QBE European Operations plc

QBE European Operations plc 

Annual report 2011 

BUSINESS INSURANCE SPECIALIST

QBE European Operations plc (QBE EO) is the parent company of the European 

Operations Division of QBE Insurance Group Limited (QBE), one of the world’s 

leading international insurers and reinsurers. QBE operates from 52 countries 

around the world and has a presence in all the key insurance markets. 

For further information visit www.QBEeurope.com 

At a glance 

01 Our brand promise 

02 2011 in review 

03 Chairman’s statement 

04 Chief Executive Officer’s review 

Strategic overview 

06 Our business and strategy 

08 Our business structure 

Business operations 

11 Our underwriting divisions 

12 Property, Casualty and Motor 

14 Marine, Energy and Aviation 

16 Reinsurance and Credit Lines 

19 European markets 

20 Risk management 

24 Our people 

Corporate governance 

34 Board of directors 

36 Audit committee 

38 Governance framework 

40 Key committees 

41 Directors’ report 

43 Independent auditors’ report 

QBE European Operations – board governance structure 

QBE EO board 

Foundational values 

Brand values 

QREL board 

QIEL and QUL 

combined boards 

Secura NV board 

QBE Management 

Services (UK) Limited 

board 

Strong 

Empowers 

Underwriting discipline 

Our vision 

Product and 

Growth by acquisition 

geographic diversification 

Specialist 

Delivers 

Entrepreneurial 

Financial statements 

44 Group profit and loss account: 

technical account – general business 

45 Group profit and loss account: 

non-technical account 

46 Statement of Group total recognised gains 

and losses 

47 Reconciliation of movement in Group 

shareholders’ funds 

48 Balance sheets 

50 Notes to the financial statements 

Financial review 

28 Chief Financial Officer’s review 

30 Financial management 

Additional information 

82 Glossary of insurance terms 

84 Directors and officers 

85 QBE EO structure

QBE European Operations plc Annual report 2011 01 

Our brand promise 

At a glance 

The QBE European 

Operations brand 

promise strives for 

excellence in five 

core areas 

Specialist 

in every business line and consistently 

across all disciplines 

p10 

Cyber Response, our bespoke product 

for cyber and data security risks 


solutions to business risk 

Delivers 

reliable and responsive service at every 

stage of the stakeholder experience 

p18 

Secura NV: expanding our reinsurance business 

p23 

QBE Rehabilitation – award-winning service 

Strong 

and growing market presence 

Empowers 

a collaborative “can do” spirit across the 

business and with all business partners 

p26 

Strong underwriting discipline backed 

by financial strength 

p33 

Road safety, our collaboration with Brake


2011 in review 

Gross written premium 

+12.1% 

Total assets 

+8.6% 

Combined operating ratio 

96.6% 

2011 

3,020 

2011 

13,837 

2011 

96.6 

2010 

2,695 

2010 

12,746 

2010 

92.8 

2009 

2,568 

2009 

11,085 

2009 

93.0 

2008 

2,175 

2008 

9,846 

2008 

91.8 

2007 

2,169 

2007 

8,703 

2007 

87.7 

Net earned premium 

2011 

+17.5% 

1,967 

Profit after tax 

2011 

(51.0%) 

95 

Return on allocated capital* 

16.3% 

2011 

16.3 

2010 

1,674 

2010 

194 

2010 

19.7 

2009 

1,639 

2009 

175 

2009 

23.1 

2008 

1,390 

2008 

210 

2008 

34.5 

2007 

1,594 

2007 

271 

2007 

26.8 

Group operating performance 

2011 2010 change 

£m £m % 

Gross written premium 3,020 2,695 12.1 

Net earned premium 1,967 1,674 17.5 

Underwriting profit 67 121 (44.6) 

Insurance profit 86 187 (54.0) 

Profit for financial year 95 194 (51.0) 

2011 2010 change 

% % % 

Combined operating ratio (COR) 96.6 92.8 3.8 

Insurance profit to net earned premium 4.4 11.2 (6.8) 

Return on allocated capital 16.3 19.7 (3.4) 

* Return excluding QBE EO’s internal reinsurance arrangements with other divisions within QBE.


Chairman’s statement 

At a glance 

“In a year of exceptional natural catastrophe claims 

and low investment returns, QBE EO’s ability to 

continue to deliver profits is testament to our 

experienced underwriters, our cautious approach 

to managing risk, the quality of our products and 

the benefits of our geographic diversification.” 

Frank O’Halloran 

Chairman of QBE European Operations 

Chief Executive Officer 

QBE Insurance Group Limited 

QBE European Operations 

2011 was a year of exceptional claims: the 

London market, in particular, was affected 

by insured losses from the floods in Thailand, 

earthquakes in New Zealand, an earthquake 

and tsunami in Japan, tornadoes in the US, 

flooding in Australia, Hurricane Irene, which 

caused extensive damage in the Caribbean 

and on the east coast of North America. 

In addition, investment markets continued to 

be difficult. Market activity, which was already 

adversely affected by the tragic events in Japan 

and a loss of momentum in the US economy, 

came to be dominated by developments in the 

Eurozone, particularly the debt crisis in Greece 

and fears that sovereign debt restructuring 

would spread to other countries that use the 

Euro. At the end of the year, the global economic 

outlook was one of subdued recovery in the 

developed markets and – given the likely 

protracted resolution of Europe’s debt problems 

– central banks were adopting a cautionary 

stance on monetary policy. 

The results we achieved in 2011 were, 

therefore, a testament to our experienced 

underwriters, our cautious approach to 

managing risk, the quality of our products and 

the benefits of our geographic diversification. 

Secura NV 

In addition to QBE celebrating its 125th 

anniversary in 2011, Secura NV commemorated 

its 65th year of operation. Founded in 1945 

as a reinsurance provider within the Belgium 

Farmers’ Association, it became part of KBC 

Bank in 1998 and was acquired by QBE EO 

in 2010. Its integration is going to plan and it 

has already added considerable value to our 

reinsurance capabilities as well as to our profile 

in Europe. 

The QBE Foundation 

The QBE Foundation was launched in 

April 2011 and is QBE’s major corporate 

responsibility initiative. The intention of the 

QBE Foundation is to extend beyond 

philanthropy and to create a platform for 

QBE and its employees to engage with 

the communities in which we operate. 

Global workforce diversity 

QBE has also established a global workforce 

diversity policy. This sets out the guiding 

principles for management practices, with the 

aim of achieving a more balanced representation 

of women in senior leadership roles throughout 

the organisation. A Workforce Diversity Council 

– which will take local legislation, business 

operations and culture into account in each 

of the markets in which QBE operates 

– is responsible for reviewing and making 

recommendations to the QBE Group board. 

The board and management 

There was one change to the board during 

the year. Kathy Lisson stepped down from 

her role as Chief Operating Officer effective 

15 February 2011, to return to her native 

Canada. On Kathy’s departure, David Winkett 

was appointed Chief Financial and Operating 

Officer. I have also announced my intention 

to retire later this year, after 35 years with the 

QBE Group. John Neal will take up the role 

of Chairman of QBE EO. 

Following the board’s decision to transfer 

the management of UK National Distribution 

to the Property, Casualty and Motor Division, 

Terry Whittaker chose to leave QBE EO. 

He had played a vital role in the successful 

building and management of our distribution 

capability, under the banner of National and 

European markets and I thank him for his 

valuable contribution. 

Patrick Coene has been appointed to the new 

role of Managing Director, European Markets. 

While our general managers have already 

carried out a tremendous amount of work 

in building our European markets business, 

Patrick’s arrival will accelerate its development. 

By providing an essential continental European 

perspective at executive level, this should help 

create market opportunities for QBE EO. 

People 

On behalf of the directors, I acknowledge 

the achievements and hard work of all our 

staff. We choose our people for their ability, 

experience, potential and “can do” approach 

to their work and we recognise that developing 

and retaining them – through our personal 

development, performance management and 

reward frameworks – is vitally important in 

achieving consistently high standards of 

business excellence. 

I thank our Chief Executive Officer, Steven 

Burns and his management team for their 

diligence during the year and their contribution 

to our success. 

Outlook 

Our priority for 2012 continues to be to deliver 

our plan and to exceed the Group’s target 

return on allocated capital, rather than simply 

pursuing top-line growth. To achieve this, we 

will continue our disciplined underwriting stance 

and our focus on retaining quality business. 

We will also continue to look for opportunities 

to grow our business and, through that, to 

increase shareholder wealth.


Chief Executive Officer’s review 

“QBE EO achieved a profit for the year with a combined 

operating ratio of 96.6%, despite a record level 

of losses from natural catastrophes and limited 

investment returns.” 

Steven Burns 



In 2011 QBE EO achieved a pre-tax profit 

of £83.2 million, an insurance profit margin 

of 4.4% and a return on allocated capital* 

of 16.3%. 

2011 was a challenging year. The London 

market was heavily exposed to floods in 

Thailand, the effects of storms in Australia 

and the US and earthquakes in New Zealand 

and Japan; these all had an impact on our 

reinsurance, marine and direct property lines of 

business. In addition, there was an abnormally 

large number of marine and energy risk claims 

in our onshore and offshore energy portfolios. 

Our combined operating ratio for 2011 was 

96.6%, which is a strong performance 

considering the market conditions and when 

compared with the majority of our peers. Our 

strategy of diversity by product and geographic 

spread assisted and we also benefited, on a net 

basis, from extensive reinsurance protection. 

Fundamentally, our underlying underwriting 

margin and profitability remain sound and we 

maintained our focus on retaining quality clients 

in what continued to be soft markets, while 

inadequate pricing in many classes put 

pressure on the acquisition of new business. 

Significant rate increases in energy and 

catastrophe had an impact on renewals, 

particularly for Australian and Japanese 

reinsurance and worldwide energy clients. 

In June and July, we also increased rates 

for US catastrophe reinsurance renewals 

and for international property business. UK 

commercial motor rates increased by at least 

5% for most clients, in response to poor market 

results and inflated bodily injury claims, although 

in other classes – particularly UK and European 

property and casualty – markets continued to 

be extremely competitive. Our overall average 

rate increase in 2011 was around 2%. 

Investment market conditions are currently very 

unsettled; yields are low and there is no sign 

of a material increase in interest rates while 

economies continue to be depressed and 

the European debt crisis persists. 

Acquisition and integration 

Our Belgian reinsurer, Secura NV, which was 

acquired in November 2010, is performing 

well ahead of expectations. Its integration 

is beginning to have a significantly beneficial 

effect on our reinsurance capabilities and 

on our presence in continental Europe: 

its premium income for the year was 

£203 million. Secura NV had no exposure to 

the 2011 catastrophes, which demonstrates 

the benefits of diversification that this 

acquisition brings to QBE EO. 

The European debt crisis has caused significant 

anxiety and investment market volatility around 

the world, resulting in an impairment of a 

number of balance sheets as insurers and 

banks revalue their investment portfolios and 

related assets to the lower market value. This 

unsettled environment has led to an increase 

in merger and acquisition opportunities, but 

to date with the exception of the renewal rights 

for Brit Insurance UK regional operations, none 

of them have met our strict criteria. We believe, 

however, that opportunities in Europe will 

increase as the full impact of regulatory 

changes, particularly Solvency II criteria, are 

better understood and adopted. 

Distribution Division restructure 

Following a strategic review of the business, we 

decided to transfer the management of the UK 

National Distribution channel into the Property, 

Casualty and Motor Division. This enables us to 

develop our UK and Ireland regional business by 

facilitating a common leadership and strategy, 

by optimising underwriting empowerment and 

by enabling commercial managers to make full 

use of their local expertise and relationships. 

I am confident that this structural consolidation 

will help us develop our ability to provide excellent 

products and services to our brokers and clients 

in the UK and Ireland and will provide a strong 

platform for continued profitable growth. 

Patrick Coene’s appointment to the new role 

of Managing Director, European Markets, is 

expected to create additional market opportunities 

for QBE EO. Previously Chief Executive Officer 

of Amlin Corporate Insurance, Patrick brings 

with him a wealth of underwriting and 

management experience. 

Transformational project 

In 2009 we launched a major transformational 

project to create a market-leading operational 

support model. This project (“project 

springboard”), which completed in Q1 2012, 

will deliver improved functionality for our 

underwriters and claims operating staff. 

Solvency II 

Solvency II is a fundamental review of the 

regulatory requirements for insurance companies 

across Europe. It will result in a new regulatory 

regime that is expected to change capital 

requirements, risk management standards 

and disclosure requirements for the insurance 

industry across Europe. It is expected to be 

implemented on 1 January 2014. 

QBE EO has invested significant resources in 

ensuring that it is prepared to meet the new 

standards and capital requirements. We 

participated in all the relevant submissions to 

Lloyd’s and the Association of British Insurers. 

In October 2011, our syndicates were awarded 

“green light” status under the Lloyd’s traffic light 

system that is currently being used to measure 

* Return excluding QBE EO’s internal reinsurance arrangements with other divisions within QBE.


At a glance 

The QBE Internationals 

In March 2011, QBE EO signed an agreement 

with the Rugby Football Union to become the 

title sponsor of the QBE Internationals, the 

tournament where England take on the best 

of the Southern Hemisphere at Twickenham. 

In November and December 2012, the 

QBE Internationals will see England pit their 

skills against Fiji, Australia, South Africa and 

finally, the IRB Rugby World Cup winners, 

New Zealand. 

The QBE Foundation 

The QBE Foundation was launched 

in April 2011 and is QBE’s major 

global corporate responsibility initiative. 

The philosophy of the Foundation is to 

support vocational opportunities globally. 

QBE believes that through work, an 

individual’s ultimate ability and potential 

can be realised. With vocational goals in 

mind, the Foundation seeks to support 

individuals and groups across many 

countries, including providing support 

for community-based initiatives in the 

developing world such as micro-loans 

for small business entrepreneurs. 

The objectives of the QBE Foundation 

are to: 

• make a difference in key areas that 

align with QBE’s vision and values; 

• drive employee engagement by 

developing networking and a strong 

team-based culture; and 

• maximise the return and impact 

for any collection, distribution and 

allocation of philanthropic resources. 

Solvency II readiness. Similar progress has been 

made by our regulated companies, although 

benchmarking is not yet in place for them. 

We are confident that our systems and internal 

processes will comply with the new regulatory 

requirements and that our insurance carriers 

will be able to meet the minimum capital 

requirements when Solvency II is implemented. 

Brand development 

Building a strong and visible brand is a key 

component for QBE’s development and we 

have been driving this with our rugby 

sponsorship. We have been official partners of 

England Rugby and Premiership Rugby since 

late 2009 and have been the insurance partner 

for Glasgow Warriors since 2011. 

Most recently, we signed a four-season 

agreement with the RFU to become the title 

sponsor of the prestigious QBE Internationals, 

the games which feature England playing 

against the best of the Southern Hemisphere 

at Twickenham. This tournament will start in 

November 2012 and provides us a wider range 

of brand, business development and employee 

engagement opportunities. 

Employee engagement 

Managing our commercial business is, on its 

own, not enough to create long-term success. 

The engagement of our people is equally 

important in achieving our strategic ambition of 

being recognised as Europe’s leading specialist 

insurer and reinsurer for business. We are 

committed to developing our employees and 

improving their performance by understanding 

what it is that makes them “go the extra mile”. 

During 2011, we carried out a number of 

research initiatives and reviews to gain a better 

understanding of our employees’ experience of 

working with us. As a result, we are now in the 

process of creating an Engagement Charter. 

This will cover: 

• a definition of engagement for QBE EO; 

• our commitment to employee engagement 

as a top strategic priority; and 

• a plan for 2011-2014, that focuses around 

engaging leadership, managing people 

effectively, powerful internal communications 

and a more cohesive QBE culture. 

QBE EO’s enduring success is largely the result 

of its employees’ hard work and I thank them all 

for their endeavours and the contribution they 

made during the year. 

I am confident that our culture and business 

model will enable us to continue our proven 

track record of growth, disciplined underwriting 

and uncompromising focus on outperformance, 

and allow us to deliver strong results.


Our business and strategy 

Our vision is to be recognised by brokers and 

clients as Europe’s leading specialist business 

insurer and reinsurer. We are confident in our 

ability to achieve this strategic ambition by 

continuing to focus on growth by acquisition, 

product and geographic diversification and strong 

underwriting discipline, all underpinned by our 

brand promise and foundational values and 

effective risk and capital management. 

Strong 

Empowers 


Brand values 


Our vision 


geographic diversification 

Product and 

Specialist 

Delivers 



We have a strong record of successfully 

acquiring companies that complement and 

extend our existing business and increase 

our presence in Europe. In 2000, our acquisition 

of Limit Group enabled us to expand into the 

Lloyd’s market and, in the same year, we 

acquired Iron Trades. We have subsequently 

made eight further acquisitions and established 

offices in 11 European countries as well as in 

Singapore, Canada and Dubai. In 2010, our 

acquisition of Brussels-based Secura NV added 

immense value to our reinsurance capabilities 

and to our profile in Europe. 

QBE EO 

QBE EO is a division of QBE Insurance Group. 

Group’s vision 

To be the most successful global insurer and 

reinsurer in the eyes of our customers, our 

people, our shareholders and the community. 

Australia 

European 

Operations 

QBE 

North 

America 

Product and geographic diversification 

We write a broad range of products across a wide 

geographic area. This reduces our overall risk 

exposure and enables us to achieve consistent 

returns, even during years of unusual losses. It also 

means that we are able to offer clients the choice 

of writing business on Lloyd’s or company paper. 


We aim for a 15% cross-cycle return on 

allocated capital on all business lines. It is 

our policy to discontinue lines that do not meet 

our target rate of return, rather than to chase 

top-line growth. 

• We will grow and deliver market-leading 

profitability in all our chosen businesses. 

• We will excel in the design and delivery 

of our products and services. 

• We will develop “can do” people who live 

our Essential Behaviours in everything 

they do. 

• We will increase the long-term wealth 

of our shareholders. 

Asia 

Pacific 

Latin 

America 

Brand promise 

We have a distinctive brand and strive for 

excellence, based on five promises: 

• Strong and growing market presence 

coupled with financial strength in 

underwriting (see page 26); 

• Empowerment through a collaborative 

“can do” spirit throughout the business and 

with our business partners (see case study: 

road safety on page 33); 

• Specialists in every business line and 

consistently across all disciplines (see 

case study: Cyber Response on page 10); 

• Entrepreneurial solutions to business risk 

(see case study: expanding our reinsurance 

business on page 18); and 

• Delivery of reliable and responsive solutions 

(see case study: QBE Rehabilitation wins 

Post magazine Rehab First Awards on 

page 23). 


Our values, which underpin the unique QBE 

culture, are demonstrated through QBE’s nine 

Essential Behaviours, known by the acronym 

OPENUPQBE. These behaviours and attitudes, 

as applied by QBE people on a day-to-day 

basis, are the common threads binding 

together the diversity of our worldwide 

organisation. We aim to employ, retain and 

develop the best available people in the 

industry. Our OPENUPQBE programme, 

which is actively promoted to staff across 

QBE, underpins this strategy (see page 25).


We measure our progress through specific performance goals that are fundamental to the delivery 

of our vision. 

Priorities 

Targets 


Underwriting 

discipline 

We have annually agreed targets, 

set by QBE during the planning process 

and detailed business plans that define 

profit targets for each portfolio. The 

board regularly monitors our targets 

against plan and empowers our 

underwriters to deliver within a 

framework of plans and authorities. 

Performance goals 

• Target a return on allocated capital in excess of 15% 

cross-cycle and a combined operating ratio below 100% 

• Strong underwriting cycle management 

Actual 

• In 2011 we achieved a return on allocated capital of 16.3% 

against a target of 15% with a combined operating ratio 

of 96.6% 

Growth by 

acquisition 

Our acquisition strategy is agreed 

annually within the QBE framework. 

Our board continually reviews 

acquisition opportunities, as and 

when they appear, against strict 

acquisition criteria. 

The board reviews the contribution 

of acquisitions to top-line growth 

against targets agreed with the Group 

board to ensure that they positively 

contribute to earnings. 


• Deliver acquisitions that add value, subject to our disciplined 

approach and acquisition criteria 

• Continue to integrate the acquired business of Secura NV 

Actual 

• In 2011 we continued to monitor potential acquisitions but 

none of those reviewed met our strict criteria 

• In April 2012 we acquired the renewal rights for Brit Insurance 

UK regional operations 

• Secura NV acquisition is meeting expectations and our agreed 

targets have been met 

Product and 

geographic 

diversification 

Our underwriting managers are highly 

involved in strategy and management. 

They are tasked with developing organic 

growth strategies and maximising 

distribution opportunities, including 

Lloyd’s and QBE global networks. 


• Develop new products, business classes and/or teams 

and distribution opportunities through Lloyd’s and the QBE 

global network 

• Improve on client penetration across divisions through 

cross-portfolio initiatives 

• Increase collaboration with other QBE divisions 

Actual 

• We appointed a Managing Director for European markets 

• In 2011 we maintained our successful brand development 

through our rugby sponsorship 

To employ the 

best people 

in all disciplines 

We have a board-approved HR strategy 

(see page 24 for further details). 

Systems exist to identify issues early 

and we track and resolve any concerns 

arising from our employee surveys. 

People who leave us are debriefed 

to help us to improve our policies. 


• Develop excellent transactional process in core HR services 

• Develop and implement people-focused solutions with the 

aim of improving our employees’ capabilities 

• Ensure that QBE EO is recognised as an employer of choice 

by existing and potential employees, the market and its 

business partners 

Actual 

• Employee engagement, flexible working and diversity 

initiatives launched 

• Strong progress in talent management and initiatives


Our business structure 

QBE EO operates a product-led model, supported by an established distribution network that operates 

predominantly in the London, UK regional and European markets 

Brokers/clients 

UK 

UK 

London 


Lloyd’s 

syndicates 


companies 

London 

Europe 

Europe 

Product-led model 

Property, Casualty and Motor 

Marine, Energy and Aviation 

Reinsurance and Credit Lines 

QBE EO companies 

QBE Insurance (Europe) Limited (QIEL) 

QIEL is a specialist business insurer writing 

business in the UK and throughout Europe. 

It offers insurance products for professional 

indemnity, financial and credit, bloodstock, 

public liability, product liability, employee liability, 

motor vehicle and property facultative. 

The company is regulated by the Financial 

Services Authority (FSA) and has overseas 

branches in Bulgaria, Czech Republic, 

Denmark, Estonia, France, Germany, Hungary, 

Ireland, Italy, Romania, Slovakia, Spain, 

Sweden, Switzerland and the United 

Arab Emirates. 

QBE Reinsurance (Europe) Limited (QREL) 

QREL, based in Dublin, operates as an 

international treaty reinsurer. The company 

focuses predominantly on non-proportional 

business, the majority of which it generates from 

brokers operating outside the London market. 

Secura NV 

Secura NV is a specialised European reinsurer 

operating from Brussels, Belgium. Established 

in 1946, its broadly based portfolio focuses 

on Benelux and France. 

Secura NV forms part of QBE EO’s Reinsurance 

Division, while continuing to operate as a 

separate brand domiciled in Belgium to service 

its established continental Europe client base. 

2011 2010 

Gross written premium £m 1,283 1,282 

Net earned premium £m 1,024 963 

Net investment income £m 123 83 

Profit before tax £m 49 25 

Combined operating ratio % 105.6 106.0 

Total assets £m 4,426 4,286 

Shareholders’ funds £m 1,002 1,041 

2011 2010 

Gross written premium US$m 146 122 

Net earned premium US$m 116 88 

Net investment income US$m 17 32 

Profit before tax US$m 55 75 


Total assets US$m 725 631 

Shareholders’ funds US$m 351 333 

2011 2010 

Gross written premium €m 233 229 

Net earned premium €m 210 200 

Net investment income €m 13 56 

Profit before tax €m 29 43 


Total assets €m 1,343 1,263 

Shareholders’ funds €m 261 228

QBE European Operations plc Annual report 2011 

09 

QBE EO’s product-led model comprises three distinct divisions, each of which offers clients the choice 

of writing business through company or Lloyd’s security 



Property, Casualty 

and Motor 

Ash Bathia 

Marine, Energy 

and Aviation 

Colin O’Farrell 

Reinsurance and 

Credit Lines 

Jonathan Parry 

Lloyd’s syndicates QBE EO company Lloyd’s syndicates QBE EO company Lloyd’s syndicate QBE EO companies 

QIEL 

386 1886* QIEL 5555* 1036* QIEL 

566* 

QREL 

Secura NV 

* Part of QBE Syndicate 2999 

QBE EO Lloyd’s syndicates 

QBE EO manages its Lloyd’s activities through 

QBE Underwriting Limited (QUL), one of the 

largest managing agents at Lloyd’s. 

QBE Casualty Syndicate 386 

Syndicate 386, established in 1974, is a 

specialist UK non-marine liability insurer. 

Led by Ash Bathia, active underwriter, it is a 

non-aligned syndicate with capacity for 2011 

of £365 million, 69.6% provided by QBE EO. Part 

of the Property, Casualty and Motor Division, 

it writes professional and finance lines focused 

in the UK, international liability and employers’ 

liability, public and products’ guarantee for 

construction and offshore accounts in the 

UK and Ireland. 

QBE Syndicate 2999 

Syndicate 2999 is a wholly aligned 

Lloyd’s syndicate with capacity for 2011 

of £930 million, led by Ash Bathia, Colin 

O’Farrell and Jonathan Parry as joint active 

underwriters from 2011. It is an umbrella 

syndicate established for the 2000 year of 

account to provide a mechanism for the 

efficient use of capital, while maximising 

the individual strengths and professional 

expertise of the underlying sub-syndicates. 

S&P ratings table 

QIEL 

QREL 

Secura NV 

Syndicate 386 

Syndicate 2999 

S&P 

A+/stable 

A+/stable 

A/stable 

Sub-syndicates of 2999 

For 2011, Syndicate 2999 operated five 

autonomously managed sub-syndicates 

that wrote a broad range of business. 

LSA 

5/stable 

4-/stable 

2011* 2010* 

Gross written premium £m 443 458 

Net earned premium £m 377 355 


Profit for the year £m 160 175 



* Table shows full syndicate results rather than QBE EO’s 

69.6% share. 

2011 2010 

Gross written premium £m 1,115 1,013 

Net earned premium £m 763 686 


Profit for the year £m (24) 129 



2011 

Sub- 

capacity 

syndicate Class £m 

566 Reinsurance 290 

1036 Marine and Energy 355 

1886 † Property, Casualty and Motor 108 

5555 Aviation 107 

2000 Property 70 

† 

For 2012 sub-syndicate 1886 includes risks previously written 

by sub-syndicate 2000.


Specialist 

in every business line and consistently across 

all disciplines 

QBE EO is always looking for solutions to business risks 

which means working closely with all parties to understand 

their business and creating the right product for them. 

QBE EO’s teams are specialists in every business line, 

which means giving equal importance to the generation 

of new business as to supporting the retention of key 

existing business. 

QBE EO’s underwriters are readily accessible with skills 

and in-depth product knowledge of specialist sectors 

enabling an answer straightaway. The sheer number of 

underwriters means that there are specialists for individual 

sub-classes of product and, if an answer is not readily 

available, then QBE EO will look for creative solutions. 

So whether it is cover for a sports venue or a catering 

company or anything in between, QBE EO can provide 

a competitive and effective outcome. 

Case study: Cyber Response 

Businesses are increasingly exposed to cyber and data security risks. Cyber crime and the 

frequency of data breaches, together with the associated costs of recovering from such events are 

rising, while at the same time, there is tighter regulation of any business that holds personal data. 

Between 2008 and 2010, 90% of large 

businesses reported at least one breach 

of security. Cyber crime is now estimated 

to cost the world economy US$114 billion 

a year. 

QBE believe that insurers should play an 

important role in delivering relevant and 

responsive products to protect companies in 

the event of cyber attacks and data breaches. 

This was the driving factor behind the creation 

of “Cyber Response”, which unlike many cyber 

and data security products offers first-party 

cover to help the insured deal with the cost 

of responding to a cyber and/or data security 

event rather than simply covering third-party 

losses. The product was the result of 18 months’ 

research and development. Supported by a 

vigorous underwriting and risk management 

process, the product offers an attractive 

insurance solution whilst also managing 

QBE’s exposure. 

and reputation damage, data breach notification 

requirements, cyber extortion monies, IT system 

rectification, regulatory investigation demands 

and compensatory damages arising from 

liabilities associated with an event. 

