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QBE European Operations plc Annual report 2011 16 Reinsurance and Credit Lines “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.” Jonathan Parry Chief Underwriting Officer Reinsurance and Credit Lines Division Joint Active Underwriter QBE Syndicate 2999 Divisional overview 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. Gross written premium £670m Up 48.9% from last year Combined operating ratio 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%
QBE European Operations plc Annual report 2011 17 Underwriting structure With 2011 GWP Reinsurance and Credit Lines Jonathan Parry £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 Business operations 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. Financial performance 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
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