{ a ten year perspective QBE INSURANCE GROUP ANNUAL REPORT DECEMBER 2000

Transcription

1 { a ten year perspective QBE INSURANCE GROUP ANNUAL REPORT DECEMBER 2000

2 1990 QBE } had operations in 17 countries worldwide with gross written premium of $740 million. The Group had $380 million of shareholders funds and a market capitalisation exceeding $700 million. 2000} QBE had expanded its operations into 40 countries worldwide with gross written premium of $4.4 billion. The Group had $1.7 billion of shareholders funds and a market capitalisation exceeding $4.2 billion. QBE Insurance Group Limited ACN

3 Contents 2 Chairman s report 3 Highlights 4 Worldwide operations 1991 _ 1992 _ 1993 _ 1994 _ 1995 _ 1996 _ 1997 _ 1998 _ 1999 _ 2000 _ 6 Senior management team 8 A decade of change 10 Managing director s report 12 Managing director s report (continued) 14 Australian general insurance 16 Asia-Pacific general insurance 18 the Americas 20 European companies 22 Lloyd s division 24 Investments 26 Shareholders information 28 Directors report 33 Directors and corporate governance 36 Financial statements 63 Directors declaration and independent audit report 64 Calendar year results and history 68 Financial calendar and ASX announcements QBE ANNUAL REPORT

4 Chairman s Report Chairman s report John Cloney Chairman Since my last report, QBE s management has been extremely active in completing our acquisition of the UK based Limit plc (Limit) and the funding and corporate structural changes required to meet the demands of the enlarged Group. The recent acquisitions and other initiatives have significantly increased the size and raised the profile of the Group. QBE is well placed to take advantage of the current up cycle in the global insurance markets. As I noted in my report to shareholders at 30 June 2000, the directors have changed the Group s balance date from 30 June to 31 December. This report therefore covers the six months to 31 December To assist shareholders and other readers of our annual report, comparative information on a calendar year reporting basis is set out on pages 64 to 67. I am pleased to report that the Group recorded a strong financial result for the six months to 31 December 2000, with net profit after tax increasing 28% to $101 million. The results include the acquisition of Limit from 17 August Basic earnings per share were 23.9 cents compared with 20.2 cents for the same period last year. The return on average shareholders funds, which include convertible preference shares, was 13.3% compared with 14.3% for the same period last year. Based on the results for six months and as a sign of our continued confidence in the future, the directors have announced a dividend of 16.0 cents per share compared with the 15.0 cents per share final dividend at 30 June The payout for the dividend, which will be franked at a rate of 30%, is $69 million. Since 30 June 2000, shareholders funds have increased 27% to over $1.7 billion and the Group s capital structure has changed considerably. In August 2000, the Group raised $275 million through an issue of preference shares that will convert to approximately 35.6 million ordinary shares on 18 August In addition, in July 2000, the Group raised $350 million through an issue of subordinated debt in Europe and Australia. The additional funds were designed to strengthen the Group s balance sheet and to help finance the acquisition of Limit. Since 30 June 2000, short-term borrowings (other than subordinated debt) have increased by $250 million, mainly to help finance the acquisition of Limit. We expect that most of these additional borrowings will be repaid by the end of QBE is rated A+ by Standard & Poor s and this rating was affirmed following the announcement of our intention to acquire Limit. The directors continue to carefully monitor the Group s capital requirements, particularly with our strategy of growth by acquisition. The recent acquisitions are expected to enhance profitability and add value for our shareholders. In the absence of an increased frequency of catastrophes or a major fall in stock markets, the directors are confident that the Group will increase profits and dividends in QBE s stock performed well during the period, with the share price increasing 21% since 30 June An investment in QBE shares has grown at an average compound rate of 19% over 10 years and 22% over five years. Market capitalisation at 31 December 2000 was over $4.2 billion. Mr Charles Copeman retired in March 2001 with over nine years of service on QBE s board of directors. On behalf of all my colleagues at QBE, I thank Mr Copeman for his stewardship, wisdom and guidance during an exciting period of growth and change for the Group. We wish him well in his retirement and welcome Mr Len Bleasel to the board. On behalf of my fellow directors, I thank our staff for their hard work and commitment and our shareholders for their loyalty and support. John Cloney Chairman 2 QBE ANNUAL REPORT 2000