The policy not only indemnifies but offers 

immediate support in the event of a loss, 

delivered through QBE’s network of cyber and 

data security specialists via red24. The service 

offers a 24/7 telephone response line connected 

to a crisis management service, able to send in 

IT forensics, PR and other specialist teams as 

necessary to ensure the situation is quickly and 

effectively addressed. 

Cyber Response is available for UK businesses 

with income under £100 million and is distributed 

through all of QBE’s UK offices, supported by 

the Cyber and Data Security Risk underwriting 

and claims teams in London. 

Cyber Response is a bespoke product able to 

be tailored to the insured’s particular coverage 

requirements. Features can include: first-party 

cover for business interruption losses, brand


Our underwriting divisions 

QBE EO is organised into three product-focused 

underwriting divisions, which enables us to co-ordinate 

and focus our capabilities. The divisions write a diverse 

portfolio of business through our insurance carriers. 


The Property, Casualty and Motor Division, led by Chief 

Underwriting Officer Ash Bathia, was established in 

November 2010 with the objective of creating a marketleading 

business unit. It provides a broad range of casualty 

insurance; commercial specialist property and business 

interruption insurance; and commercial motor insurance. 

It writes business at Lloyd’s through Syndicates 386 and 

1886 as well as QIEL. 

More information on Property, Casualty and Motor is available 

on pages 12 to 13 



The Marine, Energy and Aviation Division, led by Chief 

Underwriting Officer Colin O’Farrell, writes direct marine 

and energy, protection and indemnity (P&I) and aviation 

business. Marine and energy and aviation business are 

both underwritten at Lloyd’s through Syndicates 1036 and 

5555 respectively. P&I and hull insurance are underwritten 

through British Marine, which was acquired by QIEL 

in 2005. 

More information on Marine, Energy and Aviation is available 

on pages 14 to 15 


The Reinsurance and Credit Lines Division, led by Chief 

Underwriting Officer Jonathan Parry, comprises four 

operating units: Syndicate 566, at Lloyd’s; QREL, in Dublin; 

Secura NV, in Brussels, acquired in 2010; and Credit Lines 

insurance. The division writes a broad range of reinsurance 

across a number of classes and also writes Credit Lines 

business from offices in mainland Europe and the UK. 

More information on Reinsurance and Credit Lines is available 

on pages 16 to 17



“We have achieved an excellent result despite 

the continuing uncertain economic climate and 

challenges of fierce market competition across 

all our main classes.” 

Ash Bathia 

Chief Underwriting Officer 

Property, Casualty and Motor Division, 

Active Underwriter QBE Casualty Syndicate 386, 

Joint Active Underwriter QBE Syndicate 2999 

Divisional overview 

The Property, Casualty and Motor (PCM) 

Division provides commercial specialist 

property and business interruption insurance, 

a broad range of casualty insurance and 

also offers commercial vehicle, bus and 

coach, fleet, car, taxi, minibus and self-drive 

hire programmes. Business is written 

through Lloyd’s and QIEL. 

UK and Ireland 

A market leader in the UK and Ireland liability 

business with highly experienced and qualified 

underwriters, the team underwrites employers’, 

public, pollution and products liability as well as 

product guarantee and recall. Excess layer 

coverage is offered as well as primary insurance. 

The team serves all major industry groups, with 

significant involvement in construction, offshore 

and transportation. Insurance is distributed in 

London to open market and Lloyd’s brokers 

and through our eight national offices. 

In 2011, we incorporated our Bloodstock and 

Accident & Health teams into UK and Ireland 

liability to add to our product mix. We also now 

offer our clients a multinational solution through 

our network of QBE offices worldwide and 

network partners. 

Property 

The portfolio covers four key markets: 

UK, European, London and International. 

The UK and European portfolios comprise 

property and business interruption insurance 

across a full spectrum of clients, from 

householders to multinational corporations. 

A wide range of industries is written, from 

manufacturing, technology, chemical and 

pharmaceutical to retail and financial services. 

The team applies innovative solutions to writing 

risks on primary and full-value property 

insurance programmes. In-house skills, 

combined with an in-depth understanding of 

clients’ needs and of the risk and financial 

return, enable us to propose strong solutions 

and to take a bespoke approach for major 

clients and complex risks. 

The specialist London market teams focus on 

larger industrial and commercial UK-based and 

international property risks and are empowered 

with additional capacity to provide for the needs 

of multinational clients. The insurance is 

distributed in London to open market London 

brokers and through Lloyd’s. 

Our preferred position on large/complex risks 

is a lead or significant line to influence clients 

and gain a better understanding of the risks 

they present. Our portfolio includes a 

combination of full value, primary and excess 

of loss. This business is written on Lloyd’s 

paper for North American-domiciled risks. 

Since our preferred position is to write 

excess-of-loss business rather than primary 

for international property, the portfolio is 

moving increasingly in that direction. 

International Liability and Professional 

and Financial Lines 

The portfolio comprises a diverse spread 

of business that, using company or Lloyd’s 

security and licences, is spread geographically 

across 130 territories. It covers a wide range 

of industry groups, from hotels and local 

government through to heavy industry, such 

as construction, mining, energy, transportation 

and utilities. 

The International Liability and Professional and 

Financial Lines team is known for its wealth of 

market experience, specialised knowledge and 

innovative approach. It has a long-standing 

reputation as the leading liability business in 

the London market. 


£1,703m 

Up 6.4% from last year 


2011 

2010 

90.5% 


portfolio mix 

Net earned premium for the year ended 

31 December 2011 

● Property 18.7% 

● UK and 

Irish liability 18.7% 

● International 

liability and 

professional 

and financial 

lines 41.2% 

● Motor 21.4% 

90.5% 

95.8% 

The team is widely recognised in the market for 

its expertise across its lines and has benefited 

from an ability to respond to brokers on 

a cross-class basis.


Underwriting structure 

With 2011 GWP 

Property, Casualty 

and Motor 

Ash Bathia 

£1,703 million 

Property UK and Ireland International 

Liability and 

Professional and 

Financial Lines 

Motor and 

Product 

Protection 

Peter Fice 

£388 million 

Craig Bennett 

£291 million 

David Harries 

£714 million 

Matthew Crane 

£310 million 

The underwriting structure is supported by David Cooney (Operations), Neila Buurman (Underwriting Management), Talbir Bains (Actuarial/Management Information), 

Chris Wallace (Broker Development and Client Management) and Elliot Miller (UK National Distribution), providing performance and operational support across the Division. 


In addition to a long-standing UK portfolio, 

an international book of non USA-domiciled 

business has been written over a number 

of years. A significant global book of solicitors’ 

business is written, both at a primary and 

excess level and in construction, the team 

is the market leader in the design and 

construct product. 

The Management Liability team focuses on the 

development of mid-market UK and European 

business on a primary basis, in addition to the 

excess-of-loss business, which will be developed. 

The Financial Institutions team has now 

completed the significant re-engineering of the 

portfolio that started in 2010. Changes have 

been made to the structure, personnel and 

appetite of this portfolio. Its focus includes 

opportunistic well-priced banks, SMEs, asset 

management for Professional Indemnity, 

Bankers’ Blanket Bond and Director and 

Officers’ Insurance. 

Motor and Product protection 

The Motor team offers a broad range of 

specialist commercial motor products, ranging 

from haulage, bus and coach risks to fleet car. 

These products are written conventionally 

and non-conventionally and are currently 

underwritten in the UK, Ireland and various 

European and international territories. There 

are also bespoke sub-products (including a 

combined Motor Trade product) which covers 

most areas of motor insurance. 

The diversity of our products has been increased 

by the addition of the Product Protection team, 

which principally underwrites a GAP and warranty 

product to the international motor market. 

QBE EO is one of the fastest-growing 

commercial motor insurers in the UK and has 

an award-winning claims service backed up 

by an innovative risk management team. This 

ensures that we are well positioned to develop 

the portfolio as market conditions improve 

in 2012. 

Financial performance 

The trading environment for the division was 

difficult across all the main classes in 2011. 

Gross written premiums increased by 6.4% 

overall during 2011 to £1,703 million as a result 

of a number of successful new business and 

product initiatives. The division’s combined 

operating ratio reduced by 5.3 points, primarily 

as a result of an improved performance on 

the Property book, mostly on international 

business. UK Commercial motor rates have 

been increasing by around 5% for most 

clients in response to poor market results and 

bodily injury claims and inflation in the market, 

however, in other classes markets remained 

very competitive. 

Outlook 

Given the uncertain economic climate and 

challenges of fierce market competition across 

all main classes, the division performed very 

well in 2011. There remains an abundance of 

capital, capacity and underwriting appetite in 

the market and we are expecting a tough year 

in 2012. The team’s focus will remain on 

maintaining underwriting disciplines, prioritising 

client retention and delivering levels of service 

that meets the demands of all our stakeholders. 

QBE National, Elliot Miller 

“UK National Distribution became part of the 

PCM Division on 17 November 2011. The 

product range for UK National is dominated 

by property, casualty and motor business 

and has been very successful since its 

launch in 2008. This change will enable us 

to further develop our UK and Ireland 

regional business by facilitating a common 

leadership and strategy, optimising 

underwriting empowerment and allowing 

commercial managers to fully utilise their 

local experience and relationships.” 

UK National provides local brokers outside 

the London Market access to QBE EO’s 

products through a network of eight 

regional offices throughout the UK and 

Ireland. Our empowered specialist 

underwriters combine technical expertise 

with knowledge and understanding of their 

own market to match the needs of our 

brokers and clients. In 2011, National 

offices wrote gross written premium 

totalling £282 million. 

Our product offering differs in some 

locations dependent upon staffing, 

market appetite and opportunity. Our core 

product offering of property, casualty and 

motor incorporates liability, professional 

indemnity, construction all risks, directors 

and officers, financial institutions, crime, 

clinical and pharmaceuticals, bus and 

coach, commercial motor, motor trade, 

accident and health, travel, commercial 

property and trade credit. 

UK National is committed to the continuing 

development of our broker relationships 

with national and independent brokers 

through a partnership that aims to deliver 

mutual profitable growth.



“The division’s historically strong underwriting 

discipline, expertise and service enabled us 

to deliver an underwriting profit in extremely 

competitive market conditions.” 



Marine, Energy and Aviation Division, 



The Marine, Energy and Aviation Division 

comprises Marine and Energy Syndicate 

1036, British Marine and Aviation 

Syndicate 5555. 

Syndicate 1036, a direct marine and energy 

syndicate that operates in the Lloyd’s insurance 

market, specialises in hull, energy, liability, specie, 

cargo, ports, war, political risks, political 

violence and associated risks. Its product 

distribution is increased through our wholly 

owned US underwriting agency, Burnett & Co 

Inc. and through local participation in the 

Lloyd’s Asia market in Singapore. 

British Marine specialises in writing protection and 

indemnity (P&I) for smaller vessels and 100% 

hull risks. Since January 2010, its management 

has been integrated with that of Syndicate 1036. 

Syndicate 5555 is a dedicated specialist 

aviation syndicate at Lloyd’s. It writes all 

elements of general aviation, airline operations, 

products and airport business. It became part 

of the division on 1 December 2010. 

Product range 

Marine 

Marine comprises the cargo, specie, hull and 

war, ports and liability underwriting portfolios. 

• Cargo consists of a high-quality portfolio 

of international business; the team is 

recognised as a leader in high-tech, 

pharmaceutical and manufactured goods 

and excess stock. 

• Specie writes risks worldwide and 

specialises in areas such as armoured car, 

general specie, fine art, jewellers’ block 

and financial institutions. 

• The hull and war portfolios comprise 

blue water hulls, mortgagees’ interests, 

shipbuilders and war risks, written worldwide. 

• Port writes cover for ports and terminals, 

intermodal transport and marine 

professionals’ liabilities. 

• Liability operates across the global marine 

and energy liability markets. The portfolio 

comprises pure marine risks, such as P&I, 

pollution and charterers; and energy 

liabilities both offshore and onshore. 

Energy and Political 

Energy and Political comprises the offshore and 

onshore energy portfolios, together with the 

political risk and violence underwriting portfolios. 

Offshore energy is the division’s largest individual 

portfolio. It is written worldwide, from dedicated 

upstream entities to fully integrated energy 

companies. The portfolio specialises in offshore 

cover for assets located in the North Sea and 

the Far East, particularly China. Approximately 

60% of business is written in a lead capacity. 

The onshore team writes a wide range of risks, 

worldwide, for oil and gas companies’ onshore 

assets, from wellheads to refineries and 

petro-chemical plants, particularly in the Middle 

East and Indonesia. Approximately 75% of the 

account is written in a lead capacity. 

The political risk and terrorism team writes 

a broad-based portfolio of risks, worldwide. 

The portfolio complements existing risk classes 

written by the division, particularly onshore 

energy, cargo and specie. 


£644m 

same as last year 


2011 

2010 


portfolio mix 

Net earned premium for the year ended 


● Marine 27.6% 

● British 

Marine 23.5% 

● Energy and 

Political 27.8% 

● General 

Aviation 9.6% 

● Airlines 5.1% 

● Products 

and Airports 6.4% 

98.2% 

98.2% 

87.0%



With 2011 GWP 

Marine, Energy 

and Aviation 


£644 million 

Sam Harrison 

Director of Underwriting 

£531 million 

Paul Letherbarrow* 

Director of Underwriting 

(Aviation) 

£113 million 

Marine 

Tim Pembroke 

£152 million 

British Marine 

Tim Harris 

£115 million 

Energy and Political 

Peter Burton 

£264 million 

The underwriting structure is supported by Nick Menear (Operations), Gary Crowley (Claims) and Daryl Ewer (Business Development). 

* Joined April 2012 


British Marine 

Cover includes P&I risks, written on a worldwide 

basis, for smaller, specialist vessels and yachts 

that typically do not exceed 10,000 gross tons. 

Premium cover includes protection for cargo, 

pollution, collision and personal injury. 

The portfolio also includes a dedicated hull 

underwriting team that specialises in offering 

cover for hull and machinery, increased value 

and war risks, which are routinely written for 

100% of a vessel’s value up to US$20 million. 

Approximately 10% of the hull portfolio relates 

to the insurance of commercial fishing vessels, 

predominately in the UK, Ireland and Canada. 

General Aviation 

The GA team leads more than 40% of the risks 

it writes. Clients include the private owners of 

fixed-wing and rotor-wing aircraft, flying clubs 

and all types of commercial operations. Although 

the portfolio is international, the majority of 

business comes from Europe and Asia and is 

written through London-based brokers. Income 

is also generated through branch offices in 

mainland Europe, Mexico and the USA, where 

we provide products through local market 

agents and brokers. 

Airlines 

Airline risks are written, through brokers, on a 

co-insurance basis in the international subscription 

market. The syndicate has the capacity to 

underwrite all classes of airline business 

worldwide, from international, national and 

regional carriers, to charter and cargo airlines. 

Products and Airports 

The Products and Airports portfolio consists 

of an international book written predominantly 

through London-based insurance brokers. 

Business is spread over all sectors, including 

airframe engine and component manufacturers, 

airport and airport-related servicing risks and 

refuelling operations. 


The division’s trading environment was mixed 

in 2011, with average rate increases of 

4.8% (2010 2.1%). Significant rate increases 

were observed during 2011 on renewal 

of energy impacted classes of business, 

particularly worldwide energy clients. Rates 

in the marine, British Marine and aviation 

markets remained relatively flat during the 

year. Gross written premium remained stable 

at £644 million. Underpinning this performance 

were prior-year reserve releases from QBE 

Syndicate 1036 of £10.9 million. This includes 

a 2011 reserve release, reflecting a benign 

hurricane season for catastrophe exposed risk 

business in the US Gulf. 

Market environment 

The market environment was extremely 

competitive across all marine, energy and aviation 

product lines. While rates in the onshore and 

offshore energy risk and liability sectors increased 

following market losses in the former and 

contraction in capacity in energy liability, there 

was little or no rating progress in other classes, 

in which overcapacity and commission levels 

became increasingly significant issues. The 

market rating environment across all classes 

was particularly disappointing, despite the 

increased level of catastrophe claims 

throughout the 2011 calendar year. 

Outlook 

We assume that pressure on rates will increase 

in 2012 unless capacity or market participants 

contract following the high level of catastrophe 

claims in 2011. The division’s historically 

strong underwriting discipline, expertise and 

service will be the key to profitability in 2012. 

Consolidation and expansion of managed 

operations overseas, combined with 

co-operation with QBE European and Group 

offices worldwide, will become increasingly 

important as the year progresses.



“Our philosophy of writing a diverse portfolio, together 

with purchasing an extensive retrocession programme, 

has enabled us to achieve a result well ahead of the 

majority of our competitors.” 



Reinsurance and Credit Lines Division 



The Reinsurance and Credit Lines Division 

comprises four operating units: Reinsurance 

Syndicate 566 at Lloyd’s, QREL, Secura NV, 

which was acquired in 2010 and Credit Lines 

Insurance. This excellent distribution platform 

enables access to markets such as Europe, 

North America, Australasia, Japan and Latin 

America, while offering clients the choice 

of company or Lloyd’s security. The division 

writes a broad range of reinsurance across 

a number of classes and also writes Credit 

Lines business from offices in mainland 

Europe and the UK. 

Our breadth of expertise in many classes 

means that we are able to offer clients 

long-term support, together with financial 

strength and first-rate service. The portfolio’s 

diversity gives it a lower risk profile than other 

less diverse portfolios, because pricing and 

claims between classes are not linked. 

2011 was the first full year of Secura NV being 

part of the QBE Group; the teams in London, 

Brussels and Dublin are all working well 

together for the good of the division. 

International Property Treaty 

The largest account in the portfolio is 

International Property Treaty. The majority of 

business is written on a catastrophe excessof-loss 

basis through Syndicate 566 and QREL. 

The portfolio is well spread geographically; 

it focuses primarily on the United Kingdom, 

Europe, Japan, Australasia and Latin America. 

The division leads much of the business 

written in this portfolio. 

International Casualty Treaty 

QBE EO is a recognised market leader 

in International Casualty Treaty business. 

The team covers most liability classes in all 

territories, except the US and writes business 

on both an excess-of-loss and proportional 

basis through Syndicate 566 and QREL. 

North American Property and Casualty Treaty 

The majority of the Property Treaty portfolio 

emanates from the US, with the remainder 

from Canada. The account is mostly written on 

a catastrophe excess-of-loss basis. Casualty 

Treaty business is biased towards risk and 

catastrophe excess-of-loss treaty and is split 

between standard lines – comprising general 

liability, workers compensation agency, clash 

and motor covers – and professional lines, 

comprised exclusively of healthcare business. 

Marine, Aviation and Personal Accident 

This portfolio is entirely written through 

Syndicate 566. It covers all aspects of marine 

business and includes third party cover, such 

as P&I and pollution. The account is written 

on a risk and catastrophe excess-of-loss basis. 

The portfolio focuses on middle to high layers, 

avoiding attritional levels and currently consists 

of business emanating from more than 

50 countries. 

The aviation team provides cover for insurers and 

reinsurers of the world’s major airlines, airports 

and aerospace product manufacturers. Business 

is written through excess-of-loss treaties. 

Personal Accident business is split evenly 

between risk and catastrophe excess of loss 

business and primary direct and facultative 

insurance including line slips and binders. 

Syndicate 566 is a member of the SATEC Pool 

providing cover on satellite launch and in-orbit 

risks on a promotional basis. 


£670m 

Up 48.9% from last year 


103.0% 

2011 

103.0% 

2010 

74.6% 

Reinsurance and Credit Lines portfolio mix 

Net earned premium for the year 

ended 31 December 2011 

● Int Property 

Treaty 15.3% 

● Int Casualty 

Treaty 16.2% 

● North American 

Property and 

Casualty Treaty 9.5% 

● Marine, Aviation 

and Personal 

Accident Treaty 7.5% 

● Worldwide and 

Retrocession 10.8% 

● Credit Lines 6.5% 

● Secura NV 34.2%



With 2011 GWP 

Reinsurance 

and Credit Lines 


£670 million 

Syndicate 566 

(London) 

QREL 

Secura NV 

(Brussels) 

Credit 

Lines 

Paul Horgan 

Peter Wilkins 

£322 million 

Padraig Kelly 

£92 million 

Jan LeFlot 

Luc Boghe 

£203 million 

Trevor Williams 

£53 million 


Worldwide and Retrocession 

This is the longest established portfolio in 

Syndicate 566 and comprises catastrophe 

retrocession, catastrophe protections of direct 

and facultative accounts and risk excess 

business. The syndicate leads more than 80% 

of the account written and has a significant 

impact in the quoting process of the remainder. 

Syndicate 566 targets business with a high 

risk-to-reward ratio, while positioning itself away 

from attritional loss activity. It values continuity 

and has been trading with its core clients for 

many years. 

Credit Lines 

QBE EO is a leading provider of Credit Lines 

insurance. The portfolio includes European 

Credit Lines operations, which provide a range 

of solutions to middle-sized and large corporate 

entities, based in Europe and Switzerland. The 

Surety teams, based in the UK, France and 

Germany, offer a broad range of commercial 

and contract surety products with an innovative 

approach to risk. 

Market environment 

2011 was a year of unprecedented catastrophe 

losses, particularly from international territories. 

It is estimated that the market total exceeded 

US$105 billion. The Japanese earthquake and 

tsunami in March was a significant disaster, 

followed by the devastating Thai flooding and 

another earthquake, in Christchurch, New Zealand, 

in February. Although there was not a single 

enormous event in the United States, tornado 

losses added up to US$18 billion during the year. 

These catastrophes have hit the reinsurance 

industry very hard and although there have not 

yet been insolvencies, several companies have 

begun to withdraw from the market. This will 

help in obtaining a much-needed rating 

improvement, which started at the 1 January 

2012 renewal period. 

After two profitable years for Credit Lines, 

it is disappointing that there is considerable 

price competition in the midst of the current 

European economic turmoil. 


It is always disappointing to report a combined 

operating ratio in excess of 100%, but in a year 

of such frequency of worldwide catastrophes, 

it is not a surprise. Our philosophy of writing a 

diverse portfolio, together with purchasing an 

extensive retrocession programme, enabled us 

to achieve a result well ahead of the majority of 

our competitors. A full year of Secura NV’s 

well-earned profit and another good result from 

Credit Lines also helped. 

Outlook 

After a difficult year in 2011, we are pushing 

through rate increases and, where we cannot 

achieve them, we have declined to renew 

business. We believe the pain of 2011’s 

catastrophe losses will become even more 

apparent in the next few months and that there 

will be withdrawals from the market. We hope 

this will create the opportunity for us to take 

advantage and achieve profitable growth. 

QBE Re 

QBE is combining its worldwide 

reinsurance operations under a single 

management team and unified brand, 

QBE Re. 

QBE Re will comprise the current 

statutory businesses of Syndicate 566, 

QREL, Secura NV and QBE Re 

(Americas). The combined business will 

have a gross written premium of over 

US$1.5 billion, across a well-balanced 

portfolio of property, casualty and 

specialty lines. The business will be 

led by Jonathan Parry, who will become 

Chief Underwriting Officer of QBE Re. 

The unified business will be backed by 

QBE Group’s A+ (S&P) and A (A.M. Best) 

financial ratings and with specific QBE Re 

capital of more than US$1.9 billion, the 

move strengthens its flexibility to support 

a broader reinsurance risk appetite. 

“This global approach allows us to create 

a platform where we can provide the 

best possible service to our clients 

worldwide. Our business philosophies, 

market approach and appetite will be 

co-ordinated, which in turn will help 

ensure greater consistency across 

underwriting, pricing, risk management 

and reserving. I and QBE Re’s leadership 

team, are excited by the opportunities 

offered by the new business model.” 

Jonathan Parry, CUO



solutions to business risk 

QBE EO is always looking for solutions to business risks, 

which means working closely with all parties to understand 

their business and creating the right product for them. 

Based upon an appetite for tripartite partnerships with 

brokers and clients, built around shared information, 

QBE EO’s aim is always to find a competitive and effective 

solution looking far beyond the initial relationship. 

Case study: expanding our reinsurance business 

Our acquisition of Brussels-based Secura NV, in November 2010, 

added immense value to our reinsurance capabilities and 

our profile in Europe. 

Secura NV’s specialist underwriting focus, 

understanding and accurate pricing of risk 

and prudent reserving and investment 

strategy, complement our existing 

reinsurance business. 

Our expanded capital base gives us the 

opportunity to grow our reinsurance business 

by cross-selling our different products to a 

larger number of core clients. Becoming known 

for providing service, rather than capacity, 

enables us to explain and protect our pricing 

more effectively. We also aim for strong 

solvency, with a minimum A rating from S&P; 

a broad range of products, including specialty 

lines; and sufficient capacity to cover 

catastrophe and large risks. 

Our centres of expertise for each product line 

– in London, Brussels and Dublin – are 

responsible for the models that drive a uniform 

pricing environment for our brokers and clients 

and which are used by underwriters in each 

office. We use our considerable expertise in all 

classes of reinsurance to maintain a consistent 

approach to meet clients’ expectations 

and needs. 

We continue, however, to operate two separate 

business models: Secura NV uses the clientdriven 

model that their European clients prefer, 

where one person manages a client’s entire 

relationship; in the UK and Ireland – where 

clients are used to having contact with different 

underwriters from the same reinsurer – we use 

our product-based model. In addition, Secura 

NV continues to set its profit requirements at 

a client level, whereas in the UK and Ireland 

we base each treaty on the profitability of the 

individual account. 

Secura NV is an excellent fit with our existing 

reinsurance business and the addition of its 

European portfolio to our existing worldwide 

business has created an equally excellent 

platform to ensure our continued growth. 

Together we have the strength and experience 

and the distribution and underwriting capability, 

in London, Brussels and Dublin to enable us 

to achieve our strategic ambition of becoming 

Europe’s leading reinsurance specialist. 

General Manager 

Jan Leflot 

Number of employees 

87 (everyone speaks at least three 

languages). 

Lines of business 

Secura NV is a leading European reinsurer. 

The most significant non-life lines of 

business are property, motor liability, 

general third party liability and workers’ 

compensation. 

Secura NV 

A unique office culture 

Secura NV has an office culture in which 

none of the employees, including the 

members of the Executive board, has 

their own office or even their own desk. 

Instead, employees can choose to work at 

a desk in an open-plan environment, in a 

closed office, a lounge chair or the library, 

depending on what they are working on 

and with whom they need to be working. 

More information on Europe-wide strength 

is available on page 19


European markets 

QBE EO has a strong and growing presence in 

Europe, where we have an in-depth understanding 

of our chosen markets. Our ability to combine local 

expertise with the broad knowledge of our product 

specialities enables us to provide innovative solutions 

in each territory. 


Mainland European markets 

Patrick Coene was appointed to the new 

role of Managing Director, European 

Markets in November 2011. 

European markets currently employs 

approximately 694 staff spread across 

mainland Europe. 

QBE EO has a presence in 17 countries 

in mainland Europe. 

6 

1 

11 

4 

7 

16 

15 

3 

13 

8 

12 

5 

17 

1 Belgium 

2 Bulgaria 

3 Czech Republic 

4 Denmark 

5 Estonia 

6 France 

7 Germany 

8 Hungary 

9 Italy 

10 Macedonia 

11 Norway 

12 Romania 

13 Slovakia 

14 Spain 

15 Sweden 

16 Switzerland 

17 Ukraine 

9 

10 

2 

■ 

■ 

Mainland European markets 

QBE EO companies 

14


Risk management 

“QBE EO has established a market leading framework 

for risk and capital management that provides a strong 

base to take advantage of opportunities arising from 

both the Eurozone crisis and the Solvency II regime.” 

Phillip Dodridge 

Chief Risk Officer 


To create wealth for our shareholders, 

QBE EO must pursue opportunities 

that involve risk. Through robust risk 

management, QBE EO aims to: 

• achieve competitive advantage by better 

understanding the risk environments in 

which it operates; 

• optimise risk and more effectively allocate 

capital and resources by assessing the 

balance of risk and reward; and 

• avoid unwelcome surprises by reducing 

uncertainty and volatility through the 

identification and management of risks 

to achieve our strategies and objectives. 

Strategy 

QBE EO’s risk management strategy puts 

structure to the risks that QBE EO is exposed 

to and defines the framework to manage those 

risks and meet strategic objectives. 

Our defined and robust risk management 

framework sets out the risks to which we are 

exposed. In managing those risks to enable us 

to meet our strategic objectives, the creation of 

shareholder value is an important consideration. 

The framework comprises complementary 

elements that are embedded in our business 

management cycle and culture. 

Risk management is integrated into QBE EO’s 

quality business management process. By this 

we mean we link business strategy with 

business planning and the evaluation and 

monitoring of performance. 

