tax liabilities 16 5 (139) (121)
(Increase) decrease in provisions – (5) 65 244
Minority interest – – (7) (7)
Net profit after income tax attributable to members of the company 1,060 1,834 1,091 857
2004
$M
F-81
QBE INSURANCE GROUP ANNUAL REPORT 2005
125

Directors’ declaration
The directors declare that the financial statements and notes set out on pages 60 to 125:
(a) comply with accounting standards, the Corporations Regulations 2001 and other mandatory professional reporting requirements;
and
(b) give a true and fair view of the company’s and consolidated entity’s financial position as at 31 December 2005 and of their
performance, as represented by the results of their operations and their cash flows, for the financial year ended on that date.
In the directors’ opinion, the financial statements are in accordance with the Corporations Act 2001 and there are reasonable
grounds to believe that the company will be able to pay its debts as and when they become due and payable.
The directors have been given the declarations by the chief executive officer and chief financial officer required by section 295A of
the Corporations Act 2001 for the financial year ended 31 December 2005.
Signed in SYDNEY this 23rd day of February 2006 in accordance with a resolution of the directors.
EJ Cloney
Director
FM O’Halloran
Director
126 F-82

Independent audit report
TO THE MEMBERS OF QBE INSURANCE GROUP LIMITED
Audit opinion
In our opinion:
1. the financial report of QBE Insurance Group Limited:
• gives a true and fair view, as required by the Corporations Act 2001 in Australia, of the financial position of QBE Insurance
Group Limited and the QBE Insurance Group (defined below) as at 31 December 2005, and of their performance for the year
ended on that date; and
• is presented in accordance with the Corporations Act 2001, Accounting Standards and other mandatory financial reporting
requirements in Australia, and the Corporations Regulations 2001; and
2. the remunerations disclosures that are contained in pages 51 to 57 of the directors’ report comply with Accounting Standard
AASB 124 Related Party Disclosures (AASB 124) and class order 06/50 issued by the Australian Securities and Investments
Commission.
This opinion must be read in conjunction with the rest of our audit report.
Scope
The financial report, remuneration disclosures and directors’ responsibility
The financial report comprises the balance sheet, income statement, cash flow statement, statement of changes in equity,
accompanying notes to the financial statements and the directors’ declaration for both QBE Insurance Group Limited (the company)
and the QBE Insurance Group (the consolidated entity), for the year ended 31 December 2005. The consolidated entity comprises
both the company and the entities it controlled during that year.
The company has disclosed information about the remuneration of directors and executives (remuneration disclosures) as required
by AASB 124, under the heading “remuneration report” on pages 51 to 57 of the directors’ report, as permitted by class order 06/50.
The directors of the company are responsible for the preparation and true and fair presentation of the financial report in accordance
with the Corporations Act 2001. This includes responsibility for the maintenance of adequate accounting records and internal
controls that are designed to prevent and detect fraud and error, and for the accounting policies and accounting estimates inherent
in the financial report. The directors are also responsible for the remuneration disclosures contained in the directors’ report.
Audit approach
We conducted an independent audit in order to express an opinion to the members of the company. Our audit was conducted in
accordance with Australian Auditing Standards, in order to provide reasonable assurance as to whether the financial report is free
of material misstatement and the remuneration disclosures comply with AASB 124 and class order 06/50. The nature of an audit is
influenced by factors such as the use of professional judgment, selective testing, the inherent limitations of internal control and the
availability of persuasive rather than conclusive evidence. Therefore, an audit cannot guarantee that all material misstatements have
been detected. For further explanation of an audit, visit our website http://www.pwc.com/au/financialstatementaudit.
We performed procedures to assess whether in all material respects the financial report presents fairly, in accordance with the
Corporations Act 2001, Accounting Standards and other mandatory financial reporting requirements in Australia, a view which is
consistent with our understanding of the company’s and the consolidated entity’s financial position, and of their performance as
represented by the results of their operations, changes in equity and cash flows. We also performed procedures to assess whether
the remuneration disclosures comply with AASB 124 and class order 06/50.
We formed our audit opinion on the basis of these procedures, which included:
• examining, on a test basis information to provide evidence supporting the amounts and disclosures in the financial report and
remuneration disclosures; and
• assessing the appropriateness of the accounting policies and disclosures used and the reasonableness of significant accounting
estimates made by the directors.
Our procedures include reading the other information in the annual report to determine whether it contains any material
inconsistencies with the financial report.
Whilst we considered the effectiveness of management’s internal controls over financial reporting when determining the nature and
extent of our procedures, our audit was not designed to provide assurance on internal controls.
Our audit did not involve an analysis of the prudence of business decisions made by directors or management.
Independence
In conducting our audit, we followed applicable independence requirements of Australian professional ethical pronouncements and
the Corporations Act 2001.
RD Deutsch
Partner
Sydney
23 February 2006
PricewaterhouseCoopers
Liability limited by a scheme approved under the Professional Standards Legislation.
F-83
QBE INSURANCE GROUP ANNUAL REPORT 2005
127

Directors’ report
FOR THE YEAR ENDED 31 DECEMBER 2004
Your directors present their report on the consolidated entity consisting of QBE Insurance Group Limited and the entities it controlled at
the end of or during the year ended 31 December 2004.
Directors
The following directors held office during the whole of the financial year and up to the date of this report:
LF Bleasel AM
EJ Cloney (chairman)
CP Curran AO
The Hon NF Greiner AC
BJ Hutchinson
CLA Irby
IYL Lee
FM O’Halloran
Details of the directors and their qualifications are set out on page 35.
Results
2004 2003
$M $M
Revenue
Premium revenue 8,571 7,816
Other revenue 1,745 1,424
Unrealised gains on investments 68 122
Investment income – ABC investments pledged for funds at Lloyd’s 40 5
10,424 9,367
Expenses 9,172 8,495
Amortisation of goodwill and write-off of intangibles 22 20
Borrowing costs expense 94 80
Borrowing costs expense – ABC securities for funds at Lloyd’s 56 7
Profit from ordinary activities before income tax 1,080 765
Income tax expense attributable to profit from ordinary activities 253 188
Profit from ordinary activities after income tax 827 577
Net profit attributable to outside equity interests 7 5
Net profit attributable to members of the company 820 572
Net decrease in foreign currency translation reserve on translation of self-sustaining foreign operations 12 109
Total changes in equity other than those resulting from transactions with owners as owners 808 463
Profit
The directors are pleased to announce a
profit after tax of $820 million for the year
ended 31 December 2004 compared with
$572 million last year. The significant
increase in profit was achieved despite the
negative impact of the stronger Australian
dollar on premium growth and after
increasing the level of prudential margins
in outstanding claims provisions and
having absorbed the significant cost of
increased catastrophe activity in 2004.
Dividends
The directors are also pleased to announce
a final dividend of 30.0 cents per share,
50% franked, for the year ended 31
December 2004. The total dividend for
2004 is 54.0 cents per share compared
with 42.0 cents per share for the year
ended 31 December 2003. The final
dividend payout, including shares issued
under the Dividend Election and
Reinvestment Plans, will be $224 million
compared with $148 million last year. The
Dividend Election and Reinvestment Plans
continue at a discount rate of 2.5%. The
franking account balance on a tax paid
basis, after taking into account the final
dividend franked at 50%, will be a surplus
of $65 million.
Activities
The principal activities of the company and
its controlled entities during the year were
underwriting general insurance and
reinsurance risks, management of Lloyd's
syndicates and investment management.
42 QBE INSURANCE GROUP ANNUAL REPORT 2004
F-84

DIRECTORS’ REPORT
FOR THE YEAR ENDED 31 DECEMBER 2004
Review of operations
Gross earned premium was $8,571 million,
an increase of 10% over last year. The
premium growth was due to acquisitions
and a higher retention of business. Net
earned premium increased 12% to $6,781
million. Reinsurance costs decreased from
23% to 21% of gross earned premium.
The longstanding relationships with many
of our reinsurers and the mutually
profitable experience over the past few
years have assisted us to obtain lower
reinsurance costs and favourable terms.
The ratio of claims, commissions and
expenses to net earned premium
(combined operating ratio) was 91.2%
compared with 93.8% last year. The claims
ratio of 61.4% decreased from 63.3% last
year due to the continuation of a low
claims frequency from improved policy
terms and conditions and premium rate
increases, partially offset by the increase in
catastrophe claims activity and the
increase in prudential margins in
outstanding claims. The commission ratio
decreased from 18.2% last year to 17.5%,
reflecting a change in the mix of business
and the impact of acquisitions in the year.
The expense ratio was unchanged at
12.3% reflecting the impact of synergies
from acquisitions and other initiatives
offset by higher staff incentive costs
following improved results, increased
costs of regulatory compliance and the
costs of the restructure in the UK.
Australian general insurance combined
operating ratio was 88.1% compared with
92.8% last year. The improved result was
achieved from a continued focus on
careful risk selection and the strong
premium rate increases and improved
terms and conditions achieved in 2002 and
2003. Net earned premium of $1,831
million was up 28% from last year, from
improved customer retention and the
acquisition of the remaining 50% of the
QBE Mercantile Mutual joint venture. The
claims ratio decreased from 67.2% to
61.0% reflecting a lower frequency of
claims and the commission ratio increased
from 11.1% to 13.3% due to higher
commissions on acquired business. The
expense ratio decreased from 14.5% last
year to 13.8%.
Asia-Pacific general insurance combined
operating ratio was 85.4% compared with
90.0% last year, benefitting from the
continuous focus on portfolio profitability
and the general improvement in premium
rates and policy terms and conditions in
the past three years. The stronger
Australian dollar had a significant impact
on net earned premium, which increased
by only 2% to $439 million. The claims
ratio decreased from 50.0% last year to
48.3% from a lower frequency of claims,
partially offset by the impact of losses
from the tsunami in Asia. The commission
ratio improved from 18.8% last year to
17.1% reflecting a change in the mix of
business and geographic spread. The
expense ratio decreased from 21.2%
last year to 20.0% from savings through
process re-engineering initiatives, partly
offset by higher incentive payments to
staff due to improved profitability, new
information systems and the stronger
Australian dollar.
the Americas reported net earned
premium growth of 9% to $805 million
due to premium rate increases, new
general insurance programme business
with a proven track record and a small
acquisition in Brazil. The combined
operating ratio was 92.3% compared with
93.1% last year. The improvements were
achieved in both the general insurance and
reinsurance businesses. The claims ratio
improved from 63.4% to 60.1% due to
higher premium rates and maintaining the
significant improvements in policy terms
and conditions. The commission ratio
increased from 23.5% last year to 25.7%
reflecting a change in the mix of business
and increased profit commissions paid to
our agents on profitable programme
business. The expense ratio increased
from 6.2% to 6.5% due to a change in the
mix of business and higher incentive
payments to staff for increased
profitability.
European company operations reported
net earned premium growth of 3% to
$1,971 million, mainly from lower
reinsurance costs. The division produced
a combined operating ratio of 94.3%
compared with 94.7% last year. The
improvement in the general insurance
result was partly offset by a deterioration
in results on reinsurance business due to
the impact of catastrophes in the year and
an upgrade of 2001 and prior year
outstanding claims provisions for long tail
classes of business. The claims ratio was
66.3% compared with 66.7% last year.
The commission ratio decreased from
15.6% last year to 15.0% from a change in
the mix of business, and the expense ratio
increased from 12.4% last year to 13.0%
due to restructure costs, higher costs of
regulatory compliance and the write-off of
systems development expenditure.
Lloyd’s division combined operating ratio
was 92.1% compared with 95.1% last
year, due to premium rate increases and
improved terms and conditions for most
classes of business over the past three
years. Net earned premium increased 13%
to $1,735 million, partly due to the Ensign
acquisition and the increased share of
ownership in syndicate 386. The claims
ratio increased from 59.2% to 60.3% due
to the increase in large and catastrophe
losses in 2004 compared with 2003. The
commission ratio decreased from 25.4%
to 20.9% as a result of changes in the mix
of business and a small correction in
commissions in the previous year. The
expense ratio was 10.9% compared with
10.5% last year.
The provision for outstanding claims is
determined for the substantial majority of
Group entities after consultation with
internal and external actuaries. The
outstanding claims assessment takes into
account the statistical analysis of past
claims, allowance for claims incurred but
not reported, recoveries and future interest
and inflation factors. As in previous years,
the directors consider that substantial
prudential margins are required in addition
to actuarial central estimates to cover
uncertainties such as latency claims,
changes in interest rates and
superimposed inflation. The APRA
prudential standards provide that, for our
Australian licensed insurers, outstanding
claims must be set at a level that provides
a probability of at least 75% that the
provision for outstanding claims will be
adequate to settle claims as they become
payable in the future. The directors have
satisfied themselves that the Group’s
outstanding claims provisions substantially
exceed this requirement.
Net investment income increased 23% to
$508 million, reflecting an improvement in
equity markets, particularly in Australia,
and higher interest rates. The result
includes net realised and unrealised gains
on investments of $91 million ($110 million
gain last year) and foreign exchange gains
of $2 million ($13 million loss last year).
The gross investment yield before
borrowing costs, exchange gains and
losses and investment expenses was
unchanged at 4.6%.
Income tax expense for the year was
23.4% of profit before tax, primarily as a
result of untaxed dividends, low rates of
tax in some countries and the release of
prior year provisions.
F-85
QBE INSURANCE GROUP ANNUAL REPORT 2004
43

DIRECTORS’ REPORT
FOR THE YEAR ENDED 31 DECEMBER 2004
Group indemnities
Article 115 of the company’s constitution
provides that the company indemnifies
past and present directors, secretaries
or executive officers against any liability
for serving in those capacities for the
company or its controlled entities. This
indemnity does not apply to any liability
(excluding legal costs):
• owed to the company or its controlled
entities (e.g. breach of directors’
duties);
• for a pecuniary penalty or
compensation order under the
Corporations Act 2001; or
• which did not arise out of conduct
in good faith.
The indemnity extends to legal costs
other than where:
• an exclusion above applies;
• the person is subject to civil or criminal
penalties; or
• the court does not grant relief after an
application under the Corporations Act
2001 that the person acted honestly
and having regard to all the
circumstances ought fairly to be
excused for negligence, default,
breach of trust or breach of duty
in civil proceedings.
Article 115 was approved at the
2003 AGM.
Directors’ and officers’ insurance
The consolidated entity pays a premium
each year in respect of a contract insuring
directors, secretaries and executive
officers of the consolidated entity together
with any natural person who is a trustee of
a superannuation fund established for the
benefit of the consolidated entity’s
employees against liabilities past, present
or future. The officers of the consolidated
entity covered by the insurance contract
include the directors listed on page 35, the
secretary, DA Ramsay, and deputy
secretaries, NG Drabsch and PE Barnes.
Other officers covered by the insurance
contract are directors and secretaries of
controlled entities who are not also
directors and secretaries of the ultimate
parent and executive officers of the
consolidated entity (“excluded officers”).
The functions of the excluded officers
are management of insurance related
operations and finance, investment and
corporate services. In accordance with
normal commercial practice, disclosure
of the total amount of premium payable
under, and the nature of liabilities covered
by, the insurance contract is prohibited by
a confidentiality clause in the contract.
No such insurance cover has been
provided for the benefit of any external
auditor of the consolidated entity.
Significant changes
On 30 June 2004, QBE Insurance Group
Limited acquired ING’s 50% share of the
QBE Mercantile Mutual joint venture in
Australia and ING’s Australian general
insurance underwriting business
conducted by Mercantile Mutual
Insurance (Australia) Limited and
Mercantile Mutual Insurance
(Workers Compensation) Limited.
Events subsequent to balance date
There is, at the date of this report, no
matter or circumstance that has arisen
since 31 December 2004 that has
significantly affected, or may
significantly affect:
• the consolidated entity’s operations
in future financial years;
• the results of those operations in
future financial years; or
• the consolidated entity’s state of
affairs in future financial years.
Likely developments
Information on likely developments in the
consolidated entity’s operations in future
financial years and the expected results of
those operations have not been included
in this report because disclosure of the
information would be likely to result in
unreasonable prejudice to the
consolidated entity.
The consolidated entity will be required
to comply with Australian equivalents to
International Financial Reporting Standards
(“AIFRS”) and their related
pronouncements for the financial year
ending 31 December 2005. Further details
concerning AIFRS are set out in note 2 to
the financial statements.
Environmental regulation
The consolidated entity’s operations
are not subject to any significant
environmental regulations under either
Commonwealth or state legislation.
Rounding of amounts
The company is of a kind referred to in the
ASIC class order 98/0100 dated 10 July
1998 (as amended by class order 04/667
dated 15 July 2004) relating to the
“rounding off” of amounts in the directors’
report. Amounts have been rounded off in
the directors’ report to the nearest million
dollars or, in certain cases, to the nearest
thousand dollars in accordance with that
class order.
Directors’ and executives’ remuneration
Details of the consolidated entity’s
directors’ and executives’ remuneration
policies and the relationship between
those policies and the consolidated
entity’s performance are provided in note
21 to the financial statements. In addition,
the nature and amount of the elements
of the remuneration of each director of
the company and each of the specified
executives, being the executives with
the greatest authority for the strategic
direction of the consolidated entity, are set
out in note 21 to the financial statements.
Directors’ and executives’ interests as
at 31 December 2004
(a) Directors’ and executives’ interests
Details of the Employee Share and Option
Plan (“the Plan”) and the Senior Executive
Equity Scheme (“the SEES”) are included
in notes 21 and 22 to the financial
statements. The names of all persons who
currently hold options granted under the
Plan and conditional rights granted under
the SEES are entered in the registers kept
by the company pursuant to section 173 of
the Corporations Act 2001 and the
registers may be inspected free of charge.
(b) Related entity interests
Details of directors’ and executives’
interests with related parties are provided
in note 21 to the financial statements.
44 QBE INSURANCE GROUP ANNUAL REPORT 2004 F-86

DIRECTORS’ REPORT
FOR THE YEAR ENDED 31 DECEMBER 2004
Meetings of directors
FULL MEETINGS
MEETINGS OF COMMITTEES
OF DIRECTORS* CHAIRMAN’S AUDIT REMUNERATION INVESTMENT FUNDING
NUMBER OF MEETINGS HELD 8 2 4 4 4 2
NUMBER NUMBER NUMBER NUMBER NUMBER NUMBER
ATTENDED ATTENDED ATTENDED ATTENDED ATTENDED ATTENDED
LF Bleasel AM 8 – 4 4 – –
EJ Cloney 8 2 – 4 4 2
CP Curran AO 8 2 – 4 4 1
The Hon NF Greiner AC 8 – 4 4 – –
BJ Hutchinson 8 – 4 – 4 2
CLA Irby 8 – – – 4 –
IYL Lee 8 – 4 – 4 1
FM O’Halloran 8 2 4 – 4 1
* Included a five day review meeting in London and quarterly meetings for each of the Australian regulated insurance companies.
During the July, September and November 2004 board meetings, the board also met as the nomination committee to consider issues
relevant to the appointment of non-executive directors. In addition, further meetings occurred during the year including meetings of the
chairman and chief executive officer, meetings of the directors with management and meetings of non-executive directors.
Directors
CLA Irby retires by rotation and offers himself for re-election. CP Curran AO will retire at the 2005 AGM.
Auditor
PricewaterhouseCoopers, Chartered Accountants, continues in office in accordance with section 327 of the Corporations Act 2001.
Signed in SYDNEY this 24th day of February 2005 in accordance with a resolution of the directors.
EJ Cloney
Director
FM O’Halloran
Director
F-87
QBE INSURANCE GROUP ANNUAL REPORT 2004
45

Statements of financial performance
FOR THE YEAR ENDED 31 DECEMBER 2004
Revenue
THE COMPANY
CONSOLIDATED
2004 2003 2004 2003
NOTE $M $M $M $M
Premium revenue – – 8,571 7,816
Other revenue 1,940 488 1,745 1,424
Unrealised gains on investments – – 68 122
Investment income – ABC investments
pledged for funds at Lloyd’s 28 – – 40 5
3 1,940 488 10,424 9,367
Expenses 51 92 9,172 8,495
Amortisation of goodwill and write-off of intangibles – – 22 20
Borrowing costs expense 65 25 94 80
Borrowing costs expense – ABC securities for funds at Lloyd’s 28 – – 56 7
Profit from ordinary activities before income tax 4 1,824 371 1,080 765
Income tax (credit) expense attributable to profit
from ordinary activities 5 (16) (24) 253 188
Profit from ordinary activities after income tax 1,840 395 827 577
Net profit attributable to outside equity interests – – 7 5
Net profit attributable to members of the company 20 1,840 395 820 572
Net decrease in foreign currency translation reserve
on translation of self-sustaining foreign operations 20 – – 12 109
Total changes in equity other than those resulting
from transactions with owners as owners 20 1,840 395 808 463
CENTS
CENTS
Basic earnings per share 30 117.8 86.5
Diluted earnings per share 30 105.3 77.5
The above statements of financial performance should be read in conjunction with the accompanying notes.
46 QBE INSURANCE GROUP ANNUAL REPORT 2004
F-88