5 Highlights Highlights for the six months ended 31 December 2000 Profit and dividend payout Net profit after tax increased 28% to $101 million. The final dividend was 16.0 cents per share, 30% franked. The total dividend payout was $69 million, an increase of 8.4% over the final dividend payout at 30 June Shareholders funds, after provision for the final dividend, increased 27% since 30 June 2000 to $1,709 million, primarily due to the issue of convertible preference shares in August amounting to $275 million. The dividend reinvestment programmes continue at a discount rate of 2.5%. Group operating performance Insurance profit was $98 million, an increase of 69%. Insurance profit as a percentage of net earned premium increased from 5.0% to 5.1%. Gross earned premium increased 80% to $2,519 million and net earned premium was up 68% to $1,924 million. Growth came mainly from the acquisitions of Iron Trades and Limit in the UK. The combined operating ratio (COR) increased from 102.7% to 102.9%, reflecting upgrades of prior year claims reserves mitigated by the benefit of the Group s extensive reinsurance protections. Investment income increased 36% to $185 million due to higher invested funds, following the acquisitions of Iron Trades and Limit, and higher interest rates. Income tax expense was 19.4% of pre tax profit, down from 23.1% last year, reflecting the reduction in Australian income tax rates and higher profits in low tax paying countries. Cash flow from operations increased from $116 million to $136 million. Limit added a further $1.2 billion to the investment portfolio (net of borrowings). Solvency based on the market value of net tangible assets was 40.0%, compared with 46.9% at 30 June Divisional operating performance Australian general insurance produced an excellent result with a COR of 101.3% (101.7% last year). Net earned premium decreased by 1% to $485 million due to the cancellation of unprofitable business and a reduction in NSW compulsory third party (CTP) premium rates. Asia-Pacific general insurance experienced difficult market conditions with the COR increasing from 101.7% to 102.0%. Gross earned premium increased 18% to $189 million. the Americas recorded a COR of 101.0% compared with 102.6% last year. Deterioration of prior year claims reserves was offset by the impact of the Group s reinsurance protections. Gross earned premium grew by 48% to $203 million. European companies reported gross earned premium of $1,133 million, an increase of 135%, reflecting the acquisitions of Iron Trades and Ador Makedonija. The COR increased from 104.6% to 105.0%, primarily as a result of significant upgrades to prior year claims reserves. The result benefited from the Group s reinsurance protections. The new Lloyd s division incorporates Limit and the previous QBE Lloyd s operations. Limit was acquired in August 2000 for $1.0 billion. Lloyd s division reported a COR of 100.6% compared with 103.5% last year. Gross earned premium grew 449% to $434 million, reflecting the consolidation of Limit from 17 August Shareholders highlights SIX MONTHS TO SIX MONTHS TO 31 DEC DEC 1999 Net profit after tax $m Basic earnings per share cents Diluted earnings per share cents Dividend payout $m Dividend per share cents Net tangible assets per share $ Total investments at net market value $m 6,986 5,123 Total assets $m 14,283 9,017 Return on average shareholders funds % Shareholders funds at net market value $m 1,709 1,135 Borrowings to shareholders funds % QBE ANNUAL REPORT

6 Worldwide operations Business Performance Australian general insurance general insurance with operations throughout Australia including Group head office in Sydney provides all major lines of insurance cover for personal and commercial risks staff numbers 1,121 (1,086 at 30 June 2000) gross written premium $546 million, down 5% gross earned premium $560 million, up 3% net earned premium $485 million, down 1% combined operating ratio 101.3% (101.7% in 1999) Asia-Pacific general insurance general insurance business in the Asia-Pacific region operations in 18 countries with head office in Sydney provides personal and commercial insurance cover, including professional liability and trade credit staff numbers 1,043 (1,045 at 30 June 2000) gross written premium $199 million, up 27% gross earned premium $189 million, up 18% net earned premium $149 million, up 12% combined operating ratio 102.0% (101.7% in 1999) the Americas based in New York servicing the US, Canada, Latin America and Caribbean with representative offices in Hartford, Panama, Mexico and Peru reinsurance and general insurance business staff numbers 90 (78 at 30 June 2000) gross written premium $248 million, up 82% gross earned premium $203 million, up 48% net earned premium $160 million, up 29% combined operating ratio 101.0% (102.6% in 1999) European companies Lloyd s division diversified general insurance and reinsurance business with head office in London underwriting and client service operations in London, Dublin, Paris and six countries in Central and Eastern Europe and representative offices in Hamburg, Milan and Johannesburg. underwriting and technical management for the Group s reinsurance operations in Australia and Asia-Pacific staff numbers 2,577 (2,718 at 30 June 2000) diversified general insurance and reinsurance business in the Lloyd s market managing agents for seven syndicates representing approximately 8% of the Lloyd s market staff numbers 341 (56 at 30 June 2000) gross written premium $872 million, up 92% gross earned premium $1,133 million, up 135% net earned premium $874 million, up 169% combined operating ratio 105.0% (104.6% in 1999) gross written premium $331 million, up 434% gross earned premium $434 million, up 449% net earned premium $256 million, up 256% combined operating ratio 100.6% (103.5% in 1999) Investments investment management of the Group s funds funds are predominantly managed internally staff numbers 29 (26 at 30 June 2000) investment income up 36% to $185 million investment income before realised and unrealised gains on investments up 53% to $135 million net realised and unrealised gains on fixed income securities of $39 million net realised and unrealised gains on equities and properties of $11 million 4 QBE ANNUAL REPORT 2000