Management culture 

QBE maintains a strong risk management 

culture which, supported by its global risk 

management framework, protects and 

advances the interests of shareholders 

and policyholders. 

The OPENUPQBE programme helps QBE 

achieve its strategic goals by promoting and 

maintaining a common culture throughout the 

business. It defines nine Essential Behaviours 

that involve the careful assessment of risk 

and reward. Risk management – particularly 

planning perspective, business acumen and 

entrepreneurship – is an integral part of Essential 

Behaviours, which enable opportunities to 

be identified, QBE EO’s business activities 

to be maximised and any potential downside 

to be limited. To be successful, all employees 

need to follow them. 

Appetite 

Risk appetite is the level of risk that the board 

and management are prepared to take in pursuit 

of the organisation’s objectives. 

It is managed; 

• through a set of risk appetite statements 

and risk tolerances; 

• through the business plan’s capital adequacy 

objectives, including return on risk-adjusted 

capital and through detailed risk limits; 

• within the delegation of authority from 

the board to the CEO and onward to the 

management team; and 

• within QBE’s policies that cover risk areas. 

Internal management model 

QBE’s internal risk management model is at 

the core of its framework. QBE EO has defined 

its internal model as an integrated framework 

to support its objectives by managing risk 

and capital across the business. The scope 

of our internal model extends beyond capital 

modelling to include risk identification, 

mitigation, assessment and monitoring. 

Identification of risks 

Risks which could affect QBE EO’s ability 

to achieve its objectives are identified on a 

continuous basis. We support identification 

through an emerging risk process, which aims 

to identify and manage effectively those risks 

that we perceive as being potentially significant, 

but which may not yet be fully understood or 

allowed for in our decision-making activities. 

Mitigation of risks 

Our control framework ensures that risks 

are managed in accordance with risk appetite. 

The control registers process ensures that risks 

have the appropriate controls in place, with the 

appropriate owners and are regularly assessed. 

Assessment and monitoring of risks 

Our committees assess and monitor risk. 

Risk dashboards, which are used to support 

assessment decisions, provide information on 

stress and scenario tests, key risk indicators, 

control assessments, loss experience and 

management action plans. 

Exposure to catastrophe losses is assessed 

by realistic disaster scenarios, commercial 

catastrophe loss models and in-house 

catastrophe aggregate management tools.


QBE’s risk strategy 

management framework 

Our risk management framework is 

made up of complementary elements 

that are embedded throughout the 

business management cycle and 

culture. These elements form layers 

around the risk environment. 

Board, including audit, risk and other committees 

Business management cycle 

Culture 

Risk appetite and tolerance 

Executive management – Decision processes 

> 

Risk 

> 

Data 

identification 

People 

Control 

assessment 

Documentation 

Risk 

environment 

> 

assessment 

Risk 

Processes 

Risk monitoring 

Risk and economic capital models 

/reporting 

> 

Systems 

Risk 

treatment 

> 

Internal controls 

Internal audit 

Governance and policies 


Capital model 

QBE uses a Group-wide economic capital model 

(ECM) to assess risk and to help determine the 

level of risk-based capital required for insurance, 

credit, market, liquidity and operational risks. 

Economic capital is defined as the level of 

capital necessary to ensure that QBE can, with 

a pre-specified probability, satisfy its obligations 

on all policies issued before the end of the plan 

year. It is a measure of risk and is integral to the 

Group’s business management cycle and risk 

management framework. Its allocation helps 

to ensure that risks taken by the business are 

commensurate with required returns and comply 

with the board’s risk appetite. Economic capital 

enables QBE to make decisions which involve 

quantitative risk reward trade-offs and underpins 

the return on capital targets set for members 

of the Group’s bonus schemes. 

QBE EO’s risk governance 

Everyone at QBE EO is responsible for 

managing risks; as a result, a large number 

of people are involved in the process. Our risk 

governance is summarised as follows. 

1 The board, underwriting divisions and 

corporate services form the top level 

of our risk governance structure 

They have direct responsibility for risk 

management and control. 

2 The risk and capital committee, enterprise 

risk management (ERM) function and other 

control functions form the second level of 

governance 

They are responsible for co-ordinating, 

facilitating and overseeing the risk framework’s 

effectiveness and integrity. The ERM team’s 

objective is to optimise return from risk by 

improving decision making, providing the 

enterprise risk framework and reviewing and 

supporting its application and by offering an 

independent viewpoint. 

3 The audit committee, internal audit 

committee and internal audit function 

form the third level of governance 

They challenge the integrity and 

effectiveness of the framework and provide 

independent assurance, across all our 

business functions. More than 95% of 

QBE EO’s outstanding claims provision 

is reviewed annually by independent 

external actuaries. 

Business continuity management 

A business continuity management framework 

ensures that QBE is resilient and able to 

respond effectively to incidents that threaten 

business continuity. It also ensures that the 

impact of any major disruption is minimised. 

The framework includes a set of emergency 

management plans, department-level business 

continuity plans and technology recovery plans. 

It is supported by a range of activities, including 

staff awareness and testing. 

The risk strategy and framework is applied 

to the following categories of risk 

Strategic risk 

QBE EO’s strategic ambition is to be recognised 

as the leading specialist insurer and reinsurer 

for business in Europe. We manage strategic 

risk by ensuring that it accords with the Group’s 

targets on premium and profitability growth 

while, at the same time, maintaining our brand 

integrity. We manage strategic risks through 

a robust planning and change process, best 

practice corporate governance and appropriate 

safeguards on regulatory capital. 

Solvency II 

QBE EO has been an active participant in 

the development and implementation of 

Solvency II and has proactively adopted 

the broad principles of effective risk and 

capital management before it becomes a 

regulatory requirement. As a result, QBE 

EO is well placed to take advantage of the 

challenges that Solvency II is presenting 

the insurance industry.



continued 

Insurance risk 

QBE EO accepts appropriate insurance risk to 

enable it to meet its objectives. To ensure that 

we balance insurance risk with reward, all 

underwriting divisions are expected to achieve 

measurable performance targets by operating 

within the limits and authorities of our risk 

appetite framework and business plans. 

Business plan parameters include a range of 

limits and authorities, including maximum line 

size, premium allocation by class, sub-class 

and geographic spread, underwriting 

authorities, aggregation limits and reinsurance 

strategy. Business performance is measured 

by return on capital, where economic capital 

is allocated to business areas based on the 

level of assessed risk. Underwriters use 

benchmarking models to ensure the appropriate 

premium is charged for each risk exposure. 

Credit risk 

A certain amount of credit risk is unavoidable, 

as it can arise as a result of the inability or 

slow payment by counterparties. Exposure 

to credit risk is limited as far as practical and 

QBE EO has established detailed guidelines, 

security assessments, limits and monitoring 

requirements to mitigate credit risk. 

Liquidity risk 

The objectives with regard to liquidity risk 

management are to ensure that the business 

remains solvent by a significant margin; and all 

funding requirements can be met out of readily 

available sources of funding. The business 

maintains a strong liquidity position (by holding 

its assets in high quality liquid funds) and would 

meet any major unexpected cash outflow by 

using its existing resources as well as support 

provided by other companies within the Group. 

Market risk 

Exposure to market risk is managed through 

the investment strategy, which reflects 

the appetite of the board. The strategy is 

deliberately conservative in order to eliminate 

potential volatility from market fluctuations 

as much as possible whilst still delivering 

an acceptable absolute return. 

Operational risk 

The principal objective in managing operational 

risk is to identify, assess and manage risks 

and to reduce any failures or inadequacies 

in processes, people and systems (including 

regulatory risk). We mitigate operational risk 

by ensuring that we have an effective 

infrastructure, robust systems and controls 

and experienced and qualified individuals 

throughout the organisation. 

Group risk 

QBE EO derives significant benefits from being 

part of QBE and part of the Lloyd’s Franchise 

and primarily manages Group risk through its 

strong relationships with them. Our business 

objectives are aligned with QBE’s strategy and 

with Lloyd’s Franchise strategic imperatives; 

where appropriate, the boards follow relevant 

Group and franchise policies, guidelines and 

reporting requirements.


Delivers 

reliable and responsive service at every stage 

of the stakeholder experience 

By understanding the market better and, in particular, the 

risks associated with a product, QBE EO is more responsive 

and able to deliver solutions to everyone’s requirements. 

QBE EO places great emphasis on risk management, with 

regular newsletters and forums held addressing the key risk 

issues facing clients. The approach when managing claims is 

always sympathetic and understanding of clients’ needs. 

Case study: QBE Rehabilitation wins Post magazine 

Rehab First Awards 

In 2011, QBE became the first ever insurer to win the Rehabilitation Initiative of the Year award for a 

third time at the Post Magazine Rehab First Awards. The award was a welcome acknowledgement 

of our continued commitment to offering market-leading service. 


Rehabilitation is an important part of 

the service QBE EO offers its clients. 

The benefits of getting sick or injured 

employees back to work as quickly as 

possible – and before they get to the 

stage of making a claim – benefits them 

as well as their employers. 

An analysis of our award-winning RIDDOR 

Minor Injury Management service showed that 

employees returned to work 29% more quickly 

than they would otherwise have done. Treating 

people at an early stage not only helps them 

to recover more speedily, it also saves around 

£1,200 a claim. Indeed, over a four year period, 

one client saved just under £1 million in hidden 

business costs. 

We are working to raise awareness of the 

scheme with brokers, as well as with our 

clients, the employers and their employees. 

For employees to realise that the company 

they work for has a scheme in place to help 

them if they are sick or injured leads to their 

increased commitment – and, of course, more 

engaged employees lead to better results – 

whilst it saves costs for employers. In addition, 

by giving a company a reputation as a caring 

employer, it increases the value of its brand 

and by helping it to plan for absentee cover it 

enables it to run its businesses more efficiently. 

QBE EO, which has made a considerable 

investment in developing the rehabilitation 

service, is putting it at the heart of the claims 

process to ensure that rehabilitation is available 

to more injured parties. 

The members of the rehabilitation team are 

all skilled clinicians: nurses, occupational 

therapists, physiotherapists and sports 

therapists. Two of the team are based in 

London, one each in Chelmsford, Bristol and 

Leeds. They use their expert knowledge in 

managing clients and suppliers, working with 

our underwriters to meet customers’ needs 

and in developing projects and products.


Our people 

“ QBE EO is dedicated to employing the best people 

in all disciplines and to being known as an employer 

of choice.” 

Mohinder Kang 

Chief Human Resources Officer 


Working at QBE EO 

QBE EO is a high-performing business, 

which uses some of the world’s leading 

technologies and best practices. QBE 

EO offers a professional results-driven 

environment in which people are proud 

to work. Our success is supported by a 

close partnership between the business 

and HR, where strategy is aligned. 

One of our strategic priorities is to ensure the 

commitment of our employees. Working with 

high-performing people, who comply with 

our Essential Behaviours, delivers a better 

experience for them, as well as for our brokers 

and clients. During 2011, we used the feedback 

from our employee engagement survey to 

generate ideas and create plans to make 

changes throughout the business. These 

included the launch of the QBE Foundation 

and a clearer focus on diversity. 

Remuneration 

QBE EO continues to review and redesign 

its remuneration package to attract, motivate 

and retain high-performing people while, 

at the same time, maintaining its focus on 

the Group’s interests. 

Increasing regulation on remuneration in the 

financial sector is instrumental in any changes 

we make. For example, HR worked with the risk 

teams throughout 2011 to carry out reviews 

and gap analyses to ensure that we comply 

with Solvency II and also investigated the FSA 

Code to ensure that we are in a position to 

understand and comply with it, if it is extended 

to cover insurance companies. We also made 

progress in broadening our online Flexible 

Benefits Scheme; following employee feedback 

we added a number of extra voluntary benefits. 

Performance management 

Performance management continues to be an 

important element in achieving our strategic 

vision. In 2011, we focused on improving and 

embedding the process and, as in 2010, we 

carried out a peer review, which focused on 

increasing the quality of performance review 

discussions. We also undertook a quality review 

audit – which included interviewing a number 

of people managers – to achieve an in-depth 

insight into ways of making improvements. 

We continue to emphasise the recognition and 

rewarding of individual performance through 

this process. 

QBE EO’s people strategy 

It is QBE EO’s strategy to employ 

the best people in all disciplines. 

We maintain our focus on three key 

people strategies: 

• to develop excellent transactional 

processes in core HR services; 

• to develop and implement peoplefocused 

solutions with the aim of 

improving our employees’ capabilities 

and, thereby, to increase shareholder 

value; and 

• to ensure that QBE EO is recognised 

as an employer of choice by existing 

and potential employees, the market 

and its business partners. 

2011 key metrics 

£1.8m 

Training spend 

2,722 

Average number of employees 

during 2011 

8.6% 

Employee turnover


Our values 

O Open thinking 

P 

E 

N 

U 

P 

Q 

B 

Personal impact 

Entrusting 

Networking 

Utmost integrity 

Planning perspective 

Quality customer focus 

Business acumen 

Motivating 

our people 

Driving 

decisions 

Optimising 

outcomes 

Delivering 

superior 

returns to 

shareholders 

Our values, which underpin the unique 

QBE culture, are demonstrated through 

QBE’s nine Essential Behaviours, 

known by the acronym OPENUPQBE. 

These behaviours and attitudes, 

as applied by QBE people on a 

day-to-day basis, are the common 

threads binding together the diversity 

of our worldwide organisation. 

E 

Entrepreneurship 


Employee learning and development 

QBE EO supports its strong learning and 

development culture through management and 

leadership development programmes, support 

for professional qualifications and personal and 

technical development. In 2011, we focused 

on developing our talented leading underwriters 

by helping with succession plans. 

The Big Difference awards 

In 2011 we repeated the Big Difference awards – an important employee engagement 

initiative which gives recognition to our employees – at our annual Christmas party. Employees 

were asked to nominate colleagues who have delivered something exceptional to improve 

brokers’, clients’ or employees’ experience of QBE. Awards were also presented to 

employees who made a significant contribution to charity. 

As a result of feedback from our employee 

surveys, which highlighted engagement 

and diversity, in 2012 we will be launching 

workshops for managers to support these 

initiatives. They are based on the QBE Essential 

Behaviours, which form the basis of business 

performance and leadership standards and define 

the values which embody the QBE culture. 

These behaviours create a common language 

throughout the organisation and, through that, 

provide consistency in its activities. Over the 

past 25 years, the Group has achieved one of 

its core strategies – to diversify its product and 

geography – primarily by making more than 

130 acquisitions. The strength of the QBE 

culture has provided a platform for the 

successful integration of diverse teams from 

these acquisitions. 

Doug Jenkins 

Senior Client Risk Manager, Motor 

and Big Difference Award Winner 

“After ten years in a police force 

environment and 20 years running a 

successful business, I was surprised 

to find a company the size of QBE 

whose values aligned with my own. 

I am grateful to work in a culture that 

gives me the freedom to use my 

initiative, pursue my ambitions and 

use my strengths.” 

Doug is one of our finest brand 

ambassadors. He appreciates the 

importance of reputation for an 

organisation like ours. By helping to 

demonstrate QBE EO’s risk management 

expertise and by sharing the risk 

management services unit’s marketleading 

work, he has made a positive 

impact on the external perception of the 

brand. Doug has made a big difference to 

the way brokers and clients view QBE EO. 

Heena Patel 

Operations Team Leader, Property, 

Casualty and Motor and Big Difference 

Award Winner 

“QBE has provided me with many 

opportunities to give something 

back to the community. It’s great to 

work for a company that encourages its 

employees to get involved and make 

a real difference to local, national and 

international causes.” 

Heena did a huge amount of work to 

support QBE EO’s charity programme in 

2011. Not only did she help manage the 

reading and maths partners scheme at 

Canon Barnett School, in east London, 

she also organised our participation in the 

JP Morgan challenge – and if it were not 

for Heena, QBE EO wouldn’t have formed 

a partnership with the Rainbow Trust in 

2011. She has championed the Trust’s 

cause from the very beginning and was 

instrumental in achieving a record 

fundraising amount for an annual 

charity partner.


Strong 

and growing market presence 

QBE is one of the world’s top 20 insurers and reinsurers 

and has been established in the UK since 1904. At QBE 

we understand the importance of security in the insurance 

decision-making process and the strength of our ratings and 

financial backing gives us a real advantage in the market. 

QBE has offices in 52 countries, backed by A+ ratings by 

S&P and Fitch. Our approach is one of leading not following, 

so when it comes to product design or setting the terms and 

conditions we take the initiative. 

Financial strength 

QBE EO has total assets of £13.8 billion and a strong financial rating 

of A+/stable. The value of our assets (net of dividend payments) has 

grown by 156% over the last 10 years through a combination of 

successful acquisitions and organic growth. 

A+ 

/stable * 

More information on ratings is available 

on page 09 

Europe-wide strength 

QBE EO has more than 100 years’ experience in the UK. We have offices 

in Birmingham, Bristol, Chelmsford, Glasgow, Leeds, London, Manchester, 

Stafford and in Dublin, Ireland. 

In mainland Europe, we have subsidiaries in Belgium, Denmark, Macedonia, 

Norway and Ukraine; we operate as a branch of QBE Insurance (Europe) 

Limited (QIEL) in Bulgaria, Czech Republic, Denmark, Estonia, France, 

Germany, Hungary, Italy, Romania, Slovakia, Spain, Sweden, Switzerland 

and the United Arab Emirates. In addition, we have representative offices 

in Sydney, Australia; Singapore; Toronto, Canada; and Tokyo, Japan. 

More information on Europe-wide strength 

is available on page 19 

Strength in underwriting 

Our underwriters target a cross-cycle return of 15% on allocated 

capital on all business lines regardless of the insurance cycle. 

We have achieved an average COR of 93.5% over the last 10 years 

which have all delivered an underwriting profit. 

* Rated by Standard & Poor’s as at March 2011. 


2011 

2010 

2009 

2008 

2007 

96.6% 

97% 

93% 

93% 

92% 

88%


QBE Casualty Syndicate 386 

has an S&P Lloyd’s Syndicate 

Assessment of 5/stable, 

the highest award available. 

QBE Syndicate 2999 has 

a rating of 4-/stable 

demonstrating strength 

and durability. 

Financial review


Chief Financial Officer’s review 

“Despite huge losses from natural catastrophes, 

continuing challenging market conditions and 

significantly lower investment return, QBE EO 

delivered a commendable return on allocated 

capital of 16.3%.” 

David Winkett 

Chief Financial and Operating Officer 



2011 2010 

£m £m 

Gross written premiums 3,019.6 2,695.0 

Net earned premiums 1,966.8 1,673,6 

Net claims incurred (1,304.9) (997.7) 

Net operating expenses 

and commissions (594.9) (554.8) 

Underwriting results 67.0 121.1 

Investment return 48.2 104.2 

Other charges (32.0) (12.1) 

Profit before tax 83.2 213.2 

Tax 11.9 (19.1) 

Minority interests – 0.1 

Profit after tax 95.1 194.2 

2011 2010 

% % 

Claims ratio 66.3 59.6 

Expense and 

commission ratio 30.3 33.2 

Combined operating ratio 96.6 92.8 

Highlights 

QBE EO’s insurance operations delivered 

a return on allocated capital of 16.3% 

(2010 19.7%) amid huge losses from natural 

catastrophes, continuing challenging market 

conditions that affected the underwriting result 

and significantly lower investment return from 

the volatile fixed-interest and equities markets. 

Gross written premium for the year was up 12% 

to £3,019.6 million (2010 £2,695.0 million). The 

growth in premium income was partly due to the 

acquisition of the Belgian reinsurer, Secura NV, in 

late 2010. Growth was also assisted by premium 

rate increases, a number of successful new 

product and business initiatives and inward 

reinstatements on reinsurance portfolios. 

The combined operating ratio is higher than in 

2010, amid numerous large catastrophe losses, 

coupled with an above-average frequency of 

risk losses. This was partly offset by releases 

of prior years’ reserves, following the favourable 

earn-out of prior accident-year claims provisions 

from the casualty, reinsurance and marine and 

energy portfolios. 

Premium income 

Gross written premium for the year was 

£3,019.6 million (2010 £2,695.0 million), an 

increase of 12%. The Secura NV acquisition 

contributed £203.4 million to gross written 

premium in 2011 (2010 £29 million). Excluding 

the impact of the Secura NV acquisition, GWP 

increased by 5.6%. This came from an overall 

modest improvement in the rating environment, 

as well as the addition of new business. 

Retention ratios on renewed business were 

maintained at over 80%, a very pleasing result 

considering the competitive market conditions. 

Overall premium rate increases were 2% on 

renewed business. 

The divisional split is shown in the following table: 

Rate change 

2011 2010 

12 months ended 31 December % % 

Property, Casualty and Motor 0.6 2.3 

Marine, Energy and Aviation 4.8 2.1 

Reinsurance and Credit Lines 3.1 1.4 

QBE EO total 2.0 2.1 

Rate increases were primarily driven by the 

Marine and Energy Division, following higher 

catastrophe levels and the frequency of large 

losses in the first half of 2011. The high 

retention ratio is a reflection of the success 

of our continued efforts in providing quality 

customer service and in building relationships to 

achieve premium growth, rather than of cutting 

our margins. 

Net earned premium was 17.5% higher at 

£1,966.8 million (2010 £1,673.6 million). The 

higher relative growth rate, compared with 

gross written premium, was the result of a 

lower reinsurance expense ratio return in 2011. 

Reinsurance costs decreased from 36.6% 

to 32.2% of gross earned premium. 

Claims experience 

The claims ratio has deteriorated from 59.6% 

in 2010 to 66.3% in 2011 amid the large 

losses during the year and an above-average 

frequency of risk losses. QBE EO was well 

protected by reinsurance for these events. 

Net losses for catastrophe-related claims were 

approximately £193 million net, £118 million 

higher than in 2010. Catastrophes in the year 

included the earthquakes in New Zealand, the 

earthquake and tsunami in Japan, flooding in 

Thailand, Australia and Denmark, tornadoes


in the US, Cyclone Yasi, Hurricane Irene and 

riots in London. The earthquake and tsunami 

in Japan, on 11 March 2011, was the largest 

insured event of the year. 

QBE EO released £139 million (2010 £87 million) 

of claims reserves from prior years as a result of 

a favourable earn-out of previous accident-year 

claims provisions from the casualty, reinsurance 

and marine and energy portfolios. Our 

significant casualty portfolio continued to 

perform well, with stable claims costs and 

positive development from previous years. 

The level of risk margins in outstanding claims 

continues to be strong, particularly in our 

Lloyd’s and reinsurance portfolios. 

The divisional split of QBE EO’s combined 

operating ratio is in the following table: 


2011 2010 

12 months ended 31 December % % 

Property, Casualty and Motor 90.5 95.8 

Marine, Energy and Aviation 98.2 87.1 

Reinsurance and Credit Lines 103.0 74.6 

QBE EO total* 96.6 92.8 

* The divisional metrics shown here do not take account of 

QBE EO’s internal reinsurance arrangements with other 

divisions in the QBE Group. 

Expenses 

During 2011, the combined commission and 

expense ratio reduced to 30.3% (2010 33.2%). 

An increase in the underlying cost of Project 

Springboard (the IT transformational project 

launched in 2009) and preparation for Solvency 

II regulatory compliance were offset by lower 

staff incentive provisions due to reduced profits 

and increased external profit commission on 

Syndicate 386. The expense ratio is expected 

to reduce to a business-as-usual level in 2012 

when the Springboard project will have been 

completed. Amortisation charges on capitalised 

assets should be offset by savings on direct 

costs as a result of operating efficiencies. 

Investment return 

Investment return was £48.2 million, 

£56.0 million lower than in 2010. Investment 

market conditions in 2011 were volatile – there 

were significant movements in bond and equity 

indices, with widening credit spreads in the 

second half of the year. Uncertainty in Europe 

continued to be high, particularly in relation 

to the peripheral economies, as investors 

displayed concerns over credit ratings. 

Product and geographical diversification 

QBE EO writes a broad range of products, with 

a wide geographical spread of risks. This reduces 

our overall risk exposure, allowing for consistent 

returns, even during years of unusual loss activity. 

Product diversification 


● Marine, Energy 

and Aviation 21.3% 

● Public/ Product 

Liability 18.4% 

● Property 

Facultative 

and Direct 12.2% 

● Professional 

Indemnity 12.1% 

● Motor and Motor 

Casualty 11.7% 

● Property Treaty 10.7% 

● Workers’ Compensation 5.0% 

● Finance and Credit 3.4% 

● Other 2.6% 

● Accident and Health 2.6% 


The high combined ratio for the Reinsurance 

and Credit Lines Division is primarily in property 

and a consequence of the large number of 

catastrophe losses during the year. 

In light of the uncertainty and volatility on the bond 

and equity markets, we continued to focus on 

high-grade financial credit and floating-rate 

securities and maintained the decision to hold 

a low proportion of equities during the year. 

Tax 

QBE EO’s effective tax rate for the year was 

14.3% (2010 9.0%), significantly lower than 

the UK tax rate of 26.5%. This is primarily 

attributable to non-taxable items and material 

one-off credits in 2011, combined with 

differences in tax rates in our jurisdictions, 

principally Ireland. 

Geographical diversification 


● UK/Ireland 33.3% 

● Europe 

(excl. UK) 21.3% 

● Latin/South 

America 11.9% 

● Worldwide 8.6% 

● USA 7.9% 

● Oceania 5.4% 

● Asia 4.3% 

● Canada 4.3% 

● Middle East 

and Africa 3.0%


Financial management 

“QBE EO has maintained a strong capital position. 

Shareholders’ funds were £1.7 billion after the payment 

of a dividend totalling £600 million and we continue 

to hold a significant economic capital surplus.” 

Financial management encompasses capital 

management and allocation of resources, 

as well as those financial risks that have an 

impact on the balance sheet. It is integral to 

QBE EO’s overall risk management strategy 

and commercial objective, which is to generate 

a 15% cross-cycle return on allocated 

capital from insurance operations. 

It is also vital in providing confidence in our ability 

to pay claims and meet debt obligations and in 

ensuring that regulatory requirements are met. 

Capital management 

Capital management covers all QBE EO’s 

business activities, including underwriting and 

investment strategy decisions and measures 

of increasing capital efficiency, such as debt 

management and reinsurance strategy. We 

ensure that all insurance entities are adequately 

capitalised to enable them to achieve our target 

S&P rating and to use their capital efficiently. 

We use a stochastic risk-based tool to model 

our capital requirements. The tool, which 

incorporates the principal risks being faced 

by each of our legal entities together with the 

output, is tailored to our risk profile. The resulting 

capital requirements are reported to the risk 

and capital committee which, in turn, 

recommends them to the relevant boards. 

In addition to assessing capital requirements 

for regulated entities, our capital model is used 

to support decision-making, including allocating 

capital to class of business for business planning 

and performance monitoring, assessing the 

effectiveness of existing reinsurance protections 

and new reinsurance strategies and considering 

the implications of Solvency II on the business. 

QBE EO capital resources 

All registered insurance companies regulated by 

the FSA and Lloyd’s syndicates have to perform 

an Individual Capital Assessment (ICA) each year. 

The ICA defines the level of capital needed to 

ensure that the entity will be able to meet the 

ultimate value of liabilities arising from past 

business and the expected new business 

to be written in the forthcoming year. Our ICAs 

have been reviewed and accepted by the FSA 

and Lloyd’s. 

Lloyd’s corporate members are also required to 

hold capital, Funds at Lloyd’s (FAL), in a trust at 

Lloyd’s. These are intended to cover circumstances 

in which the syndicates’ assets are insufficient 

to meet their liabilities. The level of FAL depends 

on corporate members’ participations on 

syndicates and on the level of the syndicate ICAs 

after Lloyd’s has reviewed and accepted them. 

Rating agencies review the quality of admissible 

assets, the mix and risk of business and 

counterparty exposures, to measure how much 

capital is required for each ratings band. The 

treatment of assets is broadly consistent with 

the regulatory basis. QBE EO monitors its 

capital position on an ongoing basis to ensure 

that it continues to have a strong rating and 

stable outlook. Our core (re)insurance entities 

maintained their S&P ratings. 

The ratings for each of our insurance carriers 

are on page 9. 

Solvency II 

Solvency II is a fundamental review of the 

prudential regulatory requirements that are 

expected to change the capital and disclosure 

requirements and risk management standards, 

for the European insurance industry. 

Implementation is expected on 1 January 2014. 

We have invested significant resources to ensure 

that we are prepared to meet the new regime. 

We participated in all relevant submissions to 

Lloyd’s and to the Association of British 

Insurers. In October 2011, our syndicates were 

awarded “green light” status under the Lloyd’s 

traffic light system, which is currently being 

used to measure Solvency II readiness. No 

such benchmarking is in place for QIEL, QREL 

and Secura NV, but similar progress has been 

made for these entities. 