Statements of financial position
AS AT 31 DECEMBER 2004
THE COMPANY
CONSOLIDATED
2004 2003 2004 2003
NOTE $M $M $M $M
CURRENT ASSETS
Cash 9 1 1,121 717
Receivables 7 3,455 1,458 3,176 2,919
Reinsurance and other recoveries on outstanding claims 16 – – 805 772
Deferred insurance costs 8 – – 1,341 1,167
Investments 10 – – 6,548 4,078
Tax assets – – 2 46
Other – – 2 3
Total current assets 3,464 1,459 12,995 9,702
NON-CURRENT ASSETS
Reinsurance and other recoveries on outstanding claims 16 – – 2,293 2,113
Investments 10 3,617 3,141 7,398 7,028
ABC investments pledged for funds at Lloyd’s 28 – – 998 731
Plant and equipment 13 – – 101 110
Intangibles 14 – – 1,090 511
Deferred tax assets – – 65 116
Other 9 71 18 162 132
Total non-current assets 3,688 3,159 12,107 10,741
Total assets 7,152 4,618 25,102 20,443
CURRENT LIABILITIES
Trade and other creditors 15 921 1,047 1,103 921
Outstanding claims 16 – – 3,652 3,011
Unearned premium – – 3,920 3,320
Borrowings 17 – – – 86
Current tax liabilities 81 80 73 155
Total current liabilities 1,002 1,127 8,748 7,493
NON-CURRENT LIABILITIES
Outstanding claims 16 – – 8,817 7,469
Borrowings 17 748 332 1,789 1,248
ABC securities for funds at Lloyd’s 28 – – 984 731
Deferred tax liabilities 664 646 230 117
Provisions 18 27 – 54 17
Total non-current liabilities 1,439 978 11,874 9,582
Total liabilities 2,441 2,105 20,622 17,075
Net assets 4,711 2,513 4,480 3,368
EQUITY
Share capital 19 2,866 2,340 2,866 2,340
Equity component of hybrid securities 17 108 – 108 59
Reserves 20 – – (131) (119)
Retained profits 20 1,737 173 1,577 1,033
Equity attributable to members of the company 4,711 2,513 4,420 3,313
Outside equity interests in controlled entities 12 – – 60 55
Total equity 20 4,711 2,513 4,480 3,368
The above statements of financial position should be read in conjunction with the accompanying notes.
F-89
QBE INSURANCE GROUP ANNUAL REPORT 2004
47

Statements of cash flows
FOR THE YEAR ENDED 31 DECEMBER 2004
THE COMPANY
CONSOLIDATED
2004 2003 2004 2003
NOTE $M $M $M $M
OPERATING ACTIVITIES
Premium received – – 8,598 7,897
Reinsurance and other recoveries received – – 907 1,248
Outward reinsurance paid – – (1,664) (1,646)
Claims paid – – (4,006) (3,996)
Insurance costs paid – – (1,629) (1,499)
Other underwriting costs – – (374) (222)
Interest received – 5 471 375
Dividends received 435 347 50 45
Other operating income – – 18 2
Other operating payments (15) (3) (16) (39)
Interest paid (33) (23) (103) (54)
Income taxes paid (39) (3) (142) (22)
Cash flows from operating activities 32 348 323 2,110 2,089
INVESTING ACTIVITIES
Proceeds on sale of equity investments – – 1,526 706
Proceeds on sale of properties – – 12 2
Proceeds on sale of plant and equipment – – 1 1
Payments for purchase of equity investments – – (1,498) (925)
Proceeds from foreign exchange transactions – – 30 90
Payments for purchase of other investments – – (1,585) (1,883)
Payments for purchase of ABC investments – – (295) (777)
Payments for purchase of controlled entities and business acquired* (795) (485) (877) (3)
Payments for purchase of properties – – (5) (3)
Payments for purchase of plant and equipment – – (33) (31)
Cash flows from investing activities (795) (485) (2,724) (2,823)
FINANCING ACTIVITIES
Payments to controlled entities (234) (402) – –
Proceeds from issue of shares 390 301 1 –
Proceeds from borrowings 1,240 378 1,796 461
Proceeds from issue of ABC securities – – 294 777
Repayment of borrowings (800) – (932) (268)
Dividends paid (141) (114) (141) (133)
Cash flows from financing activities 455 163 1,018 837
INCREASE IN CASH HELD 8 1 404 103
Cash at the beginning of the financial year 1 – 717 745
Effect of exchange rate changes on cash – – – (131)
Cash at end of financial year 9 1 1,121 717
* Consolidated is net of cash acquired
The above statements of cash flows should be read in conjunction with the accompanying notes.
48 QBE INSURANCE GROUP ANNUAL REPORT 2004
F-90

Notes to the financial statements
FOR THE YEAR ENDED 31 DECEMBER 2004
1
SUMMARY OF SIGNIFICANT
ACCOUNTING POLICIES
This general purpose financial report
has been prepared in accordance with
Accounting Standards, other authoritative
pronouncements of the Australian
Accounting Standards Board (“AASB”),
other mandatory professional reporting
requirements (Urgent Issues Group
Consensus Views) and the Corporations
Act 2001. It is prepared in accordance
with the historical cost convention, except
for certain assets which, as noted, are at
valuation. Unless otherwise stated, the
accounting policies adopted are consistent
with those of the previous year.
(A) Principles of consolidation
The consolidated financial statements
incorporate the assets and liabilities of
all entities controlled by QBE Insurance
Group Limited (“the company”) as at
31 December 2004 and the results of all
controlled entities for the financial year
then ended. The company and its
controlled entities together are referred to
in this financial report as the “consolidated
entity”. The effects of all transactions
between entities in the consolidated entity
are eliminated in full. Outside equity
interests in the results and equity of
controlled entities are shown separately
in the consolidated statement of financial
performance and consolidated statement
of financial position.
Where control of an entity is obtained
during a financial year, its results are
included in the consolidated statement
of financial performance from the date
on which the control commences.
Where control of an entity ceases during
a financial year, its results are included for
that part of the year during which the
control existed.
(B) Premium revenue
Direct and inward reinsurance premium
comprises amounts charged to
policyholders excluding taxes collected
on behalf of third parties. The earned
portion of premium received and
receivable, including unclosed business,
is recognised as revenue. Premium on
unclosed business is brought to account
based upon the pattern of booking of
renewals and new business.
(C) Unearned premium
Unearned premium is calculated based
on the term of the risk which closely
approximates the pattern of risks
underwritten using either the daily
pro rata method or the 24ths method.
(D) Outward reinsurance
Premium ceded to reinsurers is recognised
as an expense in accordance with the
pattern of reinsurance service received.
Accordingly, a portion of outward
reinsurance premium is treated as a
prepayment at the balance date.
(E) Claims
Outstanding claims and reinsurance and
other recoveries are assessed by reviewing
individual claims and making allowance for
claims incurred but not reported,
foreseeable events, past experience and
trends. The majority of outstanding claims
are reviewed by independent actuaries.
Outstanding claims and reinsurance and
other recoveries include allowances for
inflation, superimposed inflation and
expenses of runoff and are discounted
for investment income using market risk
related returns. Prudential margins are
included for uncertainties and latency
claims.
(F) Acquisition costs
A portion of acquisition costs relating
to unearned premium is deferred in
recognition that it represents a future
benefit. Deferred acquisition costs are
measured at the lower of cost and
recoverable amount. Deferred acquisition
costs are amortised over the financial
years expected to benefit from the
expenditure.
(G) Investment income
Investment income is taken into account
on an accruals basis with the exception
of dividends, which are taken into account
when due. Investment income includes
unrealised gains and losses on
investments. Investment income also
includes income on ABC investments
pledged for funds at Lloyd’s, which is
separately identified.
(H) Taxation
Tax effect accounting procedures are
followed whereby the income tax expense
in the statements of financial performance
is matched with the accounting profit after
allowing for permanent differences. The
future income tax benefit relating to tax
losses is carried forward as an asset only if
the benefit is virtually certain of realisation.
Income tax on cumulative timing
differences is set aside to the deferred
income tax or the future income tax
benefit accounts at the rates which are
expected to apply when those timing
differences reverse.
The company, as the head entity in the
tax-consolidated group, recognises current
and deferred tax amounts relating to
transactions, events and balances of the
wholly owned Australian controlled entities
in the Group as if those transactions,
events and balances were its own. Details
are set out in note 5(C).
(I) Investments
(i) Basis of valuation
Investments are valued at market value.
Market values are determined as follows:
Quoted investments – by reference to
market quotations.
Unquoted investments – directors’
valuation based on current economic
conditions and the latest available
information.
Properties – independent valuation.
Controlled entities – lower of cost and
recoverable amount.
(ii) Policyholders’ and shareholders’
funds
Policyholders’ funds are those investments
which are held to fund the insurance
liabilities of the consolidated entity. The
remaining investments, including equities
and properties, represent shareholders’
funds. Insurance profit is derived by
adding investment income on
policyholders’ funds, which excludes
unrealised gains and losses on
investments, to the underwriting result.
(iii) Recoverable amount
The expected net cash flows included
in determining recoverable amounts for
controlled entities of the company are
not discounted to present value.
F-91
QBE INSURANCE GROUP ANNUAL REPORT 2004
49

NOTES TO THE FINANCIAL STATEMENTS
FOR THE YEAR ENDED 31 DECEMBER 2004
1
SUMMARY OF SIGNIFICANT
ACCOUNTING POLICIES CONTINUED
(I) Investments continued
(iv) Derivatives
Gains and losses on foreign currency
derivatives, being forward foreign
exchange contracts and foreign currency
options, are brought to account as they
arise and are measured at net market value
at balance date by reference to
movements in forward exchange rates.
Gains and losses on equity and fixed
interest derivatives, being put and call
options, are measured at net market value
by reference to movements in the
underlying securities and brought to
account as they arise.
Gains and losses on derivative
transactions undertaken to hedge
exchange gains and losses arising
on transactions within self-sustaining
controlled entities are recognised in
the statements of financial performance.
Gains and losses on derivative
transactions undertaken to hedge
exchange rate movements on the
translation of self-sustaining overseas
controlled entities into Australian currency
are taken directly to the foreign currency
translation reserve.
(J) Intangibles
Intangible assets are valued at cost unless
there has been a permanent diminution in
value, in which case they are valued at
recoverable amount. Goodwill is amortised
using the straight line method over no
more than 20 years.
(K) Depreciation
Fixed assets, comprising motor vehicles,
office equipment and fixtures, are
depreciated using the straight line method
over the estimated useful life to the
consolidated entity of each class of asset.
(L) Borrowings
Bank loans are carried at their principal
amounts. Senior debt, eurobonds, ABC
securities and subordinated debt are
carried at their converted principal
amounts in the currency of repayment.
Borrowing costs are recognised as
expenses in the period in which they
are incurred.
On issue of hybrid securities, the fair
value of the liability component, being
the obligation to make future payments
of principal and interest to investors, is
calculated using a market interest rate for
an equivalent non-convertible note. The
residual amount, representing the fair
value of the conversion option, is included
in equity with no recognition of any
change in the value of the option in
subsequent periods. The liability is
included in borrowings and carried on an
amortised cost basis with interest on the
securities recognised as borrowing costs
on an effective yield basis until the liability
is extinguished on conversion or maturity
of the securities.
Costs incurred in originating the
consolidated entity’s principal borrowings
and the ABC securities are accrued and
amortised over the terms of the borrowings.
(M) Foreign currencies
Foreign currency transactions are
translated into Australian currency at
the rate of exchange at the date of the
transaction. At the balance date, amounts
payable and receivable in foreign
currencies are translated at the rates of
exchange prevailing at that date. Exchange
gains and losses on operational foreign
currency transactions and the translation of
amounts receivable and payable in foreign
currencies are included in the statements
of financial performance. The assets and
liabilities of overseas controlled entities are
translated into Australian currency at the
financial period end rates of exchange and
their revenues and expenses are translated
at the cumulative average rate of exchange
during the year. Exchange gains and losses
on the translation of the financial
statements of self-sustaining overseas
controlled entities are taken to the foreign
currency translation reserve in the
statement of financial position.
Exchange gains and losses on transactions
undertaken to hedge exchange rate
movements on the translation of selfsustaining
overseas controlled entities into
Australian currency are taken directly to the
foreign currency translation reserve.
(N) Cash
Cash includes cash at bank and on hand
and deposits at call which are readily
convertible to cash on hand and which are
used in the cash management function on
a day to day basis, net of outstanding bank
overdrafts.
(O) Equity
Ordinary share capital is recognised at the
issue price, net of issue costs.
The equity component of hybrid securities
is calculated and disclosed as set out in
note 1(L).
(P) Earnings per share
(i) Basic earnings per share
Basic earnings per share is determined
by dividing net profit after income tax
attributable to members of the company,
adjusted for the cost of servicing equity
other than ordinary shares, by the
weighted average number of ordinary
shares outstanding during the financial
year, adjusted for bonus elements in
ordinary shares issued during the year.
(ii) Diluted earnings per share
Diluted earnings per share adjusts the
earnings figure used in the determination
of basic earnings per share to exclude the
after income tax effect of interest and other
financing costs associated with dilutive
potential ordinary shares and the weighted
average number of shares assumed to have
been issued for no consideration. It also
adjusts the weighted average number of
shares to include dilutive potential ordinary
shares and instruments with a mandatory
conversion feature.
(Q) Dividends
Dividends are recognised when declared
or determined. No provision is made for
a proposed dividend.
(R) Superannuation
QBE participates in a number of
superannuation plans across the Group
and contributes to these plans in
accordance with plan rules and actuarial
recommendations, which are designed to
ensure that each plan’s funding provides
sufficient assets to meet its liabilities.
Contributions are expensed as incurred.
(S) Rounding of amounts
The company is of a kind referred to in the
ASIC class order 98/0100 dated 10 July
1998 (as amended by class order 04/667
dated 15 July 2004) relating to the
“rounding off” of amounts in the financial
statements. Amounts have been rounded
off in the financial statements to the
nearest million dollars or, in certain cases,
to the nearest thousand dollars in
accordance with that class order.
50 QBE INSURANCE GROUP ANNUAL REPORT 2004 F-92

NOTES TO THE FINANCIAL STATEMENTS
FOR THE YEAR ENDED 31 DECEMBER 2004
2
INTERNATIONAL FINANCIAL
REPORTING STANDARDS
(“IFRS”)
The consolidated entity is required to
comply with the Australian equivalents
to IFRS (“AIFRS”) for financial reporting
periods commencing on or after
1 January 2005.
The consolidated entity’s first AIFRS
compliant financial statements will be for
the half year ending 30 June 2005 and the
year ending 31 December 2005. Entities
complying with AIFRS for the first time
must restate their comparative financial
statements under AIFRS. The consolidated
entity’s opening AIFRS balance sheet will
be a restated comparative balance sheet
dated 1 January 2004.
The consolidated entity’s IFRS project
commenced in March 2003 under the
sponsorship of the chief financial officer
and Group executive. The project is
internally resourced and includes senior
finance managers from each operating
division, Group and overseas actuarial
teams and product specialists as required.
The project is supported by two full time
project managers based in Australia and
the UK. The project team has produced a
detailed timetable for managing the
transition and is currently on schedule. To
date the project team has analysed most
of the AIFRS and has identified a number
of changes to Group accounting policies
and made recommendations on a number
of options available under AASB 1: First
Time Adoption of Australian Equivalents to
International Financial Reporting Standards
(“AASB 1”), as noted below.
The consolidated entity is now
implementing changes to accounting and
treasury administration processes and
systems to enable AIFRS compliant
reporting in 2005. Regular updates have
been provided to the Group audit
committee throughout the project and this
will continue until AIFRS is fully embedded
in the consolidated entity’s accounting
policies, systems and business processes.
The key differences in the consolidated
entity’s accounting policies expected to
arise on the adoption of AIFRS on
1 January 2005 are summarised as follows:
(A) Insurance contracts
IFRS 4: Insurance Contracts, the
International Accounting Standards Board’s
(“IASB”) phase I insurance contracts
standard, has resulted in amendments to
Accounting Standard AASB 1023: General
Insurance Contracts (“AASB 1023”). The
revised standard defines an insurance
contract and any contracts not meeting
this definition must be accounted for
under AASB 139: Financial Instruments:
Recognition and Measurement (“AASB
139”). Insurance and reinsurance contracts
within the consolidated entity have been
reviewed and are considered to fall within
AASB 1023.
Other accounting changes of significance
to the consolidated entity are the
introduction of an adequacy test for
insurance liabilities and an impairment test
for reinsurance assets. The consolidated
entity is working with other general
insurance companies and the AASB to
address issues arising from the liability
adequacy test as currently worded. The
impact of the test cannot be determined at
this time. The revised standard has
significant disclosure requirements
including a requirement to produce
a 10 year claims development table
commencing with a five year history
in 2005. This will require analysis of the
consolidated entity’s business across
multiple jurisdictions and the collection of
several years of historical data which will
require a significant commitment of time
and resources. The fundamental changes
to insurance recognition and measurement
currently proposed in phase II of the IASB
insurance contracts project are being
monitored.
(B) Investments
The AASB has prescribed that insurance
companies must account for assets
backing insurance liabilities at “fair value
through profit or loss”. This is consistent
with the consolidated entity’s current
policy of taking market value movements
through the statement of financial
performance. Financial assets held to back
shareholders’ funds may be accounted for
on a purpose led basis. The consolidated
entity has elected to designate financial
assets currently held, including equities,
fixed interest and cash, such that all assets
will be valued at fair value through profit
and loss. The consolidated entity will
continue to review its investment strategy
and may determine that one of the other
permitted bases of accounting be applied
to future asset acquisitions.
(C) Hedge accounting
In order to qualify for hedge accounting
treatment under AASB 139, foreign
exchange hedges in respect of the
consolidated entity’s net investment in
foreign operations and cash flow hedges
relating to the consolidated entity’s
borrowings must comply with strict
designation and effectiveness
requirements for each instrument held.
Group hedging instruments will satisfy
the AIFRS requirements and therefore
no financial impact is expected.
(D) Defined benefit superannuation
plans
Under AASB 119: Employee Benefits
(“AASB 119”), surpluses and deficits in the
consolidated entity’s defined benefit
pension plans must be recognised in the
statement of financial position. The new
standard imposes a more conservative
actuarial valuation methodology than
current Australian GAAP. On transition to
AIFRS, the net deficit after tax will be
booked to retained profits. The consolidated
entity will elect to early adopt a revised
version of AASB 119 so that net
movements in plan surpluses and deficits
will be taken directly to retained profits.
The consolidated entity’s exposure to
equities in the plans has been reviewed.
Management will implement investment
strategies in conjunction with the trustees
of the plans to minimise volatility as far as
possible.
(E) Equity-based compensation benefits
Shares and options issued to employees
on or after 7 November 2002 must be
recognised as an expense in the period
in which the employee provides related
services. This will result in a change in
accounting policy as no such expense
is currently recognised. The consolidated
entity has not elected to apply AIFRS
retrospectively to shares and options
issued prior to 7 November 2002 as
permitted in AASB 1. On transition to
AIFRS, an amount will be booked to
retained profits in respect of the shares
and options expense for the period 7
November 2002 to 1 January 2004. The
Federal Treasurer has announced that tax
legislation will not be amended to allow a
tax deduction for this expense.
F-93
QBE INSURANCE GROUP ANNUAL REPORT 2004
51

