QBE Insurance (QBE) 2015 AGM Report

Company/ASX Code : QBE Insurance Group Limited (QBE)
Venue :
10am Wesley Theatre Sydney, New South Wales
Monitor : Ms Joyce Yong
AGM Details / NoM : Thursday 2nd April, 2015
# of Attendees : Approximately 300
# Holdings represented by ASA : 494
Value of Proxies : $20.8 million
# Shares Represented by ASA : 1.5 million
Market Capitalisation : $18.3 billion

QBE turnaround - how sustainable?

Unlike QBE AGMs in the recent past, this AGM was a convivial affair. Chairman Marty Becker presided competently and smoothly. Shareholders were soothed by QBE’s improved results, accompanied by an increased fully franked dividend from 32 cents to 37 cents. Both Chairman Becker and CEO, John Neal, gave brief presentations, accompanied by only a small number of slides. This contributed to the crispness of the meeting.

In his address Chairman Becker reported on the status of the three initiatives QBE undertook in 2014. These were:

  • A refresh of the Board: now completed with the recruitment of Sir Brian Pomeroy, Ms Jann Skinner and Mr Stephen Fitzgerald. All three bring more insurance and international experience to the Board. Their election was supported by ASA. QBE’s new CFO, Pat Regan, was the fourth appointment. While ASA does not favour the appointment of a second executive director to the Board, Deputy Chairman John Green convinced us at the pre-AGM meeting that the Board considered Pat Regan could contribute to QBE at board level. Also the Board had put in a structure to minimise the blurring of the line between management and board responsibilities. Consequently we decided to support the election of Pat Regan. The Chairman, while speaking in support of Pat Regan, acknowledged that other investors were also concerned although this practice was common in the US.
  • Strengthening and normalising the balance sheet, a move that Mr Becker stated was largely driven by CFO Pat Regan.  This involved the capital raising of September 2014 and the sale of several businesses. In relation to the capital raising, Mr Becker commented that he was aware retail shareholders would have liked a bigger allocation in the SPP but he believed that they did better than institutional shareholders. Retail shareholders received shares equal to approximately 17% of their shareholding on the SPP record date while institutional shareholders received approximately 6.3%. He reiterated this comment in response to a shareholder question from the floor. ASA commended QBE for responding favourably to our request to raise the cap in the SPP for retail shareholders.
  • The third initiative was a return to stable and predictable earnings through QBE’s business transformation and reserve strengthening, both now largely complete. ASA questioned the sustainability of QBE’s turnaround at this as well as at the pre-AGM meeting and was assured that there were no QBE specific factors that could derail this. Indeed Chairman Becker hinted that QBE would be able to meet consensus analyst forecasts of a 30% increase in FY15 dividends of around 30% relative to FY14 and that the company may revisit the current 50% dividend payout ratio.

For 2015 Chairman Becker forecasted continued improvement in the above areas plus a focus on better use of IT and data analysis to get an edge on competitors.

In his address, CEO John Neal highlighted aspects of QBE’s improved performance, namely a $1 billion profit turnaround, strengthening balance sheet and COR of 96.1%, in spite of the challenges posed by the strengthening of the Latin American claims reserve and the sharp fall in global risk-free rates that effectively added 2.3% to their COR. He commented that the second half of 2014 was particularly strong. For 2015, he anticipated flat gross written premium on a constant currency basis with no material impact on the COR and maintained QBE will continue to focus on earnings improvement. He forecasted organic growth of 3-4% pa and 15% growth in the Emerging Markets Division. The first quarter is tracking in line as forecasted.

Questions from the floor came from a variety of shareholders, including, pleasingly some women.  They related to a request for an OH&S report (Chairman: QBE will consider), QBE’s investment return now that risk assets comprise 13% of asset mix (Chairman: returns should improve as risk assets move to the target of 15%, but QBE still has to stick to investing in the currency in which policies have been written), directors’ shareholdings (Chairman: mandatory for a director to build a shareholding equal to 100% of their annual base fee over 5 years).

All resolutions were put to a poll with ASA voting all undirected proxies for all resolutions, including the remuneration report. We pointed out, however, that ASA did not favour sign-on bonuses such as the one given to Pat Regan.