We are confident that our systems and internal 

processes will comply with the new regulatory 

requirements and that our entities will meet 

Solvency II’s minimum capital requirements. 

Over the next 12 to 24 months, we will determine 

the optimum level of capital to be maintained 

(taking regulatory and rating agency expectations 

into account). 

Liquidity and cash management 

During the year, QBE EO’s cash and financial 

investments increased by £108.6 million, largely 

as a result of surplus cash flow generated by 

its operations. It is vital for us to have strong 

liquidity and cash management to ensure that 

we have the ability to respond quickly to events, 

such as the payment of claims following a 

catastrophic loss. 

We aim to maintain a strong liquidity position 

by holding our assets predominately in liquid 

funds. We monitor our exposures and run tests 

to ensure that, even in realistic disasters, 

sufficient liquidity is available. 

We have a low appetite for credit risk, although 

we have taken on more credit risk – on a very 

selective basis – since high-quality corporate 

spreads widened towards the end of 2009. We 

have established detailed guidelines, procedures, 

limits and monitoring requirements to mitigate 

credit risk, particularly in the more significant 

area of reinsurance counterparty credit risk. 

Liquidity risk is discussed further on page 22.


Total cash and investments 

Current AAA cash rate – 

weighted average yield 

Bond type 

2011 2010 

£m £m 

Cash 99.2 178.9 

Shares 39.6 66.4 

Other variable yield securities 456.7 498.2 

Debt 6,037.5 5,676.7 

Deposits 59.6 163.8 

6,692.6 6,584.0 

2011 2010 

As at 31 December % % 

Australian dollar 4.7 4.4 

US dollar 0.3 0.3 

Sterling 0.5 0.5 

Euro 1.3 1.0 

Other 0.9 1.3 

Weighted average yield 0.9 1.9 

QBE EO actual yield achieved 1.2 2.0 

2011 2010 

Bonds £m £m 

Corporate 5,304.6 4,934.5 

Government 1,138.8 728.1 

Supranational 110.4 676.1 

6,553.8 6,338.7 

Credit rating of portfolio 

As at 31 December 2011 

● AAA 27% 

● AA 48% 

● A 19% 

● Equities 1% 

● Other 5% 

Currency and market value of total 

investments and cash 


£m 

● US dollar 1,622 

● Australian 

dollar 432 

● Sterling 2,574 

● Euro 1,534 

● Other 531 

Currency and duration 


Currency 

% Years 

45 

1.0 

40 

35 

30 

25 

Duration 

0.8 

0.6 

20 

15 

0.4 

10 

0.2 

5 

0 

Sterling 

US 

dollar 

Euro 

Canadian 

dollar 

Australian 

dollar 

0.0 


Investment management 

Responsibility for implementation and 

monitoring of the investment strategy has 

been delegated to the QBE EO’s investment 

committee. Further information on committee 

structure, governance and risk management 

is listed in the Corporate Governance section. 

Total cash and investments under management 

were £6,692.6 million, up from £6,584.0 million 

at the end of 2010 which includes a minority 

interest of 30.4% (2010 30.4%) in Syndicate 386. 

Our investment strategy is prudent and most 

of the investment portfolio is in fixed income 

instruments, which traditionally have a lower 

risk profile than equities. Throughout the year, 

we successfully avoided permanent impairment 

of any securities issued by sovereign and 

financial market issuers that were downgraded, 

who defaulted or were subject to restructuring 

fears with a consequent impact on market 

value. Our fixed interest and cash portfolios 

remain highly liquid and in excess of 82% of 

funds under management are invested in 

security rated “AA” or higher. The credit rating 

of the portfolio is shown in the chart above. 

In order to mitigate interest rate risk, particularly 

in an environment where interest rates are 

at an all-time low, our cash and fixed interest 

securities have a relatively short duration 

of 0.5 years. However, the maturity of the 

portfolio is broadly in line with our cash 

settlement obligations. 

We continue to adapt a very cautious approach 

to investing our assets and prefer to focus on 

the quality of securities and issuers rather than 

yield. The global economic outlook remains 

uncertain and volatility in markets is expected 

to continue. 

Currency management 

QBE EO reports in sterling but conducts 

business in a number of different currencies. 

Transactional foreign exchange risk arises 

on mismatches between assets and liabilities 

denominated in major currencies. To manage 

these risks, we monitor net currency positions 

and hedge material net exposures. 

Our hedges are effected by physically 

matching assets and liabilities, where practical, 

supplemented by the use of derivative contracts. 

These mitigate the risk that we cannot meet 

our obligations in local currency and reduces 

the risk of financial loss resulting from movements 

in exchange rates. Due to the nature of QBE EO’s 

business, small mismatches occur and foreign 

exchange gains and losses in operational 

transactions are recorded in investment income 

and expenses in accordance with our accounting 

policies and requirements of accounting 

standards. During the year, operating gains of 

£9.6 million were generated (2010 £16.5 million). 

Gains and losses arising from hedging 

transactional exposures on derivative contracts 

are taken to the profit and loss account. 

Project costs 

Significant operational projects have an impact 

on profitability and are, therefore, an important 

part of financial management. QBE EO launched 

a major transformational project, Project 

Springboard, in 2009 to create a market leading 

operational support model. The core project 

completed in Q1 and is already delivering P&L 

benefits that should grow to approximately 

£20 million per annum through improved claims 

leakage, once development costs are fully 

amortised. Other key benefits include: 

• Enhanced efficiency and effectiveness of 

the underwriting and policy administration 

processes 

• Efficiencies from automated document 

production and workflow 

• Reduced application maintenance and 

development costs


Financial management 

continued 

Borrowings maturity 

£000 

1500 

1200 

900 

325 

644 

Credit rating of reinsurance recoverables 


● AAA 0.1% 

● AA 23.5% 

● A 19.1% 

● Other 4.3% 

● Other QBE 

companies 53.0% 

600 

300 

565 

308 

354 

0 

2012 2013 

2014 2015 2016 2017 

■ Replacement of SPV subordinated notes (GBP) 

■ Replacement of SPV subordinated notes (USD) 

■ Replacement of perpetual securities (GBP) 

■ Replacement of perpetual securities (USD) 

■ Conversion of convertible securities 

• Complete enterprise information solutions 

providing powerful analytics 

• A technology platform that supports 

future merger and acquisition 

We depreciate fixed assets over the estimated 

useful life of the underlying assets – between 

three and five years. The useful life for the 

depreciation of Project Springboard assets 

is reviewed on an asset-by-asset basis. 

Estimate of claims reserve 

The estimate of QBE EO’s reserves to pay 

for reported claims and for claims incurred 

but not reported, necessarily requires the 

application of judgement and is, therefore, 

an important part of financial management 

because the level of reserves can have a 

significant impact on profitability. 

Our reserving committee, which is chaired 

by our Chief Risk Officer, monitors reserves on 

a quarterly basis. Claims estimates are set by 

experienced claims technicians. The ultimate 

costs of outstanding claims, including claims 

incurred but not reported, is estimated by our 

actuaries, who apply recognised actuarial 

techniques. A best estimate of our reserves is 

produced and reviewed by internal and external 

actuaries and is assessed by management with 

input from underwriting and claims experts. 

More than 95% of our outstanding claims 

provision is reviewed annually by independent 

external actuaries. 

Debt management 

On 24 May 2011 QBE EO issued US$1,000 

million and £325 million of fixed-rate reset 

subordinated call notes, due in 2041. The 

securities may not be called for redemption by 

the investors. Interest payments are deferrable 

and no payments are due unless QBE EO 

satisfies certain solvency conditions. QBE EO’s 

first call date is May 2016. 

In addition, QBE EO has existing external 

convertible debt securities, with a first call date 

in 2013 and two perpetual securities which 

have no fixed redemption date and may not be 

called for redemption or conversion by investors. 

Distributions are deferrable and not cumulative, 

but if we do not pay a distribution or principal 

amount, the capital securities are to be 

redeemed for QBE preference shares. 

QBE EO’s letter of credit facilities of £909 million, 

which principally support FAL, are reviewed 

at least annually. In addition, QIEL has letters 

of credit, totalling £66 million, to support its 

US (re)insurance business. 

Reinsurance protection 

Reinsurance is an important part of our risk 

management strategy for our insurance 

operations. We have put in place various 

reinsurance programmes, such as whole account 

quota share, facultative and treaty reinsurance 

and participation in the QBE’s catastrophe 

losses cover. Further detail is in the risk 

management report on pages 20 to 22.


Empowers 

a collaborative “can do” spirit across the 

business and with all business partners 

At every stage of relationship QBE EO encourages 

a “can do” spirit, which means everyone benefits from 

quicker decision making and faster solutions. 

QBE EO emphasises the importance of co-operation across 

all departments and this, in turn, enables a bespoke service 

and excellent customer relations management programme 

to clients. 

Case study: road safety 

QBE EO has been insuring commercial motorists in the UK for more than 80 years and is dedicated 

to improving road safety for all road users and pedestrians. To help raise the importance of 

responsible driving – and to reduce incidents and claims – we have been working with Brake, 

the road safety charity, since 2007. 

In 2011, for the second year running, 

we were headline sponsor of Brake’s Road 

Safety Week. The theme, Too young to die, 

highlighted the particular need to improve 

safety awareness among young drivers. 

The campaign, which was also aimed at older 

drivers, parents, the wider community and 

government policymakers, focused on what 

can be done to reduce the number of deaths 

on the UK’s roads. 

Now in its 15th year, Road Safety Week creates 

an opportunity for communities and organisations 

to take action on road safety. During the week 

organisations, including emergency services, 

local authorities, schools, colleges, youth and 

community groups, ran road safety promotions 

and media campaigns, held talks, workshops 

and demonstrations and displayed posters. 

As part of our sponsorship, in the months 

running up to Road Safety Week, Brake 

surveyed 8,000 young people on their 

experiences as passengers with young drivers. 

The results were covered extensively by national 

and local newspapers, radio and TV stations. 

2011’s Road Safety Week generated more than 

£535,000 worth of media value, which helped 

Brake in its campaign to make our roads safer. 

As headline sponsor we were associated with 

Road Safety Week through: 

• 6,062 schools, organisations and 

communities that registered to take part 

in the week; 

• 227 community groups and volunteers and 

758 companies that registered for information 

and to take part in events. Of the companies 

– 419 planned to promote road safety to 

staff or to train/educate company drivers; 

– 412 intended to set up a road safety 

display; 

– 230 promoted road safety messages 

to customers or partners; 

– 229 worked with schools/colleges; 

– 181 promoted road safety in their local 

communities; and 

– 84 launched a road safety initiative 

or campaign. 

• 111,123 promotional emails sent by Brake; 

• 18,804 unique visitors to the Road Safety 

Week website during September, October 

and November. 

In addition to sponsoring Road Safety Week, 

we also supported Brake’s Fleet Safety Forum. 

This provided an opportunity for us to raise 

awareness of QBE as an insurer of commercial 

vehicles (including buses, coaches and 

emergency vehicles) while, at the same time, 

campaigning for improved driving standards. 

Since one third of accidents involve vehicles 

being driven for work, the importance of safe 

driving by those drivers has never been higher. 

Martians Explorer Scouts 

“Showed some of your videos and those 

made by students. Then we gave out fact 

sheets and made our own videos. It went 

fabulously. They learned lots about the 

impact of mobiles, drink and speed. I was 

surprised and scared how ignorant they 

were before we did this! I’m so glad we 

did it!” 

Lordship Farm School 

“It was a successful week, looking at road 

safety and personal safety. We had classes 

go out into the local area with our road 

safety team and assemblies from the fire 

department and police. We also had 

afternoon work dedicated to road safety 

and we ran workshops for different classes. 

On the final day we had a bright day.” 

St Bernadette’s Pre-school 

“We incorporated Road Safety Week into 

our daily activities, including a visit from 

Wigan road safety department, a safety 

walk to the village using our yellow jackets. 

We used the pedestrian crossing and 

explained to the children how we use the 

button to wait for the green man before 

crossing. Our local ‘lollipop’ lady was 

invited in to talk to the children. We feel 

this event was very successful.” 


• 20 press releases to national, regional and 

trade media;


Board of directors 

Frank O’Halloran 

Chairman 

Chief Executive Officer, 

QBE Insurance Group Limited 

Age 65 

Steven Burns 


Age 53 

Phillip Dodridge 

Chief Risk Officer 

Age 43 

Frank was appointed Chairman of QBE EO 

on 5 December 1991. He joined QBE in 1976 

as Group Financial Controller and was 

appointed Chief Financial Officer in 1982. 

He joined the Group board as Director of 

Finance in 1987 and was appointed Director 

of Operations in 1994. In January 1998, 

he was appointed Chief Executive Officer. 

He is a chartered accountant and has had 

15 years’ experience in professional 

accountancy and 35 years’ experience in 

insurance management. 

Steven joined QBE EO when it acquired 

Limit Underwriting Ltd in 2000 – he had been 

Managing Director of Limit since 1999 – and 

was appointed CEO of QBE EO’s Lloyd’s 

Division in that year. He was appointed CEO 

of QBE EO on 17 September 2004. 

He trained as a chartered accountant, joined 

the Lloyd’s managing agency, Janson Green, 

in 1987 and became finance director before it 

was acquired by Limit in 1996. His extensive 

experience at Lloyd’s includes being a member 

of the Council of Lloyd’s, between 2003 and 

2005 and a non-executive director of the 

Lloyd’s Franchise Board. 

Steven is a member of QBE’s Group Operations 

Executive, the principal objective of which is 

to build and control the Group’s insurance 

business and to maximise opportunities in 

the markets in which it chooses to operate. 

Phil was appointed to the board on 9 March 

2007. He joined QIEL in 2000, as Chief Actuary 

of the Major Risks Division and became Chief 

Actuary in 2004. He was appointed Operations 

Director of QIEL in 2005 and joined the board of 

Limit in 2006. Appointed Chief Actuarial Officer 

for QBE EO in 2007, his role was extended to 

Chief Risk Officer in 2009. 

Before joining QIEL, he spent ten years as 

a consultant actuary at Watson Wyatt’s 

general insurance practice. His experience 

covers a wide range of areas, including 

business planning, capital modelling, reserving, 

catastrophe aggregate management, 

reinsurance, acquisition pricing and 

performance monitoring.


Mohinder Kang 

Chief Human Resources Officer 

Age 49 

John Neal 

Chief Executive Officer, 

Global Underwriting Operations 

Age 47 

David Winkett 

Chief Financial and Operating Officer 

Age 42 

Mohinder was appointed to the board on 

11 November 2004. He joined QBE EO in 

September 2003 and was appointed Chief 

Human Resources Officer in November 2004. 

He had previously spent seven years at Zurich 

Financial Services, in a number of senior positions 

in the UK management team, including Claims 

Operations Director, Director – Organisation 

Development and Innovation and Head of HR. 

Before that, Mohinder worked for the Civil 

Service and also held HR management roles 

at HBOS, State Street Bank and Trust and 

Peugeot Citroën. 

John was appointed to the board on 

11 November 2004. Appointed Chief Executive 

Officer of QBE Global Underwriting Operations 

in January 2011, he continues to sit on QBE 

EO’s board. 

He has more than 20 years’ experience in the 

insurance industry and has held senior roles at 

Lloyd’s and in company market organisations. 

He was owner and CEO of the Lloyd’s managing 

agency, Ensign Holdings Limited, which was 

acquired by QBE EO in 2004. In 2006, he was 

appointed Managing Director of QIEL, our 

company market operation and in 2007 

became Chief Operating Officer of QBE EO, 

before taking on the role of Chief Underwriting 

Officer in 2009. 

David was appointed to the board on 

17 September 2004. He joined QBE EO in 

2000 and became Finance Director of Limit 

Underwriting Ltd later that year when it was 

acquired by QBE. He was appointed Chief 

Financial Officer of QBE EO in September 2004. 

He chaired the Lloyd’s Market Association 

Finance Committee between 2008 and 2010 

and is a member of the Lloyd’s Investment 

Committee. A chartered accountant, he spent 

ten years at PricewaterhouseCoopers, where 

he worked extensively with Lloyd’s, London 

market and international insurance companies. 

Corporate governance


Audit committee * 

Brian Pomeroy 

Age 67 

Brian was appointed to the boards of QBE 

Insurance (Europe) Limited and QBE 

Underwriting Limited in January 2006. He is 

also a director of QBE Reinsurance (Europe) 

Limited. He was formerly Senior Partner of 

Deloitte Consulting and now holds a number 

of public, voluntary and private sector 

appointments, including non-executive director 

of the Financial Services Authority and member 

of the Financial Reporting Review Panel. 

Peter Grove 

Age 62 

Peter joined the board when QBE EO acquired 

Limit Underwriting Limited in 2000 and was 

appointed Chief Underwriting Officer of QBE EO 

in 2004. He has worked in the London insurance 

and reinsurance market since 1966 and was a 

lead underwriter on reinsurance and retrocession 

business for more than 30 years. He retired as 

an executive director at the end of 2009, but 

remains on the boards of QBE Insurance (Europe) 

Limited and QBE Underwriting Limited. He is a 

member of the Lloyd’s Market Supervision and 

Review Committee. 

Philip Olsen 

Age 66 

Philip is a non-executive director of QBE 

Underwriting Limited (formerly Limit Underwriting 

Limited) and was appointed to the board of 

QBE Insurance (Europe) Limited in February 

2005. He is also a director of QBE Reinsurance 

(Europe) Limited and Secura NV. He is a 

member of the Securities Institute and, from 

1969 to 1990, was an investment analyst and 

partner at stockbroker Kitcat & Aitken. He is 

also a director of Marketform Managing 

Agency Limited. 

Howard Posner 

Age 55 

Howard was appointed as a non-executive 

director of QBE Insurance (Europe) Limited 

and QBE Underwriting Limited in 2006. He 

is also a non-executive director of a number 

of companies in the financial services sector. 

He was Managing Director of HBOS General 

Insurance for 11 years, before which he worked 

in the London reinsurance market. 

Charles Irby FCA 

Age 66 

Charles was appointed as an independent 

non-executive director of QBE Insurance Group 

in June 2001 and is a member of QBE EO’s 

audit committee. He is a director of Great 

Portland Estates plc and North Atlantic Smaller 

Companies Investment Trust plc. He is also 

a trustee and governor of King Edward VII’s 

Hospital Sister Agnes. 

Non-executive membership of the board 

and committees 

Brian Peter Philip Howard Charles 

Pomeroy Grove Olsen Posner Irby 

QUL ● ● ● ● 

QIEL ● ● ● ● 

Secura NV 

● 

QBE Re ● ● 

Audit committee ● ● ● ● ● 

Investment 

committee 

● 

Underwriting and 

RI review committee ● 

* The members of the Audit committee are not on the board of QBE EO plc but are directors of the regulated subsidiaries as shown in the table.


QBE’s Contractors’ 

Environmental Liability 

solutions are designed to 

respond to pollution and 

environmental damage 

caused by the activities 

of contractors. 



Governance framework 

“QBE EO is committed to high standards of 

corporate governance and has established 

a practical governance framework.” 

Ian Beckerson 

Compliance and Governance Director 


Overview and basis of reporting 

QBE EO’s board governance structure 

is shown in the chart opposite. Our key 

committees and their respective roles 

and responsibilities are summarised 

on page 40. 

The committees all comprise appropriately 

skilled and experienced members and operate 

under formal terms of reference. As an internal 

holding company of QBE, our board is not 

bound by the UK Corporate Governance Code 

but, as a matter of best practice, seeks to 

comply with it wherever possible. 

The financial statements have been prepared 

in accordance with applicable law and 

United Kingdom Accounting Standards 

(United Kingdom Generally Accepted 

Accounting Practice). 

The board 

The board comprises four executive directors 

and two QBE executive directors. Biographical 

details for each member of the board are 

provided on pages 34 and 35. 

There was one change to the board during the 

year. Kathy Lisson stepped down from her role 

as Chief Operating Officer (COO), effective 

15 February 2011, to return to her native Canada. 

On Kathy’s departure, David Winkett was 

appointed Chief Financial and Operating Officer. 

The board meets regularly and is chaired by 

Frank O’Halloran, Chief Executive Officer of 

QBE Insurance Group Limited. The role of the 

Chairman is distinct from that of the CEO and 

the roles are both clearly established. 

The board has an established policy in relation 

to the provision of non-audit services by the 

auditors. The objective is to ensure that the 

provision of such services does not impair the 

auditor’s objectivity. 

Key entities 

Our board governance structure which 

details our key operating and regulated 

entities is outlined on page 39. The boards of 

these entities each have a schedule of matters 

reserved for their decision and are responsible 

for the overall management of the companies. 

This includes strategic matters, approval 

of financial statements and dividends, 

appointments and terminations of directors 

and auditors, delegation of authority, approval 

of major capital projects, structure and 

capital changes and internal controls and 

risk management. 

Our non-executive directors sit on the boards 

of our regulated entities as well as on the Audit 

Committee and other key committees as shown 

in the table on page 36. Biographical details for 

our non-executive directors are also provided 

on page 36. Our non-executive directors are 

considered by the board to be independent 

of management and free from any relationship 

which could materially interfere with the exercise 

of their independent judgement. 

Board performance 

Board performance is evaluated on an ongoing 

basis and governance is reviewed to ensure 

that its performance meets regulatory, legal and 

business requirements. 

The board’s committees 

The board has appointed and authorised a 

number of committees which operate within 

established terms of reference. 

QBE EO’s key committees comprise: 

• Executive committee; 

• Audit committee; 

• Underwriting and reinsurance review 

committee; 

• Investment committee; 

• Reserving committee; 

• Internal audit committee; and 

• Risk and capital committee. 

Further detail on the roles and responsibilities 

of each of these committees is provided on 

page 40. 

Accountability and internal control 

QBE EO’s activities expose it to a number of 

risks that could affect its ability to achieve its 

business objectives. The board, supported 

by the risk and capital committee, ensures that 

an appropriate structure for managing these 

risks is maintained. Since it is neither realistic 

nor desirable to eliminate risk entirely, the board 

seeks to ensure that appropriate controls are 

in place to manage risk effectively and to an 

agreed level of tolerance. QBE EO’s risk 

management processes and systems are 

set out in more detail on pages 20 to 22.


QBE European Operations – board governance structure 

QBE EO board 

QREL board 

QIEL and QUL 

combined boards 

Secura NV board 

QBE Management 

Services (UK) Limited 

board 

Shareholder communications 

As an internal holding company, EO plc does 

not have external shareholders; shareholder 

communications are, therefore, dealt with by 

QBE, which sends a half-yearly report to all 

shareholders who elect to receive it. Reports 

are available on QBE’s website, www.qbe.com 

which also contains historical and other details 

on the Group. Shareholders can discuss their 

shareholding with the shareholder services 

department, or the share registrar, both of 

which are based in Sydney, Australia. 

The Group’s AGM is held in Sydney each year, 

usually in April. Shareholders are encouraged 

to attend the AGM in person, or by proxy. 

Most resolutions in the notice of meeting 

have explanatory notes. During the AGM, 

shareholders may question the Chairman 

or the external auditor. 

QBE Global Workplace Diversity Policy 

With operations in 52 countries, QBE Group 

recognises that workforce diversity is critical 

to building and maintaining a workplace that 

is fair and inclusive. Through QBE’s vision, 

values and Essential Behaviours, the Group 

seeks to retain and attract the best people 

to do the job and to enable them to 

achieve sustainable high performance. 

We believe that drawing upon the wide 

variety of capabilities, ideas and insights 

of our employees enhances the quality of 

decision-making and entrepreneurship. 

The guiding principles of workplace diversity 

within QBE have been in place for some 

years. In 2011, QBE undertook a survey of 

its top 2,500 managers around the world on 

workplace diversity. As a result of this survey, 

QBE is planning to introduce a range of 

initiatives including a new workplace flexibility 

policy, manager education programmes and 

development of a “keeping in touch” 

programme for those taking parental leave. 

QBE’s workforce diversity policy is aligned 

with the Essential Behaviours that form our 

corporate culture, in particular maintaining 

absolute integrity in all we do. Our aim is to 

create a workforce that is fair and inclusive 

and to attract and retain the best people to 

do the job. 

Through our Group vision to develop “can 

do” people who live our Essential Behaviours 

in everything they do, we will achieve positive 

business outcomes through the efforts of a 

strong, cohesive and committed workforce 

across our global network. 

To help achieve our workplace diversity 

initiatives in 2012 and beyond, QBE Group 

has established a workforce diversity 

committee, headed by the QBE Group 

Chief Executive Officer of global underwriting 

operations. The committee is responsible 

for monitoring of progress against agreed 

objectives and reporting to the board to 

ensure the implementation of this strategic 

objective in line with the Group’s vision. 

At QBE EO level, a diversity committee has 

also been established 



Key committees 

Executive committee 

Chairman 

Steven Burns 

Roles and responsibilities 

• To formulate strategy for discussion and 

approval by the board. 

• The committee comprises all executive 

directors of the board, together with the 

divisional Chief Underwriting Officers. 

Underwriting and reinsurance 

review committee 

Chairman 

Peter Grove 


• To provide assurance that the control 

framework is appropriate and mitigates 

underwriting and reinsurance risk. 

• To review the framework (to ensure that it is 

consistent with that of QBE), the companies’ 

policies and procedures and legislative and 

regulatory requirements. 

• To contribute to change management 

projects to ensure that control weaknesses 

are identified quantified and managed. 

Investment committee 

Chairman 

David Winkett 


• To recommend to the board appropriate 

investment policies and guidelines for each 

of the companies’ – and subsidiary 

companies’ – funds. 

• To monitor the agreed investment strategy 

on a day-to-day basis. 

Audit committee and its sub-committees 

Audit committee 

Chairman 

Brian Pomeroy 


• To assist the boards in discharging their 

oversight responsibilities. 

• Principal responsibilities include: 

– overseeing the financial reporting process; 

– reviewing the effectiveness of the internal 

financial control and risk management 

system and the internal audit function; and 

– overseeing the independent audit 

process, including recommending the 

appointment – and assessing the 

performance – of the external auditor. 

• In addition, overseeing the reserving 

committee, risk and capital committee and 

internal audit committee. 

Reserving committee 

Chairman 

Phil Dodridge 


• Undertaking a review of the reserve 

information in support of the accounts and 

the calculation of total reserves ensuring 

consistency with the standards required to 

attain satisfactory audit and actuarial opinion. 

Internal audit committee 

Chairman 

Phil Olsen 


• Provide assurance that an appropriate 

control framework is in place. 

• Ensure controls are functioning in practice 

and consistent with QBE and QBE EO 

procedures, together with legislative and 

regulatory requirements. 

Risk and capital committee 

Chairman 

Phil Olsen 


• Ensuring an embedded framework to 

manage risk and capital is in place. 

• Oversight of day-to-day activity relating 

to Solvency II.


Directors’ report 

The directors present their report and the 

audited financial statements for the year 

ended 31 December 2011. 

Principal activity 

QBE European Operations plc (the company) 

is an investment holding company and the 

principal activity of its subsidiary undertakings 

continues to be the transaction of insurance 

and reinsurance business (together the Group). 

The company and Group will continue these 

activities for the foreseeable future. 

The company is wholly owned by QBE 

Insurance Group Limited (QBE), an Australian 

listed company that prepares consolidated 

financial statements in accordance with 

Australian equivalents to International Financial 

Reporting Standards. These consolidated 

financial statements are prepared using 

UK Generally Accepted Accounting Practice. 

The company is the holding company for 

the European Operations Division (QBE EO) 

of QBE. 

Business review and future developments 

The results of the Group for the year are set out 

in the Group profit and loss account and the 

statement of Group total recognised gains 

and losses on pages 44 to 46. The profit after 

tax for the year was £95,052,000 (2010 

£194,159,000). A dividend was paid on the 

ordinary shares for the year of £596,693,000 

(2010 £423,708,000) and a dividend of 

£3,361,000 was paid on the preference shares 

(2010 £6,292,000). Details of movements on 

reserves are set out in note 20. 

On 16 May 2011, a Group company lent a 

further US$200 million to QBE Investments 

(North America) Inc., funded by the surplus 

cash in the Group. 

On 24 May 2011, as detailed in note 24, the 

Group raised US$1 billion and £325 million 

through the issue of 30-year fixed rate 

subordinated notes. 

On 15 December 2011, the company 

completed a court-approved capital reduction 

of £507,110,000 with £23,300,000 was 

returned to the minority equity shareholder and 

the remaining £483,810,000 was transferred 

to the profit and loss account. Details on the 

capital reduction is set out in note 20. 