NOTES TO THE FINANCIAL STATEMENTS
FOR THE YEAR ENDED 31 DECEMBER 2004
2
INTERNATIONAL FINANCIAL
REPORTING STANDARDS
CONTINUED
(F) Intangible assets and goodwill
Intangible assets must meet specific
criteria to be recognised as identifiable
intangible assets under AIFRS. Intangible
assets acquired as part of a business
combination which fail to meet these
criteria will be reclassified as goodwill.
Intangible assets with an indefinite useful
life will be subject to annual impairment
testing but those with a finite useful life
will be amortised. Goodwill will no longer
be amortised but will be subject to annual
impairment testing. The consolidated
entity has elected to apply AIFRS
prospectively as permitted by AASB 1.
Previous acquisitions will be grandfathered
and retained at the existing carrying
amount subject to impairment
adjustments.
3 $M
REVENUE
(G) Taxation
Under AIFRS, deferred tax balances are
determined using the balance sheet
method which calculates temporary
differences based on the carrying amounts
of an entity’s assets and liabilities in the
statement of financial position and
associated tax bases. In addition, current
and deferred taxes attributable to amounts
recognised directly in equity are also
recognised directly in equity. This differs
from current Australian GAAP under which
deferred tax balances are determined
using the income statement method and
current and deferred taxes cannot be
recognised directly in equity.
The above summary of the impact of
AIFRS on the consolidated entity is based
on the “stable platform” of standards
which were finalised in July 2004 and were
effective from 1 January 2005. The
consolidated entity is still considering the
impact of subsequent amendments to
several standards scheduled to be
effective from 2006 with earlier adoption
permitted.
THE COMPANY
CONSOLIDATED
2004 2003 2004 2003
$M $M $M
Revenue from ordinary activities
Premium revenue
Direct – – 6,583 5,606
Inward reinsurance – – 1,988 2,210
– – 8,571 7,816
Outward reinsurance revenue
Reinsurance and other recoveries – – 1,171 997
Investment revenue
Investment income 1,940 478 549 427
Realised gains on investments – – 23 –
Exchange gains – 10 2 –
1,940 488 574 427
Unrealised gains on investments – – 68 122
Investment income – ABC investments pledged for funds at Lloyd’s – – 40 5
Total revenue 1,940 488 10,424 9,367
52
QBE INSURANCE GROUP ANNUAL REPORT 2004
F-94

NOTES TO THE FINANCIAL STATEMENTS
FOR THE YEAR ENDED 31 DECEMBER 2004
2004 2003
4 NOTE $M $M
PROFIT FROM ORDINARY ACTIVITIES BEFORE INCOME TAX
(A) PROFIT FROM ORDINARY ACTIVITIES BEFORE INCOME TAX (CONSOLIDATED)
Gross written premium 8,766 8,350
Unearned premium movement (195) (534)
Gross earned premium 8,571 7,816
Outward reinsurance premium 1,781 1,809
Deferred reinsurance premium movement 9 (29)
Outward reinsurance premium expense 1,790 1,780
Net earned premium 6,781 6,036
Gross claims incurred 5,139 4,680
Claims settlement expenses 198 140
Reinsurance and other recoveries (1,171) (997)
Net claims incurred 6 4,166 3,823
Net commission 1,184 1,100
Other acquisition costs 439 397
Underwriting and other expenses 398 344
6,187 5,664
Underwriting profit 594 372
Investment income on policyholders’ funds 314 255
Insurance profit 908 627
Investment income on shareholders’ funds 194 158
Amortisation of goodwill and write-off of intangibles (22) (20)
Profit from ordinary activities before income tax 1,080 765
F-95
QBE INSURANCE GROUP ANNUAL REPORT 2004
53

NOTES TO THE FINANCIAL STATEMENTS
FOR THE YEAR ENDED 31 DECEMBER 2004
4 $M
PROFIT FROM ORDINARY ACTIVITIES BEFORE INCOME TAX
CONTINUED
(B) INVESTMENT AND OTHER INCOME
THE COMPANY
CONSOLIDATED
2004 2003 2004 2003
$M $M $M
Dividends from controlled entities 1,867 441 – –
Dividends from non-related entities – – 52 46
Interest received or receivable from controlled entities 58 32 – –
Interest received or receivable from non-related entities 1 – 483 365
Other income 14 5 14 16
1,940 478 549 427
Exchange (losses) gains (47) 10 2 (13)
Realised (losses) gains on investments
Equities and properties – (79) 54 (13)
Fixed interest and other – – (31) 1
1,893 409 574 402
Interest paid or payable to controlled entities – (8) – –
Interest paid or payable to non-related entities (65) (17) (94) (80)
Investment income – ABC investments pledged for funds at Lloyd’s – – 40 5
Borrowing costs expense – ABC securities for funds at Lloyd’s – – (56) (7)
Other investment expenses (4) (13) (24) (29)
Investment and other income before unrealised gains/losses 1,824 371 440 291
Unrealised gains (losses) on investments
Equities and properties – – 50 176
Fixed interest and other – – 18 (54)
Investment and other income 1,824 371 508 413
Investment income on policyholders’ funds 314 255
Investment income on shareholders’ funds 194 158
Investment and other income 508 413
(C) SPECIFIC ITEMS
Payments on operating leases – – 23 23
Depreciation of assets – – 53 36
Bad debts written off – – 8 6
Increase in provision for employee entitlements – – – 4
Increase in provision for doubtful debts – – 18 19
Amortisation of goodwill and write-off of intangibles – – 22 20
Loss on sale of plant and equipment – – 1 1
54 QBE INSURANCE GROUP ANNUAL REPORT 2004 F-96

NOTES TO THE FINANCIAL STATEMENTS
FOR THE YEAR ENDED 31 DECEMBER 2004
5 $M
INCOME TAX
(A) RECONCILIATION OF PRIMA FACIE TAX TO INCOME TAX EXPENSE
THE COMPANY
CONSOLIDATED
2004 2003 2004 2003
$M $M $M
Profit from ordinary activities before income tax 1,824 371 1,080 765
Prima facie tax payable at 30% 547 111 324 229
Tax effect of permanent differences:
Untaxed dividends (563) (132) (15) (11)
Differences in tax rates 9 7 (9) (3)
Income tax expense related to current and deferred tax transactions
of the wholly owned controlled entities in the tax-consolidated group 150 74 – –
Recovery of income tax expense under tax sharing agreement (150) (74) – –
Other, including non-allowable expenses and non-taxable income (8) (4) (20) (3)
Prima facie tax adjusted for permanent differences (15) (18) 280 212
Future income tax benefit not recognised – – – 4
Over provision in prior years (1) (6) (27) (28)
Income tax (credit) expense attributable to profit from ordinary activities (16) (24) 253 188
(B) FUTURE INCOME TAX BENEFIT RELATING TO TAX LOSSES
The consolidated entity has a cumulative future income tax benefit not brought to account of $4 million (2003 $2 million), which includes
the benefit arising from tax losses in overseas countries. This benefit will only be brought to account when the directors are virtually
certain that it will be realised. This benefit for tax losses will only be obtained if:
(i) the consolidated entity derives future assessable income of a nature and an amount sufficient to enable the benefit from the
deductions for the losses to be realised;
(ii) the consolidated entity continues to comply with the conditions for deductibility imposed by tax legislation; and
(iii) no changes in tax legislation adversely affect the consolidated entity in realising the benefit from the deductions for the losses.
Included in deferred tax assets is $11 million (2003 $4 million) relating to tax losses which the directors are virtually certain will be
realised.
(C) TAX CONSOLIDATION
Effective 1 January 2003, the company became the head entity in a tax-consolidated group comprising the company and all of its
Australian wholly owned controlled entities (“Australian entities”). UIG 52: Income tax accounting under the tax consolidation system has
been applied since that date.
The directors of the company and its Australian entities have entered into a tax sharing and tax funding agreement (“the agreement”),
that requires the Australian entities to make contributions to the company for tax liabilities and deferred tax balances arising from external
transactions occurring after the implementation of tax consolidation. The contributions are allocated by reference to the notional taxable
income of each Australian entity. The assets and liabilities arising under the agreement are recognised as intercompany assets and
liabilities in the statement of financial position of each Australian entity.
The company has formally notified the Australian Taxation Office that the tax consolidation regime has been adopted by the Australian entities.
Details of franking credits available to shareholders are shown in note 19(D).
F-97
QBE INSURANCE GROUP ANNUAL REPORT 2004
55

NOTES TO THE FINANCIAL STATEMENTS
FOR THE YEAR ENDED 31 DECEMBER 2004
6 $M
CLAIMS INCURRED (CONSOLIDATED)
(A) CLAIMS ANALYSIS
Gross claims incurred and related expenses
2004 2003
$M
Direct 3,965 3,507
Inward reinsurance 1,372 1,313
Reinsurance and other recoveries
5,337 4,820
Direct 843 843
Inward reinsurance 328 154
1,171 997
Net claims incurred 4,166 3,823
(B) CLAIMS DEVELOPMENT
Current year claims relate to risks borne in the current reporting year. Prior year claims relate to a reassessment of the risks borne in all
previous reporting years.
2004 2003
CURRENT PRIOR CURRENT PRIOR
YEAR YEARS TOTAL YEAR YEARS TOTAL
$M $M $M $M $M $M
Gross claims incurred and related expenses
Undiscounted 5,808 (205) 5,603 4,740 (27) 4,713
Discount (541) 275 (266) (321) 428 107
5,267 70 5,337 4,419 401 4,820
Reinsurance and other recoveries
Undiscounted 1,322 (65) 1,257 866 17 883
Discount (153) 67 (86) (46) 160 114
1,169 2 1,171 820 177 997
Net claims incurred
Undiscounted 4,486 (140) 4,346 3,874 (44) 3,830
Discount (388) 208 (180) (275) 268 (7)
4,098 68 4,166 3,599 224 3,823
56 QBE INSURANCE GROUP ANNUAL REPORT 2004 F-98

NOTES TO THE FINANCIAL STATEMENTS
FOR THE YEAR ENDED 31 DECEMBER 2004
THE COMPANY
CONSOLIDATED
2004 2003 2004 2003
7 $M $M $M $M
RECEIVABLES – CURRENT
Trade debtors
Premium – – 773 680
Reinsurance and other recoveries – – 640 624
Unclosed premium – – 1,273 1,188
– – 2,686 2,492
Doubtful debts provision*
Premium – – (37) (23)
Reinsurance and other recoveries – – (75) (75)
– – 2,574 2,394
Other debtors 1 – 404 330
Treasury receivables 46 – 32 94
Investment receivables 5 4 166 101
Amounts due from controlled entities 3,403 1,454 – –
3,455 1,458 3,176 2,919
* A doubtful debts provision against reinsurance and other recoveries on outstanding claims of $88 million (2003 $86 million) is included in note 16.
2004 2003
8 $M $M
DEFERRED INSURANCE COSTS (CONSOLIDATED)
Deferred reinsurance premium 560 534
Deferred net commission 577 463
Deferred acquisition costs 204 170
1,341 1,167
THE COMPANY
CONSOLIDATED
2004 2003 2004 2003
9 $M $M $M $M
OTHER NON-CURRENT ASSETS
Loans secured by shares – – 90 76
Accrued borrowing costs 24 18 37 34
Other 47 – 35 22
71 18 162 132
F-99
QBE INSURANCE GROUP ANNUAL REPORT 2004
57

NOTES TO THE FINANCIAL STATEMENTS
FOR THE YEAR ENDED 31 DECEMBER 2004
10 $M
INVESTMENTS (CONSOLIDATED)
(A) INVESTMENTS – MARKET VALUE
Interest bearing securities
Equities
2004 2003
$M
Short term money 5,482 3,499
Fixed interest securities and other 6,947 6,209
Mortgages 10 7
12,439 9,715
Quoted 1,340 1,245
Unquoted 50 27
1,390 1,272
Properties 117 119
13,946 11,106
Current 6,548 4,078
Non-current 7,398 7,028
ABC investments pledged for funds at Lloyd’s are not included in this analysis. Details of ABCs are included in note 28(C).
(B) PROPERTIES
13,946 11,106
The principal properties are valued by the directors based on the independent valuation of various qualified employees of Knight Frank
(Australia) Pty Limited. Minor properties are included at the independent valuation of other licensed valuers.
All properties were valued on the basis of capitalisation of net market rentals allowing for costs of reletting, having regard to comparable
on-market sales and discounted future cash flows.
(C) INVESTMENTS MATURING WITHIN TWELVE MONTHS
Non-current investments include amounts maturing within twelve months of $1,408 million (2003 $1,403 million) which, in the normal
course of business, will be reinvested and not used for working capital.
(D) CHARGES OVER INVESTMENTS AND OTHER ASSETS
A controlled entity has given fixed and floating charges over certain of its investments and other assets in order to secure the obligations
of QBE’s corporate members at Lloyd’s of London as described in note 24. Details of the fixed and floating charges over ABC
investments pledged for funds at Lloyd’s are set out in note 28(C).
58 QBE INSURANCE GROUP ANNUAL REPORT 2004 F-100

NOTES TO THE FINANCIAL STATEMENTS
FOR THE YEAR ENDED 31 DECEMBER 2004
11
FINANCIAL INSTRUMENTS (CONSOLIDATED)
(A) INTEREST RATE RISK
The consolidated entity’s exposure to interest rate risk and the effective weighted average interest rate for each significant class of interest
bearing financial asset and liability is set out below:
FLOATING FIXED INTEREST RATE MATURING IN TOTAL MARKET
INTEREST RATE LESS THAN 1 YEAR 1 TO 5 YEARS MORE THAN 5 YEARS VALUE
2004 2003 2004 2003 2004 2003 2004 2003 2004 2003
$M $M $M $M $M $M $M $M $M $M
(i) Net interest bearing financial
assets (excluding ABC investments
and ABC securities)
Interest bearing securities 2,542 2,612 6,055 3,723 3,188 3,259 654 121 12,439 9,715
Weighted average interest rate 3.8% 3.0% 4.5% 4.3% 4.8% 4.8% 5.0% 5.5% 4.4% 4.1%
Borrowings – – – (86) (429) (1) (1,360) (1,247) (1,789) (1,334)
Weighted average interest rate – – – 4.2% 5.6% 5.0% 4.5% 4.9% 4.8% 4.9%
Net interest bearing
financial assets 2,542 2,612 6,055 3,637 2,759 3,258 (706) (1,126) 10,650 8,381
(ii) ABC investments and
ABC securities
ABC investments pledged for funds
at Lloyd’s – – – – 998 731 – – 998 731
Weighted average interest rate – – – – 3.9% 3.5% – – 3.9% 3.5%
ABC securities for funds at Lloyd’s – – – – (984) (731) – – (984) (731)
Weighted average interest rate – – – – 4.7% 4.7% – – 4.7% 4.7%
Net ABC investments and
ABC securities – – – – 14 – – – 14 –
The consolidated entity’s exposure to interest rate risk is managed primarily through adjustments to existing investment portfolios.
The company is exposed to interest rate and foreign currency risk in respect of the ABC securities, details of which are included in
note 28(C). Accordingly, the company has entered into two swap agreements, being an interest rate swap agreement with a financial
institution under which it is obliged to pay interest at a variable rate and receive interest at a fixed rate and a foreign currency interest
rate swap agreement under which it is obliged to pay variable rate interest on a sterling asset portfolio and receive a fixed amount of
US dollar interest.
Contractual amounts outstanding for the interest rate and currency rate swaps at the balance date are a net receivable of $2 million
(2003 $3 million). The contracts require settlement of net interest receivable or payable every six months.
2004 2003
$M $M
(iii) Reconciliation of net financial assets to net assets
Net financial assets
Interest bearing 10,650 8,381
ABC investments pledged for funds at Lloyd’s 998 731
ABC securities for funds at Lloyd’s (984) (731)
Non-interest bearing and other 2,846 2,310
Net insurance liabilities (10,110) (7,943)
Net non-financial assets 1,080 620
Net assets 4,480 3,368
F-101
QBE INSURANCE GROUP ANNUAL REPORT 2004
59

NOTES TO THE FINANCIAL STATEMENTS
FOR THE YEAR ENDED 31 DECEMBER 2004
11
FINANCIAL INSTRUMENTS (CONSOLIDATED) CONTINUED
(B) FOREIGN EXCHANGE AND MARKET RISK
The consolidated entity’s primary business is that of providing insurance by way of contracts that expose the consolidated entity to
identified risks of loss from events or circumstances occurring or discovered within a specified year. Derivatives are one of the means
used to manage risks which arise as a consequence of the management of policyholders’ funds and shareholders’ funds, particularly in
relation to the overseas operations of the consolidated entity. The information provided below is specific to derivatives only.
(i)
The consolidated entity is exposed to foreign exchange risk on its net position in foreign currencies. The consolidated entity uses
derivatives to help manage this exposure by entering into forward foreign exchange contracts and currency options, some of which
involve the exchange of two foreign currencies according to the needs of controlled foreign entities. Contractual amounts for foreign
exchange derivatives outstanding at balance date include forward foreign exchange contracts to purchase $5,162 million (2003
$4,061 million).
The maturity profile of these derivatives is as follows:
2004 2003
$M $M
Less than one year 4,962 2,932
More than one but less than five years – 604
More than five years 200 525
5,162 4,061
(ii)
The consolidated entity is exposed to market risk on its investment in equities and fixed interest securities and uses forward
contracts and options to help manage this exposure. All derivative positions entered into by the consolidated entity are for hedging
purposes. No speculative positions are entered into. Contractual amounts for written options outstanding at the balance date were
$12 million (2003 $nil). There were no amounts outstanding for purchased options (2003 $nil).
(iii) The derivative risk management process is subject to regular internal audit and close senior management scrutiny, including regular
board and other management reporting. All derivative transactions entered into are subject to authority levels provided to
management and the levels of exposure are reviewed on an ongoing basis by the investment committee of the board. This
committee is responsible for overviewing the process of derivative risk management whilst the audit committee monitors internal
control procedures relating to derivative transactions.
(C) CREDIT RISK
The credit risk on financial assets of the consolidated entity is generally the carrying amount, which is net of any provisions. The
consolidated entity only uses derivatives in highly liquid markets. Credit risk exposures are calculated regularly and compared with
authorised credit limits before further transactions are undertaken with each counterparty.
The consolidated entity does not expect any counterparties to fail to meet their obligations given their high credit ratings and therefore
does not require collateral or other security to support derivatives.
60 QBE INSURANCE GROUP ANNUAL REPORT 2004 F-102

NOTES TO THE FINANCIAL STATEMENTS
FOR THE YEAR ENDED 31 DECEMBER 2004
EQUITY HOLDING
COUNTRY OF 2004 2003
12 INCORPORATION/FORMATION % %
INVESTMENTS IN CONTROLLED ENTITIES
(A) PARENT ENTITY
QBE Insurance Group Limited
Australia
(B) CONTROLLED ENTITIES
AIS Green Slip Group Pty Limited Australia 100.00 100.00
Atlasz Real Estate and Management Limited Hungary 100.00 100.00
Atlasz Utasbiztositási Egyes Ügynöki Kft Hungary 100.00 100.00
Australian Aviation Underwriting Pool Pty Limited Australia 100.00 100.00
Bankside Insurance Holdings Limited UK 100.00 100.00
Bankside Services (Americas) Inc USA 100.00 100.00
Bankside Services Limited (in liquidation) UK 100.00 100.00
Bankside Underwriting Agencies Limited UK 100.00 100.00
Bates Cunningham Underwriting Limited (in liquidation) UK 100.00 100.00
BIDV – QBE Insurance Company Limited* Vietnam 50.00 50.00
CHU Underwriting Agencies Pty Ltd Australia 100.00 –
Compania Internationale de Asigurari QBE ASITO SA Moldova 72.60 72.60
Corporate Underwriting Agencies Pty Ltd Australia 100.00 –
DA Constable Syndicate Limited UK 100.00 100.00
DA Constable Syndicate Pty Limited Australia 100.00 100.00
DA Constable Syndicate (Ireland) Limited Ireland 100.00 100.00
Energy Insurance Services Limited UK 100.00 100.00
Ensign Dedicated 1 Limited UK 100.00 –
Ensign Holdings Limited UK 100.00 –
Ensign Plus Insurance Services Limited UK 100.00 –
Equator Investments Pty Limited Australia 100.00 100.00
Equator Reinsurances Limited Bermuda 100.00 100.00
European Claims Organisation Limited UK 100.00 –
FAI Insurances (Fiji) Limited Fiji 100.00 100.00
Garwyn Ireland Limited Ireland 100.00 100.00
Garwyn Limited UK 100.00 100.00
Hyfield Company Limited* Thailand 49.00 49.00
Icon Schemes Limited UK 100.00 –
Insurance Consult SRL Moldova 100.00 100.00
Iron Trades Management Services Limited UK 100.00 100.00
Janson Green Holdings (Canada) Inc Canada 100.00 100.00
Janson Green Holdings Limited (in liquidation) UK 100.00 100.00
Janson Green Holdings Special Trust Limited (awaiting strike-off) UK 100.00 100.00
Limit (Insurance and Reinsurance) Services Limited UK 100.00 100.00
Limit No 1 Limited UK 100.00 100.00
Limit No 2 Limited UK 100.00 100.00
Limit No 3 Limited UK 100.00 100.00
Limit No 4 Limited UK 100.00 100.00
Limit No 5 Limited UK 100.00 100.00
Limit No 6 Limited UK 100.00 100.00
Limit No 7 Limited UK 100.00 100.00
Limit No 10 Limited UK 100.00 100.00
Limit No 12 Limited (in liquidation) UK 100.00 100.00
Limit No 14 Limited (in liquidation) UK 100.00 100.00
Limit No 17 Limited (in liquidation) UK 100.00 100.00
Limit Corporate Members Limited UK 100.00 100.00
Limit Group Employee Benefits Trustee Ltd UK 100.00 100.00
Limit Holdings Limited UK 100.00 100.00
Limit plc UK 100.00 100.00
F-103
QBE INSURANCE GROUP ANNUAL REPORT 2004
61