7 Worldwide operations Major events Achievements Outlook & objectives CTP premium rates in NSW decreased by 20% under new scheme guidelines reform of insurance industry regulation continued industry rationalisation continued finalised rationalisation of operations within the QBE Mercantile Mutual joint venture successfully managed major changes to the CTP schemes in NSW and Queensland continued to achieve premium rate increases across most portfolios finalised e-business plans for each of the business units pursue portfolio and company acquisitions that add value for shareholders achieve cost savings from the QBE Mercantile Mutual joint venture implement e-business plans to improve efficiencies and reduce expense ratios focus on expense control civil unrest continued in the Solomon Islands floods caused significant damage in Thailand merged the two Hong Kong operations completed negotiations for two acquisitions in Singapore significantly reduced the number of poor performing portfolios control expenses to reduce the expense ratio restructure to improve capital efficiency and avoid administrative duplication enhance portfolio management and portfolio segmentation to improve results target acquisitions that add value for shareholders results were impacted by prior year claims upgrades reduced levels of catastrophic activity finalised corporate name change of our reinsurance company to QBE Reinsurance Corporation produced significant premium growth received a rating upgrade from AM Best to A (Excellent) expanded throughout Latin America in conjunction with our joint venture partner Reaseguradora del Istmo SA enhanced management team and strengthened underwriting controls use our rating upgrade and name change to enhance the QBE brand image in the US market pursue profitable acquisitions in the US and Latin America that will add value for our shareholders complete integration and development of business management systems reduce the expense ratio high frequency of large risk losses impacted results completed integration of Iron Trades in the UK substantial upgrade of claims reserves from prior years commenced rationalisation of our businesses in Central and Eastern Europe restructured Iron Trades portfolio to focus on core business implemented enhanced control and monitoring framework to improve portfolio management introduced comprehensive business plans for each class of business build on premium rate increases for 2001 renewals to take advantage of the hardening market continue implementation of underwriting and management information systems restructure the UK business operations to achieve more efficient use of capital reduce expense ratio implement agreed business plans for improvement in various portfolios acquisition of Limit for $1 billion merger of existing QBE Lloyd s operations with those of Limit to form the new Lloyd s division relocated QBE s Lloyd s staff into Limit s premises acquired over $350 million of additional capacity on Limit s syndicates for the 2001 underwriting year replaced underwriting teams lost due to the uncertainties prevailing at Limit prior to the acquisition sold motor syndicates correct or cancel consistently unprofitable business take advantage of improved market conditions improve the expense ratio implement new incentive scheme arrangements address syndicate structure issues to optimise operating structure and capital utilisation continued volatility, especially in fixed income markets a marked slowdown in US economic growth leading to lower interest rates acquisition of Limit increased the Group s investment portfolio international diversification of the Group s equity portfolio successfully divested most of the illiquid holdings including non-operational property reduced volatility in Group investment income restructured the investment team streamlined the Group s investment portfolios outperform investment benchmarks complete the repositioning of the Group s investment portfolio broaden experience and expertise of investments staff upgrade and refine systems support for investment operations control costs QBE ANNUAL REPORT

8 Senior management team Senior management team Frank O Halloran Group managing director and chief executive officer Steven Burns Managing director, Lloyd s division Neil Drabsch Chief financial officer and company secretary Paul Glen Deputy general manager, European companies Raymond Jones General manager, Australia Tim Kenny President, the Americas 6 QBE ANNUAL REPORT 2000

9 Senior management team Vince McLenaghan General manager, Asia-Pacific Greg O Neill Group manager, corporate risks Duncan Ramsay Group general counsel Peter Smith Group manager, personnel Gayle Tollifson Group financial controller Mark ten Hove Group investment manager QBE ANNUAL REPORT

10 1991 WORLD US and Allies at war with Iraq France agrees to sign 1968 treaty banning spread of atomic weapons QBE 1991 Windstorm causes damage on Sydney s north shore QBE appoints Charles Curran to board of directors A decade of change following the unwinding of the cross shareholdings with Burns Philp Ten year history SIX MONTHS ENDED 31 DECEMBER Gross written premium $m 2,196 1,384 1, Gross earned premium $m 2,519 1,403 1,245 1, Net earned premium $m 1,924 1,144 1, Claims ratio % Commission ratio % Expense ratio % Combined operating ratio % Investment income before movement in unrealised gains $m after movement in unrealised gains $m Insurance profit $m Insurance profit/net earned premium % Operating profit before tax $m after tax and outside equity interest $m Number of shares on issue millions Shareholders funds $m 1,709 1,135 1, Total assets $m* 14,283 9,017 6,051 5,112 4,124 3,137 2,702 2,755 2,267 1,859 Basic earnings per share cents Diluted earnings per share cents Return on average shareholders funds %** Dividend per share cents Dividend payout $m * adjusted to exclude New South Wales workers compensation managed fund ** 2000 includes convertible preference shares 8 QBE ANNUAL REPORT 2000

11 South Africa repeals apartheid laws Boris Yeltsin inaugurated as first freely elected President of Russian Republic Bush-Gorbachev summit negotiates strategic arms reduction treaty Fires cause destruction in Oakland, California QBE appoints Charles Copeman to board of directors Net earned premium Gross earned premium $m Shareholders funds $m Dividend payout $m QBE event 1991 QBE unwinds its cross shareholdings with Burns Philp World event 1991

12 1992 WORLD A text-based Web browser is made available to the public. Within a few years, millions of people become regular users of the World Wide Web Yugoslav Federation broken up US lifts trade sanctions against China QBE 1992 QBE appoints John Phillips to board of directors New general insurance accounting standard AASB 1023 has detrimental impact on Australian insurers Managing director s report Frank O Halloran Group managing director and chief executive officer I am pleased to report another six months of achievement in the growth and profitability of the QBE Group. A number of acquisitions and new initiatives over the past 18 months have assisted growth and profitability and enabled us to put in place a strong base to achieve the Group s targets for at least the next two years. During the six months, we achieved a number of objectives. In particular, we: completed the acquisition of Limit and the integration into Limit of our existing Lloyd s business; completed the integration of Iron Trades, the specialist UK employer s liability insurer, and closed down the unprofitable retail business; achieved substantial premium rate increases for most of our operations; introduced comprehensive business plans and parameters for writing business in the Americas and Europe; cancelled a number of consistently unprofitable accounts, particularly in the Americas and Europe; achieved a substantial improvement in underwriting results from our Australian joint venture with Mercantile Mutual; merged our two operations in Hong Kong to achieve economies of scale; strengthened the Group s balance sheet with the issue of subordinated debt and convertible preference shares to complete the Limit acquisition and support future growth; introduced new profit share and long-term incentive plans linked to individual and team performance; and purchased additional capacity at Lloyd s to increase QBE s participation in the results of our managed syndicates to 72% for the 2001 underwriting year, up from 55% in One of the main contributors to QBE s success over the years has been its strong culture focused on the creation of additional wealth for our shareholders. The QBE culture is based on disciplined policies and risk management practices, supported by the QBE manager programme. We have a very low turnover of managers and we consider this to be extremely important for our shareholders, as QBE s intellectual capital is critical to its success. Our managers understand the key profit drivers, the need to review management information and the need to react quickly to adjust the business, where necessary, to improve results. We have a strong team of actuarial staff who assist underwriters to price business and identify trends in portfolios. Our policy of growth by acquisition has been successful. We are in a period of consolidation in Europe to maximise the benefits from our recent acquisitions. However, we continue to consider acquisitions in other parts of the world. These are most likely to be add-ons to existing businesses to achieve synergies and further diversification. Insurance profitability The substantial improvement in insurance profitability was mainly due to the acquisitions of Limit and Iron Trades, actions taken on a number of unprofitable portfolios and a lower level of Key ratios Group SIX MONTHS TO SIX MONTHS TO 31 DEC DEC 1999 Gross written premium $m 2,196 1,384 Gross earned premium $m 2,519 1,403 Net earned premium $m 1,924 1,144 Claims ratio % Commission ratio % Expense ratio % Combined operating ratio % QBE ANNUAL REPORT 2000