On 29 December 2011, the company changed 

its name to QBE European Operations plc, 

from QBE International Holdings (UK) plc, 

a name that reflects the role of the company 

going forward. 

On 16 February 2012, the company paid an 

interim dividend of £356,700,000 to ordinary 

shareholders. 

Key Performance Indicators 

The directors monitor the progress of the Group 

by reference to the KPIs table on page 2. 

Overseas operations 

The Group has overseas operations in Australia, 

Belgium, Bulgaria, Canada, the Czech Republic, 

Denmark, Estonia, France, Germany, Hungary, 

Ireland, Italy, Macedonia, Romania, Singapore, 

Slovakia, Spain, Sweden, Switzerland, Ukraine 

and the United Arab Emirates. 

Directors 

Details of the current directors and those that 

served during the year are shown on page 84. 

Creditor payment policy 

The company agrees terms with its suppliers 

when it enters into binding purchase contracts. 

The company seeks to abide by the payment 

terms agreed with suppliers when it is satisfied 

that the supplier has provided the goods or 

services in accordance with the agreed terms 

and conditions. 

The Group has on average 22 days’ creditors 

outstanding at 31 December 2011 (2010 

30 days) based on the average daily amount 

invoiced by suppliers during the year. 

Charitable donations 

During the year the Group made donations 

for charitable purposes of £1,019,000 

(2010 £40,000). 

QBE’s new global corporate responsibility 

initiative, The QBE Foundation, was officially 

launched in July 2011. The Foundation is 

a Group-wide initiative that sets out to: 

• make a difference in key areas that align 

with QBE’s vision and values; 

• drive employee engagement by developing 

networking and a strong team-based 

culture; and 

• maximise the return and impact from any 

collection, distribution and allocation of 

philanthropic resources. 

In 2011, The Foundation made £868,000 

of donations across four key categories 

of support: matching employee fundraising; 

matching payroll giving; employee volunteer 

day; and charitable grants. 


Please refer to Corporate governance 

statement on pages 38 and 39. 

Financial risk 

Financial risk is dealt with in note 15 to 

the accounts. 


Please refer to Risk management section 

on pages 20 to 22. 

Employees – disabled persons 

Applications for employment by disabled 

persons are always considered, bearing in mind 

the respective aptitudes and abilities of the 

applicant concerned. In the event of members 

of staff becoming disabled, every effort is made 

to ensure that their employment with the Group 

continues and the appropriate training is 

arranged. It is the policy of the Group that the 

training, career development and promotion of 

a disabled person should, as far as possible, be 

identical to that of a person who does not suffer 

from a disability. 



Directors’ report 

continued 

Employees – employee involvement 

Communication with all employees continues 

through internal announcements and 

distribution of information concerning the 

performance of the Group, with the aim of 

ensuring that all employees are aware of the 

financial and economic performance of their 

business units and of the Group as a whole. 

Involvement in the performance of the 

company is encouraged through share 

schemes and performance-related bonus 

schemes. Employee representatives are 

consulted to ensure employee views are 

considered in decision-making likely to 

affect their interests. 

Statement of directors’ responsibilities 

The directors are responsible for preparing 

the Directors’ report and the financial 

statements in accordance with applicable 

law and regulations. 

Company law requires the directors to prepare 

financial statements for each financial year. 

Under that law the directors have elected to 

prepare the Group and company financial 

statements in accordance with United Kingdom 

Generally Accepted Accounting Practice (United 

Kingdom Accounting Standards and applicable 

law). Under company law the directors must not 

approve the financial statements unless they are 

satisfied that they give a true and fair view of the 

state of affairs of the company and the Group 

and the profit or loss of the Group for that 

period. In preparing these financial statements, 

the directors are required to: 

• select suitable accounting policies and then 

apply them consistently; 

• make judgements and accounting estimates 

that are reasonable and prudent; 

• state whether applicable UK accounting 

standards have been followed, subject 

to any material departures disclosed and 

explained in the financial statements; and 

The directors are responsible for keeping 

adequate accounting records that are sufficient 

to show and explain the company’s transactions 

and disclose with reasonable accuracy at any 

time the financial position of the company 

and the Group and enable them to ensure 

that the financial statements comply with the 

Companies Act 2006. They are also responsible 

for safeguarding the assets of the company and 

the Group and hence for taking reasonable 

steps for the prevention and detection of fraud 

and other irregularities. 

Statement of disclosure of information 

to auditors 

Each person who is a director at the date of this 

report confirms that: 

• so far as the director is aware, there is no 

relevant audit information of which the 

auditors are unaware; and 

• the director has taken all the steps that 

he/she ought to have taken as a director 

in order to make himself/herself aware 

of and to establish that the company’s 

auditors are aware of, any relevant 

audit information. 

This confirmation is given and should be 

interpreted, in accordance with the provisions 

of s418 of the Companies Act 2006. 

By order of the board: 

S M Boland 

Company Secretary 


Registered Number 02641728 

London 

4 May 2012 

• prepare the financial statements on the 

going concern basis unless it is inappropriate 

to presume that the company will continue 

in business.


Independent auditors’ report 

to the members of QBE European 

Operations plc 

We have audited the Group and parent company financial statements 

(the “financial statements”) of QBE European Operations plc for the year 

ended 31 December 2011 which comprise the Group profit and loss 

account, the Group and parent company balance sheets, the statement of 

Group total recognised gains and losses, the reconciliation of movement 

in Group shareholders’ funds and the related notes. The financial reporting 

framework that has been applied in their preparation is applicable law 

and United Kingdom Accounting Standards (United Kingdom Generally 

Accepted Accounting Practice), having regard to the statutory requirement 

for insurance companies to maintain equalisation provisions. The nature 

of equalisation provisions, the amounts set aside at 31 December 2011 

and the effect of the movement in those provisions during the year on the 

Group’s shareholders’ funds, the balance on the Group’s general business 

technical account and profit before tax, are disclosed in accounting policy 

(d) (vii) and note 21. 

Respective responsibilities of directors and auditors 

As explained more fully in the statement of directors’ responsibilities set 

out on page 42, the directors are responsible for the preparation of the 

financial statements and for being satisfied that they give a true and fair 

view. Our responsibility is to audit and express an opinion on the financial 

statements in accordance with applicable law and International Standards 

on Auditing (UK and Ireland). Those standards require us to comply with 

the Auditing Practices Board’s Ethical Standards for Auditors. 

This report, including the opinions, has been prepared for and only for 

the company’s members as a body in accordance with Chapter 3 of 

Part 16 of the Companies Act 2006 and for no other purpose. We do 

not, in giving these opinions, accept or assume responsibility for any 

other purpose or to any other person to whom this report is shown or 

into whose hands it may come save where expressly agreed by our prior 

consent in writing. 

Scope of the audit of the financial statements 

An audit involves obtaining evidence about the amounts and disclosures 

in the financial statements sufficient to give reasonable assurance that 

the financial statements are free from material misstatement, whether 

caused by fraud or error. This includes an assessment of: whether the 

accounting policies are appropriate to the Group’s and parent company’s 

circumstances and have been consistently applied and adequately 

disclosed; the reasonableness of significant accounting estimates made 

by the directors; and the overall presentation of the financial statements. 

In addition, we read all the financial and non-financial information in 

the Annual report to identify material inconsistencies with the audited 

financial statements. If we become aware of any apparent material 

misstatements or inconsistencies we consider the implications for 

our report. 

Opinion on financial statements 

In our opinion the financial statements: 

• give a true and fair view of the state of the Group’s and the parent 

company’s affairs as at 31 December 2011 and of the Group’s profit 

for the year then ended; 

• have been properly prepared in accordance with United Kingdom 

Generally Accepted Accounting Practice; and 

• have been prepared in accordance with the requirements of the 

Companies Act 2006. 

Opinion on other matter prescribed by the Companies Act 2006 

In our opinion the information given in the Directors’ report for the financial 

year for which the financial statements are prepared is consistent with the 

financial statements. 

Matters on which we are required to report by exception 

We have nothing to report in respect of the following matters where 

the Companies Act 2006 requires us to report to you if, in our opinion: 

• adequate accounting records have not been kept by the parent 

company or returns adequate for our audit have not been received 

from branches not visited by us; or 

• the parent company financial statements are not in agreement with 

the accounting records and returns; or 

• certain disclosures of directors’ remuneration specified by law are 

not made; or 

• we have not received all the information and explanations we require 

for our audit. 

Nigel Terry 

Senior Statutory Auditor 

For and on behalf of PricewaterhouseCoopers LLP 

Chartered Accountants and Statutory Auditors 

London 

4 May 2012 


Note 

The maintenance and integrity of the QBE website is the responsibility of the directors; the work carried out by the auditors does not involve consideration of these matters and, accordingly, 

the auditors accept no responsibility for any changes that may have occurred to the financial statements since they were initially presented on the website. 

Legislation in the United Kingdom governing the preparation and dissemination of financial statements may differ from legislation in other jurisdictions.


44 

Group profit and loss account: 

technical account – general business 

For the year ended 31 December 2011 

2011 2010 

Notes £000 £000 £000 £000 

Earned premiums, net of reinsurance 

Gross premiums written 2 3,019,592 2,694,964 

Outward reinsurance premiums (987,546) (960,986) 

Net premiums written 2,032,046 1,733,978 

Change in the gross provision for unearned premiums (107,741) (89,895) 

Change in the provision for unearned premiums, reinsurers’ share 42,488 29,521 

Change in the net provision for unearned premiums (65,253) (60,374) 

Earned premiums, net of reinsurance 1,966,793 1,673,604 

Allocated investment return transferred from the non-technical account 37,902 65,719 

Total technical income 2,004,695 1,739,323 

Claims incurred, net of reinsurance 

Claims paid 

Gross amount (1,625,403) (1,588,200) 

Reinsurers’ share 498,518 598,285 

(1,126,885) (989,915) 

Change in the provision for claims 

Gross amount (412,600) 41,899 

Reinsurers’ share 234,629 (49,728) 

(177,971) (7,829) 

Claims incurred, net of reinsurance (1,304,856) (997,744) 

Net operating expenses 4 (594,875) (552,130) 

Other technical charges, net of reinsurance 13 (2,886) (2,672) 

Change in equalisation provision 21 (16,335) – 

Total technical charges (1,918,952) (1,552,546) 

Balance on technical account – general business 85,743 186,777 

The notes set out on pages 50 to 81 form an integral part of these financial statements.


45 

Group profit and loss account: 

non-technical account 


2011 2010 

Notes £000 £000 

Balance on technical account – general business 85,743 186,777 

Investment income 9(a) 244,138 237,473 

Investment expenses and charges 9(b) (137,679) (113,332) 

Unrealised losses on investments (58,351) (19,961) 

Allocated investment return transferred to the general business technical account (37,902) (65,719) 

Other charges (12,758) (12,075) 

Profit on ordinary activities before tax 2,10 83,191 213,163 

Tax on profit on ordinary activities 11 11,926 (19,111) 

Profit on ordinary activities after tax 95,117 194,052 

Equity minority interests (65) 107 

Profit for the financial year 95,052 194,159 

The results above are all derived from continuing operations. 

Neither gains and losses arising on the holding or disposal of investments, nor the effect of fair value accounting for financial instruments are required to 

be included in a note of historical profit and losses. There are no other differences between the profit on ordinary activities before tax or the profit for the 

financial year stated above and their historical cost equivalents. 

The notes set out on pages 50 to 81 form an integral part of these financial statements. 

Financial statements


46 

Statement of Group total 

recognised gains and losses 


2011 2010 

Notes £000 £000 

Profit for the financial year 20 95,052 194,159 

Actuarial gain/loss recognised in the pension schemes 7,20 3,088 (7,740) 

Movement on deferred tax liability relating to pension liability 20 1,266 882 

Movement in cash flow hedge – 3,722 

Movement in revaluation reserve 20 (113) 412 

Currency translation differences 20 18,186 49,644 

Total recognised gains for the year 117,479 241,079 



47 

Reconciliation of movement 

in Group shareholders’ funds 


2011 2010 

Notes £000 £000 

Profit for the financial year 20 95,052 194,159 

Other recognised gains 20 22,427 46,920 

Dividends 20 (600,054) (430,000) 

Capital reduction 20 (23,300) – 

Issue of ordinary share capital – 545,490 

Net (decrease)/increase in shareholders’ funds (505,875) 356,569 

Opening shareholders’ funds 20 2,196,978 1,840,409 

Closing shareholders’ funds 20 1,691,103 2,196,978 




48 

Balance sheets 


Group 

Company 

2011 2010 2011 2010 

Assets Notes £000 £000 £000 £000 

Intangible assets 13 194,244 209,894 671 806 

Investments 

Land and buildings 14(a) 12,094 12,546 – – 

Shares in group undertakings 14(b) – – 4,118,930 3,804,748 

Other financial investments 14(c) 6,268,289 6,042,620 157,837 34,819 

Deposits with ceding undertakings 144,699 149,942 – – 

6,425,082 6,205,108 4,276,767 3,839,567 

Reinsurers’ share of technical provisions 

Provision for unearned premiums 423,275 380,188 – – 

Claims outstanding 2,509,964 2,204,901 – – 

2,933,239 2,585,089 – – 

Debtors 

Debtors arising out of direct insurance operations 994,694 953,576 – – 

Debtors arising out of reinsurance operations 117,371 96,206 – – 

Other debtors including taxation 17 2,646,437 2,120,443 639,882 219,613 

3,758,502 3,170,225 639,882 219,613 

Other assets 

Tangible assets 18 85,539 74,621 – – 

Cash at bank and in hand 98,350 182,930 2,951 2,470 

183,889 257,551 2,951 2,470 

Prepayments and accrued income 

Accrued interest and rent 34,416 27,416 542 16 

Deferred acquisition costs 282,307 255,664 – – 

Other prepayments and accrued income 25,185 35,114 – – 

341,908 318,194 542 16 

Total assets 13,836,864 12,746,061 4,920,813 4,062,472 



49 

Balance sheets continued 


Group 

Company 

2011 2010 2011 2010 

Equity and liabilities Notes £000 £000 £000 £000 

Capital and reserves 

Called up share capital 19,20 2,308,573 2,454,133 2,308,573 2,454,133 

Share premium account 20 – 361,550 – 361,550 

Revaluation reserve 20 299 412 – – 

Other reserves 20 167,049 148,863 – – 

Profit and loss account 20 (784,818) (767,980) 600,192 334,073 

Total shareholders’ funds 1,691,103 2,196,978 2,908,765 3,149,756 

Equity minority interests 8,624 8,559 – – 

Total equity 1,699,727 2,205,537 2,908,765 3,149,756 

Technical provisions 

Provision for unearned premiums 1,408,459 1,304,970 – – 

Claims outstanding 6,514,462 6,137,377 – – 

7,922,921 7,442,347 – – 

Provisions for other risks and charges 

Provisions for liabilities and charges 27 1,428 1,534 – – 

Deferred taxation 22 185,630 57,236 – – 

187,058 58,770 – – 

Deposits received from reinsurers 46,529 49,961 – – 

Creditors 

Creditors arising out of direct insurance operations 126,636 160,509 – – 

Creditors arising out of reinsurance operations 1,295,568 1,197,152 – – 

Amounts owed to credit institutions 23 564,735 546,602 – – 

Other creditors including tax and social security 24 1,944,869 1,032,556 2,012,048 912,286 

3,931,808 2,936,819 2,012,048 912,286 

Accruals and deferred income 42,495 40,059 – 430 

Total equity and liabilities excluding pension liabilities 13,830,538 12,733,493 4,920,813 4,062,472 

Pension liabilities 7(a) 6,326 12,568 – – 

Total equity and liabilities including pension liabilities 13,836,864 12,746,061 4,920,813 4,062,472 

These financial statements on pages 44 to 81 were approved by the board of directors on 4 May 2012 and signed on its behalf by: 

D J Winkett 

Director 




50 

Notes to the financial statements 


1 Accounting policies 

The principal accounting policies adopted in the preparation of these 

financial statements are set out below. These policies have been 

consistently applied to all the years presented unless otherwise stated. 

The consolidated financial statements incorporate the assets, liabilities 

and results of the company and its subsidiary undertakings and are 

drawn up to 31 December each year. 

a) Basis of preparation 

These financial statements have been prepared in accordance with 

the provisions of The Large and Medium-Sized Companies and Groups 

(Accounts and Reports) Regulations 2008 (SI 2008/410) relating to 

insurance groups and applicable accounting standards in the United 

Kingdom. The Group has adopted the recommendations of the 

Statement of Recommended Practice on Accounting for Insurance 

Business issued by the Association of British Insurers in December 

2005 (as amended in December 2006). 

Compliance with Statement of Standard Accounting Practice (SSAP) 19, 

“Accounting for Investment Properties” requires departure from the 

requirements of the Companies Act 2006 relating to depreciation and 

explanation of the departure is given in Accounting Policy 1(g) below. 

b) Basis of consolidation 

The results of subsidiary undertakings acquired or sold during the period 

are included in the consolidated results from the date of acquisition or up 

to the date of disposal. On acquisition of a subsidiary undertaking, the 

Group’s share of its assets and liabilities that exist at the date of acquisition 

are recorded at their fair values reflecting their condition at that date. 

c) Cash flow statement and related party disclosures 

The Group and company is included in the consolidated financial 

statements of QBE Insurance Group Limited, which are publicly available. 

Consequently, the Group and company have taken advantage of the 

exemption from preparing cash flow statements allowed under Financial 

Reporting Standard (FRS) 1 (revised 1996). The Group and company are 

also exempt under FRS 8 from disclosing related party transactions with 

other entities that are wholly owned by QBE Insurance Group Limited. 

d) Basis of accounting for insurance 

The result is determined on an annual basis whereby the incurred cost 

of claims, commissions and related expenses are charged against the 

earned proportion of premiums, net of reinsurance, as described below. 

i) Premiums written 

Premiums written comprise premiums on contracts incepted during the 

financial year, together with adjustments made in the year to premiums 

written in prior years. Premiums are shown gross of commissions payable 

to intermediaries and exclude taxes and duties levied on them. Estimates 

are included for premiums due but not yet received or notified, less an 

allowance for cancellations. 

ii) Unearned premiums 

Unearned premiums represent the proportion of premiums written in the 

year that relate to the unexpired terms of policies in force at the balance 

sheet date, calculated on the basis of established earnings patterns. 

iii) Acquisition costs 

A portion of acquisition costs, which represent commission and other 

related expenses, is deferred in recognition that it represents a future 

benefit. Deferred acquisition costs are measured at the lower of cost and 

recoverable amount and amortised over the period in which the related 

premiums are earned. 

iv) Claims incurred 

Claims incurred comprise claims and related expenses paid in the year 

and changes in provisions for outstanding claims, including provisions 

for claims incurred but not reported and related expenses, together with 

any other adjustments to claims from previous years. Where applicable, 

deductions are made for salvage and other recoveries. 

v) Claims provisions and related reinsurance recoveries 

Provision is made at the year end for the estimated cost of claims 

incurred but not settled at the balance sheet date, including the cost 

of claims incurred but not yet reported to the Group. The estimated 

cost of claims includes expenses to be incurred in settling claims and 

a deduction for the expected value of salvage and other recoveries. 

Outstanding claims and reinsurance recoveries are estimated by 

reviewing individual claims cases and making allowance for claims 

incurred but not reported, using past experience and trends adjusted 

for foreseeable events. 

Case estimates are set by experienced claims technicians, applying their 

skill and specialist knowledge to the circumstances of individual claims. 

The ultimate cost of outstanding claims, including claims incurred but not 

reported, is estimated by the Group’s actuaries who apply recognised 

actuarial techniques considered appropriate for each portfolio, such 

as chain ladder and Bornhuetter-Ferguson methods. These methods 

take into account, amongst other things, statistical analysis of the 

development of the value and frequency of past claims and the results of 

analyses undertaken at the point of underwriting. Techniques considered 

appropriate for specific portfolios include contract by contract analysis, 

segmentation by subclass and stochastic analysis. Classes of business 

are analysed at a level of detail appropriate to their materiality. Allowance 

is made for changes or uncertainties which may create distortions in the 

underlying statistics or which might cause the cost of unsettled claims to 

increase or decrease when compared with the cost of previously settled 

claims, for example, one-off occurrences and changes in mix of business, 

policy conditions or the legal environment. The best estimate of reserves 

for the Group is produced and reviewed by a combination of internal and 

external actuarial review and is then assessed by QBE management with 

input from underwriting and claims experts. 

As provisions for claims outstanding are based on information which 

is currently available, the eventual outcome may vary from the original 

assessment depending on the nature of information received or 

developments in future periods. For certain classes of business including 

liability and other long-tail classes written by the Group, claims may not 

be apparent for many years after the event giving rise to the claim has 

happened. These classes will typically display greater variation between 

initial estimates and final outcomes. Differences between the estimated 

cost and subsequent re-estimation or settlement of claims are reflected 

in the technical account for the year in which these claims are 

re-estimated or settled. 

Provisions are calculated gross of any reinsurance recoveries. A separate 

estimate is made of the amounts that will be recoverable from reinsurers 

based upon the gross provisions and having due regard to collectability. 

vi) Unexpired risks provision 

Provisions are made for any deficiencies arising when unearned 

premiums, net of associated acquisition costs, are insufficient to meet 

expected claims and expenses after taking into account future investment 

return on the investments supporting the unearned premiums provision


51 

1 Accounting policies continued 

and unexpired risks provision. The expected claims are calculated having 

regard to events that have occurred prior to the balance sheet date. 

Unexpired risk surpluses and deficits are offset where business classes 

are managed together. 

vii) Equalisation provision 

Amounts are set aside as equalisation provisions in accordance with 

the Financial Services Authority Handbook for the purpose of mitigating 

exceptionally high loss ratios in future years. The amounts provided are 

not liabilities because they are in addition to the provisions required to 

meet the anticipated ultimate cost of settlement of outstanding claims 

at the balance sheet date. Notwithstanding this, they are required by 

Schedule 3 to SI 2008/410 to be included within technical provisions. 

viii) Reinsurance to close (RITC) 

Following the end of the third year, the underwriting account of each 

Lloyd’s syndicate is normally closed by reinsurance into the following 

year of account. The amount of the RITC premium is determined by the 

managing agent, generally by estimating the cost of claims notified but 

not settled together with the estimated cost of claims incurred but not 

reported at that date and claims handling costs. 

fair values of Group’s share of the net identifiable assets acquired and is 

capitalised in the balance sheet at cost and amortised through the profit 

and loss account over 20 years. Carrying values are reviewed regularly 

for signs of impairment. The gain or loss on any subsequent disposal 

of subsidiary or associated undertakings will include any attributable 

unamortised goodwill. 

Other goodwill relates to the discounting of technical provisions 

arising from the fair value exercise carried out following acquisitions. 

Its amortisation period is based on the class of business, the historic 

settlement rate and the consideration of whether the historic settlement 

pattern would be appropriate into the future. The settlement period was 

estimated by modelling the settlement patterns of the underlying claims 

and related reinsurance recoveries. 

The cost of purchased syndicate participation is amortised over 20 years 

from the start of the first underwriting year, being management’s best 

estimate of its useful economic life. 

The cost of renewal rights are written off over five years and other 

intangible assets over ten years, from the acquisition date, being 

management’s best estimate of their useful economic life. 

To the extent that the Group has increased or decreased its participation 

in a syndicate from one year of account to the next, the RITC paid is 

treated as a portfolio transfer from the closing year to the receiving year. 

The share of the RITC receivable is recognised as income in the period 

that the RITC contract is concluded, together with related claims incurred 

under the contract. 

The payment of an RITC premium does not eliminate the liability of the 

closed year for outstanding claims. If the reinsuring syndicate was unable 

to meet its obligations and other elements of Lloyd’s chain of security 

were to fail, then the closed underwriting account would have to settle the 

outstanding claims. The directors consider that the likelihood of such a 

failure of the RITC is remote and consequently the RITC has been deemed 

to settle liabilities outstanding at the closure of an underwriting account. 

ix) Outwards reinsurance 

Outwards reinsurance premiums written relate to business ceded during 

the year, including an estimate of any adjustment premiums payable, 

together with any differences between estimates in the prior years and 

that actually ceded. Outwards premiums are recognised as earned over 

the period of the policy having regard to the incidence of risk. Policies 

that respond with reference to the attachment point are earned in line 

with the related inwards written premiums. Policies that respond in 

relation to the date of loss are earned on a time apportionment basis 

unless there is a marked unevenness in the incidence of risk over 

the period of cover, when a basis which reflects the profile of risk is 

used. The unexpired proportion of the outwards premiums at the 

balance sheet date is carried forward as reinsurers’ share of unearned 

premiums provision. 

Amortisation of other goodwill is included in other technical charges in 

the technical account. Amortisation of other intangible assets is included 

in other charges in the non-technical account. 

g) Tangible assets 

Tangible assets are stated at cost less depreciation, with the exception 

of owner occupied property which is stated at its revalued amount. 

Cost includes the original purchase price of the asset and the costs 

attributable to bringing the asset to its working condition for its intended 

use. Depreciation is provided at rates calculated to write off the cost 

less estimated residual value in equal amounts over the estimated useful 

lives of the tangible assets. No depreciation is provided on assets under 

construction. Each asset’s estimated useful life, residual value and 

method of depreciation are reviewed and adjusted if appropriate at 

each year end. 

The estimated lives are as follows: 

Office equipment 

Computer equipment 

Motor vehicles 

Leasehold improvements 

from three to ten years 

from three to ten years 

five years 

life of lease 

A review for impairment of a tangible asset is carried out if events or 

changes in circumstances indicate that the carrying amount of the 

tangible asset may not be recoverable. The recoverable amount is the 

higher of its fair value less costs to sell and its value in use. If the carrying 

value exceeds the recoverable amount the carrying value is reduced 

by writing the difference to the profit and loss account in that period. 


e) Expenses 

Acquisition costs, general overheads and other expenses are charged 

as incurred to the profit and loss technical account, net of the change 

in deferred acquisition costs. Investment expenses are charged to the 

profit and loss non-technical account. 

f) Intangible assets 

Goodwill represents the excess of the cost of an acquisition over the 

Investment properties included in land and buildings are valued at open 

market valuation. Full valuations are made by independent, professional 

qualified valuers every year. The aggregate surplus or deficit on 

revaluation is taken to the non-technical account. 

In accordance with SSAP 19, no depreciation is provided in respect of 

freehold investment properties and leasehold investment properties with 

over 20 years to run. The requirement of the Companies Act 2006 is to


52 


continued 



depreciate all properties, which conflicts with SSAP 19. The directors 

consider that, as these properties are held for investments, to depreciate 

them would not give a true and fair view, hence it is necessary to adopt 

SSAP 19. 

h) Taxation 

The charge for taxation is based on the result for the year adjusted for 

disallowable items. Deferred taxation is measured on an undiscounted 

basis at the tax rates that are expected to apply in the periods in which 

timing differences reverse, based on tax rates and laws enacted or 

substantively enacted at the balance sheet date. Deferred tax assets are 

recognised to the extent that it is regarded as more likely than not that 

they will be recovered. 

i) Investments 

Except where noted below, all investments are designated as fair value 

through profit and loss on initial recognition. They are initially recorded 

at fair value, being the cost of acquisition excluding transaction costs 

and are subsequently remeasured to fair value at each reporting date. 

Financial assets are managed on a fair value basis in accordance with 

the Group’s documented investment strategy. 

Listed investments are stated at fair value on current bid prices quoted 

by the relevant exchanges. Unlisted investments are carried at the 

directors’ estimate of the current fair value. 

Derivatives are initially recognised at fair value on the date on which 

a derivative contract is entered into and are subsequently stated at 

fair value determined using generally accepted valuation techniques, 

including the use of forward exchange rates for the valuation of forward 

foreign exchange contracts. 

Loans to Group undertakings are stated at amortised cost converted 

at the relevant exchange rates at balance sheet date. 

Financial assets are derecognised when the right to receive future 

cash flows from the assets has expired, or has been transferred 

and the Group has transferred substantively all the risks and rewards 

of ownership. 

j) Hedging transactions 

Derivatives held for risk management purposes which meet the criteria 

specified in FRS 26 are accounted for using net investment in foreign 

operating hedge accounting or cash flow hedge accounting. 

When a financial instrument is designated as a hedge, the Group 

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 Group 

also documents its assessment, both at hedge inception and on an 

ongoing basis, of whether the hedging instruments are highly effective 

in offsetting changes in 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. 