NOTES TO THE FINANCIAL STATEMENTS
FOR THE YEAR ENDED 31 DECEMBER 2004
12 INCORPORATION/FORMATION
INVESTMENTS IN CONTROLLED ENTITIES CONTINUED
EQUITY HOLDING
COUNTRY OF 2004 2003
% %
(B) CONTROLLED ENTITIES CONTINUED
Limit Properties Limited UK 100.00 100.00
Limit Technology and Commercial Underwriting Limited UK 100.00 100.00
Limit Underwriting Limited UK 100.00 100.00
Mantis Reef Limited** Cayman Is – –
Mantis Reef II Limited** Cayman Is – –
Mantis Reef Pledge Limited** Cayman Is – –
Mantis Reef II Pledge Limited** Cayman Is – –
Mercantile Equities Pty Limited Australia 100.00 –
Mercantile Mutual Insurance (Australia) Limited Australia 100.00 –
Mercantile Mutual Insurance (NSW Workers Compensation) Pty Limited Australia 100.00 –
Mercantile Mutual Insurance (SA Workers Compensation) Limited Australia 100.00 –
Mercantile Mutual Insurance (Workers Compensation) Limited Australia 100.00 –
Mercantile Mutual Worksure Limited Australia 100.00 –
Minster Court Asset Management Limited UK 100.00 100.00
Pitt Nominees Pty Limited Australia 100.00 100.00
PT Asuransi QBE Pool Indonesia Indonesia 60.00 60.00
QBE ART SA Argentina 83.00 83.00
QBE Atlasz Biztosito Rt Hungary 100.00 100.00
QBE Australia Pty Limited Australia 100.00 100.00
QBE Brasil Seguros SA Brazil 100.00 100.00
QBE Capital Limited (in liquidation) Jersey 100.00 100.00
QBE Corporate Capital Holdings plc UK 100.00 100.00
QBE Corporate Holdings Ltd UK 100.00 100.00
QBE Corporate Limited UK 100.00 100.00
QBE Finance Pty Limited Australia 100.00 100.00
QBE Funding Limited Jersey 100.00 100.00
QBE Funding II Limited Jersey 100.00 100.00
QBE Funding III Limited Jersey 100.00 –
QBE Funding Trust USA 100.00 100.00
QBE Funding Trust II USA 100.00 100.00
QBE Funding Trust III USA 100.00 –
QBE Holdings (Australia) Pty Limited (in liquidation) Australia 100.00 100.00
QBE Holdings Inc USA 100.00 100.00
QBE Holdings (UK) Limited UK 100.00 100.00
QBE Hongkong & Shanghai Insurance Limited Hong Kong 74.47 74.47
QBE Insurance (Australia) Limited Australia 100.00 100.00
QBE Insurance Company (UK) Limited UK 100.00 100.00
QBE Insurance Corporation USA 100.00 100.00
QBE Insurance (Fiji) Limited Fiji 100.00 100.00
QBE Insurance (Hong Kong) Limited (in liquidation) Hong Kong 100.00 100.00
QBE Insurance (International) Limited Australia 100.00 100.00
QBE Insurance (Malaysia) Berhad Malaysia 51.00 51.00
QBE Insurance (Philippines) Inc Philippines 59.00 59.00
QBE Insurance (PNG) Limited PNG 100.00 100.00
QBE Insurance (Singapore) Pte Ltd Singapore 100.00 –
QBE Insurance (Thailand) Co Ltd*
Thailand
Thai resident entities 23.67 23.67
Non-Thai resident entities 24.87 24.87
QBE Insurance (Vanuatu) Limited Vanuatu 100.00 100.00
QBE International Holdings Limited Hong Kong 100.00 100.00
QBE International Holdings (UK) plc UK 100.00 100.00
62 QBE INSURANCE GROUP ANNUAL REPORT 2004
F-104

NOTES TO THE FINANCIAL STATEMENTS
FOR THE YEAR ENDED 31 DECEMBER 2004
12 INCORPORATION/FORMATION
INVESTMENTS IN CONTROLLED ENTITIES CONTINUED
EQUITY HOLDING
COUNTRY OF 2004 2003
% %
(B) CONTROLLED ENTITIES CONTINUED
QBE International Insurance Limited UK 100.00 100.00
QBE International (Investments) Pty Limited Australia 100.00 100.00
QBE Investments (North America) Inc USA 100.00 100.00
QBE Investments Pty Limited Australia 100.00 100.00
QBE IT Services Pty Limited Australia 100.00 100.00
QBE Makedonija*** Macedonia 65.25 65.03
QBE Management (Bermuda) Limited Bermuda 100.00 100.00
QBE Management Inc USA 100.00 100.00
QBE Management Services Pty Ltd Australia 100.00 100.00
QBE Management (UK) Limited UK 100.00 100.00
QBE Marine Underwriting Agency Pte Limited Singapore 70.00 70.00
QBE Mercantile Mutual Limited Australia 100.00 50.00
QBE Nominees (PNG) Pty Limited PNG 100.00 100.00
QBE Nominees Pty Limited Australia 100.00 100.00
QBE Pacific Insurance Limited PNG 100.00 100.00
QBE (PNG) Pty Limited PNG 100.00 100.00
QBE Poistovna AS Slovakia 100.00 100.00
QBE Re Services Pty Limited Australia 100.00 100.00
QBE Reinsurance Administration Pty Ltd Australia 100.00 100.00
QBE Reinsurance Corporation USA 100.00 100.00
QBE Reinsurance (Bermuda) Limited Bermuda 100.00 100.00
QBE Reinsurance (Europe) Limited Ireland 100.00 100.00
QBE Reinsurance (UK) Limited UK 100.00 100.00
QBE Specialty Insurance Company USA 100.00 100.00
QBE Trade Indemnity Pty Limited (in liquidation) Australia 100.00 100.00
QBE-UGPB Insurance* Ukraine 50.00 50.00
QBE Underwriting Agency Ltd (in liquidation) UK 100.00 100.00
QBE WorkAble Limited NZ 100.00 100.00
QBE Workers Compensation (NSW) Limited Australia 100.00 100.00
Queensland Insurance (Australia) Pty Limited Australia 100.00 100.00
Queensland Insurance (Investments) Limited Fiji 100.00 100.00
Ridgwell Fox & Partners (Underwriting Management) Limited UK 100.00 100.00
Sandsale Limited UK 100.00 100.00
Sinkaonamahasarn Company Limited* Thailand 49.00 49.00
SRL Underwriting Limited UK 100.00 –
Star Trust** Cayman Is – –
Strakh-Consult Ukraine 100.00 100.00
TII Insurance Brokers Pty Limited (in liquidation) Australia 100.00 100.00
Torch Dedicated Corporate Member Limited UK 100.00 100.00
Torch Holdings (in liquidation) UK 100.00 100.00
Torch Insurance Services Limited UK 100.00 –
Travelon Pty Limited Australia 100.00 100.00
TII Pty Limited (in liquidation) Australia 100.00 100.00
Universal Management Limited Ireland 100.00 100.00
* The following special conditions exist with respect to the consolidated entity’s equity holdings:
For accounting purposes, the consolidated entity has effective control of QBE Insurance (Thailand) Co Ltd, QBE-UGPB Insurance and BIDV-QBE
Insurance Company Limited.
The issued share capital of Hyfield Company Limited and Sinkaonamahasarn Company Limited owned by the consolidated entity is held by various
controlled entities. Other controlled entities have the right to acquire the remaining share capital.
** In accordance with the requirements of UIG 28: Consolidation – special purpose entities, Mantis Reef Limited, Mantis Reef II Limited, Mantis Reef
Pledge Limited, Mantis Reef II Pledge Limited and Star Trust have been included in the consolidated financial statements. Details are included in note 28(C).
*** The shareholding in QBE Makedonija equates to 73.50% (2003 73.28%) of the voting rights.
F-105
QBE INSURANCE GROUP ANNUAL REPORT 2004
63

NOTES TO THE FINANCIAL STATEMENTS
FOR THE YEAR ENDED 31 DECEMBER 2004
12
INVESTMENTS IN CONTROLLED ENTITIES CONTINUED
(C) CHANGE OF NAME
Controlled entity
AIS Green Slip Pty Limited
QBE Insurance (Fiji) Limited
QBE Insurance (Malaysia) Berhad
QBE IT Services Pty Limited
Former name
Australian Aviation Insurance Group (Agency) Pty Limited
Queensland Insurance (Fiji) Limited
QBE-MBF Insurans Berhad
Insure IT Services Pty Limited
(D) OUTSIDE EQUITY INTERESTS IN CONTROLLED ENTITIES (CONSOLIDATED)
2004 2003
$M $M
Ordinary share capital 57 57
Reserves (15) (13)
Retained profits 18 11
60 55
(E) UNDISTRIBUTED PROFITS OF OVERSEAS CONTROLLED ENTITIES
Undistributed profits of overseas controlled entities amount to $1,387 million (2003 $1,099 million). Any distribution of these profits as
dividends will not be subject to assessment for Australian tax.
(F) EQUITY
All equity in controlled entities is held in the form of shares or through contractual arrangements.
(G) ACQUISITIONS
On 30 June 2004, the company acquired the remaining 50% of the share capital in QBE Mercantile Mutual Limited in Australia and 100%
of the share capital of Mercantile Mutual Insurance (Australia) Limited and Mercantile Mutual Insurance (Workers Compensation) Limited.
The initial purchase price was $770 million for net tangible assets of $392 million. A further $25 million is payable in February 2007
subject to the runoff of net insurance liabilities.
In addition, the following entities were acquired during the financial year:
• On 23 February 2004, a wholly owned entity acquired Ensign Holdings Limited, its related entities and the rights to manage syndicate 980.
• On 23 February 2004, a wholly owned entity acquired SRL Underwriting Limited.
• On 30 April 2004, a wholly owned entity acquired Icon Schemes Limited (formerly Tolson Messenger Limited).
• On 30 June 2004, a wholly owned entity acquired QBE Insurance (Singapore) Pte Ltd (formerly Zurich Insurance (Singapore) Pte Ltd).
• On 1 July 2004, a wholly owned entity acquired a compulsory third party agency business in Australia known as AIS Green Slip Group.
• On 30 November 2004, a wholly owned entity acquired CHU Underwriting Agencies Pty Limited and Corporate Underwriting Agencies
Pty Ltd.
64 QBE INSURANCE GROUP ANNUAL REPORT 2004 F-106

NOTES TO THE FINANCIAL STATEMENTS
FOR THE YEAR ENDED 31 DECEMBER 2004
2004
12 $M
INVESTMENTS IN CONTROLLED ENTITIES CONTINUED
(G) ACQUISITIONS CONTINUED
Fair value of identifiable net tangible assets of controlled entities acquired:
Cash 123
Current investments 1,194
Receivables 321
Deferred insurance costs 129
Plant and equipment 9
Trade and other creditors (306)
Net outstanding claims (613)
Unearned premium (412)
Provision for income tax (9)
Net deferred income tax 20
Other provisions (6)
450
Intangibles on acquisitions 556
Cost of acquisitions* 1,006
* Includes deferred cash consideration and options issued during the financial year. The options are subject to performance hurdles. Cost of acquisitions
includes only those options where performance hurdles are expected to be achieved.
The net cash flow relating to acquisitions was as follows:
Cash consideration 953
Cash acquired (123)
Net cash paid 830
2004 2003
13 $M $M
PLANT AND EQUIPMENT (CONSOLIDATED)
Cost 338 297
Accumulated depreciation (237) (187)
101 110
2004 2003
14 $M $M
INTANGIBLES (CONSOLIDATED)
Goodwill at cost, less amounts written off 764 200
Accumulated amortisation (60) (38)
704 162
Identifiable intangibles 386 349
1,090 511
F-107
QBE INSURANCE GROUP ANNUAL REPORT 2004
65

NOTES TO THE FINANCIAL STATEMENTS
FOR THE YEAR ENDED 31 DECEMBER 2004
15 $M
TRADE AND OTHER CREDITORS
THE COMPANY
CONSOLIDATED
2004 2003 2004 2003
$M $M $M
Trade creditors – – 652 589
Amounts due to controlled entities 892 1,030 – –
Other creditors and accrued expenses 12 12 396 273
Treasury creditors 13 4 28 19
Investment creditors 4 1 27 40
16 $M
OUTSTANDING CLAIMS (CONSOLIDATED)
(A) NET OUTSTANDING CLAIMS
921 1,047 1,103 921
2004 2003
$M
Gross outstanding claims including prudential margins 14,403 12,001
Discount to present value (1,934) (1,521)
12,469 10,480
Current 3,652 3,011
Non-current 8,817 7,469
12,469 10,480
Reinsurance and other recoveries on outstanding claims 3,568 3,241
Discount to present value (470) (356)
3,098 2,885
Current 805 772
Non-current 2,293 2,113
3,098 2,885
Net outstanding claims 9,371 7,595
Net outstanding claims by geographic segment
Australian general insurance 2,278 1,615
Asia-Pacific general insurance 486 372
the Americas 608 465
European company operations 2,849 2,518
Lloyd’s division 3,150 2,625
9,371 7,595
Prudential margins have been taken up to partially offset the effect of the discount on outstanding claims and to cover uncertainties such
as latency claims, changes in interest rates and superimposed inflation.
Reinsurance and other recoveries on outstanding claims are shown net of a doubtful debts provision of $88 million (2003 $86 million).
66 QBE INSURANCE GROUP ANNUAL REPORT 2004 F-108

NOTES TO THE FINANCIAL STATEMENTS
FOR THE YEAR ENDED 31 DECEMBER 2004
16
OUTSTANDING CLAIMS (CONSOLIDATED) CONTINUED
(B) INFLATION AND DISCOUNT RATES
The following range of inflation rates (normal and superimposed) and discount rates were used in the measurement of outstanding
claims and reinsurance and other recoveries on outstanding claims:
2004 2003
% %
SUCCEEDING SUBSEQUENT SUCCEEDING SUBSEQUENT
YEAR YEARS YEAR YEARS
Australian general insurance
Inflation rates 4.00–11.00 4.00–11.00 4.00–11.00 4.00–11.00
Discount rates 5.57 5.48–5.84 5.87–6.10 5.84–6.55
Asia-Pacific general insurance
Discount rates 0.60–7.85 1.66–10.35 0.02–10.24 0.23–12.60
the Americas
Discount rate 3.35 3.35 1.70 1.70
European company operations
Discount rates 3.35–4.85 3.35–4.85 0.90–5.40 1.30–5.70
Lloyd’s division
Discount rate 4.85 4.85 4.50 4.50
The inflation rate used for all business other than Australian long tail portfolios is the rate implicit in past statistics.
(C) WEIGHTED AVERAGE TERM TO SETTLEMENT
The weighted average term to settlement of outstanding claims from the balance date is estimated to be:
2004 2003
YEARS
YEARS
Australian general insurance 3.3 3.1
Asia-Pacific general insurance 1.9 1.7
the Americas 2.1 2.1
European company operations 3.2 3.0
Lloyd’s division 3.1 3.2
Consolidated entity 3.0 3.0
F-109
QBE INSURANCE GROUP ANNUAL REPORT 2004
67

NOTES TO THE FINANCIAL STATEMENTS
FOR THE YEAR ENDED 31 DECEMBER 2004
17 $M
BORROWINGS
(A) BORROWINGS ANALYSIS
THE COMPANY
CONSOLIDATED
2004 2003 2004 2003
$M $M $M
Borrowings are repayable as follows:
Bank loans
21 January 2004 US$30 million – – – 40
27 April 2004 US$6 million – – – 8
15 October 2004 €16 million – – – 27
21 December 2004 US$8 million – – – 11
11 July 2005 €1 million – – – 1
– – – 87
Senior debt
28 September 2009 £175 million 429 – 429 –
Eurobonds*
2 August 2010 A$150 million/£58 million – – 143 138
2 August 2010 A$20 million/£8 million – – 19 18
2 August 2010 €115 million/£70 million – – 150 145
– – 312 301
Hybrid securities**
15 April 2022 US$399 million (2003 US$816 million) – – 297 614
21 September 2024 US$558 million (2003 nil) – – 432 –
– – 729 614
Subordinated debt
1 July 2023 US$250 million 319 332 319 332
Total borrowings 748 332 1,789 1,334
Current – – – 86
Non-current 748 332 1,789 1,248
Total borrowings 748 332 1,789 1,334
ABC securities for funds at Lloyd’s are not included in this analysis. Details of ABCs are included in note 28(C).
* Eurobonds are fixed at GBP amounts until 2010 at which point they will revert to the original Australian dollar and Euro amounts shown. The facility
can be extended for a further 10 years to 2020.
** Hybrid securities are shown net of the fair value of the equity conversion option. The US dollar principal amounts shown are the amounts payable at the
end of the 20 year term. Details are included in note 17(C).
68 QBE INSURANCE GROUP ANNUAL REPORT 2004 F-110

NOTES TO THE FINANCIAL STATEMENTS
FOR THE YEAR ENDED 31 DECEMBER 2004
17
BORROWINGS CONTINUED
(B) SECURITY AND FACILITY ARRANGEMENTS
In the normal course of business, bank loans are made to controlled entities and secured by guarantees or letters of comfort given
by the company.
The eurobonds are issued by a controlled entity and secured by guarantees given by the company and another controlled entity.
The US$250 million subordinated debt was issued by the company. The claims of bondholders pursuant to these borrowings will
be subordinated in right of payment to the claims of all senior creditors, including policyholders, of the controlled entity.
(C) HYBRID SECURITIES
(i) Hybrid securities due 2024
In September 2004, a controlled entity issued US$375 million of 20 year hybrid securities. Interest accumulates on the securities and
is payable at the end of the 20 year term. In the event of conversion, the company will issue shares to the security holders. In the event of
redemption, repurchase or maturity, the company can elect to pay either cash or the equivalent value of shares in the company, or a
combination of both. Investors can request repurchase at the end of years one, three, five, seven, 10 and 15 from the date of issue. The
company can redeem the securities at any time after three years from the date of issue. Investors have the option to convert the security if:
• the company calls for their redemption;
• the market value of the security is less than the market value of the underlying shares in the company for five consecutive trading
days; or
• on certain corporate transactions occurring (e.g. change in control).
The hybrid securities are guaranteed by the company and a controlled entity. The claims of investors under these guarantees in general
will rank equally with all existing and future unsecured and unsubordinated indebtedness of the company and the controlled entity.
The fair value of the liability component of the securities, being the obligation to make future payments of principal and interest to
investors, is included in borrowings, and the fair value of the equity conversion option is included in equity.
In the event of conversion, up to 29 million shares will be issued.
(ii) Hybrid securities due 2022
In 2002, a controlled entity issued US$471 million of 20 year hybrid securities. Investors have the option to convert the security if:
• the company calls for their redemption;
• the market value of the security is less than the market value of the underlying shares in the company for two consecutive trading
days; or
• on certain corporate transactions occurring (e.g. change in control).
During 2004, 54 million shares (2003 nil) were issued as a result of the conversion of 51% of the hybrid securities. In the event of
conversion of the remaining securities, up to 52 million shares will be issued.
THE COMPANY
CONSOLIDATED
2004 2003 2004 2003
18 $M $M $M $M
PROVISIONS – NON-CURRENT
Long service leave – – 16 7
Other provisions – – 10 9
Amounts payable under acquisition agreements 27 – 28 1
27 – 54 17
F-111
QBE INSURANCE GROUP ANNUAL REPORT 2004
69