13 Rioting erupts in South-Central Los Angeles following the acquittal of four police officers accused of beating Rodney King Last Western hostages freed in Lebanon US forces leave Philippines, ending nearly a century of American military presence Hurricane Iniki strikes the US QBE appoints Nick Greiner to board of directors Contributions by region for the six months to 31 December GROSS WRITTEN NET EARNED NET PROFIT COMBINED NET ASSETS PREMIUM PREMIUM AFTER TAX OPERATING RATIO $m $m $m $m $m $m $m $m % % Australia Asia-Pacific the Americas European companies Europe Australasian reinsurance (2) European companies Lloyd s division Group 1,709 1,135 2,196 1,384 1,924 1, General insurance 1, , , Inward reinsurance Group 1,709 1,135 2,196 1,384 1,924 1, Geographic mix gross earned premium QBE event 1992 QBE acquires Australian Eagle Insurance for $130 million catastrophes. Underwriting results were adversely affected by a deterioration in prior year claims reserves in Europe and the Americas. The Group s combined operating ratio was 102.9%, compared with 102.7% for the same period last year. World event 1992 Insurance profit, represented by the underwriting result plus investment income on policyholders funds, increased by 69% to $98 million. Insurance profit as a percentage of net earned premium was 5.1%, compared with 5.0% for the same period last year. Insurance profit was assisted by the Iron Trades and Limit acquisitions which increased the period for which we hold our premiums. Most importantly for our shareholders, pre-tax insurance profit as a percentage of our shareholders funds increased to 12.8% from 10.4%. This reflects both the improvement in insurance profit and better management of capital resources.

14 1993 WORLD Large bomb explodes in car park of World Trade Centre USA Midwest flood damage exceeds $10 billion QBE 1993 Cyclones cause extensive damage in Fiji and Vanuatu QBE s market capitalisation reaches $1 billion Managing director s report continued A summary of our key profit drivers over the past 10 years is set out in the table on page 8 and, as the chairman noted in his report, calendar year comparative information starts on page 64. Gross earned premium increased 80% to $2,519 million, while net earned premium was up 68% to $1,924 million. The strong premium growth was due mainly to our acquisitions. Gross earned premium from non-australian sources increased substantially, with 77% of gross earned premium now derived from our international businesses. Reinsurance business comprised 29% of the Group s total gross written premium, compared with 34% for the same period last year. The Group s reinsurance costs as a percentage of gross written premium increased following the purchase of additional reinsurance protections and higher costs for reinsurance. All reinsurers are approved by the Group s security committee. A summary of the results for the five operating divisions is set out on page 11 and commentary on the performance of each division starts on page 14. Cash flow Cash flow from operations increased by 17% to $136 million compared with the same period last year. In addition, we added $1.9 billion to the investment portfolio as a result of the Limit acquisition. Cash flow from operations and acquisitions has been considerable in the past five years, with almost $5 billion added to the investment portfolio. Investment income Investment income increased from $136 million to $185 million, reflecting a larger investment portfolio following the acquisitions of Iron Trades and Limit and higher interest rates. Increased volatility in equity markets and the reweighting of our equity investments have resulted in a reduction in the size of our equity portfolio to 30% of total shareholders funds and liabilities payable beyond four years. Our focus continues to be on stock selection and value. Substantial progress continues to be made in reducing the risk profile of our equities. Commentary on our investment performance starts on page 24. Going forward We will continue our successful strategy of growing net earned premium and profit by at least 15% per annum, with growth mainly from acquisitions. Growth targets will be substantially exceeded in the next two years as a result of the recent acquisitions, additional capacity purchased at Lloyd s and expected premium rate increases. We continue to place increased emphasis on product portfolio management and profitability. QBE s increasing ownership of syndicates managed by Limit (72% in 2001) is expected to provide an additional $350 million in investment funds per annum for the next four years. We expect a considerable increase in insurance profit from improved market conditions and the actions taken on a number of portfolios. Growth in net earned premium is expected to be greater than growth in expenses. Savings in 2001 are expected from the QBE Mercantile Mutual joint venture, the Hong Kong merger and the integration of our Lloyd s businesses. We expect improved investment income on a lower risk portfolio and increased investment funds. Lower interest yields will negate some of these gains. Worldwide portfolio mix gross earned premium 12 QBE ANNUAL REPORT 2000