For qualifying hedges, the fair value gain or loss associated with the 

effective portion of the hedge is recognised initially directly in reserves 

and transferred to the profit and loss account in the period 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 profit and loss 

account 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 

reserves and is recognised when the hedged item affects the profit and 

loss account. When a transaction is no longer expected to occur, the 

cumulative gain or loss that was recognised in reserves is recognised 

immediately through the profit and loss account. 

k) Financial liabilities 

Creditors are initially recognised at fair value, net of directly attributable 

transaction costs and are subsequently stated at amortised cost through 

the profit and loss account using the effective interest method. The 

exception being derivatives are initially recognised at fair value on the date 

on which a derivative contract is entered into and are subsequently stated 

at fair value determined using generally accepted valuation techniques, 

including the use of forward exchange rates for the valuation of forward 

foreign exchange contracts. 

l) Shares in Group undertakings 

Shares in Group undertakings are included in the company’s balance 

sheet at cost less any impairment, based on the directors having prudent 

regard for their likely realisable value. Dividends from Group undertakings 

are taken into account when the right to receive payment is established, 

for interim dividends, when they are paid and, for final dividends, when 

they are approved by shareholders. 

m) Investment income 

Interest income is recognised on an accruals basis. Dividends are 

recognised when the right to receive payment is established. 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. 

A transfer is made from the non-technical account to the technical account 

of the return on investments supporting the insurance technical provisions. 

n) Realised and unrealised gains and losses 

Realised gains and losses on investments carried at fair value through 

profit and loss are calculated as the difference between net sales 

proceeds and purchase price. 

Unrealised gains and losses represent the difference between the 

valuation of the investment at the balance sheet date and their purchase 

price, or if they have been previously valued, their valuation at the last 

balance sheet date, together with a reversal of unrealised gains and 

losses recognised in earlier accounting periods in respect of investment 

disposals in the current year. 

All realised and unrealised gains and losses on investments are initially 

recorded in the profit and loss non-technical account. A transfer is made 

from the non-technical account to the technical account of the realised 

and unrealised gains and losses on investments supporting the insurance 

technical provisions. 

o) Foreign currency translations 

The functional currency of the company is UK pound sterling (£). The 

company and Group present its accounts in thousands of pounds sterling.


53 


Transactions denominated in foreign currencies are translated into 

sterling at the rates of exchange prevailing at the time of the transactions. 

Assets and liabilities denominated in foreign currencies are translated into 

sterling at the rates of exchange prevailing at the balance sheet date, 

with the exception of non-monetary items which are maintained at historic 

rates. The results of subsidiary undertakings and branches that have a 

functional currency different from sterling are translated into sterling at 

average rates of exchange. The subsidiary undertakings’ and branches’ 

assets and liabilities are translated at the balance sheet date rates of 

exchange. Unclosed foreign exchange derivatives are marked to market 

at year end date. 

Exchange gains or losses are recognised in the profit and loss nontechnical 

account, including gains and losses on foreign exchange 

derivatives, except those arising upon the revaluation of subsidiary 

undertakings and branches, which are included in the foreign currency 

translation reserve and statement of total recognised gains and losses. 

p) Pensions 

The Group operates defined contribution pension schemes for certain 

employees. The pension entitlement of employees is secured through 

contributions by the Group to a separately administered pension fund. 

Payments are charged as expense as they fall due. 

The Group also operates four defined benefit pension schemes. The 

costs of the defined benefit pension schemes are determined using the 

projected unit credit method. Actuarial gains and losses are recognised 

in the statement of total recognised gains and losses in the year they 

arise. The retirement benefit obligation recognised in the balance sheet 

represents the present value of the defined benefit obligation reduced 

by the fair value of scheme’s assets. 

A surplus is only recognised if it is either recoverable from reductions 

in future contributions, or if agreement is in place to recover it from 

the scheme. 

q) Share based payments 

The Group participates in a QBE wide equity settled, share based 

compensation plan. The fair value of the employee services received in 

exchange for the grant of those instruments 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 recognised evenly over the service 

period ending at the vesting date. Non-market vesting conditions are 

included in assumptions about the number of instruments that are 

expected to become exercisable. 

At each balance sheet date, the Group revises its estimates of the 

number of options and conditional rights that are expected to become 

exercisable. The Group recognises the impact of the revision of original 

estimates, if any, in the profit and loss technical account with a 

corresponding adjustment to reserves. 

r) Operating leases 

Costs in respect of operating leases are charged to the profit and loss 

technical account on a straight line basis over the lease term. 

2 Segmental analysis 

a) Analysis by geographic area 

By origin: 

Gross premiums written Profit before taxation Net assets 

2011 2010 2011 2010 2011 2010 

£000 £000 £000 £000 £000 £000 

United Kingdom 2,441,873 2,321,946 49,643 205,789 1,311,581 1,471,244 

Other EU member countries 551,756 369,889 31,348 29,933 366,385 411,777 

Other countries 25,963 3,129 2,200 (22,559) 21,761 322,516 

3,019,592 2,694,964 83,191 213,163 1,699,727 2,205,537 

By destination: 

Gross premiums written 

2011 2010 

£000 £000 

United Kingdom 763,278 718,096 

Other EU member countries 385,740 421,835 

North America 158,709 215,025 

Other countries 763,649 571,329 

2,071,376 1,926,285 

Reinsurance acceptances 948,216 768,679 

3,019,592 2,694,964 



54 


continued 


2 Segmental analysis continued 

b) Analysis of gross premiums written, gross premiums earned, gross claims incurred, gross operating expenses and the 

reinsurance balance 

Gross premiums Gross premiums Gross claims Gross operating Reinsurance 

written earned incurred expenses balance 

2011 £000 £000 £000 £000 £000 

Direct insurance: 

Accident and health 27,233 29,139 (10,152) (18,801) (3,499) 

Motor (third party liability) 269,670 270,313 (210,911) (61,446) 6,131 

Marine, aviation and transport 287,402 295,554 (198,963) (71,583) (21,375) 

Fire and other damage to property 382,483 349,502 (213,680) (117,075) (49,037) 

Third party liability 883,571 855,331 (506,498) (269,471) 2,341 

Credit and suretyship 20,493 18,476 (375) (6,115) (5,268) 

Other 105,463 96,582 (43,687) (31,326) (12,501) 

1,976,315 1,914,897 (1,184,266) (575,817) (83,208) 

Reinsurance acceptances 1,043,277 996,954 (870,072) (112,471) (38,176) 

Total 3,019,592 2,911,851 (2,054,338) (688,288) (121,384) 

Gross premiums Gross premiums Gross claims Gross operating Reinsurance 

written earned incurred expenses balance 

2010 £000 £000 £000 £000 £000 


Accident and health 24,174 30,798 (17,396) (13,223) (3,886) 

Motor (third party liability) 260,300 265,520 (207,033) (79,449) (6,838) 

Marine, aviation and transport 276,049 269,562 (169,945) (68,207) (17,573) 

Fire and other damage to property 322,186 328,067 (170,349) (133,135) (77,203) 

Third party liability 937,420 864,568 (495,139) (214,146) (32,590) 

Credit and suretyship 20,138 19,822 (108) (4,665) (7,858) 

Other 86,018 79,729 (40,502) (2,276) (17,790) 

1,926,285 1,858,066 (1,100,472) (515,101) (163,738) 

Reinsurance acceptances 768,679 747,003 (445,829) (117,866) (141,005) 

Total 2,694,964 2,605,069 (1,546,301) (632,967) (304,743) 

The reinsurance balance represents the (charge)/credit to the technical account from the aggregate of all items relating to reinsurance outwards. 

3 Movements in prior years’ net claims provisions 

During the year a positive/(adverse) run-off development was experienced in respect of the following portfolios: 

2011 2010 

£000 £000 


Accident and health (10) 6,584 

Motor (third party liability) (1,757) 2,799 

Marine, aviation and transport (875) 35,084 

Fire and other damage to property 1,344 (16,067) 

Third party liability (17,319) 74,038 

Credit and suretyship 9,890 (1,996) 

Other (11,405) 9,284 

(20,132) 109,726 

Reinsurance acceptances 50,741 35,005 

Total 30,609 144,731


55 

4 Net operating expenses 

2011 2010 

£000 £000 

Acquisition costs 609,675 534,358 

Changes in deferred acquisition costs (10,578) (1,912) 

Administrative expenses 101,982 114,155 

701,079 646,601 

Reinsurance commissions and profit participation (93,413) (80,837) 

Other fee income (12,791) (13,634) 

594,875 552,130 

5 Employees 

The average number of persons (including executive directors) employed by the Group for the year was: 

2011 2010 

Number 

Number 

Underwriting 1,098 1,086 

Claims 566 552 

Administration 1,058 1,097 

2,722 2,735 

Total employee costs for the year were: 

2011 2010 

£000 £000 

Wages and salaries 172,706 188,352 

Social security costs 19,568 20,966 

Pension costs 15,265 14,814 

207,539 224,132 

6 Directors’ emoluments 

2011 2010 

£000 £000 

Aggregate emoluments (excluding pension contributions) 6,091 6,989 

Company pension contributions to money purchase schemes 143 256 

Compensation for loss of office 11 – 

Number of directors who are members of a money purchase scheme 4 5 

Number 

Number 

£000 £000 

Highest paid director: 

Aggregate emoluments 2,885 2,991 

During the year, nil (2010 seven) directors, including the highest paid director, exercised share options in the ultimate parent company. 



56 


continued 


7 Pension schemes 

a) Defined benefit schemes 

The company’s subsidiaries operate four defined benefit pension schemes. The Iron Trades scheme relates to former employees of QBE Insurance 

(Europe) Limited and the Janson Green scheme relates to former employees of QBE Underwriting Limited. In addition, the QBE (Europe) Reinsurance 

Ltd Pension & Life Assurance Plan (“QBE Re scheme”, relating to employees in Ireland) became part of the Group during 2009 and the Secura NV 

scheme became part of the Group in 2010 on the acquisition of Secura NV. All four schemes were part of the Group for the whole year. 

The pension contributions relating to each scheme are assessed in accordance with the advice of independent qualified actuaries so as to spread 

the cost over the service lives of employees. 

Three schemes have been closed to future benefit accruals, the two UK schemes on 31 May 2006 and the Irish scheme on 31 December 2006. 

The Group retains the risk on employee service in these defined benefit schemes up until those dates. During 2011, full actuarial reviews were performed 

by independent qualified actuaries of both UK schemes. The reviews found that the Iron Trades scheme was in deficit and the Janson Green scheme 

in surplus. As a result, the company agreed to make annual payments of £560,000 to the Iron Trades scheme for the next two years. The actuarial 

assumptions are stricter than those required to be used for these accounts. In late 2009 an actuarial review on the Irish scheme was performed by 

independent qualified actuaries and identified the scheme to be in deficit. At the balance sheet date the Group has not agreed to make contributions 

to the Irish scheme. 

At the time of the acquisition of Secura NV their pension scheme was valued as part of the fair value exercise by independent external actuary. 

The actuarial valuations were reviewed and updated by independent external actuaries as at 31 December 2011 for the purposes of inclusion in 

these accounts. 

The principal actuarial assumptions used at the year end were: 

2011 2010 

% % 

Rate of increase to pensions in payment accrued before 1 September 2002 in Janson Green scheme 5.0 5.00 

Rate of increase in other pensions in payment 2.95–3.05 1.85–3.45 

Expected return on plan assets 4.14–5.50 4.15–6.45 

Rate of increase in deferred pensions 1.75–2.05 1.85–3.45 

Discount rate 4.00–4.70 1.50–5.40 

Inflation 2.00–3.05 2.00–3.55 

The assumption as to the rate of increase in salaries is no longer applicable, as benefits are no longer based on the final salary. 

The valuation of the schemes’ liabilities has been determined using the Projected Unit Method. 

In addition, an assumption is made as to the life expectancy of members of the schemes. In conjunction with the scheme actuaries, the mortality tables 

used to calculate the liabilities are the PXA92 Long Cohort tables, projected forward based on the year of birth. 

The scheme assets do not include any of the Group’s own financial instruments or any property occupied by, or other assets used by, the Group. 

The following disclosures relate to the four schemes combined. 

Market value Market value 

2011 2010 

£000 £000 

Equities 67,607 64,603 

Bonds 226,350 197,700 

Others 10,120 10,453 

Total market value of assets 304,077 272,756 

The overall expected long-term rate of return on fund 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 scheme assets to these major classes. 

2011 2010 

£000 £000 

Analysis of the amount credited to other finance income: 

Expected return on scheme assets 14,407 13,804 

Interest on scheme liabilities (15,085) (14,316) 

Restriction on expected return under FRS 17 (464) – 

Net charge (1,142) (512)


57 

7 Pension schemes continued 

a) Defined benefit schemes continued 

2011 2010 

£000 £000 

Analysis of the amount recognised in the statement of total recognised gains and losses (STRGL): 

Actuarial gains/(losses) 35,370 (7,740) 

Restriction on expected return under FRS 17 464 – 

Restriction on recognising surplus under FRS 17 (32,746) – 

Gain/(Loss) recognised in the STRGL 3,088 (7,740) 

The cumulative amount of actuarial gains and losses recognised in the statement of total recognised gains and losses is a loss of £53,713,000 

(2010 £56,801,000). 

History of assets and liabilities 

2011 2010 2009 2008 2007 

£000 £000 £000 £000 £000 

Fair value of scheme assets 304,077 272,756 251,433 229,606 242,574 

Present value of scheme liabilities (277,657) (285,324) (255,262) (216,296) (227,048) 

Surplus/(deficit) at 31 December 26,420 (12,568) (3,829) 13,310 15,526 

Surplus not recognised (32,746) – – (13,310) (15,526) 

Deficit per balance sheet (6,326) (12,568) (3,829) – – 

Related deferred tax asset – – 223 – – 

Net pension liability (6,326) (12,568) (3,606) – – 

2011 2010 

£000 £000 

Wholly funded defined benefit obligation at 1 January (285,324) (255,262) 

Service cost (345) (6) 

Interest cost (15,085) (14,316) 

Actuarial gains/(losses) 14,237 (17,464) 

Benefits and expenses paid 8,315 10,187 

Arising from the transfer in of acquired subsidiaries – (8,708) 

Foreign exchange 545 245 

Wholly funded defined benefit obligation at 31 December (277,657) (285,324) 

Fair value of scheme assets at 1 January 272,756 251,433 

Expected return on scheme assets 14,407 13,804 

Actuarial gain on scheme assets 21,133 9,725 

Benefits and expenses paid (8,315) (10,187) 

Employer contributions 4,436 3,415 

Arising from the transfer in of acquired subsidiaries – 4,752 

Foreign exchange (340) (186) 

Fair value of scheme assets at 31 December 304,077 272,756 

Net surplus/(deficit) at 31 December 26,420 (12,568) 

Surplus not recognised (32,746) – 

Deficit in the balance sheet at 31 December (6,326) (12,568) 



58 


continued 


7 Pension schemes continued 

a) Defined benefit schemes continued 

History of experience gains and losses 

(Excludes restriction on recognising surplus) 

2011 2010 2009 2008 2007 

£000 £000 £000 £000 £000 

Difference between the expected and actual return 

on scheme assets 

Amount 21,133 9,725 9,502 (21,694) (1,951) 

Percentage of scheme assets 6.9% 3.6% 3.8% (9.4%) (0.8%) 

Experience gain/(loss) on scheme liabilities 

Amount 14,237 (1,563) 2,820 1,472 (510) 

Percentage of the present value of liabilities 4.7% 0.6% 1.1% 0.7% (0.2%) 

Total actuarial gain/(loss) recognised in the STRGL 

Amount 34,906 (7,740) (17,868) (6,040) 11,400 

Percentage of the present value of liabilities 11.5% (2.7%) (7.0%) (2.8%) 4.8% 

b) Defined contribution schemes 

For those members of staff who are not members of the defined benefit schemes, the Group operates defined contribution schemes. The pension 

entitlement of employees is secured through contributions to separately administered pension funds as appropriate. There are no outstanding pension 

accruals or prepayments for these schemes as at 31 December 2011 (2010 nil). The charge for the year was £14,242,000 (2010 £14,296,000). 

The Group has no significant exposure to any other post-retirement benefits obligations other than those disclosed in note 27. 

8 Share based payments 

a) Employee Share and Option Plan 

The Group’s and company’s ultimate parent undertaking and controlling 

entity, QBE Insurance Group Limited, 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 its capital. 

Any full-time or part-time employee of the Group who is offered shares 

or options pursuant to the offer document of the Plan is eligible to 

participate in the Plan. This includes employees employed by the Group. 

The company does not directly employ any staff. 

Under the Plan, ordinary shares of QBE Insurance Group Limited 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, for awards made up to and 

including March 2009 interest free loans were 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. Except for awards 

made under the Long-term Incentive Plan (see note 8(a)(iii)), the award of 

options and interest free loans was discontinued for awards made after 

March 2009. 

Currently these are the following schemes operating within the Plan: 

i) Deferred equity plans 

QBE Incentive Scheme 

The QBE Incentive Scheme (QIS) is an at-risk structure that comprises 

cash and deferred equity awards. It came into effect from 1 January 2010 

and is applicable to deferred equity awards made in March 2011 

and thereafter. 

Under the QIS, the directors can issue conditional rights to shares 

to executives and key senior employees of QBE EO who have already 

achieved predetermined performance targets. The maximum award 

restricted to the lesser of 66.67% of the cash award in that year or 100% 

of base (cash) salary as at 31 December in the financial year prior to the 

year in which the cash award was paid. The deferred equity award is 

used as the basis for calculating the number of conditional rights with 

rights equivalent to 60% of the award converted to shares after three 

years and 60% after five years. 

Further shares are issued in relation to the conditional rights to reflect 

dividends paid by QBE 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 the recipient (i.e. at a nil exercise price). 

The Group is charged, by QBE Insurance Group Limited, the accounting 

cost of the options and awards issued to its employees, as calculated 

using FRS 20 and it is this cost that appears in these financial statements.


59 

8 Share based payments continued 

a) Employee Share and Option Plan continued 

i) Deferred equity plans continued 

The shares issued pursuant to the conditional rights will only vest if the 

individual remains in the Group’s service throughout the vesting period. 

The directors have the discretion to pay cash in lieu of shares in certain 

circumstances such as death, disability, redundancy or retirement if the 

individual is not subject to disciplinary proceedings or notice on that date. 

The ultimate vesting of the conditional rights is also contingent on there 

being no material deterioration of the relevant entity’s return on equity 

during the vesting period. 

Deferred Compensation Plan – legacy scheme applicable to the 2009 

financial year 

The terms of the Deferred Compensation Scheme (DCP) applicable for 

awards in March 2010 was as follows: 

• The directors and key senior employees of QBE EO were invited to 

participate in the DCP, under which they received conditional rights 

to fully paid shares of QBE. The maximum deferred equity award 

was based on an amount which was the lesser of 66.67% of the 

STI award earned in the financial year or 100% of base (cash) salary 

in the financial year immediately prior to the year in which the cash 

award was paid. The maximum DCP award was used as basis for 

calculating the number of conditional rights, with rights equivalent 

to 60% of the award converted to shares after three years and 60% 

after five years. 

Further shares were issued in relation to the conditional rights to reflect 

dividends paid by QBE in the period commencing from the date of the 

grant of the conditional rights. 

The shares issued pursuant to the conditional rights will only vest if the 

individual has remained in the Group’s service throughout the vesting 

period. The directors have the discretion to pay cash in lieu of shares in 

certain circumstances such as death, disability, redundancy or retirement 

if the individual is not subject to disciplinary proceedings or notice as of 

that date. 

• Any options issued between 2005 and 2008 inclusive will generally be 

exercisable after five years. They must be exercised within a 12 month 

period after 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 QBE’s service throughout 

the vesting period (unless they leave due to redundancy, retirement 

through ill health or age, or death) and is not subject to disciplinary 

proceedings or notice on that date. 

ii) Share Incentive Plan 

Generally, all full-time or part-time employees 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 up to A$1,000 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 8(e) below. 

iii) Long-term Incentive (LTI) Plan 

The LTI was introduced from 1 January 2010. Only the CEO of QBE EO 

is invited to participate. The LTI plan comprises an award of conditional 

rights to fully paid shares of QBE without payment, subject to a five year 

tenure hurdle with vesting contingent upon the achievement of two future 

performance hurdles as follows: 

• 50% of the award allocation will be contingent on the QBE’s average 

diluted earnings per share increasing by a compound 7.5% per 

annum over the five year vesting period; and 

• 50% of the award allocation will be contingent on the QBE’s average 

return on equity and combined operating ratio being in the top 10% 

of the top 50 largest global insurers and reinsurers as measured by 

net earned premium for the five year vesting period. 

Deferred Compensation Plan – legacy scheme applicable to the 2008 

and prior financial years 

Senior management were invited to participate in the DCP. Under the 

DCP, 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 DCP may vary to take into account 

the requirements and market conditions of the locations of senior 

management, but the general terms of the DCP are set out below. 

• The conditional rights entitled relevant employees to receive shares on 

the third anniversary and the fifth anniversary of the grant of the rights. 

Further shares are granted in relation to the conditional rights to reflect 

dividends paid on ordinary shares of QBE 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). 

Further shares will be issued in relation to the conditional rights to reflect 

dividends paid on ordinary shares of the QBE in the period commencing 

from the date of the grant of the conditional rights. 

The QBE remuneration committee will continue to exercise discretion 

when determining the vesting of awards under the LTI. The committee 

has the discretion to allocate a pro-rata amount in cash in lieu of shares in 

certain circumstances such as death, disability, redundancy or retirement. 

Then ultimate vesting of the conditional rights is also contingent on there 

being no material subsequent deterioration of the QBE’s return on equity 

during the vesting period. 



60 


continued 



b) Employee options 

During the year one qualifying employee of this Group (2010 one) was granted options over ordinary shares of QBE with a total market value of 

A$348,000 (2010 A$410,000), based on the quoted market price at the date the options were granted. The weighted average fair value of options 

granted during the year ended 31 December 2011 was A$nil (2010 A$1.88). 

The market value of the options outstanding at the balance sheet date was A$36,991,000 (2010 A$78,574,000), calculated by reference to the quoted 

market value of the underlying shares at that date. 

Details of the number of employee options granted, exercised and forfeited or cancelled during the year, including those issued under the DCP, 

were as follows: 

2011 

Exercise Balance at Cancelled/ Balance at 

price 1 January Granted Exercised forfeited 31 December 

Grant date A$ 2011 in the year in the year in the year 2011 

2 March 2006 20.44 939,934 – (885,657) (54,277) – 

2 March 2007 32.68 704,534 – – (117,104) 587,430 

2 March 2007 20.44 20,000 – (20,000) – – 

4 March 2008 20.44 20,000 – (20,000) – – 

4 March 2008 24.22 1,010,356 – – (164,612) 845,744 

6 March 2009 17.57 1,586,689 – – (221,514) 1,365,175 

6 March 2009 20.44 20,000 – – – 20,000 

5 March 2010 20.44 20,000 – – – 20,000 

7 March 2011 20.44 – 20,000 – – 20,000 

4,321,513 20,000 (925,657) (557,507) 2,858,349 

Weighted average exercise price A$ 22.27 20.44 20.44 22.99 22.7 

The weighted average share price at the date of exercise of options during the year was A$18.09 (2010 A$21.05). The weighted average remaining 

contractual life of total options outstanding at 31 December 2011 was 2.4 years (2010 4.69 years). 

Employee options outstanding at 31 December 2011 were as follows: 

Year of expiry DCP Other Total options 

2012 60,000 60,000 

2013 587,430 587,430 

2014 845,744 845,744 

2015 1,365,175 1,365,175 

2,798,349 60,000 2,858,349 

Vested and exercisable at 31 December 2011 – – – 

The future performance options have been issued subject to the achievement of specific performance criteria.


61 


b) Employee options continued 

Details of the number of options granted, exercised and forfeited or cancelled during the prior year, including those issued under the DCP, 

were as follows: 

2010 

Balance at Cancelled/ Balance at 

Exercise price 1 January Granted in Exercised in forfeited in 31 December 

Grant Date A$ 2010 the year the year the year 2010 

3 March 2004 11.08 20,000 – – (20,000) – 

3 March 2005 8.04 135,583 – (135,583) – – 

3 March 2005 11.08 150,310 – (150,310) – – 

3 March 2005 14.85 1,162,313 – (1,072,032) (90,281) – 

2 March 2006 20.44 1,185,013 – – (245,079) 939,934 

2 March 2007 32.68 873,920 – – (169,386) 704,534 

2 March 2007 20.44 20,000 – – – 20,000 

4 March 2008 20.44 20,000 – – – 20,000 

4 March 2008 24.22 1,234,479 – – (224,123) 1,010,356 

6 March 2009 17.57 1,897,597 – – (310,908) 1,586,689 

6 March 2009 20.44 20,000 – – – 20,000 

5 March 2010 20.90 – 20,000 – – 20,000 

6,719,215 20,000 (1,357,925) (1,059,777) 4,321,513 

Weighted average exercise price A$ 20.46 20.90 13.75 21.70 22.27 

Employee options outstanding at 31 December 2010 were as follows: 

Year of expiry DCP Other Total options 

2011 7,871 60,000 67,871 

2012 936,400 20,000 956,400 

2013 711,294 – 711,294 

2014 1,023,813 – 1,023,813 

2015 1,562,135 – 1,562,135 

4,241,513 80,000 4,321,513 

Vested and exercisable at 31 December 2010 – – – 

c) Conditional rights 

Details of the number of employee entitlements to conditional rights to ordinary shares under the DCP granted, vested and transferred to employees 

during the year were as follows: 

2011 

Fair value 

Vested and 

per right at Balance at Dividends transferred Balance at 

Date grant date 1 January Granted attaching to employee Cancelled 31 December 

Grant date exercisable A$ 2011 in the year in the year in the year in the year 2011 

4 March 2008 3 March 2011 24.22 705,770 – 750 (647,873) (58,647) – 

6 March 2009 5 March 2012 17.57 1,057,030 – 75,171 – (153,726) 978,475 

6 March 2010 4 March 2013 20.90 589,086 – 44,907 – (85,952) 548,041 

6 March 2010 4 March 2015 20.90 574,090 – 44,044 – (82,233) 535,901 

7 March 2011 6 March 2014 20.90 – 602,044 49,732 – (50,491) 601,285 

1 July 2011 31 March 2014 17.93 – 593,008 48,937 – (50,541) 591,404 

1 July 2011 31 March 2016 17.48 – 10,000 464 – – 10,464 

2,925,976 1,205,052 264,005 (647,873) (481,590) 3,265,570 


The weighted average share price at the date of vesting of conditional rights during the year ended 31 December 2011 was A$17.42 (2010 A$21.25). 

The weighted average fair value of conditional rights granted during the year ended 31 December 2011 was A$17.82 (2010 A$20.90).


62 


continued 



c) Conditional rights continued 

Details of the number of employee entitlements to conditional rights to ordinary shares under the DCP granted, vested and transferred to employees 

during the prior year were as follows: 

2010 

Fair value 

Vested and 

per right at Balance at Dividends transferred Balance at 

Date grant date 1 January Granted attaching to employee Cancelled 31 December 

Grant date exercisable A$ 2010 in the year in the year in the year in the year 2010 

2 March 2007 1 March 2010 32.68 504,696 – 301 (456,853) (48,144) – 

4 March 2008 3 March 2011 24.22 855,866 – – – (150,096) 705,770 

6 March 2009 5 March 2012 17.57 1,266,475 – – – (209,445) 1,057,030 

6 March 2010 4 March 2013 20.90 – 644,695 17,884 – (73,493) 589,086 

6 March 2010 4 March 2015 20.90 – 621,120 17,421 – (64,451) 574,090 

2,627,037 1,265,815 35,606 (456,853) (545,629) 2,925,976 

d) Fair value of options and conditional rights 

The fair value of both options and conditional rights is determined using a binomial model. The fair value is earned evenly over the period between grant 

and vesting. For those options and conditional rights granted during the year to 31 December 2011, the following significant assumptions were used: 

Options 

Conditional rights 

2011 2010 2011 2010 

Share price on grant date A$ 17.41 20.50 13.67–19.00 20.50 

Fair value of instrument at grant date A$ Nil 1.88 14.05–18.44 20.90 

Risk free interest rate % 4.75 4.25 4.75 4.25 

Expected share price volatility % 20.0 25.0 20.0 25.0 

Expected dividend yield % 7.0 5.0 7.0 5.0 

Expected life of instrument Years 0.1 1.0 1.2–5.0 3.0–5.0 

Some of the assumptions including expected share price volatility are based on historical data which is not necessarily indicative of future trends. 

