Public

QBE Insurance (QBE) 2017 AGM Voting Intentions

Company/ASX Code : QBE Insurance Group Limited (QBE)
Registry : Computershare Services
Poll/Show of Hands : Poll on all items
Webcast : Yes
Venue :
10am Westin Hotel
1 Martin Place
Sydney, New South Wales
Monitor : Mr Ian Graves
AGM Details / NoM : Wednesday 3rd May, 2017

ASA concerned with QBE’s move away from a long term incentive properly aligned with shareholders interests

This company is monitored by Ian Graves, assisted by Joyce Yong. The monitors had a pre-AGM meeting with Deputy Chairman John Green.

ASA Position
Not Applicable
Item 1: Consideration of accounts and reports

QBE maintains discipline as it continues towards improvement in delivering increased fundamental values. Its results reported NPAT up 22.85% to US$844m for the year ended 31 December 2016. Revenue from ordinary activities were US$17,267m, up 4.18% from last year.

Diluted EPS was 60.8 US cents compared to 49.8 US cents last year. Net operating cash flow was US$559m compared to an outflow of US$16m in the previous corresponding period. The final dividend declared was 33 US cents, taking the full year dividend to 54 US cents compared with 37.65 US cents last year.

Three new Board members appointed in 2016, being from UK, Australia & Canada.

New CEOs were also appointed for the North American and Australian & New Zealand operations.

Summary



For 2016, the CEO’s total actual remuneration was 50.7 times the Australian Full time Adult Average Weekly Total Earnings based on November 2016 data from the Australian Bureau of Statistics.


ASA Position
Against
Item 2: Adoption of Remuneration Report

The Remuneration Report covers the results realised in 2015-16 and the changes proposed for 2017 and beyond.

At the 2016 AGM, ASA voted for the adoption of the Remuneration Report although we realised it was not fully aligned with ASA’s preferences. We liked the rigour shown by QBE around the awarding of incentives and continue to do so. We also like it that there is a table of the actual value of remuneration realised by executives in 2016. The outcomes reported for 2016 showed:

- No increases in fixed remuneration for the Group CEO and executives in 2016.

- Continuing improvement in STI outcomes since 2013.

- The Board assessed that the CEO’s performance against his balanced scorecard would have resulted in an STI of A$2,762,646. However, because ‘some recent personal decisions by the CEO have been inconsistent with the Board’s expectations’ his 2016 STI would be reduced by 20% and was adjusted to A$2,210,117. When asked why this amount and not some other, ASA was informed that this quantum was deemed enough to acknowledge his transgression but still retain his services which are well regarded by the Board.

- LTI grants were made in 2016. However, the performance hurdles for LTI awards made in 2012 and 2014 were not met when tested in February 2017.

- The LTI plan includes the award of conditional rights with the value of the awards based on the market value of QBE shares.

QBE has introduced the new plan for 2017 in the remuneration report, although shareholders are not separately being asked to vote on the new plan this year. QBE previously had a separate resolution for the grant of incentives to the Managing Director – there is no similar resolution this year. Our view is that in the interests of good corporate governance, companies should seek annual approval for any equity awards to executive directors even if the approval is not strictly required for reasons such as the company is buying the shares on market.

The new Executive Incentive Plan (EIP), which combines STI and LTI into a single incentive plan, which QBE hope will be simpler. The plan provides for measures over one year with the incentives paid out over 4 years. This incentive will be 20% cash and 80% deferred equity paid over a period of 1-4 years from the end of the performance period.

As well to align executives with shareholders, the minimum shareholding requirement has increased as follows:

- CEO: 3 times fixed remuneration

- Executives: 1.5 times fixed remuneration

From shareholders’ point of view, there should be a long-term view from management and rewarding on 1 years performance, even with vesting being spread over 4 years, does not meet the objective of a long term incentive. The concept of an LTI is to reward a KMP for continuous improvement over a period of time. This is what the shareholders are looking for, not just the company having one good year.

While there are some positive aspects to the remuneration report, our view is that what has been disclosed in the remuneration report about the new EIP does not align with shareholders interests. Therefore we will be voting undirected proxies against this resolution.


ASA Position
For
Item 3: To increase the maximum aggregate fees payable to non-executive directors

This resolution seeks approval to increase the maximum fee cap for non-executive directors by $500,000 to A$4 million. This will ensure the Board maintains the flexibility required to enable succession planning and the appointment of new skills to complement the Group’s insurance activities. It is not proposed to increase the number of directors currently capped at 12.

We will be voting undirected proxies in favour of this resolution.


ASA Position
For
Item 4a: Re-election of Mr Marston (Marty) Becker as a Director

Mr Becker has served on the Board since 2013, becoming in Chairman in 2014. He is a member of the Audit, Investment, Operations and Technology, Remuneration and Risk and Capital Committees.

Mr Becker has over 35 years experience in general insurance and reinsurance, investment banking and private equity. He is nonexecutive Chairman of West Virginia Media Holdings. During his tenure he has provided leadership to the Board as it has directed QBE’s recovery. Mr Becker holds 107,848 shares.

We will be voting undirected proxies in favour of this resolution.


ASA Position
For
Item 4b: Re-election of Ms Kathryn (Kathy) Lisson as a Director

Ms Lisson was appointed to the Board in September 2016 and is Chair of the Operations and Technology Committee and member of the Audit committee.

Prior to her appointment she was a partner of Ernst & Young LLP, where she led the firms Canadian Insurance Advisory practice, before that was COO for QBE European Operations.

Previously she has held senior roles In Accounting, Banking and Insurance, in Canada & UK. Ms Lisson holds 11,465 shares

We will be voting undirected proxies in favour of this resolution.


ASA Position
For
Item 4c: Re-election of Mr Michael (Mike) Wilkins as a Director

Mr Wilkins was appointed to the Board in November 2016 and is a member of the Audit, Operations and Technology, and Remuneration Committees.

Prior to his appointment he was MD & CEO of IAG until 2015 and has more than 30 years experience in financial services including MD & CEO of Promina Group Limited, and Tyndall Australia Ltd. He is currently a director of AMP.

Mr Wilkins holds 8,670 shares.We will be voting undirected proxies in favour of this resolution.



Individuals involved in the preparation of this voting intention have shareholdings in this company. 


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