15 Iraq accepts UN weapons monitoring Sydney announced as host of Olympics 2000 QBE announces one for two bonus issue QBE s gross written premium exceeds $1 billion Group financial highlights SIX MONTHS TO 31 DECEMBER % % % % % Premium growth gross written net earned Reinsurance ceded to gross written premium Net written premium to gross written premium Insurance profit to net earned premium Insurance profit to shareholders funds* Solvency ratio at market value * average shareholders funds at net market value We expect the tax rate in 2001 to increase to around 23%. We will continue to promote the QBE manager programme and a specialised portfolio management programme introduced by our European companies division. Summary Our acquisitions and the changes made to our operations in the past 18 months have already started to have a positive impact on the profitability of our insurance business. The full benefits will be seen in 2001 and 2002, subject of course, to a normal frequency of catastrophes and no major fall in stock markets or interest rates. The QBE team of over 5,000 staff has worked extremely hard to put QBE in the strong position it is in today. In 2001, the Group will reap the benefits of the many initiatives put in place. I appreciate the enormous support from my fellow employees and I look forward to working with them to further increase the wealth of our shareholders in the next 12 months. Frank O Halloran Group managing director and chief executive officer QBE event 1993 QBE acquires American Royal Reinsurance for $82 million World event 1993

16 1994 WORLD Major earthquake jolts Los Angeles The channel tunnel connects England with Europe QBE 1994 Bushfires rage across NSW, Sydney is encircled by fire QBE announces one for five bonus issue Sydney Australian general insurance Our Australian general insurance operations have again produced an extremely good result underpinned by premium rate increases in most classes and an absence of major catastrophe losses. The combined operating ratio was an excellent result of 101.3%, compared with 101.7% for the same period last year. Management s action over the past 18 months to cancel consistently unprofitable business and to improve efficiency has been rewarded with one of the best underwriting results we have ever achieved. The result in Australia has benefited from a number of initiatives and achievements during the six months, including: a substantial reduction in underwriting losses from the joint venture with Mercantile Mutual; a focus on product management, particularly workers compensation, CTP, professional liability, trade credit and travel; a substantial improvement in profit from our direct underwriting subsidiary, Western QBE; a strong management focus on the key profit drivers with rewards for performances that increase shareholders wealth; and continued implementation of a one system IT solution for our general insurance business. Gross earned premium growth was modest, increasing 3% to $560 million. Net earned premium decreased by 1% to $485 million. The lower premium growth reflects management s action in cancelling consistently unprofitable business and lower premium rates for NSW CTP business, offset by higher premium rates for most other classes of business. Our retention ratio remains high. The lower frequency and severity of insured losses has benefited the claims ratio, which decreased to 73.0% from 76.4% for the same period last year. The cost of reinsurance was up slightly, consistent with the general increase in premium rates, although the Group s buying power for quality reinsurance covers continues to prove economical. The QBE Mercantile Mutual joint venture has completed its integration programme and is on track to achieve its business objectives and cost savings in Business innovations are being introduced to improve service and efficiency. The expense ratio for the six months was 15.1%, up from 14.2% in A number of non-recurring expenses, relating to redundancy and integration costs for the joint venture and the migration to one system, affected the expense ratio. Key ratios Australian general insurance SIX MONTHS TO SIX MONTHS TO 31 DEC DEC 1999 Gross written premium $m Gross earned premium $m Net earned premium $m Claims ratio % Commission ratio % Expense ratio % Combined operating ratio % QBE ANNUAL REPORT 2000

17 South Africa holds first interracial national election, Nelson Mandela elected President Genocide in Rwanda Volcanic eruption devastates Rabaul, PNG QBE s annual dividend payout exceeds $50 million for the first time We have now experienced a full year s impact of the changes introduced to the NSW CTP scheme in October 1999 and have achieved a satisfactory return on the lower premium rates. In Queensland, a new competitive CTP scheme was introduced in October 2000, resulting in a reduction in premium, although our market share remains at approximately 6%. Our professional liability division completed a thorough portfolio analysis and was successful in cancelling consistently unprofitable business and achieving substantial rate increases where needed. The division produced a satisfactory return on equity and is poised to continue to do so in Our wholly owned subsidiaries, Western QBE, QBE Trade Indemnity and Transport Industries Insurance, all continued to perform well during the year, meeting the Group s return on equity targets. Growth in premium has been difficult to achieve in each of these subsidiaries. However, they have maintained market share and achieved rate increases wherever possible. Our decisions to apply specific product focus to our businesses and to enter into the joint venture with Mercantile Mutual have placed us in a strong position in the Australian market. Australian general insurance portfolio mix gross earned premium QBE event 1994 Our objectives for 2001 are: controlled profitable growth through expanded share of selected markets and the acquisition of new portfolios and companies that add value to shareholders; implementation of e-business initiatives designed to enhance customer and intermediary relationships and reduce costs by eliminating unnecessary paper and processes; achievement of cost savings from the joint venture with Mercantile Mutual; continued focus on expense control across all business units; and continued efficiency improvements from our computer systems. We thank all our staff in Australia who have performed extremely well in a challenging environment. Raymond Jones General manager, Australia Earthquake in Northridge, California causes widespread damage World event 1994