Reasonable changes in these assumptions would not have a material impact on the amounts recognised in the financial statements. 

e) 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 terms of the SIP, eligible employees may be offered up to A$1,000 of fully paid ordinary shares in QBE 

Insurance Group Limited annually for no cash consideration. The market value of shares issued under the terms of the SIP is expensed in the period 

in which the shares are granted. The total number of shares issued to participating employees in the year was 54,166 (2010 48,278). The weighted 

average market price on the issue date was A$13.85 (2010 A$19.25). 

f) Share based payment expenses 

Total expenses arising from share based payment transactions during the year included in expenses were as follows: 

2011 2010 

£000 £000 

Options provided under the DCP 2,314 2,779 

Conditional rights provided under the DCP 10,280 11,973 

Shares provided under the SIP 381 489 

12,975 15,241


63 

9 Investment income, expenses and charges 

a) Income from investments other than participating interests 

2011 2010 

£000 £000 

Dividend income 3,936 6,133 

Interest receivable: 

From Group undertakings 92,169 86,391 

Other 136,776 115,148 

Gains on realisation of investments – 13,483 

Foreign currency exchange gains 9,608 16,318 

Other investment income 1,649 

244,138 237,473 

b) Investment expenses and charges 

2011 2010 

£000 £000 

Investment management expenses 19,608 29,619 

Interest payable: 

To Group undertakings 101,194 57,957 

Other 15,055 23,143 

Losses on realisation of investments 1,822 2,613 

137,679 113,332 

10 Profit on ordinary activities before tax 

Profit on ordinary activities before taxation is stated after charging: 

2011 2010 

£000 £000 

Auditors’ services: 

Auditors’ remuneration in respect of audit services 141 157 

Other services: 

Audit of the company’s subsidiaries, pursuant to legislation 1,053 1,019 

Other services supplied pursuant to legislation 390 387 

Services relating to taxation 197 428 

Other services not covered above 727 239 

Payments on operating leases – land and buildings 14,011 13,135 

Payments on operating leases – other 271 240 

Depreciation: 

Charge in year 25,831 14,358 

Net loss on disposal of fixed assets – other 79 123 



64 


continued 


11 Tax on profit on ordinary activities 

2011 2010 

Analysis of (credit)/charge in period £000 £000 

Current tax: 

UK Corporation Tax 12,643 26,757 

Adjustments to tax in respect of prior period (173,947) (657) 

Double tax relief – (1,704) 

(161,304) 24,396 

Foreign tax 20,729 11,074 

Adjustments to tax in respect of prior period (6,640) 382 

14,089 11,456 

Total current tax (147,215) 35,852 

Deferred tax: 

Origination and reversal of timing differences (21,033) (25,109) 

Impact from change in UK tax rate (17,958) (2,545) 

Adjustments to tax in respect of prior period 174,280 10,913 

Total deferred tax 135,289 (16,741) 

Tax (credit)/charge on profit on ordinary activities (11,926) 19,111 

Factors affecting tax (credit)/charge for the period 

The current year charge for the period is lower (2010 lower) than the standard rate of corporation tax in the UK, 26.5% (2010 28%). The differences are 

explained below: 

2011 2010 

£000 £000 

Profit on ordinary activities before tax 83,191 213,163 

Profit on ordinary activities before tax multiplied by standard rate of UK corporation tax of 26.5% (2010 28%) 22,045 59,686 

Effects of: 

Difference in tax rate 546 209 

Expenses not deductible for tax purposes 4,139 615 

Income exempt from tax (20,111) (23,926) 

Tax effect on foreign exchange expense 27,465 (18,491) 

Other timing differences 336 25,109 

Other permanent differences 4,422 2,948 

Overseas tax rate adjustments (5,470) (10,023) 

Adjustments to tax in respect of prior period (180,587) (275) 

Current tax (credit)/charge for year (147,215) 35,852 

The Group’s subsidiary undertaking, QBE Corporate Limited, has resubmitted its corporation tax returns for the years ended 31 December 2007, 2008 

and 2009 following change in HM Revenue & Customs’ guidance. As a result, there are prior period timing adjustments included in the accounts. 

During the year, as a result of the changes in the UK main corporation tax rate to 26% that was substantively enacted on 29 March 2011 and that was 

effective from 1 April 2011 and to 25% that was substantively enacted on 5 July 2011 and that will be effective from 1 April 2012, the relevant deferred 

tax balances have been remeasured. 

Further reduction to the UK corporation tax rate were announced in the March 2012 Budget. The changes, which are expected to be enacted 

separately each year, propose to reduce the rate to 22% by 1 April 2014. The changes had not been substantively enacted at the balance sheet date 

and therefore are not recognised in these financial statements. Had they been substantively enacted they would have reduced the deferred tax liability 

at the period end by £9.1 million. The impact of these changes in future periods will be dependent on the level of taxable profits in those periods.


65 

12 Profit for the financial year 

As permitted by section 408 of the Companies Act 2006, the company’s profit and loss account has not been included in these financial statements. 

The company’s profit for the financial year was £382,363,000 (2010 £543,925,000). 

13 Intangible assets 

Purchased 

Renewal Other syndicate Total Total 

Goodwill Intangible rights goodwill participation 2011 2010 

Group £000 £000 £000 £000 £000 £000 £000 

Cost 

At 1 January 167,960 1,300 3,308 179,098 59,716 411,382 365,894 

Purchases during the year – – – – – – 46,944 

Adjustment during the year – – – – – – (1,456) 

At 31 December 167,960 1,300 3,308 179,098 59,716 411,382 411,382 

Amortisation 

At 1 January (46,602) (494) (1,654) (126,763) (25,975) (201,488) (186,729) 

Amortisation during the year (8,630) (135) (827) (2,886) (3,172) (15,650) (14,759) 

At 31 December (55,232) (629) (2,481) (129,649) (29,147) (217,138) (201,488) 

Net book value at 31 December 112,728 671 827 49,449 30,569 194,244 209,894 

Goodwill represents the difference between the cost of the acquired entity and the aggregate of the fair values of that entity’s identifiable assets 

and liabilities. An element of this balance (described as “other goodwill” above) relates to the discounting of certain technical provisions arising from 

the fair value exercises carried out following the acquisitions of QBE Reinsurance (UK) Limited in 1996, QBE Holdings (Europe) Limited in 2000, 

QBE Insurance Company (UK) Limited in 2000, QBE Reinsurance (Europe) Limited in 2009 and Secura NV in 2010. These technical provisions were 

discounted solely to satisfy the requirements of FRS 7 “Fair Values in Acquisition Accounting”. The criteria adopted for estimating the period that will 

elapse before the claims are settled were based on the class of business, the historic settlement rate and the consideration of whether the historic 

settlement pattern would be appropriate into the future. The period of time which will elapse before the technical provisions are settled was estimated 

by modelling the settlement patterns of the underlying claims and related reinsurance recoveries. 

Details of the purchase of Secura NV is in note 14(b). 

Total 

Total 

2011 2010 

Company – Intangible £000 £000 

Cost 

At 1 January/31 December 1,300 1,300 

Amortisation 

At 1 January (494) (366) 

Amortisation during the year (135) (128) 

At 31 December (629) (494) 

Amortised cost at 31 December 671 806 

On 28 February 2007, the company purchased intellectual property, business information and a business database relating to the motor underwriting 

market, for total consideration of £1,300,000. The full purchase price has been treated as an intangible asset. 



66 


continued 


14 Investments 

a) Land and buildings 

Group 

2011 2010 

£000 £000 

Cost or valuation 

As at 1 January 12,546 11,102 

Surplus on revaluation (300) 219 

Purchase – 1,225 

Exchange difference (152) – 

As at 31 December 12,094 12,546 

If the investment properties had not been revalued, they would have been included at the following amounts: 

Group 

2011 2010 

£000 £000 

Cost 12,187 12,187 

Aggregate depreciation based on cost (283) (223) 

Net book value 11,904 11,964 

Land and buildings were valued in October 2011 on an open market basis by independent surveyors, Cushman & Wakefield LLP and DCE Daniela Ilieska. 

b) Shares in Group undertakings 

Company 

2011 2010 

£000 £000 

At 1 January 3,804,748 3,496,954 

Dissolution of Ensign Holdings Limited (412) – 

Liquidation of HP Jenni & Partner AG (1,122) – 

Purchase of Secura NV – 275,891 

Purchase of additional shares in QBE Holdings (EO) Limited 122,860 265,490 

Dissolution of QBE Funding Limited, QBE Funding II Limited, QBE Funding III Limited and QBE Funding IV Limited – (691) 

Write down reversal/(charge) of QBE Holdings (EO) Limited 192,856 (192,856) 

Write down of QBE Management Services (UK) Limited – (40,040) 

At 31 December 4,118,930 3,804,748 

There were no acquisitions in 2011. The company’s subsidiary, MBP Holdings Limited, was dissolved in February 2012. 

Purchases 

2010 

On 2 November 2010, the company completed the purchase of the entire shareholding in Secura NV, a Belgian based specialist reinsurer. 

The purchase has been accounted for as an acquisition. 

Book value of Fair value Fair value of 

Secura NV adjustments Secura NV 

Book value and fair value of net assets on acquisition £000 £000 £000 

Cash and investments 777,355 36,616 813,971 

Fixed assets 255 – 255 

Reinsurers’ share of technical provisions 98,851 (6,113) 92,738 

Debtors 217,663 1,150 218,813 

Technical provisions (812,816) 53,057 (759,759) 

Creditors and accruals (76,604) (13,523) (90,127) 

Net assets acquired 204,704 71,187 275,891 

Cost of acquisition 275,891 

Goodwill arising on acquisition –


67 

14 Investments continued 

b) Shares in Group undertakings continued 

The fair value adjustments consist of valuation of certain investments that were carried at amortised cost, discounting of net technical provisions and 

the corresponding tax effects. The discounting of net technical provision of £46,944,000 was recognised as other goodwill on acquisition (see note 13). 

Secura NV made a profit of €28,914,000 in the period before purchase in 2010. 

Disposals 

2011 

The company’s subsidiaries, Ensign Holdings Limited, was dissolved in April 2011 and HP Jenni & Partner AG, was liquidated in August 2011. 

2010 

The company’s subsidiaries, QBE Funding Limited, QBE Funding II Limited, QBE Funding III Limited and QBE Funding IV Limited, were dissolved 

in October 2010. 

During the year, the company sold its investment in QBE Pl Sp. z.o.o., which was dormant, with no gains or losses from this disposal. 

Held by company Country of incorporation Equity Holdings % Principal activity 

Anex Jenni & Partner AG Switzerland 100 Underwriting agency 

Greenhill International Insurance Holdings Limited United Kingdom 100 Holding company 

Lifeco s.r.o. Czech Republic 100 Underwriting agency 

MBP Holdings Limited United Kingdom 100 Dissolved on 7 February 2012 

QBE Investment Management (UK) Limited United Kingdom 100 Investment management company 

QBE Holdings (EO) Limited United Kingdom 100 Holding company 

QBE Management Services (UK) Limited United Kingdom 100 Service company 

Secura NV Belgium 100 Reinsurance company 

Standfast Corporate Underwriters Limited United Kingdom 100 Corporate member of Lloyd’s 

Held by subsidiaries Country of incorporation Equity Holdings % Principal activity 

Atlasz Real Estate and Management Company Limited Hungary 100 Property holding company 

Aviabel CIE. Belge d’Assurances Aviation SA Belgium 19.14 Insurance 

British Marine Managers Limited United Kingdom 100 Non-operating 

Greenhill BAIA Underwriting GmbH Germany 100 Insurance intermediary 

Greenhill Sturge Underwriting Limited United Kingdom 100 Insurance intermediary 

Greenhill Underwriting Espana Limited United Kingdom 100 Insurance intermediary 

Iron Trades Management Services Limited United Kingdom 100 Dissolved on 31 January 2012 

Lifeco Re Limited United Kingdom 100 Non-operating 

Limit (No.2) Limited United Kingdom 100 Corporate member of Lloyd’s 



Limit Corporate Members Limited United Kingdom 100 Holding company 

Limit Holdings Limited United Kingdom 100 Holding company 

QBE Atlaz Ingatlankezelo zrt Hungary 100 Non-operating 

QBE Corporate Limited United Kingdom 100 Corporate member of Lloyd’s 

QBE Europe Holding Services Agent de Asigurare Romania 100 Non-operating 

QBE European Services Limited United Kingdom 100 Insurance intermediary 

QBE European Underwriting Services (Australia) Pty Limited Australia 100 Service company 

QBE Funding V Limited Jersey 100 Issuer of zero coupon bonds 

QBE Funding Trust V Jersey 100 Special purpose entity 

QBE Holdings (Europe) Limited United Kingdom 100 Holding company 

QBE Hu kft Hungary 100 Underwriting agency 

QBE Insurance Company (UK) Limited United Kingdom 100 Non-operating 

QBE Insurance (Europe) Limited United Kingdom 100 Insurance and reinsurance company 

QBE Investments (Australia) Pty Limited Australia 100 Investment holding company 



68 


continued 



b) Shares in Group undertakings continued 

Held by subsidiaries Country of incorporation Equity Holdings % Principal activity 

Stock Company for Insurance and Reinsurance 

“QBE Makedonjia” – Skopje Macedonia 65.23 Insurance company 

QBE Management (Ireland) Limited Ireland 100 Service company 

QBE Marine and Energy Services Pte Limited Singapore 100 Service company 

QBE Denmark A/S Denmark 100 Insurance company 

QBE Reinsurance (Europe) Limited Ireland 100 Reinsurance company 

QBE Reinsurance (UK) Limited United Kingdom 100 Non-operating 

QBE Services Inc. Canada 100 Service company 

QBE Sk, s.r.o. Slovakia 100 Underwriting agency 

QBE s.r.o. Czech Republic 100 Underwriting agency 

QBE UK Finance III Limited United Kingdom 100 Investment company 

QBE UK Finance IV Limited United Kingdom 100 Investment company 

PrJSCIC “QBE Ukraine” Ukraine 49 Insurance business 

QBE Underwriting Limited United Kingdom 100 Lloyd’s managing agent 

QBE Underwriting Services Limited United Kingdom 100 Service company 

QBE Underwriting Services (Ireland) Limited Ireland 100 Service company 

QBE Underwriting Services (UK) Limited United Kingdom 100 Service company 

Ridgwell Fox & Partners (Underwriting Management) Limited United Kingdom 100 Underwriting management for a 

reinsurance pool 

Standfast Holdings Limited United Kingdom 23.34 Dissolved on 25 February 2012 

Strakh-Consult Ukraine 100 Holding company 

The Minibus & Coach Club Limited United Kingdom 100 Insurance intermediary 

Visionex 2000 Limited United Kingdom 100 Dissolved on 31 January 2012 

Included in the above listing is investment in participating interest, being Standfast Holdings Limited. 

QBE Ukraine is a subsidiary as the Group has management control in addition to its 49% shareholding. 

In the opinion of the directors, the aggregate value of the assets of the company consisting of shares in, or amounts owing (whether on account of a 

loan or otherwise) from the company’s subsidiary undertakings, is not less than the aggregate of the amounts at which these assets are stated in the 

company’s balance sheet. 

In accordance with the requirements of FRS 5 “Reporting the substance of transactions” – special purpose entity, QBE Funding Trust V, as a quasisubsidiary, 

has been included in the consolidated financial statements. 

c) Other financial investments 

Cost Carrying value Cost Carrying value 

2011 2011 2010 2010 

Group £000 £000 £000 £000 

Shares – listed 24,399 24,963 71,851 50,868 

Shares – unlisted 15,011 14,670 15,568 15,528 

Other variable yield securities 382,886 382,886 426,025 426,025 

Debt securities and other fixed income – listed 5,786,255 5,753,516 5,338,905 5,361,631 

Deposits with credit institutions 56,180 56,180 150,399 150,399 

Derivatives – 36,074 – 38,169 

6,264,731 6,268,289 6,002,748 6,042,620 

Cost Carrying value Cost Carrying value 

2011 2011 2010 2010 

Company £000 £000 £000 £000 

Other variable yield securities 3,177 3,177 18,137 18,137 

Debt securities and other fixed income – listed 140,247 138,559 – – 

Derivatives – 16,100 – 16,682 

143,424 157,836 18,137 34,819


69 


d) Derivative financial instruments 

Group 

Company 

2011 2010 2011 2010 

Fair value £000 £000 £000 £000 

Foreign currency derivatives 

Other financial investments – derivatives (note 14(c)) 35,826 38,169 16,100 16,682 

Other creditors (note 24) (37,076) (65,440) (859) (12,291) 

Equity derivatives 

Shares – listed 248 – – – 

Foreign currency derivatives 

The Group uses forward foreign exchange derivatives in order to hedge its exposure to foreign currencies. These are valued using the underlying foreign 

exchange rates at the year end. Contractual amounts for foreign currency exchange derivatives outstanding at the balance sheet date include foreign 

exchange contracts to transact the net equivalent of £1,119,799,000 (2010 £2,115,718,000), as broken down by local currency in the following table: 

2011 2010 

Local currency 000 Local currency 000 

Purchase Sell Purchase Sell 

Australian dollar – (19,175) – (552,515) 

Brazilian real 3,600 – 3,600 – 

Bulgarian lev 7,900 – 8,688 – 

Canadian dollar – (356,158) – (308,981) 

Colombian peso 1,664,600 – – (241,900) 

Czech koruna 164,400 – 88,400 – 

European euro – (263,149) – (226,807) 

Hong Kong dollar 23,000 – 36,200 – 

Hungarian forint 1,326,800 – – – 

Great British pound – (104,300) 

Indian rupee 269,000 – 287,900 – 

Indonesian rupiah – – 7,532,700 – 

Japanese yen 4,977,800 – 151,500 – 

Malaysian ringgit – – (1,600) 

New Zealand dollar 104,900 – – (800) 

Norwegian krone 7,000 – 

Romanian leu – (4,800) – (2,900) 

Singapore dollar – (3,800) – – 

South African rand 101,857 – 75,527 – 

Swedish kroner – (4,600) – (6,400) 

Swiss franc – (10,500) – (2,100) 

Ukraine hryvnia – – 28,916 – 

US dollar – (301,733) (2,249,449) 

The net sterling position of the above transaction is a buy position of £1,121,049,000. 

The forward foreign exchange derivatives outstanding at year end expired in January 2012 (2010 January 2011). 

During the year a profit of £14,048,000 (2010 loss of £17,133,000) relating to such contracts was recognised. This is included in the net foreign 

exchange gain of £9,608,000 (2010 gain £16,318,000) in the profit and loss non-technical account. 

Equity derivatives 

The Group entered into equity derivative contracts in order to protect the equity portfolios within the Group from the risk of downside movements 

in the share markets. The derivatives outstanding at the balance sheet date relate only to option contracts. 


During the year a loss of £1,095,000 (2010 loss £2,195,000) was included in the profit and loss non-technical account relating to these derivatives.


70 


continued 



e) Valuation hierarchy 

The following table presents the Group’s assets measured at fair value at 31 December 2011 in a three level hierarchy. 

2011 

Level 1 Level 2 Level 3 Total 

Group £000 £000 £000 £000 

Equity shares 24,963 – 14,670 39,633 

Other variable yield securities 56,099 326,787 – 382,886 

Debt securities and other fixed income securities 318,933 5,434,583 – 5,753,516 

Derivatives 248 35,826 – 36,074 

400,243 5,797,196 14,670 6,212,109 

2010 


Group £000 £000 £000 £000 

Equity shares 50,868 – 15,528 66,396 

Other variable yield securities 147,509 278,516 – 426,025 

Debt securities and other fixed income securities 312,895 5,048,736 – 5,361,631 

Derivatives – 38,169 – 38,169 

511,272 5,365,421 15,528 5,892,221 

2011 


Company £000 £000 £000 £000 

Other variable yield securities 3,177 – – 3,177 

Debt securities and other fixed income securities – 138,559 – 138,559 

Derivatives – 16,100 – 16,100 

3,177 154,659 – 157,836 

2010 


Company £000 £000 £000 £000 

Other variable yield securities 18,137 – – 18,137 

Derivatives – 16,682 – 16,682 

18,137 16,682 – 34,819


71 


e) Valuation hierarchy continued 

The investments included in Level 3 have one or more inputs that are not based on observable market data. These instruments are valued using 

cost or stale prices, where alternative inputs are not available. The following table presents the movements of Level 3 investments during the year. 

2011 2010 

£000 £000 

Balance at 1 January 15,528 4,277 

Transfer out from Level 3 (124) (4,188) 

Unrealised losses in profit and loss statement (302) (73) 

Purchases – 15,528 

Foreign exchange (432) (16) 

Balance at 31 December 14,670 15,528 

Notes: 

Level 1 

Level 2 

Level 3 

Valued using unadjusted quoted prices in active markets for identical financial instruments. This category includes listed equity shares, 

certain exchange-traded derivatives, G10 government securities and certain US agency securities. 

Valued using techniques based significantly on observable market data. Instruments in this category are valued using: 

a) quoted prices for similar instruments or identical instruments in markets which are not considered to be active; or 

b) valuation techniques where all the inputs that have a significant effect on the valuation are directly or indirectly based on observable 

market data. 

Valued using techniques where at least one input (which could have a significant effect on the instrument’s valuation) is not based on 

observable market data. 

15 Financial risk 

The activities of the Group expose it to financial risks such as market risk, credit risk and liquidity risk. The Group’s risk management framework 

recognises the unpredictability of financial markets and seeks to minimise potential adverse effects on its financial performance. 

The key objectives of the Group’s asset and liability management strategy are to ensure sufficient liquidity is maintained at all times to meet the Group’s 

obligations, including its settlement of insurance liabilities and, within these parameters, to optimise investment returns for the Group. 

i) Market risk 

Market risk is the risk that the fair value or future cash flows of a financial instrument will fluctuate because of changes in market factors. Market risk 

comprises three types of risk: currency risk (due to fluctuations in foreign exchange rates), interest rate risk (due to fluctuations in market interest rates) 

and price risk (due to fluctuations in market prices). 

Currency risk 

The Group is exposed to foreign currency risk in respect of its foreign currency exposures and forward foreign exchange derivatives are used to protect 

the currency positions. 

The risk management process covering forward foreign exchange derivatives involves close senior management scrutiny, including regular board and 

other management reporting. All forward foreign exchange derivatives are subject to delegated authority levels provided to management and levels of 

exposure are reviewed on an ongoing basis. 



72 


continued 


15 Financial risk continued 

i) Market risk continued 

The table below shows the impact on profit after income tax and equity of changes in foreign currency exchange rates against the UK pound sterling 

on our major operational currency exposures. 

2011 2010 

Movement in Profit/(loss) Equity Profit/(loss) Equity 

variable % £000 £000 £000 £000 

Australian dollar +10 (75) (75) (572) (1,167) 

-10 75 75 572 1,167 

Canadian dollar +10 1,511 1,511 (1,306) (1,306) 

-10 (1,511) (1,511) 1,306 1,306 

Euro +10 (288) (435) 1,570 861 

-10 288 435 (1,570) (861) 

US dollar +10 7,736 6,979 (4,522) (5,733) 

-10 (7,736) (6,979) 4,522 5,733 

The above is shown net of taxation at the standard rate of 26% (2010 28%). 

Interest rate risk 

The Group is exposed to interest rate risk arising on interest bearing assets. Assets with floating interest rates expose the Group to cash flow interest 

rate risk. Fixed interest rate assets expose the Group to fair value interest rate risk. The Group’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 business. 

The Group’s exposure to interest rate risk for each significant class of interest bearing financial assets and liabilities is as follows: 

Fixed interest rate maturing in 

Floating One year One to Two to Over three 

interest rate or less two years three years years Total 

2011 £000 £000 £000 £000 £000 £000 

Interest bearing securities 3,041,201 2,204,456 223,651 401,925 419,699 6,290,932 

Financial liabilities – – (564,735) – (1,632,465) (2,197,200) 

Net interest bearing financial assets/(liabilities) 3,041,201 2,204,456 (341,084) 401,925 (1,212,766) 4,093,732 

Fixed interest rate maturing in 

Floating One year One to Two to Over three 

interest rate or less two years three years years Total 

2010 £000 £000 £000 £000 £000 £000 

Interest bearing securities 2,656,620 2,169,221 232,674 527,852 534,618 6,120,985 

Financial liabilities – – – (546,602) (675,892) (1,222,494) 

Net interest bearing financial assets/(liabilities) 2,656,620 2,169,221 232,674 (18,750) (141,274) 4,898,491 

The Group’s sensitivity to movements in interest rates in relation to the value of fixed interest securities is shown in the table below. This sensitivity 

analysis is presented gross of any inter-dependencies between financial assets and liabilities. 

2011 2010 

Movement in Profit/(loss) Profit/(loss) 

variable % £000 £000 

Interest rate movement – fixed +1.5 28,958 43,305 

interest securities -1.5 (28,958) (43,305) 

The above is shown net of taxation at the standard rate of 26% (2010 28%).


73 


i) Market risk continued 

Price risk 

Price risk is the risk that the fair value of future cash flows of a financial instrument will fluctuate because of changes in market prices (other than those 

arising from interest rate or currency risk), whether those changes are caused by factors specific to the individual financial instrument or its issuer, 

or factors affecting all similar financial instruments traded on the market. 

The Group is exposed to price or market value risk on its investment in equities and fixed interest securities and uses derivatives to manage the equity 

exposure. The risk management processes over these forward contracts and options are the same as those explained under currency risk. 

The potential impact of movements in the market value of equities on the profit and loss account and balance sheet is shown in the sensitivity analysis 

below. The price risk in relation to unlisted securities is immaterial in terms of the possible impact on profit and loss and has not been included in the 

sensitivity analysis. 

The impact has been shown on the basis that equity funds are fully exposed to market price fluctuations. Equity portfolios are from time to time hedged 

in order to manage this exposure. Exchange traded futures contracts used to provide the hedges are not perfectly correlated to the composition of the 

underlying equity fund. 

Financial impact 

2011 2010 

Profit/(loss) 

Profit/(loss) 

Movement in and equity and equity 

variable % £000 £000 

ASX 100 +20 – 6,073 

-20 – (6,073) 

FTSE 100 +20 2,165 1,169 

-20 (2,165) (1,169) 

EUR – DJ EURO STOXX +20 3,591 5 

-20 (3,591) (5) 

The above are shown net of taxation at the standard rate of 26% (2010 28%). 

ii) Credit risk 

Credit risk is the risk that one party to a financial instrument will cause financial loss to the other party by failing to discharge an obligation. 

Credit risk exposures are calculated regularly and compared with authorised credit limits before further transactions are undertaken with counterparties. 

94% (2010 94%) of total fixed interest and cash investments are with counterparties having a Moody’s rating of A or better. The Group does not expect 

any investment counterparties to fail to meet their obligations given their strong credit ratings. The Group only uses derivatives in highly liquid markets. 

The reinsurers’ share of claims outstanding is also exposed to credit risk. 53% (2010 44%) of the reinsurers’ share of claims outstanding is with fellow 

Group undertakings. 91% (2010 94%) of the remaining balance is with reinsurers with S&P rating of A- or greater. 

The following table provides information regarding the carrying value of the Group’s financial assets, excluding amounts in respect of insurance 

contracts. All amounts are neither past due nor impaired at the balance sheet date. 

2011 2010 

£000 £000 

Cash 98,350 182,930 

Interest bearing investments 6,192,582 5,938,055 

Derivative financial instruments 36,074 38,169 

Amounts owed by Group undertakings 2,370,272 1,945,946 

Other receivables 131,320 117,828 



74 


continued 



iii) Liquidity risk 

In addition to treasury cash held for working capital requirements, a minimum percentage of the Group’s total financial assets is held in liquid, 

short-term money market securities to ensure there are sufficient liquid funds available to meet insurance and investment obligations. 

At 31 December 2011, the average duration of cash and fixed interest securities was 0.45 years (2010 0.7 years). 

The table below summarises the maturity profile of all financial liabilities based on the remaining contractual obligations. 

2011 2010 

Between 

Between 

Within one and Over Within one and Over 

one year five years five years one year five years five years 

£000 £000 £000 £000 £000 £000 

Non-derivatives 

Trade and other payables (317,823) – – (261,126) – – 

Borrowings – (564,735) (1,632,465) – (546,602) (675,892) 

Derivatives (37,076) – – (65,440) – – 

The company has no significant concentration of liquidity risk. 

16 Capital 

Each registered insurance company regulated by the Financial Services Authority (FSA), Central Bank of Ireland (CBI), National Bank of Belgium (NBB) 

in Belgium, Insurance Supervision Agency in Macedonia (ISAM), The State Commission for Regulation of Financial Services Markets of Ukraine 

(SCRFSM) and each syndicate in Lloyd’s is required to carry out a self assessment of the capital it requires, the Individual Capital Assessment (ICA). 