NOTES TO THE FINANCIAL STATEMENTS
FOR THE YEAR ENDED 31 DECEMBER 2004
19 $M
SHARE CAPITAL (COMPANY AND CONSOLIDATED)
2004 2003
$M
(A) ISSUED ORDINARY SHARES, FULLY PAID 2,866 2,340
(B) MOVEMENTS IN ISSUED ORDINARY SHARE CAPITAL
NUMBER OF SHARES
000 $M
Issued and fully paid at 1 January 2003 615,488 1,926
Shares issued under Employee Share and Option Plan 2,935 24
Employee options exercised 422 3
Vendor options exercised 251 2
Conversion of convertible preference shares 35,926 274
Shares issued under Dividend Reinvestment Plan 12,666 111
Shares issued under Dividend Election Plan 2,600 –
Shares issued to holders of hybrid securities 1,318 –
Shares issued under the Senior Executive Equity Scheme 41 –
Issued and fully paid at 31 December 2003 671,647 2,340
Shares issued under Employee Share and Option Plan 3,632 38
Employee options exercised 877 9
Vendor options exercised 150 2
Shares issued under Dividend Reinvestment Plan 11,708 135
Shares issued under Dividend Election Plan 3,099 –
Shares issued to holders of hybrid securities 53,983 342
Shares issued under the Senior Executive Equity Scheme 237 –
Issued and fully paid at 31 December 2004 745,333 2,866
(C) DIVIDEND REINVESTMENT AND DIVIDEND ELECTION PLANS
Shareholders can elect to take their dividend entitlement by way of shares at a 2.5% discount on the weighted average market price
calculated over the five trading days beginning on the first day of ex-dividend trading.
The last date for receipt of election notices applicable to the final dividend is 7 March 2005 for the Dividend Reinvestment Plan and
23 February 2005 for the Dividend Election Plan.
2004 2003
$M $M
(D) DIVIDENDS
Previous year final dividend paid on ordinary shares
Franked at 30% – 6.6 cents (2003 2.22 cents) 44 14
Unfranked – 15.4 cents (2003 16.28 cents) 104 100
148 114
Interim dividend paid on ordinary shares
Franked at 50% – 12.0 cents (2003 3.0 cents) 82 20
Unfranked – 12.0 cents (2003 17.0 cents) 82 113
164 133
Dividend reinvested under the Dividend Election Plan (36) (22)
Total dividend paid on ordinary shares 276 225
Preference dividend paid – 19
Total dividend paid 276 244
The interim dividend of $164 million was paid on 20 September 2004. On 24 February 2005, the directors declared a 50% franked final
dividend of $224 million (2003 30% franked final dividend of $148 million).
The franking account balance on a tax paid basis as at the balance date was a surplus of $113 million (2003 $103 million).
70 QBE INSURANCE GROUP ANNUAL REPORT 2004 F-112

NOTES TO THE FINANCIAL STATEMENTS
FOR THE YEAR ENDED 31 DECEMBER 2004
THE COMPANY
CONSOLIDATED
2004 2003 2004 2003
20 $M $M $M $M
OTHER RESERVES
(A) RESERVES
General
Balance brought forward – – 5 5
Transfer to retained profits – – – –
Balance at the end of the year – – 5 5
Realised capital profits
Balance brought forward – – 6 6
Transfer to retained profits – – – –
Balance at the end of the year – – 6 6
Foreign currency translation
Balance brought forward – – (130) (21)
Deficit for the year – – (12) (109)
Balance at the end of the year – – (142) (130)
Total reserves at the end of the year – – (131) (119)
(B) RETAINED PROFITS
Retained profits at the beginning of the year 173 3 1,033 705
Net profit after tax attributable to members of the company 1,840 395 820 572
Total available for appropriation 2,013 398 1,853 1,277
Dividends paid (276) (225) (276) (244)
Retained profits at the end of the year 1,737 173 1,577 1,033
(C) NATURE AND PURPOSE OF RESERVES
(i) General reserve – established prior to 1989 for general purposes.
(ii) Realised capital profits reserve – realised capital profits arising prior to the introduction of capital gains tax.
(iii) Foreign currency translation reserve – exchange gains and losses on translation of self-sustaining controlled entities.
THE COMPANY
CONSOLIDATED
2004 2003 2004 2003
NOTE $M $M $M $M
(D) EQUITY
General
Equity at the beginning of the year 2,513 1,929 3,368 3,021
Changes in equity recognised in the statements
of financial performance 1,840 395 808 463
Transactions with owners as owners
Dividend paid 19(D) (276) (225) (276) (244)
New ordinary shares issued 19(B) 526 414 526 414
Conversion of convertible preference shares 19(B) – – – (274)
Equity component of hybrid securities* 17(C) 108 – 49 –
Changes in outside equity interests 12(D) – – 5 (12)
Equity at the end of the year 4,711 2,513 4,480 3,368
* The equity component of hybrid securities, previously only recognised in the consolidated entity, has now been recognised in the company following
further clarification of the accounting treatment of compound financial instruments.
F-113
QBE INSURANCE GROUP ANNUAL REPORT 2004
71

NOTES TO THE FINANCIAL STATEMENTS
FOR THE YEAR ENDED 31 DECEMBER 2004
21
REMUNERATION OF DIRECTORS AND EXECUTIVES
(A) DETAILS OF SPECIFIED DIRECTORS AND SPECIFIED EXECUTIVES
During the financial year the specified directors of the consolidated entity were:
Non-executive directors
LF Bleasel AM
EJ Cloney (chairman)
CP Curran AO
The Hon NF Greiner AC
BJ Hutchinson
CLA Irby
IYL Lee
POSITION EMPLOYER EMPLOYMENT START DATE
Executive director
FM O’Halloran Chief executive officer, QBE Management Services Pty Limited 28 June 1976
QBE Insurance Group Limited
The executives (other than the chief executive officer) with the greatest authority for strategic direction and management of the
consolidated entity (“specified executives”) during the financial year were:
Executive(1)
SP Burns Chief executive officer, Limit Underwriting Limited 1 January 1987
European operations
NG Drabsch Chief financial officer, QBE Management Services Pty Limited 20 September 1991
QBE Insurance Group Limited
PE Glen (2) Managing director, QBE Management (UK) Limited 20 June 2000
European company operations
PE Grove Chief underwriting officer, Limit Underwriting Limited 1 August 1982
European operations
MD ten Hove (3) Group general manager, Investments, QBE Management Services Pty Limited 1 March 1999
QBE Insurance Group Limited
RL Jones Managing director, QBE Management Services Pty Limited 1 April 1994
Australian operations
TM Kenny President and chief executive officer, QBE Reinsurance Corporation 28 November 1994
the Americas
V McLenaghan Managing director, QBE Management Services Pty Limited 14 August 1995
Pacific Asia Central Europe
EG Tollifson Chief risk officer, QBE Management Services Pty Limited 14 February 1994
QBE Insurance Group Limited
(1) All of the above persons were also specified executives during the year ended 31 December 2003.
(2) Mr Glen held the position of managing director, European company operations until his employment was terminated by way of redundancy on
30 September 2004.
(3) Mr ten Hove was employed by QBE Management (UK) Limited in London from 1 March 2002 until 31 December 2004. With effect from 1 January 2005,
he has relocated to Australia and is employed by QBE Management Services Pty Limited.
72 QBE INSURANCE GROUP ANNUAL REPORT 2004 F-114

NOTES TO THE FINANCIAL STATEMENTS
FOR THE YEAR ENDED 31 DECEMBER 2004
21
REMUNERATION OF DIRECTORS AND EXECUTIVES CONTINUED
(B) REMUNERATION OF SPECIFIED DIRECTORS AND SPECIFIED EXECUTIVES
As noted in the statement of corporate governance on pages 36 to 41, the remuneration committee of the board oversees remuneration
practices for the consolidated entity. The committee assesses the appropriateness of remuneration policies and practices in order to fairly
and responsibly reward executives, ensuring rewards are commensurate with performance and delivered results, and that remuneration
levels are market competitive.
(i) Non-executive directors’ remuneration framework
Non-executive director remuneration reflects QBE’s desire to attract, motivate and retain high quality directors and to ensure their active
participation in the consolidated entity’s affairs for the purposes of corporate governance, regulatory compliance and other matters. QBE
aims to provide a level of remuneration for non-executive directors comparable with its peers, which include multi-national financial
institutions. The board seeks the advice of independent remuneration consultants to ensure that remuneration levels are appropriate and
are in line with market conditions in the various markets in which QBE operates.
Non-executive directors do not receive any performance based remuneration such as cash bonuses or equity incentives. Under the
company’s constitution, non-executive directors are entitled to be paid all travel and related expenses properly incurred in connection
with the business of the company.
Fees
The remuneration of non-executive directors for directors’ and related committee fees amounted to $1,617,000 (2003 $1,132,000).
The amount approved by shareholders at the 2004 AGM was $2,200,000 per annum. The amount paid to individual non-executive
directors may vary according to specific responsibilities, including involvement on the committees of the board.
Superannuation
QBE pays superannuation of 9% to eligible non-executive directors. The portion representing the superannuation guarantee charge is
excluded from the shareholder approved remuneration cap under the company’s constitution.
Retirement benefits
Non-executive directors previously received a retirement allowance based on their period of service. The allowance was limited to the
aggregate of the director’s fees in the last three years of service, subject to a minimum of 10 years’ service. Where service was less than
10 years, a pro-rata amount was paid. With effect from 31 December 2003, the board terminated the retirement allowance to nonexecutive
directors. Directors’ fees were increased by 30% as compensation. Accrued retirement benefits of $1,535,000 at 31 December
2003 are preserved until retirement and are subject to an annual increase equal to the average five year Australian government bond rate.
Shareholders approved an increase in non-executive directors’ remuneration and the company’s constitution was amended at the 2004
AGM to recognise this change.
(ii) Executive director and specified executives’ remuneration framework
Remuneration and reward philosophy
The consolidated entity’s remuneration practices vary in each of the markets within which QBE operates, and therefore the diversity of
individual roles and the complexity of each operating environment is considered. The remuneration committee recognises that QBE
operates in a competitive environment, where the key to achieving sustained performance is to generally align executive reward and
performance with shareholder value. The principles applied to establish the remuneration and reward of executives are therefore based
on a combination of:
• achieving short term and long term business targets that are directly linked to shareholder and stakeholder value creation (e.g. return
on equity, insurance profit, return on capacity for our Lloyd’s business and investment performance);
• market data to set remuneration levels; and
• linking individual performance measures to achievement of business targets and strategies.
The remuneration committee seeks the advice of independent remuneration consultants to ensure that remuneration and reward levels
are appropriate and are in line with market conditions in the various markets in which QBE operates. The remuneration committee
endeavours to have remuneration structures in place that encourage the achievement of a return for shareholders both in terms of
dividends and growth in share price.
Specified executives, consistent with the majority of staff, participate in a short term incentive arrangement in the form of an annual cash
bonus under the Profit Share Incentive (“PSI”) scheme. The PSI aims to recognise the contributions and achievements of individuals when
personal objectives and business targets relating to the performance of the business unit, the division or the consolidated entity as
appropriate are achieved or exceeded.
Specified executives are also eligible to participate in an annual long term incentive arrangement under the Senior Executive Equity
Scheme (“the SEES”). The SEES aims to reward the achievement of excellent results in the financial year, retain key executives and
increase shareholder value by motivating executives. It provides executives with the opportunity to acquire equity in the form of
conditional rights to fully paid shares without payment by the executive, and options to subscribe for shares at market value at the grant
date. Further details are provided in note 22 to the financial statements.
F-115
QBE INSURANCE GROUP ANNUAL REPORT 2004
73

NOTES TO THE FINANCIAL STATEMENTS
FOR THE YEAR ENDED 31 DECEMBER 2004
21
REMUNERATION OF DIRECTORS AND EXECUTIVES CONTINUED
(B) REMUNERATION OF SPECIFIED DIRECTORS AND SPECIFIED EXECUTIVES CONTINUED
The remuneration committee reviews and approves the PSI and the SEES rules annually, and approves the quantum of short term and
long term incentives for executives based on the applicable audited results.
In addition, specified executives undergo personal development reviews with the chief executive officer, the Group general manager,
human resources and an external consultant. The evaluations produced as a result of these and other reviews are taken into account
when determining the remuneration of the specified executives, including base salary and entitlements to at-risk components.
Elements of executive remuneration and reward structure
Executive remuneration packages contain the following key elements:
ELEMENT
Base salary
Other benefits
Superannuation
Short term incentive
Long term incentive
Annual gross cash salary
Benefits such as long service leave, club memberships, motor vehicles, parking and health insurance,
and associated fringe benefits tax
Annual cost of superannuation or pension contributions
Annual at-risk cash remuneration delivered under the PSI scheme
Annual at-risk equity benefit delivered under the SEES in the form of granting conditional rights to fully
paid shares and options to subscribe for shares at market value. The executives receive the equity benefit
under the SEES each year upon achieving or exceeding financial targets and performance objectives
entitling them to a short term incentive under PSI.
The SEES benefit is restricted to the lesser of 66.67% of the PSI bonus in that year or 100% of base
salary or Total Remuneration Cost (“TRC”) as at 31 December in the financial year prior to the year in
which the PSI bonus is paid. The SEES benefit is split in the proportion 60:40 and is used to acquire
conditional rights to fully paid shares and options respectively as follows:
• conditional rights to shares to the value of 60% of the SEES award; and
• options over ordinary shares to the value of 40% of the SEES award, with the resulting number
multiplied by 4.
Conditional rights and options relating to the achievement of targets in a financial year are granted in
March of the following year. Interest free loans are available on terms permitted by the Employee Share
and Option Plan (“the Plan”) to persons in the employment of the company who hold options under the
SEES, to fund the exercise of the options.
Conditional rights and options issued in 2004 and prior financial years are exercisable after three years,
whilst options issued in the 2005 financial year will be exercisable after five years, with the exception of
options for the Group investment division, which will continue to be exercisable after three years.
Incentive structure – FM O’Halloran
Consistent with other executives, Mr O’Halloran is entitled to an annual short term cash incentive payment under the PSI scheme
calculated as a percentage of TRC if specified targets are achieved. The board has absolute discretion in determining qualifying results
for an incentive payment under the PSI scheme. Mr O’Halloran’s incentives are based on the achievement of the following range of target
returns on opening shareholders’ funds adjusted for dividends and increases in share capital (“return on equity”) for the 2004 financial
year, and are based on the consolidated entity’s management basis of accounting which spreads realised and unrealised gains on
equities and properties over seven years (“seven year spread basis”).
The table below outlines the terms of Mr O’Halloran’s PSI scale:
TARGET RETURN PSI AS A
ON EQUITY % % OF TRC
Minimum 13.0 15.0
Maximum 20.0 134.0
Achieved 22.8 134.0
Subject to the approval by shareholders at the 2005 AGM, Mr O’Halloran, on a basis consistent with other executives, is also entitled to
receive conditional rights to fully paid shares and options to subscribe for shares under the SEES in relation to 2004 performance. These
will be generally exercisable in three and five years respectively.
74 QBE INSURANCE GROUP ANNUAL REPORT 2004
F-116

NOTES TO THE FINANCIAL STATEMENTS
FOR THE YEAR ENDED 31 DECEMBER 2004
21
REMUNERATION OF DIRECTORS AND EXECUTIVES CONTINUED
(B) REMUNERATION OF SPECIFIED DIRECTORS AND SPECIFIED EXECUTIVES CONTINUED
Incentive structure – specified executives
For each of the specified executives, the table below summarises the financial targets, the result used for determining incentive
payments and the maximum PSI that can be earned for the 2004 financial year generally expressed as a percentage of base salary or
TRC as appropriate.
MAXIMUM PSI EARNED
FINANCIAL TARGET RESULT BASIS AS A % OF REMUNERATION(4)
Specified executives
SP Burns Limit return on capacity Financial year result 100% x base salary
QBE return on equity Financial year result (seven year spread basis) 33% x base salary
NG Drabsch QBE return on equity Financial year result (seven year spread basis) 117% x TRC
PE Glen(1) European company operations Financial year result 133% x base salary
return on equity
PE Grove(2) Limit return on capacity Financial year result 50% x base salary
Limit syndicate 566 Underwriting year result Between 1.5% and 2.5%
of syndicate 566 profits
MD ten Hove(3) Investment income as a % Financial year result
of budget income
Actual performance as a % Financial year result
of Group investment division
benchmark
Individual performance
Financial year result
measures – financial year
Combined total of 100%
x base salary plus annual
UK allowance for 2004
financial year
RL Jones Australian operations Financial year result 100% x TRC
return on equity
TM Kenny the Americas insurance profit Financial year result 133% x base salary
V McLenaghan Asia-Pacific operations Financial year result 100% x TRC
return on equity
EG Tollifson QBE return on equity Financial year result (seven year spread basis) 94% x TRC
(1) Mr Glen’s employment was terminated through redundancy on 30 September 2004.
(2) Mr Grove’s PSI from syndicate 566 will reduce over the next two years, with 2006 being the final underwriting year on which PSI will accrue.
For 2005 and 2006, his PSI will be based on Limit’s return on capacity and will be capped at 75% and 100% of TRC respectively.
(3) For 2005, Mr ten Hove’s PSI payment will be capped at 125% of base salary.
(4) Payable based on base salary or TRC at the end of the financial year.
F-117
QBE INSURANCE GROUP ANNUAL REPORT 2004
75

NOTES TO THE FINANCIAL STATEMENTS
FOR THE YEAR ENDED 31 DECEMBER 2004
21
REMUNERATION OF DIRECTORS AND EXECUTIVES CONTINUED
(C) EMPLOYMENT AGREEMENTS
The executive director and specified executives are employed on a permanent full time basis with an open ended contract. Upon
termination of employment, the executive director and specified executives are entitled to receive their statutory entitlements of accrued
annual and long service leave (where applicable), together with any superannuation benefits. Written notice is usually required from either
the executive director and the specified executives or the company in the event of termination of employment.
In the case of a voluntary termination, specified executives forfeit all conditional rights to ordinary shares not yet vested and unexercised
options. In the event that the company terminates the contract of employment, the remuneration committee has discretion in determining
the vesting of conditional rights to ordinary shares and the exercise of any outstanding options before the original exercise date.
The company has entered into employment agreements with each specified executive that provide for payment of benefits in the event
that the agreement is terminated by either the company or the specified executive. The agreements generally provide for the following:
(i)
(ii)
A notice period up to one year.
Where the company terminates the agreement, a payment comprised of TRC or base salary as appropriate plus PSI bonus for the
appropriate period.
(iii) In certain circumstances, where the company or the specified executive terminates the contract due to material diminution in role, a
payment of up to one year’s TRC or base salary as appropriate plus PSI bonus for the appropriate period.
The exceptions to the general provisions are as follows:
In the event of material diminution in role or responsibility, in certain circumstances Mr ten Hove is entitled to a payment equivalent to
TRC from the date of termination to 1 January 2008 plus one year’s PSI based on the average payment in the preceding three years plus
the accelerated vesting of all conditional rights and options.
In the event of material diminution in role or responsibility, in certain circumstances Mr Kenny is entitled to a payment equivalent to two
years’ TRC plus the accelerated vesting of all conditional rights and options that would otherwise have vested in the two years following
the termination date.
Mr Grove will receive a contractually agreed bonus payment of one year’s base salary on 31 December 2005 in recognition of his
contribution, subject to being employed by the company at that date.
Mr Kenny will receive a contractually agreed bonus payment on 31 December 2005 being one year’s TRC plus 100,000 options at market
value exercisable over five years if the insurance profit of the Americas division averages over 7% per annum in the preceding five years.
(D) REMUNERATION DETAILS
The following tables provide details of the remuneration of the specified directors and specified executives for the financial year:
PRIMARY BENEFITS POST EMPLOYMENT BENEFITS
DIRECTORS’(1) SUPER- RETIREMENT(2) TOTAL TOTAL
FEES ANNUATION BENEFITS 2004 2003
$’000 $’000 $’000 $’000 $’000
Non-executive directors
LF Bleasel AM 182 17 5 204 182
EJ Cloney 468 42 23 533 461
CP Curran AO 202 18 19 239 216
The Hon NF Greiner AC 189 18 19 226 203
BJ Hutchinson 189 18 12 219 208
CLA Irby 205 – 5 210 202
IYL Lee 182 17 3 202 184
Total 1,617 130 86 1,833 1,656
(1) Includes fees paid for services on board committees.
(2) Retirement benefits above reflect the adjustment to the amounts preserved at 31 December 2003, being an annual increase equal to the five year
Australian government bond rate.
76 QBE INSURANCE GROUP ANNUAL REPORT 2004 F-118