18 1995 WORLD Huge truck bomb blows up Oklahoma City federal building Fighting escalates in Bosnia and Croatia QBE 1995 QBE Europe relocates to Dublin and is licensed to operate in the International Financial Services Centre Hurricanes Luis and Marilyn cause severe damage Hong Kong Asia-Pacific general insurance QBE maintains a strong presence throughout the Asia-Pacific region, with a number of our 19 businesses in 18 countries operating for over 100 years. Asia has historically shown a capacity for substantial economic growth and profitability. However, the economic difficulties of some countries in the region are still having an impact on our growth. Acquisitions in the Pacific and other initiatives have enabled us to achieve modest growth and improved profits, despite some pockets of instability. Premium growth was the highest it has been for three years, benefiting from the development of specialist lines of business and acquisitions in Japan, Fiji and Papua New Guinea (PNG). Gross earned premium was up 18% to $189 million, while net earned premium increased 12% to $149 million. The underwriting result was satisfactory given market conditions. The combined operating ratio increased to 102.0% from 101.7% for the same period last year. The loss ratio improved to 53.6% from 55.0% for the same period last year. Management efforts to improve poor performing portfolios was offset to some extent by a continuation of frequency losses and an upgrade of prior year claims reserves in Hong Kong and the Solomon Islands. Corrective actions are being taken. The costs associated with start-up operations in the Philippines and Vietnam, the acquisitions in Japan and an increase in the provision for doubtful debts had an adverse impact on expenses. The expense ratio increased to 25.0% from 21.7% for the same period last year. Fiji, French Polynesia, Guam, New Caledonia, New Zealand, PNG, Singapore and Vanuatu, all produced underwriting profits. Personal injury claims, motor theft and workers compensation reserve upgrades produced losses for our operations in Malaysia and Hong Kong. The result for Thailand was adversely affected by floods in December. Key ratios Asia-Pacific general insurance SIX MONTHS TO SIX MONTHS TO 31 DEC DEC 1999 Gross written premium $m Gross earned premium $m Net earned premium $m Claims ratio % Commission ratio % Expense ratio % Combined operating ratio % QBE ANNUAL REPORT 2000

19 France explodes nuclear device in Pacific Israelis and Palestinians agree on transferring West Bank to Arabs Quebec narrowly rejects independence from Canada QBE experiences major property claims from riots and fires in French Polynesia QBE s net earned premium exceeds $1 billion The following key objectives were achieved during the six months: completed negotiations for two acquisitions in Singapore; completed negotiations with our joint venture partner in Hong Kong to merge our two operations. This consolidation will improve our capital efficiency and achieve substantial synergies that will assist in lowering the expense ratio; implemented a more responsive organisational structure that will help us to achieve our operational management and business development goals; improved the profitability of a number of poor performing portfolios; commenced implementation of our systems consolidation plan to physically relocate systems to our Sydney data centre and use common hardware and software platforms; finalised our strategy to enhance QBE s brand image in Asia; and developed new and upgraded specialist products to be launched from February Asia-Pacific general insurance portfolio mix gross earned premium Our objectives for 2001 include: implementing further initiatives to improve capital efficiency and costs of systems; continuing to correct or cancel consistently unprofitable business; reducing the expense ratio; implementing our strategy to enhance QBE s brand image in Asia; working with our newly acquired Lloyd s businesses to investigate business development opportunities; successfully converting targeted acquisitions which meet the Group s criteria; and continuing to introduce new products targeted at profitable market segments. It has been another difficult period for our Asia-Pacific operations. I thank our staff, intermediaries and customers for their loyalty and support. Special thanks and recognition go to our colleagues in regions where political and civil unrest have created less than favourable conditions for business and family lives. QBE event 1995 Launch of the QBE manager programme to promote the QBE culture and enhance the level of leadership and business acumen World event 1995 Vince McLenaghan General manager, Asia-Pacific

20 1996 WORLD Scores killed in Sri Lankan suicide bombing Britain alarmed by deadly cow disease QBE 1996 QBE establishes professional liability division in Australia QBE acquires Allstate Reinsurance Company Limited for $65 million New York the Americas The New York based American operations write both reinsurance and general insurance business in most US states and various countries in the Caribbean and Latin America. The team in the Americas currently underwrites business in 26 countries and five territories. The combined operating ratio was 101.0%, comparing favourably with 102.6% for the same period last year. Difficult market conditions, including excess capacity and inadequate premium rates, and the need to upgrade prior year claims reserves, particularly for casualty facultative business, caused considerable strain on the underwriting result. This was mitigated by the benefit of QBE s extensive worldwide reinsurance arrangements. Management concentrated on enhancing underwriting controls, strengthening management and underwriting teams and re-underwriting its portfolios, including cancelling consistently unprofitable business. These actions, together with premium rate increases for most classes of business, give us confidence for the future. Gross earned premium was up 48% to $203 million and net earned premium increased by 29% to $160 million. The increase came mainly from general insurance, following the renewal of business previously underwritten by a team hired in The business relationship established in 1999 with Panamanian reinsurer, Reaseguradora del Istmo, is also starting to contribute to growth. This partnership has laid the foundations for expansion in Latin America. Key ratios the Americas GENERAL INSURANCE INWARD REINSURANCE TOTAL SIX MONTHS TO SIX MONTHS TO SIX MONTHS TO SIX MONTHS TO SIX MONTHS TO SIX MONTHS TO 31 DEC DEC DEC DEC DEC DEC 1999 Gross written premium $m Gross earned premium $m Net earned premium $m Claims ratio % Commission ratio % Expense ratio % Combined operating ratio % QBE ANNUAL REPORT 2000