This is required to reflect the level of capital needed to ensure that the entity will remain solvent for the next 12 months in 99.5% of future foreseeable 

scenarios. 

The Group has developed a sophisticated stochastic risk-based capital model, which incorporates the key risks being faced by each of the legal 

entities. The output from this model, which is tailored to the Group’s risk profile, is reported to the Risk and Capital Committee, which in turn 

recommends it to the relevant boards for adoption. The ICAs have been reviewed by the FSA, CBI and Lloyd’s and form the basis of the minimum 

capital required by each registered insurance company and syndicate. 

Lloyd’s corporate members are required to hold capital, Funds at Lloyd’s (FAL), in a trust at Lloyd’s. These funds are intended to cover circumstances 

where syndicate assets prove insufficient to meet their liabilities. The level of FAL is dependent on corporate member’s participations on syndicates 

and the level of the syndicate ICAs after they have been reviewed and accepted by Lloyd’s. 

The Group’s capital model has been embedded in the business and as well as assessing minimum capital requirements for Group undertakings, 

it has also been used to: 

• allocate capital to class of business for business planning and performance monitoring 

• assess the effectiveness of existing reinsurance protections and new reinsurance strategies 

• consider the implications of Solvency II on the business


75 

17 Other debtors including taxation 

Group 

Company 

2011 2010 2011 2010 

£000 £000 £000 £’000 

Corporation tax 179,261 84,085 89,650 23,778 

Amounts owed by Group undertakings 2,370,272 1,945,946 518,624 194,539 

Deferred taxation (note 22) – – 30,728 – 

Other 96,904 90,412 880 1,296 

2,646,437 2,120,443 639,882 219,613 

Two subsidiary undertakings have made long-term loans to a fellow QBE company, QBE Investments (North America) Inc. The first loan amounts to 

US$1,840,027,537 and was made on 5 June 2009. This loan is split into 4 Tranches: A: US$500,000,000; B: US$500,000,000; C: US$500,000,000; 

D: US$340,027,537. QBE Investments (North America) Inc pays interest on the Tranche Loans at the base rate of US dollar 6 Month LIBOR plus 

5.29% for Tranche A, 5.25% for Tranche B, 5.43% for Tranche C and 5.58% for Tranche D. The actual repayment of interest takes place every 

31 May and 30 November, with the first payment made on 30 November 2009. The total US$1,840,027,537 is to be repaid by 31 May 2019. 

The second loan amounts to US$286,000,000 and was made on 30 November 2009. QBE Investments (North America) Inc pays interest on this loan 

which is calculated using US dollar 6 Month LIBOR plus 4.25%. Interest payment dates and LIBOR reset dates are identical to the first loan with the 

first payment made on 31 May 2010. The US$286,000,000 is to be repaid on 30 November 2019. 

The third loan amounts to US$400,000,000 and was made on 30 June 2010. QBE Investments (North America) Inc pays interest on this loan which 

is calculated using US dollar 6 Month LIBOR plus 3.85%. Interest payment dates and LIBOR reset dates are identical to the first loan with the first 

payment made on 30 November 2010. The US$400,000,000 is to be repaid on 31 May 2020. 

The fourth loan amounts to US$200,000,000 and was made on 16 May 2011. QBE Investments (North America) Inc pays interest on this loan which 

is calculated using US dollar 6 Month LIBOR plus 2.25%. Interest payment dates and LIBOR reset dates are identical to the first loan with the first 

payment made on 31 May 2011. The US$200,000,000 is to be repaid on 15 May 2021. 

The carrying value of these loans is deemed to be the fair value at 31 December 2011. 

18 Tangible assets – Group 

Assets in 

Owner 

Motor Computer Office the course of Leasehold occupied 

vehicles equipment equipment construction improvements property Total 

£000 £000 £000 £000 £000 £000 £000 

Cost or revaluation 

At 1 January 2011 2,312 97,083 17,369 21,821 19,042 7,272 164,899 

Exchange adjustments (49) (119) (85) – (119) (430) (802) 

Transfer – 14,728 – (14,728) – – – 

Revaluation – – – – – (113) (113) 

Additions 316 1,686 2,320 38,631 352 64 56,169 

Disposals (674) (3,152) (882) (3,370) (435) (110) (21,423) 

At 31 December 2011 1,905 110,226 18,722 42,354 18,840 6,683 198,730 

Cumulative depreciation 

At 1 January 2011 (1,114) (65,037) (11,576) – (12,551) – (90,278) 

Exchange adjustments – 74 12 – 21 – 107 

Charge for year (373) (21,029) (2,271) – (2,158) – (25,831) 

Disposals 444 1,142 812 – 413 – 2,811 

At 31 December 2011 (1,043) (84,850) (13,023) – (14,275) – (113,191) 

Net book value 

at 31 December 2011 862 25,376 5,699 42,354 4,565 6,683 85,539 

Net book value 

at 31 December 2010 1,198 32,046 5,793 21,821 6,491 7,272 74,621 



76 


continued 


19 Share capital 

2011 2010 

£000 £000 

Called up, allotted and fully paid 

“A” Ordinary Shares – 330,000,000 shares of £1 each 330,000 330,000 

“B” Ordinary Shares – 1,978,572,962 shares of £1 each 1,978,573 1,978,573 

Non-Voting Ordinary Shares – 23,300,000 shares of £1 each – 23,300 

Floating Rate Non-Voting Preference Shares – 122,260,000 shares of £1 each – 122,260 

2,308,573 2,454,133 

On 15 December 2011, the company completed a Court approved capital reduction by reducing 122,260,000 and 23,300,000 of Floating Rate 

Non-Voting Preference Shares and Non-Voting Ordinary Shares respectively. Detail on the capital reduction is set out in note 20. 

During 2010, the company issued at par 545,489,545 “B” Ordinary Shares of £1 each. 

There are no differences in rights and rank between the holders of “A” Ordinary Shares and holders of “B” Ordinary Shares. 

The holders of the Non-Voting Ordinary Shares had the following restrictions on their rights: 

i) They had the right to participate in any dividend or other distribution of profits of the company if and to the extent resolved by the directors 

of the company in their absolute discretion. 

ii) 

They had no rights to vote at general meetings of the company. 

The holders of the Floating Rate Non-Voting Preference Shares had the following restrictions on their rights: 

i) They had no rights to vote at general meetings of the company. 

ii) 

They were entitled to receive, out of profits legally available for that purpose if and when declared by the directors of the company, preferential 

cumulative dividends that accrue rateably on a daily basis and are payable in cash, semi-annually in arrears. 

iii) They were not entitled to any dividends in excess of the full non-cumulative dividends declared on the Floating Rate Non-Voting Preference Shares. 

iv) On a return of capital on winding-up (other than on redemption or purchase of shares) or otherwise, they were entitled to any payment in priority to 

the holders of any other class of shares. 

v) They would not share in the balance of assets remaining after the payments due in (iv) above. 

20 Reconciliation of movements in reserves and shareholders’ funds 

Foreign 

Called up Share currency 

share premium translation Revaluation Profit and 

2011 capital reserve reserve reserve loss reserve Total 

Group £000 £000 £000 £000 £000 £000 

At 1 January 2011 2,454,133 361,550 148,863 412 (767,980) 2,196,978 

Profit for the year – – – – 95,052 95,052 

Capital reduction (145,560) (361,550) – – 483,810 (23,300) 

Currency translation differences – – 18,186 – – 18,186 

Actuarial gain recognised in the pension schemes – – – – 3,088 3,088 

Movement on deferred tax relating to pension liability – – – – 1,266 1,266 

Revaluation – – – (113) – (113) 

Dividend – – – – (600,054) (600,054) 

At 31 December 2011 2,308,573 – 167,049 299 (784,818) 1,691,103


77 

20 Reconciliation of movements in reserves and shareholders’ funds continued 

Foreign 

Called up Share currency Cash 

share premium translation Revaluation flow Profit and 

2010 capital reserve reserve reserve hedge loss reserve Total 

Group £000 £000 £000 £000 £000 £000 £000 

At 1 January 2010 1,908,643 361,550 99,219 – (3,722) (525,281) 1,840,409 

Profit for the year – – – – – 194,159 194,159 

Issuance of share capital 545,490 – – – – – 545,490 

Movement on cash flow hedge – – – – 3,722 – 3,722 

Currency translation differences – – 49,644 – – – 49,644 

Actuarial loss recognised in the pension schemes – – – – – (7,740) (7,740) 

Movement on deferred tax relating to pension liability – – – – – 882 882 

Revaluation – – – 412 – – 412 

Dividend – – – – – (430,000) (430,000) 

At 31 December 2010 2,454,133 361,550 148,863 412 – (767,980) 2,196,978 

Called up 

Share 

share premium Profit and 

2011 capital reserve loss reserve Total 

Company £000 £000 £000 £000 

At 1 January 2011 2,454,133 361,550 334,073 3,149,756 

Profit for the year (note 12) – – 382,363 382,363 

Capital reduction (145,560) (361,550) 483,810 (23,300) 

Dividend – – (600,054) (600,054) 

At 31 December 2011 2,308,573 – 600,192 2,908,765 

Called up 

Share 

share premium Cash flow Profit and 

2010 capital reserve hedge loss reserve Total 

Company £000 £000 £000 £000 £000 

At 1 January 2010 1,908,643 361,550 (3,722) 220,148 2,486,619 

Profit for the year (note 12) – – – 543,925 543,925 

Issuance of share capital 545,490 – – – 545,490 

Movement on cash flow hedge – – 3,722 – 3,722 

Dividend – – – (430,000) (430,000) 

At 31 December 2010 2,454,133 361,550 – 334,073 3,149,756 

On 15 December 2011, the company completed a Court approved capital reduction of £507,110,000 with £23,300,000 returned to the minority equity 

shareholder and the remaining £483,810,000 transferred to the profit and loss account. The total amounts of capital reduction of £507,110,000 

comprises of £122,260, £23,300,000 and £361,550,000 of Floating Rate Non-Voting Preference Shares, Non-Voting Ordinary Shares respectively and 

of share premium reserve respectively. 

During the year the company declared and paid an interim dividend of £596,692,842 (2010 £423,708,000) and a dividend of £3,361,614 (2010 

£6,292,000) to ordinary shareholders and preference shareholder respectively. 

On 30 June 2010, as part of the refinancing of QBE the Americas via QBE European operations, the company issued at par 265,489,545 “B” Class 

Ordinary Shares of £1 each to its immediate parent entity QBE Insurance Group Limited and in turn on lent funds to QBE Investments (North America) Inc. 

On 2 November 2010, the company completed the purchase of the entire issued share capital of Secura NV, a Belgian based specialist reinsurer. 

This acquisition was funded by issuance of 280 million “B” Class ordinary shares of £1 each to its immediate parent entity QBE Insurance Group 

Limited. Full details can be found in note 14(b). 



78 


continued 


21 Equalisation provision 

The equalisation provision required to be made by the Group in accordance with the FSA Handbook is as follows: 

2011 2010 

£000 £000 

At 1 January – – 

Transfers in 16,335 – 

At 31 December 16,335 – 

As explained in accounting policy (d) (vii), an equalisation provision is established in the Group financial statements. The effect of this provision 

is to reduce the Group’s shareholders’ funds by £16.3 million (2010 £nil). The increase in the provision during the year has the effect of reducing 

the balance on the technical account for general business and decreasing the profit on ordinary activities before taxation by £16.3 million (2010 £nil). 

22 Deferred tax 

Group 

Company 

2011 2010 2011 2010 

£000 £000 £000 £000 

Movements in deferred tax are made up as follows: 

Deferred tax liability at start of period (57,236) (64,171) – – 

Deferred tax (charge)/credit in profit and loss account (135,289) 16,741 30,728 – 

Movement in provisions – acquisitions/disposals 61 (8,950) – – 

Movement in provisions – other 6,834 (856) – – 

Deferred tax liability at end of period (185,630) (57,236) 30,728 – 

The elements of deferred tax are made up as follows: 

Accelerated capital allowances 977 (97) – – 

Short-term timing differences (191,447) (62,999) 30,728 – 

Employee compensation and benefits 4,840 5,860 – – 

(Liability)/asset in balance sheet (185,630) (57,236) 30,728 – 

23 Amounts owed to credit institutions 

Group 

2011 2010 

£000 £000 

Amounts due in more than one year 

QBE Funding Trust V 564,735 546,602 

On 12 May 2010, the Group raised US$850 million through the issue of 20 year hybrid securities. Interest accumulates at 2.5% per annum 

(compounding semi-annually). In the event of conversion, QBE Insurance Group Limited, the Group’s ultimate parent company, will issue a fixed 

number of its shares to the security holders. The conversion rate may be adjusted in certain circumstances to take account of dividends paid on that 

company’s ordinary shares. In the event of redemption, repurchase or maturity, QBE Insurance Group Limited can elect to repay the principal and 

accreted interest in either cash or the equivalent value in shares of the company, or a combination of both. Investors can request repurchase at the end 

of three, five, seven, 10 or 15 years from the date of issue. QBE Insurance Group Limited can redeem the securities at any time on or after three years 

from the date of issue. Investors have the option to convert the security if: 

• the market value of the security is less than the US dollar equivalent of the market value of the underlying shares in QBE Insurance Group Limited 

for five consecutive trading days; 

• the securities are called for redemption; or 

• on certain corporate transactions occurring (e.g. change in control). 

The hybrid securities are guaranteed by the QBE Insurance Group Limited. 

The fair value of the hybrid securities at 31 December 2011 is £565,559,000 (2010 £548,877,000).


79 

24 Other creditors including tax and social security 

Group 

Company 

2011 2010 2011 2010 

£000 £000 £000 £000 

Corporation tax – 70,157 – – 

Amounts due to fellow QBE Insurance Group Limited subsidiaries 160,898 117,262 376,773 233,770 

Amounts due to fellow QBE Insurance Group Limited subsidiaries (i) 307,890 307,561 307,890 307,561 

Amounts due to fellow QBE Insurance Group Limited subsidiaries (ii) 354,588 352,614 354,588 352,614 

Amounts due to fellow QBE Insurance Group Limited subsidiaries (iii) 644,675 – 644,675 – 

Amounts due to fellow QBE Insurance Group Limited subsidiaries (iv) 325,312 – 325,312 – 

Derivative financial liabilities (note 14(d)) 37,076 65,440 859 12,291 

Other creditors 114,430 119,522 1,951 6,050 

1,944,869 1,032,556 2,012,048 912,286 

i) In 2006, the company issued £300,000,000 of capital securities to a fellow QBE Insurance Group Limited subsidiary. The securities have no fixed 

redemption date and may not be called for redemption or conversion by the investors. The securities are subordinated. Distributions are deferrable 

and not cumulative. However, if a distribution or principal amount is not paid by the company and the guarantor does not pay the amount under the 

guarantee, then the capital securities are to be redeemed for QBE Insurance Group Limited preference shares. QBE Insurance Group Limited has 

fully and unconditionally guaranteed the Group’s obligations under the capital securities. The fair value of the capital securities at 31 December 2011 

is £210,750,000 (2010 £216,750,000). 

ii) 

In 2007, the company issued US$550,000,000 of capital securities to a fellow QBE Insurance Group Limited subsidiary. The securities have 

no fixed redemption date and may not be called for redemption or conversion by the investors. The securities are subordinated. Distributions 

are deferrable and not cumulative. However, if a distribution or principal amount is not paid by the company and the guarantor does not pay the 

amount under the guarantee, then the capital securities are to be redeemed for QBE Insurance Group Limited preference shares. QBE Insurance 

Group Limited has fully and unconditionally guaranteed the Group’s obligations under the capital securities. The fair value of the capital securities 

at 31 December 2011 is £303,693,000 (2010 £296,113,000). 

iii) In May 2011, the company issued US$1,000,000,000 of Fixed Rate Reset Subordinated Callable Notes due 2041 to a fellow QBE Insurance 

Group Limited subsidiary. The securities may not be called for redemption by the investors. The securities are subordinated. Interest payments 

are deferrable and no payments are due unless the Group satisfies certain solvency conditions. These notes are non-current liabilities. The fair 

value of the subordinated notes at 31 December 2011 is £601,036,000. 

iv) In May 2011, the company issued £325,000,000 of Fixed Rate Reset Subordinated Callable Notes due 2041 to a fellow QBE Insurance Group 

Limited subsidiary. The securities may not be called for redemption by the investors. The securities are subordinated. Interest payments are 

deferrable and no payments are due unless the Group satisfies certain solvency conditions. These notes are non-current liabilities. The fair value 

of the subordinated notes at 31 December 2011 is £296,998,000. 

25 Operating lease commitments 

Land and buildings 

Group 

Company 

2011 2010 2011 2010 

£000 £000 £000 £000 

Annual commitments under operating leases are: 

Leases which expire within one year 938 377 – – 

Leases which expire between one and five years 1,751 1,497 – – 

Leases which expire after five years 15,442 11,892 – – 

18,131 13,766 – – 

Other 

Group 

Company 

2011 2010 2011 2010 

£000 £000 £000 £000 

Annual commitments under operating leases are: 

Leases which expire within one year 11 55 – – 

Leases which expire between one and five years 153 118 – – 

164 173 – – 



80 


continued 


26 Guarantees and contingencies 

Of the total assets disclosed on the Group’s balance sheet £2,294,371,000 (2010 £2,379,073,000) are subject to Lloyd’s Premium Trust Funds, 

or will become subject to them on realisation, of which £2,232,177,000 (2010 £2,256,411,000) are investments. 

The Group has liabilities covered by the deposit of certain investments and cash, in respect of undrawn letters of credit amounting to: 

2011 2010 

Original Reporting Original Reporting 

currency currency currency currency 

000 £000 000 £000 

United States dollar 30,366 19,544 42,044 26,930 

Euro 13,336 11,108 29,151 24,983 

Canadian dollar 111 70 209 135 

Pound sterling 35,132 35,132 46,381 46,381 

65,854 98,429 

Additionally there are charges over fixed income securities of US$14,732,635 (£9,482,284) (2010 US$17,020,060 (£10,901,896)) backing the Group’s 

Excess and Surplus lines business in the USA, which are required by the US insurance regulatory authorities. 

27 Provisions for liabilities and charges 

2011 2010 

£000 £000 

1 January 2011 1,534 4,275 

Utilised during year (106) (2,741) 

31 December 2011 1,428 1,534 

The current year provision is in relation to the voluntary pension provision. On 1 January 2006, Limit Holdings Limited, a fellow QBE undertaking, 

transferred at book value to the company a voluntary pension provision. Details of the voluntary pension arrangement are as follows: 

The company operates an arrangement under which former employees of QBE Underwriting Limited (previously Janson Green Limited) receive 

retirement benefits, including enhanced pension payments and medical insurance, provided by the company on an ex-gratia basis. The payments 

are adjusted for inflation on an annual basis. The costs are paid by the company as they fall due and hence the arrangement is unfunded. 

Since the commitments under the arrangement relate to past service the liability is provided for in full at the directors’ estimate of the ultimate cost 

based on mortality tables. The provision assumes that future inflation in pension payments is offset by similar changes in the discount rate used to 

calculate the present value of such obligations. All adjustments to the provision are dealt with in the profit or loss account. 

The restructuring provision booked in 2009 was fully utilised in 2010 upon the completion of the exercise. 

28 Funds at Lloyd’s (“FAL”) 

FAL are those of the Group’s funds which are subject to the terms of the Lloyd’s Deposit Trust Deed and which are used to support the underwriting 

of the Group’s corporate member subsidiary. Under Lloyd’s regulations, the amounts of FAL required to support underwriting for the following year 

and open years of account are determined at the “coming-into-line” date as prescribed by Lloyd’s each year. At 31 December 2011, these amounted 

to £1,068,481,000 (2010 £897,004,000). This requirement was satisfied as follows: 

2011 2010 

£000 £000 

Letters of credit guaranteed by the ultimate holding company 908,844 688,764 

Interim profits 47,537 76,051 

General deposit 28,318 64,469 

Reserve margins 83,782 67,720 

1,068,481 897,004


81 

29 Parent undertaking 

The company’s ultimate controlling entity is QBE Insurance Group Limited which is incorporated in Australia. The consolidated accounts for 

QBE Insurance Group Limited are available from the company’s registered office at Plantation Place, 30 Fenchurch Street, London EC3M 3BD. 

The company’s immediate parent company is QBE Insurance Holdings Pty Limited, which is incorporated in Australia. 

30 Capital commitments 

The Group’s capital commitments authorised and contracted for but not provided for in the accounts amount to £1.1 million (2010 £5.8 million). 

31 Post balance sheet event 

On 16 February 2012, the company paid an interim dividend of £356,700,000 to ordinary shareholders. 



82 

Glossary of insurance terms 

Binders/Binding authority The delegation of the 

authority to enter into the insurance contracts 

from a managing agent to a cover holding. 

Broker One who negotiates 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. 

Capacity In relation to a Lloyd’s member, it is 

the maximum amount of insurance premiums 

(gross of reinsurance but net of brokerage) 

which a member can accept. In relation to a 

syndicate it is the aggregate of each member’s 

capacity allocated to that syndicate. 

Casualty insurance Insurance that is primarily 

concerned with the losses caused by injuries 

to third persons or their property (i.e. not the 

policyholder) and the resulting legal liability 

imposed on the insured. It includes, but is not 

limited to, general liability, employers’ liability, 

workers’ compensation, professional liability 

and public liability insurance. 

Catastrophe reinsurance A form 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 claims resulting 

from a catastrophe event or series of events. 

Claim The amount payable under a contract 

of insurance or reinsurance arising from a loss 

relating to an insured event. 

Claims incurred The aggregate of all claims 

paid during an accounting period adjusted 

by the change in the claims provision for that 

accounting period. 

Claims outstanding The amount of provision 

established for claims and related claims expenses 

that have occurred but have not been paid. 

Claims provision The estimate of the most 

likely cost of settling present and future claims 

and associated claims adjustment expenses 

plus a risk margin for the possible fluctuation 

of the liability. 

Claims ratio Claims incurred as a percentage 

of net earned premium. 

Combined operating ratio The sum of the 

claims 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. 

Commission ratio Net commission expense 

as a percentage of net earned premium. 

Deferred acquisition costs Acquisition costs 

relating to the unexpired period of risk of 

contracts in force at the balance sheet date 

which are carried forward from one accounting 

period to subsequent accounting periods. 

Earned premium The proportion of written 

premium (including, where relevant, those 

of prior accounting periods) attributable to 

the risks borne by the insurer during the 

accounting period. 

Equalisation provision Amounts set aside 

in accordance with the Financial Services 

Authority Handbook for the purpose of mitigating 

exceptionally high loss ratios in future years. The 

amounts provided are not liabilities because 

they are in addition to the provisions required to 

meet the anticipated ultimate cost of settlement 

of outstanding claims at the balance sheet date. 

Notwithstanding this, they are required by the 

Companies Act 2006 to be included within 

technical provisions. 

Excess of loss reinsurance A form of 

reinsurance in which, in return for a premium, 

the reinsurer accepts liability for claims settled 

by the original insurer in excess of an agreed 

amount, generally subject to an upper limit. 

Expense ratio Underwriting and administrative 

expenses as a percentage of net earned premium. 

Facultative reinsurance The reinsurance of 

individual risks through a transaction between 

the reinsurer and the cedant (usually the primary 

insurer) involving a specified risk. 

General insurance Used to describe non-life 

insurance business including property and 

casualty insurance. 

Gross claims incurred The amount of claims 

incurred during an accounting period before 

deducting reinsurance recoveries. 

Gross earned premium The total premium 

on insurance earned by an insurer or reinsurer 

during a specified period on premiums 

underwritten in the current and previous 

underwriting years. 

Gross written premium The total premium 

on insurance underwritten by an insurer or 

reinsurer during a specified period, before 

deduction of reinsurance premium. 

Incurred but not reported (IBNR) 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. 

Insurance profit The sum of the underwriting 

profit/(loss) and investment income on 

policyholders’ funds. 

Inward reinsurance The reinsurance or 

assumption of risks written by another insurer. 

Lead Underwriter who sets the terms and price 

of a policy in the Lloyd’s market. 

Line slip Document (used at Lloyd’s) that 

describes the risk to be insured. Underwriters 

subscribe to the risk by stating the percentage 

of the risk that they are willing to take. 

Lloyd’s Insurance and reinsurance market 

in London. It is not a company but is a 

society of individuals and corporate 

underwriting members. 

Net claims incurred The amount of claims 

incurred during an accounting period after 

deducting reinsurance recoveries. 

Net claims ratio Net claims incurred as 

a percentage of net earned premium. 

Net earned premium Net written premium 

adjusted by the net change in unearned 

premium for a year. 

Net investment income Gross investment 

income net of finance costs, foreign exchange 

gains and losses and investment expenses. 

Net underwriting profit/(loss) The amount 

of profit/(loss) from insurance activities exclusive 

of net investment income and capital gains 

or losses. 

Net written premium The total premium on 

insurance underwritten by an insurer during 

a specified period after the deduction of 

premium applicable to reinsurance. 

Policyholders’ funds Those financial assets 

held to fund the insurance provisions of the 

consolidated entity. 

Premium Amount payable by the insured 

or reinsured in order to obtain insurance or 

reinsurance protection. 

Proportional reinsurance A type of 

reinsurance in which the original insurer 

and the reinsurer share claims in the same 

proportion as they share premiums.


83 

Recoveries The amount of claims recovered 

from reinsurance, third parties or salvage. 

Reinsurance An agreement 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. 

Underwriting year The year in which the 

period of cover commences under a contract 

of insurance. 

Unearned premium The portion of a premium 

representing the unexpired portion of the 

contract term as of a certain date. 

Written premium Premiums written, whether 

or not earned, during a given period. 

Reinsurance to close A reinsurance 

agreement under which members of a syndicate 

for a year of account to be closed are reinsured 

by members who comprise that or another 

syndicate for a later year of account against 

all liabilities arising out of insurance business 

written by the reinsured syndicate. 

Reinsurer The insurer that assumes all or 

part of the insurance or reinsurance liability 

written by another insurer. The term includes 

retrocessionaires, being insurers that assume 

reinsurance from a reinsurer. 

Retention ratio Percentage of previous year’s 

premium which is renewed. 

Retrocession Reinsurance of a reinsurer by 

another reinsurance carrier. 

Retention That amount of liability for which 

an insurance company will remain responsible 

after it has completed its reinsurance 

arrangements. 

Syndicate A member, or group of members, 

underwriting insurance business at Lloyd’s 

through the agency of a managing agent. 

Treaty reinsurance 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. 

Underwriting The process 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. 

Underwriting expenses The aggregate 

of policy acquisition costs, excluding 

commissions and the portion of administrative, 

general and other expenses attributable to 

underwriting operations. 

Additional information


84 

Directors and officers 

Directors 

S P Burns 

P A Dodridge 

M S Kang 

J D Neal 

F M O’Halloran 

D J Winkett 

Former director who served during part of the year 

K M Lisson resigned 15 February 2011 

Company secretary 

S M Boland 

Designed and produced by FTI Consulting 

Printed in England by Cousin 

Cousin is a carbon neutral company with ISO 14001 accreditation: it recycles all solvents used in the printing process, making any waste pH neutral, 

and also holds FSC status. 

This report is printed on paper made from totally chlorine-free (TCF) and elemental chlorine-free (ECF) pulp, sourced from sustainable forests. It is 

recyclable and biodegradable.


85 

QBE EO structure 


Latin 

America 

North 

America 

European 

Operations 

Australia 

and 

New Zealand 

Asia Pacific 


Insurance 

(Europe) 

Limited 

(QIEL) 


Underwriting 

Limited 

(QUL) 


Reinsurance 

(Europe) 

Limited 

(QREL) 

Secura NV 


Syndicate 

2999 


Casualty 

Syndicate 

386 


Reinsurance 

Syndicate 

566 


Marine and 

Energy 

Syndicate 

1036 


Property, 

Casualty and 

Motor 

Syndicate 

1886* 


Aviation 

Syndicate 

5555 

* For 2012 Sub-syndicate 1886 includes risks previously written by Sub-syndicate 2000.


Plantation Place 

30 Fenchurch Street 

London EC3M 3BD 

tel +44 (0)20 7105 4000 

fax +44 (0)20 7105 4019 

For more information: 

e-mail enquiries@uk.qbe.com 

or visit www.QBEeurope.com 

QBE European Operations plc, no. 02641728, registered office Plantation Place, 30 Fenchurch Street, London EC3M 3BD

QBE European Operations plc

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