NOTES TO THE FINANCIAL STATEMENTS
FOR THE YEAR ENDED 31 DECEMBER 2004
21
REMUNERATION OF DIRECTORS AND EXECUTIVES CONTINUED
(D) REMUNERATION DETAILS CONTINUED
Executive director
POST
PRIMARY EMPLOYMENT EQUITY TERMINATION
BENEFITS BENEFITS BENEFITS(2) BENEFITS TOTAL
SUPER- CONDITIONAL
BASE SALARY OTHER(3) PSI(6) ANNUATION RIGHTS OPTIONS
$’000 $’000 $’000 $’000 $’000 $’000 $’000 $’000
FM O’Halloran 984 395 1,651 147 267 160 – 3,604
Specified executives
SP Burns(1) 963 41 1,484 131 286 189 – 3,094
NG Drabsch 638 191 938 94 164 121 – 2,146
PE Glen (1)(4)(7) 597 50 – 124 177 100 2,110 3,158
PE Grove(1) 874 183 3,124 262 294 189 – 4,926
MD ten Hove(1)(5) 941 337 955 38 594 304 – 3,169
RL Jones 499 194 700 81 230 122 – 1,826
TM Kenny(1) 863 168 1,117 32 304 162 – 2,646
V McLenaghan 530 168 675 79 114 67 – 1,633
EG Tollifson 443 71 484 65 86 89 – 1,238
Total specified executives 6,348 1,403 9,477 906 2,249 1,343 2,110 23,836
(1) Mr Kenny was located in New York and Messrs Burns, Glen, Grove and ten Hove were located in London. Their remuneration has been converted
to Australian dollars using the cumulative average rate of exchange for the year. The base salaries of Messrs Burns and Grove were increased in
September 2004 following the restructure of the UK operations of QBE.
(2) The fair value at grant date of options and conditional rights is calculated using a binomial model. The fair value of each option and conditional right is
earned evenly over the period between grant and vesting. Details of grants of conditional rights and options are set out below.
(3) “Other” includes the deemed value of the provision of motor vehicles and the fringe benefits tax thereon, the deemed value of interest on share loans
(refer note 21(G)), long service leave, club memberships, health insurance, life assurance and personal accident insurance. Directors’ and officers’
liability insurance has not been included in other remuneration since it is not possible to determine an appropriate allocation basis.
(4) Mr Glen’s employment was terminated through redundancy on 30 September 2004. Included in termination benefits is the cost attributable to the
accelerated recognition of conditional rights and options, where the remuneration committee used its discretion to permit exercise of these
instruments before the original exercise date.
(5) As part of Mr ten Hove’s revised contractual arrangements effective 1 January 2005 following relocation from London to Sydney, the remuneration
committee used its discretion to permit Mr ten Hove to receive his conditional rights and exercise his options before the original exercise date. The
accelerated cost of these conditional rights and options is included as a current year benefit in the table above. In addition, on relocation to Sydney,
Mr ten Hove received a deferred allowance of £78,000 for the three years that he was employed in the UK.
(6) PSI is the accrued entitlement for the 2004 financial year.
(7) Mr Glen may be entitled to a further termination payment of up to £130,000 subject to achieving certain criteria included in his redundancy arrangements.
F-119
QBE INSURANCE GROUP ANNUAL REPORT 2004
77

NOTES TO THE FINANCIAL STATEMENTS
FOR THE YEAR ENDED 31 DECEMBER 2004
21
REMUNERATION OF DIRECTORS AND EXECUTIVES CONTINUED
(E) EQUITY BENEFITS
Set out below are the holdings of equity benefits granted as remuneration to the executive director and specified executives in the year
ended 31 December 2004.
(i) Conditional rights to ordinary shares under the SEES
The conditional rights entitle the executive director and specified executives to receive fully paid shares on the third anniversary of the grant of the
rights. Notional dividends on the conditional rights accrue during the three year period. These dividends will be paid in ordinary shares in the company.
Details of conditional rights issued under the SEES during the financial year are:
NUMBER OF
VALUE PER
RIGHTS GRANTED GRANT DATE RIGHT AT
DURING THE YEAR DATE EXERCISABLE GRANT DATE(4)
$
Executive director
FM O’Halloran 43,010 2 April 2004 1 April 2007 12.49
Specified executives
SP Burns 25,857 3 March 2004 2 March 2007 12.96
SP Burns(1) 29,657 3 March 2004 2 March 2007 11.65
NG Drabsch 25,650 3 March 2004 2 March 2007 12.49
PE Glen 36,159 3 March 2004 (2) 12.96
PE Grove 42,412 3 March 2004 2 March 2007 12.96
MD ten Hove 34,267 3 March 2004 (3) 12.49
RL Jones 24,007 3 March 2004 2 March 2007 12.49
TM Kenny 32,707 3 March 2004 2 March 2007 13.24
V McLenaghan 18,679 3 March 2004 2 March 2007 12.49
EG Tollifson 13,178 3 March 2004 2 March 2007 12.49
(1) Under the terms of Limit’s SEES, Mr Burns is eligible to receive a portion of his long term incentive award based on the earning of prior underwriting year
results. The value of the conditional rights at grant date is based on the share price in the relevant prior underwriting year.
(2) Mr Glen’s employment was terminated through redundancy on 30 September 2004. As part of his redundancy agreement, his conditional rights were
exercised during the financial year.
(3) As part of his revised contractual arrangements effective 1 January 2005 following relocation from London to Sydney, Mr ten Hove exercised his
conditional rights during the financial year.
(4) The fair value at grant date of conditional rights is calculated using a binomial model. The fair value of each conditional right is earned evenly over the
three year period between grant and vesting.
Details of movements in the conditional rights to ordinary shares in QBE provided as remuneration under the SEES to the executive
director and specified executives are set out below:
VESTED AND
DIVIDENDS TRANSFERRED TO
BALANCE AT GRANTED ATTACHING THE EXECUTIVE BALANCE AT
1 JAN 2004 DURING THE YEAR DURING THE YEAR IN THE YEAR 31 DEC 2004
Executive director
FM O’Halloran 43,435 43,010 2,588 – 89,033
Specified executives
SP Burns 30,634 55,514 3,453 – 89,601
NG Drabsch 24,436 25,650 2,008 – 52,094
PE Glen(1) 33,774 36,159 2,804 72,737 –
PE Grove 44,448 42,412 3,482 – 90,342
MD ten Hove(2) 24,794 34,267 2,368 61,429 –
RL Jones 49,382 24,007 2,943 – 76,332
TM Kenny 56,699 32,707 3,584 – 92,990
V McLenaghan 16,820 18,679 1,423 – 36,922
EG Tollifson 13,291 13,178 1,061 – 27,530
(1) Mr Glen’s employment was terminated through redundancy on 30 September 2004. As part of his redundancy agreement, his conditional rights
were converted to QBE shares during the financial year.
(2) Mr ten Hove’s conditional rights converted to QBE shares on 18 November 2004 as part of his revised contractual arrangements effective
1 January 2005 following relocation from London to Sydney.
78 QBE INSURANCE GROUP ANNUAL REPORT 2004 F-120

NOTES TO THE FINANCIAL STATEMENTS
FOR THE YEAR ENDED 31 DECEMBER 2004
21
REMUNERATION OF DIRECTORS AND EXECUTIVES CONTINUED
(E) EQUITY BENEFITS CONTINUED
(ii) SEES options
Details of options issued under the SEES during the financial year are:
NUMBER OF
VALUE PER
OPTIONS GRANTED GRANT DATE OPTION AT
DURING THE YEAR DATE EXERCISABLE EXPIRY DATE GRANT DATE(4)
$
Executive director
FM O’Halloran 114,694 2 April 2004 1 April 2007 1 April 2008 2.23
Specified executives
SP Burns 68,953 3 March 2004 2 March 2007 2 March 2008 2.12
SP Burns(1) 79,085 3 March 2004 2 March 2007 2 March 2008 3.61
NG Drabsch 68,399 3 March 2004 2 March 2007 2 March 2008 2.12
PE Glen 96,424 3 March 2004 (2) 2 March 2008 2.12
PE Grove 113,099 3 March 2004 2 March 2007 2 March 2008 2.12
MD ten Hove 91,378 3 March 2004 (3) 2 March 2008 2.12
RL Jones 64,019 3 March 2004 2 March 2007 2 March 2008 2.12
TM Kenny 87,218 3 March 2004 2 March 2007 2 March 2008 2.12
V McLenaghan 49,810 3 March 2004 2 March 2007 2 March 2008 2.12
EG Tollifson 35,142 3 March 2004 2 March 2007 2 March 2008 2.12
(1) Under the terms of Limit’s SEES, Mr Burns is eligible to receive a portion of his long term incentive award based on the earning of prior underwriting
year results. The value of the option at grant date is based on the share price in the relevant prior underwriting year.
(2) Mr Glen’s employment was terminated through redundancy on 30 September 2004. As part of his redundancy agreement, his options were exercised
during the financial year.
(3) As part of his revised contractual arrangements effective 1 January 2005 following relocation from London to Sydney, Mr ten Hove exercised his
options during the financial year.
(4) The fair value at grant date of options is calculated using a binomial model. The fair value of each option is earned evenly over the three year period
between grant and vesting.
Details of the movements in options over ordinary shares in the company provided as remuneration under the SEES to the executive
director and specified executives are set out below:
GRANTED
LAPSED/
BALANCE AT DURING EXERCISED CANCELLED BALANCE AT
1 JAN 2004 THE YEAR IN THE YEAR IN THE YEAR 31 DEC 2004(3)
Executive director
FM O’Halloran 110,884 114,694 – – 225,578
Specified executives
SP Burns 78,206 148,038 – – 226,244
NG Drabsch 62,381 68,399 – – 130,780
PE Glen(1) 86,220 96,424 182,644 – –
PE Grove 113,470 113,099 – – 226,569
MD ten Hove(2) 63,298 91,378 154,676 – –
RL Jones 124,332 64,019 – – 188,351
TM Kenny 144,747 87,218 – – 231,965
V McLenaghan 42,081 49,810 – – 91,891
EG Tollifson 33,931 35,142 – – 69,073
(1) Mr Glen’s employment was terminated through redundancy on 30 September 2004. His options were exercised on 29 October 2004.
(2) Mr ten Hove’s options were exercised on 18 November 2004 as part of his new contractual arrangements effective 1 January 2005 following his relocation
from London to Sydney.
(3) None of the options are vested and exercisable at 31 December 2004.
F-121
QBE INSURANCE GROUP ANNUAL REPORT 2004
79

NOTES TO THE FINANCIAL STATEMENTS
FOR THE YEAR ENDED 31 DECEMBER 2004
21
REMUNERATION OF DIRECTORS AND EXECUTIVES CONTINUED
(E) EQUITY BENEFITS CONTINUED
(iii) Future performance options
The terms and conditions of each grant of future performance options that affect remuneration of the executive director and specified
executives in this or future reporting periods are as follows:
DATE
NUMBER OF
GRANT DATE EXERCISABLE OPTIONS GRANTED PERFORMANCE CRITERIA
Executive director
FM O’Halloran 19 April 2001 18 April 2004 200,000(2) QBE Group to achieve an average annual 12.5%
increase in earnings per share over three years to
31 December 2003.
Specified executives
SP Burns 25 May 2001 24 May 2006 35,000 Limit to achieve an average 5% return on capacity
for five years from 2001 underwriting year.
10 December 2001 31 March 2007 80,000 Limit to achieve an average 5% return on capacity
for five years from and including the 2002
underwriting year.
NG Drabsch 25 May 2001 1 April 2004 75,000(2) QBE Group to achieve an average annual 12.5%
increase in earnings per share over three years to
31 December 2003.
18 March 2002 31 March 2005 100,000 QBE Group to achieve an average annual 12.5%
increase in earnings per share over three years to
31 December 2004.
PE Glen(1) 10 December 2001 31 March 2007 50,000 European company operations to achieve an
average 5% insurance profit for five years from
and including the 2002 underwriting year.
PE Grove 25 May 2001 24 May 2006 35,000 Limit to achieve an average 5% return on capacity
for five years from 2001 underwriting year.
10 December 2001 31 March 2007 60,000 Limit to achieve an average 5% return on capacity
for five years from and including the 2002
underwriting year.
14 November 2002 31 December 2005 100,000 Limit managed syndicates to achieve an average
return on capacity of 7% or more over the years
ending 2002, 2003, 2004 and 2005.
RL Jones 1 October 1999 30 September 2004 75,000(2) Australian operations to achieve an average return
on equity of 17% on allocated capital over the five
years from 1 July 1999 to 30 June 2004.
25 May 2001 1 April 2004 75,000(2) QBE Group to achieve an average annual 12.5%
increase in earnings per share over three years to
31 December 2003.
TM Kenny 1 June 2001 31 May 2006 30,000 the Americas to achieve an average insurance
profit of 6% for underwriting years 2001 – 2005.
10 December 2001 31 March 2007 100,000 the Americas to achieve an average insurance
profit of 5% for underwriting years 2002 – 2006.
V McLenaghan 1 October 1999 30 September 2004 50,000(2) Asia-Pacific operations to achieve an average
return on equity of 17% on allocated capital over
the five years from 1 July 1999 to 30 June 2004.
25 May 2001 1 April 2004 50,000(2) QBE Group to achieve an average annual 12.5%
increase in earnings per share over three years to
31 December 2003.
80 QBE INSURANCE GROUP ANNUAL REPORT 2004 F-122

NOTES TO THE FINANCIAL STATEMENTS
FOR THE YEAR ENDED 31 DECEMBER 2004
21
REMUNERATION OF DIRECTORS AND EXECUTIVES CONTINUED
(E) EQUITY BENEFITS CONTINUED
(iii) Future performance options continued
DATE
NUMBER OF
GRANT DATE EXERCISABLE OPTIONS GRANTED PERFORMANCE CRITERIA
EG Tollifson 25 May 2001 1 April 2004 50,000(2) QBE Group to achieve an average annual 12.5%
increase in earnings per share over three years to
31 December 2003.
18 March 2002 31 March 2005 100,000 QBE Group to achieve an average annual 12.5%
increase in earnings per share over three years to
31 December 2004.
(1) Mr Glen’s employment was terminated through redundancy on 30 September 2004.
(2) These options were exercised during the financial year following the achievement of the relevant performance criteria.
Details of the movements in future performance options over ordinary shares in the company provided as remuneration to the executive
director and specified executives are set out below:
LAPSED/
BALANCE AT EXERCISED CANCELLED BALANCE AT
1 JAN 2004 IN THE YEAR IN THE YEAR 31 DEC 2004(2)
Executive director
FM O’Halloran 200,000 200,000 – –
Specified executives
SP Burns 115,000 – – 115,000
NG Drabsch 175,000 75,000 – 100,000
PE Glen(1) 50,000 – – 50,000
PE Grove 195,000 – – 195,000
MD ten Hove – – – –
RL Jones 150,000 150,000 – –
TM Kenny 130,000 – – 130,000
V McLenaghan 100,000 100,000 – –
EG Tollifson 150,000 50,000 – 100,000
(1) Mr Glen’s employment was terminated through redundancy on 30 September 2004. Under the terms of the redundancy agreement, he is eligible to
exercise these options in March 2005.
(2) With the exception of Mr Glen as noted above, none of the options are vested and exercisable at 31 December 2004.
(iv) Regular options
Regular options issued under the Plan are based on the achievement of past performance hurdles and are exercisable at 20% per
annum. If the specified executive is entitled to exercise options in a particular year but does not, then he or she may exercise the options
in the following year. These options expire if not exercised within five years from the date of issue.
Regular options have been phased out and replaced with the long term incentive arrangement under the SEES.
Details of the movements in regular options that affect remuneration in this or future reporting periods are as follows:
LAPSED/
BALANCE AT EXERCISED CANCELLED BALANCE AT
1 JAN 2004 IN THE YEAR IN THE YEAR 31 DEC 2004(3)
Specified executives
PE Glen(1) 90,000 30,000 – 60,000
MD ten Hove(2) 89,000 89,000 – –
RL Jones 10,500 4,500 – 6,000
TM Kenny 20,000 10,000 – 10,000
V McLenaghan 6,750 3,750 – 3,000
EG Tollifson 9,000 5,000 – 4,000
(1) Mr Glen’s employment was terminated through redundancy on 30 September 2004. Under the terms of his redundancy agreement, he is eligible to
exercise his remaining options in March 2005.
(2) Mr ten Hove’s options were exercised on 18 November 2004 as part of his new contractual arrangements effective 1 January 2005 following his
relocation from London to Sydney.
(3) With the exception of Mr Glen as noted above, none of the options are vested and exercisable at 31 December 2004.
F-123
QBE INSURANCE GROUP ANNUAL REPORT 2004
81

NOTES TO THE FINANCIAL STATEMENTS
FOR THE YEAR ENDED 31 DECEMBER 2004
21
REMUNERATION OF DIRECTORS AND EXECUTIVES CONTINUED
(F) EQUITY HOLDINGS AND TRANSACTIONS
The movement during the year in the number of ordinary shares in the company held by each non-executive director including their
personally-related entities is set out below:
INTEREST IN OTHER INTEREST
SHARES AT PURCHASED CHANGES/ IN SHARES AT
1 JAN 2004 (SOLD) LAPSED 31 DEC 2004
Non-executive directors
LF Bleasel AM 42,168 – 600 42,768
EJ Cloney 770,025 (80,000) 30,385 720,410
CP Curran AO 470,912 (124,684) 10,523 356,751
The Hon NF Greiner AC(1) 52,030 – 1,686 53,716
BJ Hutchinson 27,446 – – 27,446
CLA Irby 15,000 – – 15,000
IYL Lee 10,062 – 405 10,467
(1) Includes 10,000 warrants to purchase ordinary shares.
The movement during the year in the number of ordinary shares in the company held by the executive director and each specified
executive including their personally-related entities is set out below:
INTEREST CONDITIONAL OTHER INTEREST
IN SHARES AT RIGHTS OPTIONS PURCHASED CHANGES/ IN SHARES AT
1 JAN 2004 VESTED EXERCISED (SOLD) LAPSED 31 DEC 2004
Executive director
FM O’Halloran 917,789 – 200,000 – 38,673 1,156,462
Specified executives
SP Burns 2,966 – – – 117 3,083
NG Drabsch 178,380 – 75,000 (5,900) 8,587 256,067
PE Glen(1) 15,025 72,737 212,644 (300,725) 319 –
PE Grove 2,745 – – – 109 2,854
MD ten Hove 225,371 61,429 243,676 (163,454) 9,274 376,296
RL Jones 213,512 – 154,500 (150,000) 10,064 228,076
TM Kenny 135,739 – 10,000 – 5,010 150,749
V McLenaghan 94,366 – 103,750 – – 198,116
EG Tollifson 131,513 – 55,000 (27,189) 5,780 165,104
(1) Mr Glen’s employment was terminated through redundancy on 30 September 2004.
82 QBE INSURANCE GROUP ANNUAL REPORT 2004 F-124

NOTES TO THE FINANCIAL STATEMENTS
FOR THE YEAR ENDED 31 DECEMBER 2004
21
REMUNERATION OF DIRECTORS AND EXECUTIVES CONTINUED
(G) SHARE LOANS TO SPECIFIED DIRECTORS AND SPECIFIED EXECUTIVES
Details regarding the non-recourse share loans made by the consolidated entity to the executive director and specified executives are
as follows:
Executive director
BALANCE AT INTEREST INTEREST AMOUNTS BALANCE AT HIGHEST BALANCE
1 JAN 2004 CHARGED NOT CHARGED WRITTEN OFF 31 DEC 2004 IN PERIOD
$’000 $’000 $’000 $’000 $’000 $’000
FM O’Halloran 2,046 – 256 – 4,336 4,336
Specified executives
SP Burns 22 – 2 – 22 22
NG Drabsch 1,025 – 113 – 1,817 1,824
PE Glen(1) 98 – 4 – – 1,773
PE Grove 22 – 2 – 22 22
MD ten Hove 1,315 – 114 – 3,465 3,569
RL Jones 936 – 114 – 2,010 2,215
TM Kenny 888 – 64 – 947 950
V McLenaghan 489 – 68 – 1,326 1,326
EG Tollifson 497 – 59 – 977 1,061
Total specified executives 5,292 – 540 – 10,586
(1) Mr Glen’s employment was terminated through redundancy on 30 September 2004.
All share loans to the executive director and specified executives are secured over the relevant issued shares in the company. In
accordance with the terms of the Plan, which were approved at the 1981 Annual General Meeting, share loans to employees do not
accrue interest. The amount shown for interest not charged in the table above is calculated using the fringe benefits tax benchmark
interest rates for loans.
(H) OTHER TRANSACTIONS WITH DIRECTORS, EXECUTIVES AND PERSONALLY-RELATED ENTITIES
CP Curran – Related entities
Mr Curran is non-executive chairman of Perpetual Trustees Australia Ltd, an entity whose controlled entity was used during the year, on
an arm's length basis, for share registration purposes. A controlled entity paid $658,000 (2003 $658,000) for these services.
MD ten Hove – Apartment purchase arrangement
Mr ten Hove joined QBE in March 1999 as Group general manager, Investments. He entered into a contractual arrangement with a
controlled entity at that time which provided him with an option to purchase an apartment in the Sydney CBD, already owned by the
consolidated entity, if he remained with QBE and decided to apply for permanent residence in Australia. The option agreement enables
purchase of the apartment at the original purchase price to the consolidated entity including stamp duty and improvements. In January
2005, he returned to Sydney from London and will apply for permanent residence. The transaction to purchase the apartment and any
benefit arising will be reflected in the 2005 annual report.
F-125
QBE INSURANCE GROUP ANNUAL REPORT 2004
83