21 China agrees to world ban on atomic testing TWA 747 airliner crashes in Atlantic off Long Island Bomb mars summer Olympic Games in Atlanta QBE announces one for four bonus issue QBE s calendar year COR is lowest for a decade at 99.3% QBE s announces extensive worldwide whole account reinsurance protections The claims ratio decreased to 68.1% from 73.1%. The improvement resulted from a reduction in the frequency of large claims and catastrophes and effective reinsurance protections. The commission ratio increased from 23.4% to 26.7% due to the growth in general insurance business. The expense ratio remains low at 6.2%. QBE Reinsurance Corporation (QBE Re) writes selected lines of reinsurance business. The company is licensed, approved and accredited to transact business in 49 states and the District of Columbia. The name of the company was changed from Sydney Reinsurance Corporation as part of an ongoing strategic plan to market QBE Re worldwide. QBE Re s name will complement ongoing marketing and branding efforts in the Americas. All primary insurance business is written through QBE Insurance Corporation (QIC), which is currently licensed in 43 states and the District of Columbia. Product concentration centres on small commercial property and casualty business, complemented by commercial automobile and non-standard personal automobile lines. Specialised producer programmes complete the balance of the product mix. the Americas portfolio mix gross earned premium Gross written premium for QIC was $107 million, an increase of 494% over the same period last year. Business is generated through agents with proven track records. QIC currently has 15 insurance programmes written through 12 different agencies. The key objectives for the Americas in 2001 are to: use the recent AM Best rating upgrade and QBE brand to increase QBE s presence in the Americas; pursue acquisitions that will add shareholder value; finalise the comprehensive corporate risk management team; complete the integration and development of business management systems; continue our strategy of controlled profitable growth with strict underwriting disciplines; and obtain premium rate increases for selected portfolios. The QBE team in the Americas is well positioned to capitalise on future market opportunities and the focus is on increasing profits for our shareholders. I extend a personal thank you to the Americas team for their hard work and dedication during the past six months. Tim Kenny President, the Americas QBE event 1996 QBE enters the Lloyd s market by providing capital to parallel marine syndicates 724/2724 World event 1996

22 1997 WORLD Hale-Bopp comet is the closest it will be to Earth until 4397 Tiger Woods breaks multiple records in Masters golf tournament Hong Kong returns to Chinese rule QBE 1997 QBE acquires 75% of Trade Indemnity Australia Limited for $24 million QBE appoints Belinda Hutchinson to board of directors London European companies QBE s European companies division comprises general insurance and reinsurance businesses in London, Dublin and Paris, reinsurance operations in Sydney and Singapore and insurance companies in six countries in Central and Eastern Europe, four with life licences. The recent acquisitions of the specialist UK employers liability underwriter, Iron Trades, and the general and life insurance companies in Slovakia and Macedonia have resulted in significant premium growth for the division. Gross earned premium increased by 135% to $1,133 million and net earned premium grew 169% to $874 million. The lower Australian dollar assisted premium growth. The combined operating ratio deteriorated to 105.0% from 104.6% for the same period last year. Underwriting results continued to be affected by upgrades on prior year claims reserves, particularly for North American programme business, marine excess of loss, property risk excess of loss, property proportional and the Paris property facultative portfolio. This adverse loss experience was mitigated by our extensive worldwide reinsurance protections and vigorous management action on problem portfolios. This management action, including a detailed review of all underwriting portfolios in the second half of 2000, has resulted in the establishment of comprehensive business plans and controls to derive maximum benefit from the upturn in market conditions now being experienced. Key ratios European companies GENERAL INSURANCE INWARD REINSURANCE TOTAL SIX MONTHS TO SIX MONTHS TO SIX MONTHS TO SIX MONTHS TO SIX MONTHS TO SIX MONTHS TO 31 DEC DEC DEC DEC DEC DEC 1999 Gross written premium $m Gross earned premium $m , Net earned premium $m Claims ratio % Commission ratio % Expense ratio % Combined operating ratio % QBE ANNUAL REPORT 2000

23 US spacecraft transmits thousands of pictures from Mars Mother Teresa dead at 87 QBE announces one for four bonus issue QBE s total assets exceed $5 billion The change in mix of business, principally due to the Iron Trades acquisition, and lower reinsurance costs have reduced the commission ratio from 28.4% to 16.7%. Expenses increased as expected in line with growth. The expense ratio decreased to 10.9% from 13.9% for the same period last year, primarily due to the lower expense structure of Iron Trades. Costs relating to the integration of Iron Trades and operations in Central and Eastern Europe are included in the results. Expenses for the upgrade of core underwriting systems for London, Dublin and Paris, which commenced in late 1999, have been written off. There has been a significant change in the management structure of the European companies division. The London head office team is now primarily focused on risk management, controls and improvements in efficiencies. Separate divisions with self-sufficient support structures are being established for our Western European reinsurance, general insurance and financial risks businesses and our Central and Eastern European businesses. European companies portfolio mix gross earned premium Our objectives for 2001 are to: build on the significant premium rate increases on the 2001 renewals to take full advantage of the hardening market; continue to develop our underwriting and management information systems in our key western European operations; restructure the operations to allow more efficient use of capital and administrative resources; reduce expense ratios and unnecessary indirect costs of doing business; and continue to implement comprehensive monitoring procedures and controls, segmentation and financial modelling for each portfolio. The high level of acquisition activity, coupled with less than satisfactory results for some portfolios, has placed significant demands upon our team. I thank all staff for their dedication and their commitment to improving profitability for our shareholders going forward. Paul Glen Deputy general manager QBE event 1997 QBE s market capitalisation exceeds $2 billion World event 1997