NOTES TO THE FINANCIAL STATEMENTS
FOR THE YEAR ENDED 31 DECEMBER 2004
22
EMPLOYEE BENEFITS
(A) EMPLOYEE SHARE AND OPTION PLAN
The company, at its 1981 AGM, approved the issue of shares from time to time under an Employee Share and Option Plan (“the Plan”),
up to 5% of the issued ordinary shares in the capital of the company. Any full-time or part-time employee of the consolidated entity or
equally owned joint ventures who is offered shares or options pursuant to the offer document of the Plan is eligible to participate in the
Plan.
Under the Plan, ordinary shares of the company are offered at the weighted average market price during the five trading days up to the
date of the offer. Likewise, the exercise price for options offered under the Plan is the weighted average market price during the five
trading days up to the date of the offer.
In accordance with the terms of the Plan, interest free loans are granted to employees to subscribe for shares issued under the Plan.
The terms of the loans are either personal recourse or non-recourse and the loans are repayable in certain circumstances as set out
in the Plan, such as termination of employment or breach of condition.
The Senior Executive Equity Scheme
Senior management are also invited to participate in the Senior Executive Equity Scheme (“the SEES”). Under the SEES, the directors can
issue conditional rights to shares and grant options to senior management who have already achieved pre-determined performance
criteria. SEES entitlements are controlled by the remuneration committee, which is comprised solely of non-executive directors. The
terms of the SEES may vary to take into account the requirements and market conditions of the locations of senior management, but the
general terms of the SEES conditional rights and options are as follows.
The conditional rights entitle relevant employees to receive shares on the third anniversary of the grant of the rights. Further shares are
issued in relation to the conditional rights to reflect dividends paid on ordinary shares of the company in the period commencing from the
date of the grant of the conditional rights. The shares issued pursuant to the conditional rights are issued without payment being made
by senior management (at a nil exercise price).
Options granted under the SEES are subject to the terms and conditions of the Plan. Options issued in 2004 and prior can be exercised
after three years, whilst any options issued in 2005 will generally be exercisable after five years. They must be exercised within a
12 month period. Interest free loans are granted on the terms permitted by the Plan to persons who hold options under the SEES to fund
the exercise of options.
The shares issued pursuant to the conditional rights and options will only be issued if the individual has remained in the company's
service throughout this period (unless if they leave due to redundancy, retirement through ill health or age, or death), is not subject to
disciplinary proceedings on that date and, in certain circumstances, if the financial year results for which the conditional rights were
granted have not deteriorated significantly since the grant of the conditional rights.
Shareholder approval of the SEES was given in 2003 for the purpose of ASX listing rule 7.2.
(B) OPTIONS
During the year, the company granted to 478 (2003 263) qualifying employees options to subscribe for 3,918,197 (2003 3,354,901)
ordinary shares with a total market value of $43 million (2003 $27 million), being the quoted price at the date the options were granted.
At 31 December 2004, 16,702,849 (2003 6,811,500) options were outstanding with an exercise price of $83 million (2003 $57 million), the
majority of which related to employee benefits. The market value of the options outstanding at balance date is $256 million (2003 $72
million), calculated by reference to the quoted market value of the underlying shares at that date. During the financial year, 1,710,906
(2003 422,234) options were exercised, resulting in the issue of 1,710,906 (2003 422,234) shares.
84 QBE INSURANCE GROUP ANNUAL REPORT 2004 F-126

NOTES TO THE FINANCIAL STATEMENTS
FOR THE YEAR ENDED 31 DECEMBER 2004
22
EMPLOYEE BENEFITS CONTINUED
(B) OPTIONS CONTINUED
Details of options issued, exercised and lapsed or cancelled during the year, including those issued under the SEES, are as follows:
CANCELLED/
BALANCE AT ISSUED EXERCISED LAPSED BALANCE AT
GRANT DATE EXERCISE PRICE START OF YEAR DURING YEAR DURING YEAR DURING YEAR END OF YEAR
1 October 1999 $5.84 196,100 – 196,100 – –
1 June 2000 $6.53 20,000 – 10,000 – 10,000
1 July 2000 $7.62 40,000 – 30,000 – 10,000
1 October 2000 $8.63 101,860 – 55,730 400 45,730
1 November 2000 $8.90 50,000 – – – 50,000
1 January 2001 $9.76 10,000 – 5,000 – 5,000
2 April 2001 $10.72 121,842 – 54,114 – 67,728
19 April 2001 $11.45 200,000 – 200,000 – –
25 May 2001 $10.65 655,000 – 320,000 – 335,000
1 June 2001 $10.69 155,000 – – – 155,000
30 June 2001 $11.50 150,000 – 150,000 – –
6 July 2001 $11.20 30,000 – 30,000 – –
10 December 2001 $7.27 965,000 – – – 965,000
28 February 2002 $7.79 24,000 – 24,000 – –
18 March 2002 $7.49 804,949 – 37,053 22,826 745,070
14 November 2002 $7.37 100,000 – – – 100,000
13 March 2003 $8.04 3,066,865 – 276,634 34,503 2,755,728
10 April 2003 $8.04 110,884 – – – 110,884
3 November 2003 $10.14 10,000 – – – 10,000
3 March 2004 $11.08 – 3,593,866 322,275 8,213 3,263,378
3 March 2004 $8.04 – 209,637 – – 209,637
2 April 2004 $11.08 – 114,694 – – 114,694
1 December 2004 $0.00 – 5,000,000 – – 5,000,000
22 December 2004 $0.00 – 2,750,000 – – 2,750,000
6,811,500 11,668,197 1,710,906 65,942 16,702,849
The above analysis includes options held by the executive director and specified executives of the consolidated entity. Details of their
specific interests are shown in note 21.
The options outstanding at the balance date are as follows:
EMPLOYEE OPTIONS OTHER OPTIONS* TOTAL OPTIONS
YEAR OF EXPIRY FUTURE PERFORMANCE REGULAR SEES
2005 295,000 115,730 – – 410,730
2006 600,000 67,728 455,070 2,750,000 3,872,798
2007 965,000 167,082 2,751,697 5,000,000 8,883,779
2008 – 114,915 3,322,627 – 3,437,542
2024 – 98,000 – – 98,000
1,860,000 563,455 6,529,394 7,750,000 16,702,849
* options issued to third parties in respect of acquisitions and subject to performance hurdles
The future performance options have been issued subject to the achievement of specific performance criteria. Examples of such criteria
are set out in note 21.
Regular options issued under the Plan based on the achievement of past performance are exercisable at 20% per annum. If an employee
is entitled to exercise options in a particular year but does not, then the employee may exercise the options in the following year. These
options expire if not exercised within five years from the date of issue.
F-127
QBE INSURANCE GROUP ANNUAL REPORT 2004
85

NOTES TO THE FINANCIAL STATEMENTS
FOR THE YEAR ENDED 31 DECEMBER 2004
22
EMPLOYEE BENEFITS CONTINUED
(C) SUPERANNUATION
Entities in the consolidated entity participate in a number of superannuation plans which have been established and are sponsored by
those entities. A number of these plans provide defined benefits to employees on retirement, disability or death. The benefits are based
on years of service and an average salary calculation.
Contributions are made to the plans by employees and entities typically as a percentage of salary and within the rules of the plans, and
are based on funding schedules prepared by independent actuaries on the dates specified below. In addition, the consolidated entity
continues to meet applicable statutory minimum funding requirements set out by legislation in the United Kingdom. The contribution rate
in respect of defined benefit plans is agreed between the relevant controlled entity and the plans’ trustees and actuaries.
No liability has been recognised in the consolidated statement of financial position as the consolidated entity has no present obligation to
make payments in respect of deficits on its defined benefit plans over and above its actuarially determined contributions to these plans.
Independent actuarial assessments of all significant plans are completed at least once every three years. The main plans were assessed
by various qualified employees of Russell Employee Benefits, AON Consulting and Watson Wyatt Worldwide. All valuations have been
updated for information available at 31 December 2004. The increased deficit in 2004 is primarily due to the increase in the life
expectancy assumed by independent actuaries.
QBE GROUP STAFF IRON TRADES EUROPEAN STAFF JANSON GREEN
SUPERANNUATION INSURANCE RETIREMENT FINAL SALARY OTHER
PLAN STAFF TRUST BENEFIT PLAN PENSION SCHEME PLANS TOTAL
2004 $M $M $M $M $M $M
Date of last actuarial valuation 31 Dec 03 31 Dec 04 31 Dec 04 31 Dec 04
Present value of employees’
accrued benefits 129 259 16 193 7 604
Net market value of assets
held by the plans 125 232 11 120 9 497
Excess (shortfall) of net assets
over accrued benefits (4) (27) (5) (73) 2 (107)
Vested benefits* 119 248 15 181 7 570
QBE GROUP STAFF IRON TRADES EUROPEAN STAFF JANSON GREEN
SUPERANNUATION INSURANCE RETIREMENT FINAL SALARY OTHER
PLAN STAFF TRUST BENEFIT PLAN PENSION SCHEME PLANS TOTAL
2003 $M $M $M $M $M $M
Date of last actuarial valuation 31 Dec 02 31 Dec 02 1 Jan 03 1 Apr 02
Present value of employees’
accrued benefits 118 209 11 122 8 468
Net market value of assets
held by the plans 119 214 8 100 8 449
Excess (shortfall) of net assets
over accrued benefits 1 5 (3) (22) – (19)
Vested benefits* 103 202 11 122 6 444
* Vested benefits are not conditional upon continued membership of the plans (or any other factor except resignation from the plans) and include benefits
which members were entitled to receive had they terminated their plan membership at the balance date.
86 QBE INSURANCE GROUP ANNUAL REPORT 2004 F-128

NOTES TO THE FINANCIAL STATEMENTS
FOR THE YEAR ENDED 31 DECEMBER 2004
23 $000
REMUNERATION OF AUDITORS
2004 2003
$000
PricewaterhouseCoopers – Australian firm*
Audit or review of financial reports of the parent entity 665 628
Audit of financial reports of controlled entities 1,865 1,452
Audit of statutory returns 515 459
Other audit assurance services 499 393
Taxation services 46 153
Other consulting and advisory services – 73
3,590 3,158
Related practices of PricewaterhouseCoopers – Australian firm*
(including overseas PricewaterhouseCoopers firms)
Audit of financial reports of controlled entities 3,081 2,821
Audit of statutory returns 1,367 1,216
Other audit assurance services 123 184
Taxation services 327 358
Other consulting and advisory services 66 76
Actuarial services 15 19
Legal services 897 1,895
5,876 6,569
9,466 9,727
Audit and assurance services 8,115 7,153
Other services 1,351 2,574
9,466 9,727
Other auditors
Audit of financial reports of controlled entities 866 842
* From 1 January 2003, QBE may engage PricewaterhouseCoopers for non-audit services, subject to the general principle that fees for non-audit services
should not exceed 30% of the total of all fees in any one year. Consistent with prior periods, PricewaterhouseCoopers cannot provide the excluded
services of preparing accounting records or financial reports, asset or liability valuations, acting in a management capacity, acting as a custodian of
assets or acting as share registrar.
F-129
QBE INSURANCE GROUP ANNUAL REPORT 2004
87

NOTES TO THE FINANCIAL STATEMENTS
FOR THE YEAR ENDED 31 DECEMBER 2004
24 $M
CONTINGENT LIABILITIES
THE COMPANY
CONSOLIDATED
2004 2003 2004 2003
$M $M $M
The company and the consolidated entity had the following contingent liabilities:
Guarantees of borrowings by controlled entities 453 649 – –
Letters of credit issued in support of the consolidated entity’s
participation in Lloyd’s of London 245 36 294 84
Letters of credit issued in support of insurance liabilities of controlled entities 233 222 – –
Guarantees to investors in hybrid securities 796 654 – –
Guarantees to investors in ABC securities for funds at Lloyd’s (due 2008) 703 731 – –
Guarantees to investors in ABC securities for funds at Lloyd’s (due 2009) 281 – – –
A controlled entity has entered into a number of deeds of covenant in respect of its controlled entities to meet part of their obligations to
Lloyd’s of London. The total guarantee given under these deeds of covenant amounts to $398 million (2003 $581 million). The obligations
under the deeds of covenant are secured by a fixed and floating charge over certain investments and other assets in favour of Lloyd’s of
London (note 10).
Details of the guarantees to investors in eurobonds and hybrid securities and security arrangements in respect of borrowings are set out
in note 17.
Details of contingent liabilities in respect of ABC securities for funds at Lloyd’s are included in note 28(C).
THE COMPANY
CONSOLIDATED
2004 2003 2004 2003
25 $M $M $M $M
CAPITAL COMMITMENTS
Estimated capital commitments (not later than one year) – – 3 6
26
COMMITMENTS FOR EXPENDITURE
Operating leases
Aggregate amounts contracted but not provided for in the financial report
Not later than one year – – 33 27
Later than one but less than five years – – 86 66
Later than five years – – 80 72
– – 199 165
88 QBE INSURANCE GROUP ANNUAL REPORT 2004 F-130

NOTES TO THE FINANCIAL STATEMENTS
FOR THE YEAR ENDED 31 DECEMBER 2004
27
NEW SOUTH WALES WORKERS’ COMPENSATION MANAGED FUNDS (CONSOLIDATED)
A controlled entity is a licensed insurer under the New South Wales Workers Compensation Act 1987 (“the Act”). In accordance with the
requirements of the Act, the controlled entity has established and maintains statutory funds in respect of the issue and renewal of
policies of insurance.
The application of the statutory funds is restricted to the payment of claims, related expenses and other payments authorised under the
Act. WorkCover New South Wales advises that the licensed insurer has no liability under the Act in the event of a deficiency in statutory
funds and the Australian Taxation Office confirmed that the statutory funds are exempt from income tax as WorkCover New South Wales
holds a vested interest in the income of the statutory funds. For these reasons, the statutory funds are of a separate and distinct nature
and therefore it is not appropriate to include the assets and liabilities of these funds with the other assets and liabilities of the
consolidated entity. Accordingly, the income and expenses of the statutory funds have been excluded from the consolidated statement
of financial performance and the assets and liabilities of the funds have been excluded from the consolidated statement of financial
position.
Under the Act, the controlled entity is required to have an actuarial valuation of the financial position of the statutory funds, including a
valuation of liabilities, at least once in each three year period or such other period as may be prescribed by regulation. Accordingly, a fund
method of accounting is adopted whereby the balance of the statutory funds is carried forward until the financial positions of the
statutory funds are determined after actuarial investigation. Following this determination, WorkCover New South Wales may direct the
transfer of any surplus in accordance with the Act, including transfers to other statutory funds of the controlled entity or to the statutory
funds of another licensed insurer.
ASIC has by class order 98/107 (as amended by class orders 99/90, 00/321 and 04/666) exempted the controlled entity and the
consolidated entity from compliance with the Corporations Act 2001 to the extent it is necessary to adopt the above method of fund
accounting.
2004 2003
$M $M
Statutory fund statement of financial position
Current assets
Cash and short term deposits 1,079 772
Debtors 184 148
Non-current assets
Investments – market value 445 319
Total assets 1,708 1,239
Current liabilities
Creditors 18 31
Unearned premium 247 199
Statutory funds to meet outstanding claims and statutory transfers 1,443 1,009
Total liabilities and statutory funds 1,708 1,239
F-131
QBE INSURANCE GROUP ANNUAL REPORT 2004
89

NOTES TO THE FINANCIAL STATEMENTS
FOR THE YEAR ENDED 31 DECEMBER 2004
28
LLOYD’S DIVISION (CONSOLIDATED)
(A) NON-ALIGNED SYNDICATES
A controlled entity acquired Limit plc and its controlled entities (“Limit”) in August 2000. From 1994 to 2000, Limit participated in the
results of a number of syndicates managed by other managing agents at Lloyd’s (non-aligned syndicates). In 2000, Limit sold its right to
participate in the results of these syndicates after 31 December 2000. In 2001, Limit sold the rights to manage syndicate 318, previously
managed by its controlled managing agency, to another managing agency at Lloyd’s. The result of Limit’s participation on this syndicate
has also been included as non-aligned. Lloyd’s operates on a three year accounting basis and at the end of the third year the underwriting
account is normally closed by reinsurance into the following year of account. Therefore the runoff of these syndicates is expected to
complete by 31 March 2005. The consolidated entity is expected to have to fund its share of the net outstanding liabilities of these
operations, as shown below, and therefore the assets and liabilities are included on a net basis in outstanding claims in the statement
of financial position. The net liability has increased during the year due to reserve increases reflecting the current climate in the
reinsurance to close market where substantial risk premiums are being charged.
2004 2003
$M $M
Assets
Investments – market value 122 168
Other assets 119 143
Total assets 241 311
Liabilities
Outstanding claims net of reinsurance recoveries 263 252
Other liabilities 17 84
Total liabilities 280 336
Net liabilities 39 25
(B) REINSURANCE TO CLOSE
Since acquiring Limit in August 2000, QBE has purchased additional capacity in the syndicates managed by Limit, taking its ownership
share for all syndicates from 55% in 2000 to 86% for the 2005 underwriting year. These purchases of additional capacity create an
obligation for QBE to accept the additional share of insurance liabilities in exchange for an equal amount of investments and other assets.
The amounts will be determined when the reinsurance to close is calculated on 31 December 2005 or subsequent dates. It is currently
estimated that the amount of the net insurance liabilities and matching assets will exceed $681 million, which will be recognised in the
years in which the reinsurance to close is expected to be finalised.
(C) FUNDS AT LLOYD’S
ABC securities (due 2009)
In October 2004, the company entered into an arrangement with Mantis Reef II Limited (“MR(II)L”) to issue US$220 million of ABC (asset
backed capital) securities to support funds at Lloyd’s (“FAL”) pursuant to Lloyd’s collateral requirements. This arrangement substantially
replaced bank letters of credit and assisted in meeting new FAL requirements. MR(II)L is a special purpose entity incorporated with
limited liability under the laws of the Cayman Islands. The consolidated entity has no ownership interest in MR(II)L.
Proceeds from the sale of the ABC securities to investors have been swapped to sterling and then used to purchase shares in a wholly
owned subsidiary of MR(II)L, Mantis Reef II Pledge Limited (“MR(II)PL”). MR(II)PL is another special purpose entity incorporated with
limited liability under the laws of the Cayman Islands. The proceeds from the sale of shares in MR(II)PL have been used to purchase
eligible investments over which security interests, in the form of a fixed and floating charge, have been granted to Lloyd’s in support of
FAL requirements of some of the company’s controlled entities. Details of the eligible investments included in the asset portfolio are
shown below as ABC investments pledged for funds at Lloyd’s.
Under its arrangement with MR(II)L and MR(II)PL, the company makes fixed payments to MR(II)L and in return receives the benefit of the
earnings from the investment portfolio. As part of its agreement with MR(II)L and MR(II)PL the company can, if the need arises, call on
MR(II)PL to provide up to £120 million by the sale or transfer of its investment portfolio to meet certain controlled entities’ cash call
requirements from Lloyd’s, and at that time the company would assume a loan obligation including servicing of interest payments and
repayment of the principal. To achieve this, the company would issue debt securities to MR(II)L with similar terms to the ABC securities.
The company has entered into a fixed for floating cross currency interest rate swap with a third party to service its fixed interest rate
obligations. Details are included in note 11(A)(ii).
90 QBE INSURANCE GROUP ANNUAL REPORT 2004 F-132

NOTES TO THE FINANCIAL STATEMENTS
FOR THE YEAR ENDED 31 DECEMBER 2004
28
LLOYD’S DIVISION (CONSOLIDATED) CONTINUED
(C) FUNDS AT LLOYD’S CONTINUED
ABC securities (due 2008)
In October 2003, the company entered into an arrangement with Mantis Reef Limited (“MRL”) to issue US$550 million of ABC securities
to support FAL pursuant to Lloyd’s collateral requirements. This arrangement substantially replaced bank letters of credit. MRL is a
special purpose entity incorporated with limited liability under the laws of the Cayman Islands. The consolidated entity has no ownership
interest in MRL.
Proceeds from the sale of the ABC securities to investors have been used to purchase shares in a wholly owned subsidiary of MRL,
Mantis Reef Pledge Limited (“MRPL”). MRPL is another special purpose entity incorporated with limited liability under the laws of the
Cayman Islands. The proceeds from the sale of shares in MRPL have been used to purchase eligible investments over which security
interests, in the form of a fixed and floating charge, have been granted to Lloyd’s in support of FAL. Details of the eligible investments
included in the asset portfolio are shown below as ABC investments pledged for funds at Lloyd’s.
Under its arrangement with MRL and MRPL, the company makes fixed payments to MRL and in return receives the benefit of the
earnings from the investment portfolio. As part of its agreement with MRL and MRPL the company can, if the need arises, call on MRPL
to provide up to US$550 million by the sale or transfer of its investment portfolio to meet certain controlled entities’ cash call
requirements from Lloyd’s, and at that time the company would assume a loan obligation including servicing of interest payments and
repayment of the principal. To achieve this, the company would issue debt securities to MRL with similar terms to the ABC securities.
The company has entered into a fixed for floating interest rate swap with a third party to service its fixed interest rate obligations. Details
are included in note 11(A)(ii).
2004 2003
$M $M
ABC investments pledged for funds at Lloyd’s*
Due 2008 Interest bearing short term money US$550 million 703 731
Due 2009 Interest bearing short term money £120 million 295 –
Total 998 731
ABC securities for funds at Lloyd’s
Due 2008 US$550 million 703 731
Due 2009 US$220 million 281 –
Total 984 731
* Under the terms of the ABC securities arrangements, all interest bearing short term money will be reinvested and it is therefore included in non-current
assets.
29
RELATED PARTIES
All material information required to be disclosed by Accounting Standard AASB 1017: Related Party Disclosures, has been included in the
financial report as follows:
Reference
Directors’ particulars Page 35
Remuneration of directors and specified executives Note 21
Directors’ retirement allowances Note 21
Shares and options held by directors and specified executives Note 21
Tax sharing agreement Note 5
In the ordinary course of business, various QBE controlled entities receive dividends and purchase and sell investments in shares in
public entities in which directors of the company are directors and shareholders.
F-133
QBE INSURANCE GROUP ANNUAL REPORT 2004
91

NOTES TO THE FINANCIAL STATEMENTS
FOR THE YEAR ENDED 31 DECEMBER 2004
2004 2003
30 CENTS CENTS
EARNINGS PER SHARE (CONSOLIDATED)
Basic earnings per share 117.8 86.5
Diluted earnings per share* 105.3 77.5
$M $M
Reconciliation of earnings used in calculating earnings per share
Net profit attributable to members of the company 820 572
Less: dividends paid on mandatory convertible preference shares – (19)
Earnings used in calculating basic earnings per share 820 553
Net profit attributable to members of the company 820 572
Add: borrowing cost of hybrid securities 13 20
Earnings used in calculating diluted earnings per share 833 592
MILLIONS
MILLIONS
Weighted average number of ordinary shares used as the denominator in calculating:
Basic earnings per share 696 639
Diluted earnings per share 791 764
* Hybrid securities have been treated as dilutive if the contingent conversion conditions are met at the balance date. If all hybrid securities had been
considered dilutive at 31 December 2004, diluted earnings per share would have been 104.5 cents.
31 $M
AUSTRALIAN ASIA-PACIFIC EUROPEAN
GENERAL GENERAL THE COMPANY LLOYD’S
INSURANCE INSURANCE AMERICAS OPERATIONS DIVISION TOTAL
2004 2004 2004 2004 2004 2004
$M $M $M $M $M
SEGMENT INFORMATION
(A) GEOGRAPHICAL BUSINESS SEGMENTS
Total assets 6,189 1,359 2,118 6,383 9,053 25,102
Total liabilities 4,767 991 1,782 5,118 7,964 20,622
Acquisition of plant and equipment, intangibles
and other non-current segment assets 543 4 12 9 94 662
Depreciation and amortisation expense 13 5 2 37 18 75
Total revenue 2,457 607 1,811 2,604 2,945 10,424
Gross written premium 2,102 520 1,382 2,453 2,309 8,766
Gross earned premium 2,114 534 1,354 2,304 2,265 8,571
Outward reinsurance premium expense 283 95 549 333 530 1,790
Net earned premium 1,831 439 805 1,971 1,735 6,781
Net claims incurred 1,117 212 484 1,306 1,047 4,166
Net commission 244 75 207 296 362 1,184
Underwriting and other expenses 252 88 52 256 189 837
Underwriting result 218 64 62 113 137 594
Investment income on policyholders’ funds 105 17 9 101 82 314
Insurance profit 323 81 71 214 219 908
Investment income on shareholders’ funds 22 7 11 66 66 172
Profit from ordinary activities before income tax 345 88 82 280 285 1,080
Income tax 87 28 14 61 63 253
Profit from ordinary activities after income tax 258 60 68 219 222 827
Outside equity interests – 4 – 3 – 7
Net profit attributable to members
of the company 258 56 68 216 222 820
Intersegment transactions are priced on an arm’s length basis and are eliminated on consolidation.
92 QBE INSURANCE GROUP ANNUAL REPORT 2004
F-134

NOTES TO THE FINANCIAL STATEMENTS
FOR THE YEAR ENDED 31 DECEMBER 2004
31 $M
SEGMENT INFORMATION CONTINUED
(A) GEOGRAPHICAL BUSINESS SEGMENTS CONTINUED
AUSTRALIAN ASIA-PACIFIC EUROPEAN
GENERAL GENERAL THE COMPANY LLOYD’S
INSURANCE INSURANCE AMERICAS OPERATIONS DIVISION TOTAL
2003 2003 2003 2003 2003 2003
$M $M $M $M $M
Total assets 3,934 1,148 1,731 5,782 7,848 20,443
Total liabilities 3,105 795 1,450 4,888 6,837 17,075
Acquisition of plant and equipment, intangibles
and other non-current segment assets 21 3 2 12 30 68
Depreciation and amortisation expense 13 8 1 23 11 56
Total revenue 1,892 625 1,441 2,767 2,642 9,367
Gross written premium 1,869 542 1,342 2,441 2,156 8,350
Gross earned premium 1,715 549 1,213 2,302 2,037 7,816
Outward reinsurance premium expense 290 119 473 394 504 1,780
Net earned premium 1,425 430 740 1,908 1,533 6,036
Net claims incurred 959 215 469 1,273 907 3,823
Net commission 158 81 174 297 390 1,100
Underwriting and other expenses 206 91 46 237 161 741
Underwriting result 102 43 51 101 75 372
Investment income on policyholders’ funds 76 13 11 60 95 255
Insurance profit 178 56 62 161 170 627
Investment income on shareholders’ funds 38 6 4 48 42 138
Profit from ordinary activities before income tax 216 62 66 209 212 765
Income tax 36 20 19 41 72 188
Profit from ordinary activities after income tax 180 42 47 168 140 577
Outside equity interests – 4 1 – – 5
Net profit attributable to members
of the company 180 38 46 168 140 572
(B) EXTERNAL PRODUCT SEGMENTS
GENERAL
INWARD
INSURANCE REINSURANCE TOTAL
2004 2003 2004 2003 2004 2003
$M $M $M $M $M $M
Total revenue 7,925 6,815 2,499 2,552 10,424 9,367
Net profit attributable to members
of the company 687 392 133 180 820 572
Total assets 18,295 13,377 6,807 7,066 25,102 20,443
Acquisition of plant and equipment, intangibles
and other non-current segment assets 468 50 194 18 662 68
F-135
QBE INSURANCE GROUP ANNUAL REPORT 2004
93

NOTES TO THE FINANCIAL STATEMENTS
FOR THE YEAR ENDED 31 DECEMBER 2004
32 $M
RECONCILIATION OF CASH FLOWS FROM
OPERATING ACTIVITIES TO NET PROFIT ATTRIBUTABLE
TO MEMBERS OF THE COMPANY
THE COMPANY
CONSOLIDATED
2004 2003 2004 2003
$M $M $M
Cash flows from operating activities 348 323 2,110 2,089
Depreciation of assets – – (53) (36)
Amortisation of goodwill and write-off of intangibles – – (22) (20)
Amortisation of premium/discount on fixed interest securities – – (14) (11)
Loss on sale of plant and equipment – – (1) (1)
Net exchange (losses) gains (33) 10 2 (13)
Other (losses) gains on investments – (79) 91 110
Increase in net outstanding claims – – (1,101) (1,209)
Increase in unearned premium – – (161) (525)
Increase in deferred insurance costs – – 77 68
Increase in net amounts receivable from controlled entities 1,826 735 – –
Increase in trade debtors – – 148 402
(Decrease) increase in other operating assets (276) 111 (246) 61
Increase in trade and other creditors – – (172) (138)
(Increase) decrease in current tax liabilities (2) (76) 41 (105)
Increase in deferred tax liabilities (18) (616) (141) (60)
(Increase) decrease in provisions (5) (13) 269 (35)
Outside equity interests – – (7) (5)
Net profit attributable to members of the company 1,840 395 820 572
33
NON-CASH FINANCING AND INVESTING ACTIVITIES
Dividends satisfied by the issue of shares under the Dividend Reinvestment Plan are shown in note 19(B) and shares issued to
employees under the Plan for no cash consideration are shown in note 19(D). Details of the deferred settlement costs associated with
acquisitions in the year are set out in note 12(G).
94 QBE INSURANCE GROUP ANNUAL REPORT 2004
F-136

Directors’ declaration
The directors declare that the financial statements and notes set out on pages 46 to 94:
(a) comply with Accounting Standards, the Corporations Regulations 2001 and other mandatory professional reporting requirements;
and
(b) give a true and fair view of the company’s and consolidated entity’s financial position as at 31 December 2004 and of their
performance, as represented by the results of their operations and their cash flows, for the year ended on that date.
In the directors’ opinion, the financial statements are in accordance with the Corporations Act 2001 and there are reasonable grounds
to believe that the company will be able to pay its debts as and when they become due and payable.
Signed in SYDNEY this 24th day of February 2005 in accordance with a resolution of the directors.
EJ Cloney
Director
FM O’Halloran
Director
F-137
QBE INSURANCE GROUP ANNUAL REPORT 2004
95

Independent audit report
TO THE MEMBERS OF QBE INSURANCE GROUP LIMITED
AUDIT OPINION
In our opinion, the financial report of QBE Insurance Group Limited:
• gives a true and fair view, as required by the Corporations Act 2001 in Australia, of the financial position of QBE Insurance Group Limited
and the QBE Insurance Group (defined below) as at 31 December 2004, and of their performance for the year ended on that date; and
• is presented in accordance with the Corporations Act 2001, Accounting Standards and other mandatory financial reporting requirements
in Australia, and the Corporations Regulations 2001.
This opinion must be read in conjunction with the rest of our audit report.
SCOPE
The financial report and directors' responsibility
The financial report comprises the statements of financial position, statements of financial performance, statements of cash flows,
accompanying notes to the financial statements and the directors' declaration for both QBE Insurance Group Limited (“the company”) and the
QBE Insurance Group (“the consolidated entity”) for the year ended 31 December 2004. The consolidated entity comprises both the company
and the entities it controlled during that year.
The directors of the company are responsible for the preparation and true and fair presentation of the financial report in accordance with the
Corporations Act 2001. This includes responsibility for the maintenance of adequate accounting records and internal controls that are
designed to prevent and detect fraud and error, and for the accounting policies and accounting estimates inherent in the financial report.
Audit approach
We conducted an independent audit in order to express an opinion to the members of the company. Our audit was conducted in accordance
with Australian Auditing Standards, in order to provide reasonable assurance as to whether the financial report is free of material misstatement.
The nature of an audit is influenced by factors such as the use of professional judgement, selective testing, the inherent limitations of internal
control and the availability of persuasive rather than conclusive evidence. Therefore, an audit cannot guarantee that all material misstatements
have been detected. For further explanation of an audit, visit our website http://www.pwc.com/au/financialstatementaudit.
We performed procedures to assess whether in all material respects the financial report presents fairly, in accordance with the Corporations
Act 2001, accounting standards and other mandatory financial reporting requirements in Australia, a view which is consistent with our
understanding of the company’s and the consolidated entity’s financial position, and of their performance as represented by the results of
their operations and cash flows.
We formed our audit opinion on the basis of these procedures, which included:
• examining, on a test basis, information to provide evidence supporting the amounts and disclosures in the financial report; and
• assessing the appropriateness of the accounting policies and disclosures used and the reasonableness of significant accounting
estimates made by the directors.
Our procedures include reading the other information in the annual report to determine whether it contains any material inconsistencies with
the financial report.
While we considered the effectiveness of management’s internal controls over financial reporting when determining the nature and extent of
our procedures, our audit was not designed to provide assurance on internal controls.
Our audit did not involve an analysis of the prudence of business decisions made by directors or management.
INDEPENDENCE
In conducting our audit, we followed applicable independence requirements of Australian professional ethical pronouncements and the
Corporations Act 2001.
RD Deutsch
Partner
PricewaterhouseCoopers
Sydney
24 February 2005
Liability is limited by the Accountant’s Scheme under the Professional Standards Act 1994 (NSW).
96 QBE INSURANCE GROUP ANNUAL REPORT 2004
F-138

APPENDIX A: GLOSSARY TO CERTAIN INSURANCE TERMS
Set forth below are definitions of some of the insurance terms used in this Offering Memorandum. For a
definition of some of the insurance product terms used in this Offering Memorandum, see “Business—
Description of Products and Services.”
Actuarial analysis ..................
Assume ..........................
Broker ...........................
Capacity ..........................
Case reserves ......................
Casualty insurance ..................
Catastrophe reinsurance .............
Ceding ...........................
Claim ............................
Claims incurred ....................
Evaluation of risks in order to attempt to ensure that claims provisions
adequately reflect expected future loss experience and claims
payments; in evaluating risks, mathematical models are used to
predict future loss experience and claims payments based on
historical loss ratios, loss development patterns and other relevant
data and assumptions.
Toaccept from the primary insurer or reinsurer all or a portion of the
liability underwritten by such primary insurer or reinsurer.
Onewhonegotiates contracts of insurance or reinsurance on behalf of
an insured party, receiving a commission from the insurer or reinsurer
for placement and other services rendered.
Thepercentage of surplus, or the dollar amount of exposure, that an
insurer or reinsurer is willing to place at risk. Capacity may apply to a
single risk, a program, a line of business or an entire book of
business.
Recorded estimates of unpaid liabilities associated with specific
reported claims. Case reserves may pertain to losses and loss
adjustment expenses.
Insurance that is primarily concerned with the losses caused by
injuries to third persons or their property (i.e., not the policyholder)
and the legal liability imposed on the insured resulting therefrom. It
includes, but is not limited to, general liability, employers’ liability,
workers’ compensation, professional liability, public liability and
automobile liability insurance. It excludes certain types of losses that
by law or custom are considered as being exclusively within the scope
of other types of insurance, such as fire or marine.
Aform of excess of loss reinsurance that, subject to specified limits,
indemnifies the insured for the amount of loss in excess of a specified
retention with respect to an accumulation of losses resulting from a
catastrophe event or series of events.
Reinsuring a part or a whole of an underwriting risk with a reinsurer
by making a premium payment.
Theamount payable under a contract of insurance or reinsurance
arising from a loss relating to an insured event.
Theaggregate of all claims paid during an accounting period adjusted
by the change in claims provisions for that accounting period.
A-1

Claims provisions ..................
Claims ratio .......................
Combined operating ratio ............
Commercial lines ...................
Commission ratio ..................
Cover ............................
CTP .............................
Direct insurance ....................
Excess of loss reinsurance ............
Expense ratio ......................
Facultative reinsurance ..............
Frequency ........................
General insurance ..................
Gross claims incurred ...............
Gross earned premium ..............
Gross written premium ..............
Theestimate of the most likely cost of settling present and future
claims and associated loss adjustment expenses plus a risk margin for
the possible fluctuation of the liability.
Netclaims incurred divided by net earned premium.
Thesumofourclaims ratio, commission ratio and expense ratio. A
combined operating ratio below 100% indicates profitable
underwriting results. A combined operating ratio over 100% indicates
unprofitable underwriting results.
Types of insurance written for businesses instead of individuals.
Netcommission expense divided by net earned premium.
Thescope of protection provided by an insurance policy.
Compulsory third party motor vehicle personal injury insurance in
Australia.
Theprovision of insurance directly by an insurer to an insured, i.e.,
not through an intermediary.
Aform of reinsurance in which, in return for a premium, the reinsurer
accepts liability for losses or claims settled by the original insurer in
excess of an agreed amount, generally subject to an upper limit.
Underwriting and administrative expenses divided by net earned
premium.
Thereinsurance of individual risks through a transaction between the
reinsurer and the cedant (usually the primary insurer) involving a
specified risk.
Thenumberofclaims occurring under a given coverage divided by
the number of exposures for the given coverage.
Generally used to describe non-life insurance business including
property and casualty insurance.
Theamount of claims incurred during an accounting period before
deducting reinsurance recoveries.
Thetotal premium on insurance earned by an insurer or reinsurer
during a specified period on premiums underwritten in the current and
previous underwriting years.
Thetotal premium on insurance underwritten by an insurer or
reinsurer during a specified period, before deduction of reinsurance
premium.
A-2

Incurred but not reported (IBNR) ......
Insurance solvency .................
Inward reinsurance .................
Lloyd’s ..........................
Long-tail .........................
Net claims incurred .................
Net earned premium ................
Net written premium ................
Outstanding claims .................
Outward reinsurance ................
Premium .........................
Proportional reinsurance .............
Recoveries ........................
Reinsurance .......................
Claims arising out of events that have occurred before the end of an
accounting period but have not been reported to the insurer by that
date.
Ratio of net tangible assets over net earned premium, which indicates
how liquid are an insurer’s assets to pay claims.
Thereinsurance or assumption of risks written by another insurer.
TheSociety and Corporation of Lloyd’s, incorporated by the Lloyd’s
Acts 1871 to 1982, including the Council of Lloyd’s and any person
or delegate acting under its authority as the context may require.
Classes of insurance business involving coverage for risks where
notice of a claim may not be received for many years and claims may
be outstanding for more than one year or more before they are finally
settled and quantifiable by the insurer; protracted legal proceedings
may be involved to apportion liability and to establish the quantum of
claims.
Theamount of claims incurred during an accounting period after
deducting reinsurance recoveries.
Netwritten premium adjusted by the net change in unearned premium
for a year.
Thetotal premium on insurance underwritten by an insurer during a
specified period, after deduction of premium applicable to reinsurance
acquired in respect thereof.
Theamount of provisions established for claims and related claims
expenses that have occurred but have not been paid.
Thereinsurance or cession of risks by the insurer to an assuming
reinsurer.
Payments and consideration for insurance, surety bonds or
reinsurance coverage under insurance policies, surety bonds or
reinsurance agreements.
Atype of reinsurance in which the original insurer and the reinsurer
share losses in the same proportion as they share premiums.
Theamount of claims recovered from reinsurance, third parties or
salvage.
Anagreement to indemnify a primary insurer by a reinsurer in
consideration of a premium with respect to agreed risks insured by the
primary insurer. The enterprise accepting the risk is the reinsurer and
is said to accept inward reinsurance. The enterprise ceding the risks is
the cedant or ceding company and is said to place outward
reinsurance.
A-3

Reinsurer .........................
Retention .........................
Retrocession ......................
Run-off ..........................
Short-tail .........................
Treaty reinsurance ..................
Underwriting ......................
Underwriting expenses ..............
Underwriting profit (loss) ............
Underwriting year ..................
Unearned premium .................
Written premium ...................
Theinsurer that assumes all or part of the insurance or reinsurance
liability written by another insurer. The term includes
retrocessionaires, which are insurers that assume reinsurance from a
reinsurer.
That amount of liability for which an insurance company will be
responsible after it has completed its reinsurance arrangements.
Anagreement by a reinsurer to accept part or all of the risk insured by
another reinsurer in consideration of a premium, being the
retrocession premium.
Themanagement of claims to finalization in respect of a discontinued
class of business.
Classes of insurance business involving coverage for risks where
notice of a claim is received and claims are outstanding for one year
or less before they are finally quantifiable and settled by the insurer.
Reinsurance of risks in which the reinsurer is obliged by agreement
with the cedant to accept, within agreed limits, all risks to be
underwritten by the cedant within specified classes of business in a
given period of time.
Theprocess of reviewing applications submitted for insurance or
reinsurance coverage, deciding whether to provide all or part of the
coverage requested and determining the applicable premium.
Theaggregate of policy acquisition costs, excluding commissions,
and the portion of administrative, general and other expenses
attributable to underwriting operations.
Theamount of pretax income (loss) from insurance operations,
exclusive of net investment income and capital gains or losses.
Theyear in which the contract of insurance commenced or was
underwritten.
Theportion of a premium representing the unexpired portion of the
contract term as of a certain date.
Premiums written, whether or not earned, during a given period.
A-4

£300,000,000
QBE Capital Funding L.P.
Capital Securities
(liquidation preference of £50,000 per Capital Security)
guaranteed to the extent described in this Offering Memorandum by,
and each redeemable for cash or exchangeable as described in this Offering Memorandum
for one preferred security (liquidation preference of £50,000 per preferred security) of,
QBE Insurance Group Limited
ABN 28 008 485 014
OFFERING
MEMORANDUM
Merrill Lynch International
Citigroup
July 19, 2006