24 1998 WORLD Indonesian dictator Suharto steps down after 32 years in power India conducts three atomic tests, despite worldwide disapproval. Pakistan stages five nuclear tests in response to India s QBE 1998 QBE acquires Atlasz Biztosito Rt in Hungary for $16 million QBE s board approves new investment strategy Lloyd s Lloyd s division The acquisition of Limit has given QBE the management of over 8% of Lloyd s capacity for the 2001 underwriting year. This strategic acquisition, completed in August 2000, has been fully integrated with the following objectives achieved: integration of the existing QBE Lloyd s agency and syndicates into Limit; replacement of underwriting teams lost due to the uncertainties prevailing at Limit pre-acquisition; integration of Limit s management, reporting and financial controls into the QBE model; sale of Limit s motor syndicates; and increased QBE s ownership of Limit s managed syndicates through the Lloyd s auction system. Underwriting results for the Lloyd s division include Limit from 17 August Net earned premium increased by 256% to $256 million. The combined operating ratio was 100.6% compared with 103.5% for the same period last year. The claims ratio improved from 61.0% to 56.5%, benefiting from extensive reinsurance protections. The reduction in the commission ratio from 29.8% to 28.9% reflects the difference in the mix of Limit s business compared with QBE s existing syndicates.the increase in the expense ratio from 12.7% to 15.2% was due to the post-acquisition and integration costs associated with Limit. Substantial premium rate increases have been achieved during the key January 2001 renewal season. In addition, we have restructured poor performing portfolios and cancelled consistently unprofitable business. These two factors are expected to have a positive impact on profitability for the 2001 underwriting year. Key ratios Lloyd s division GENERAL INSURANCE INWARD REINSURANCE TOTAL SIX MONTHS TO SIX MONTHS TO SIX MONTHS TO SIX MONTHS TO SIX MONTHS TO SIX MONTHS TO 31 DEC DEC DEC DEC DEC DEC 1999 Gross written premium $m Gross earned premium $m Net earned premium $m Claims ratio % Commission ratio % Expense ratio % Combined operating ratio % QBE ANNUAL REPORT 2000

25 US embassies in Kenya and Tanzania bombed More than 10,000 die in Central American hurricane, Mitch Hurricane Georges causes massive damage in the Caribbean and US QBE s shareholders funds exceed $1 billion Limit s ownership of syndicates with a significant liability component means that the period we hold our premiums is higher for the Lloyd s division than for many of the Group s other portfolios. The increase in QBE s share of Limit-managed syndicates from 55% to 72% in 2001 is expected to enhance insurance profit and generate gross written premium of around $1.8 billion in Details by syndicate are provided in the table below. Our key objectives for 2001 are to: correct or cancel consistently unprofitable classes of business; maximise benefits from improved market conditions; deliver synergies and savings to improve the expense ratio; implement the new incentive scheme arrangements; optimise syndicate operating structure and capital utilisation; and respond and adapt to expected regulatory changes. We are very grateful to our team for their dedication and commitment during a period of significant change. A great deal has already been achieved and the early signs of an upturn in the insurance cycle give us encouragement for a substantial improvement in profit. Steven Burns Managing director, Lloyd s division Lloyd s division portfolio mix gross earned premium QBE event estimated gross written premium ESTIMATED QBE SHARE OF PRINCIPAL PREMIUM TYPE OF SYNDICATE UNDERWRITER $m BUSINESS 79/2999 Stephen Gargrave 386 Direct marine and energy 79/2999 Mark Harrington 379 Non-marine liability and property 566 John Daly 344 Non-marine and aviation reinsurance 318 Michael Pritchard 193 Direct property and aviation 386 Bob Wallace 189 Non-marine liability (ex-usa) 1036 Neil Copping 102 Direct marine and energy 456 Peter Battle 63 Non-marine liability 1,656 Frank O Halloran succeeds John Cloney as QBE s managing director and CEO World event 1998

26 1999 WORLD First nonstop balloon flight around world completed in 20 days Melissa computer virus spreads through the Internet QBE 1999 Hailstorm devastates eastern suburbs of Sydney QBE recruits a specialist US underwriting team to write direct insurance business through managing general agents London Stock Exchange Investments Funds under management have grown considerably during the six months, increasing 45% to $7.0 billion. The acquisition of Limit added substantially to offshore funds, with over 78% of our investments now in overseas markets. Investment income was $185 million, up 36% on the same period last year. Net realised and unrealised gains on investments were $50 million, compared with $48 million for the same period last year. The Limit acquisition provided additional investment funds of $1.9 billion, including an equities portfolio of $1.0 billion. The equities, which were protected by a collar at the time of acquisition, were sold soon after settlement. The net gain realised on the transaction was $18 million. The market value investment yield was 6.3% compared to 6.6% for the previous corresponding period. The investment results were achieved under challenging circumstances. Worldwide, equity markets reached a high at the end of March 2000, consolidated until September and then corrected, in some cases quite sharply. Of the markets in which the Group actively invests, the Australian equities market proved the most resilient. The ASX All Ordinaries Index continued to hover between 3150 and On the fixed income side, yields on government paper in the US, UK, Europe and Australia peaked in the first half of Especially in the US and, to a lesser degree in Australia, corporate spreads increased significantly, reflecting margin pressure and a slowdown in earnings growth. Foreign currency markets were volatile, with the Australian dollar generally lower against the major currencies. One of our main objectives for 2000 was to reposition the Group s investment portfolio by further reducing our exposure to Australian equities while increasing exposure to US, UK and European equities. Major progress has been made and we expect this process to be complete by mid Investment income SIX MONTHS TO SIX MONTHS TO 31 DEC DEC 1999 $m $m Dividends Interest (Loss) profit on share trading (1) 4 Property and other 6 3 Exchange losses (1) (1) Interest expense (36) (9) Other expenses (19) (6) Realised gains on fixed interest securities 1 1 Realised gains on equities and properties Unrealised gains (losses) on fixed interest securities 38 (22) Unrealised (losses) gains on equities and properties (43) 23 Investment income QBE ANNUAL REPORT 2000

27 Catastrophic Tornados hit Oklahoma City USA Serbs sign agreement to pull troops out of Kosovo after 11 weeks of NATO air attacks People of East Timor vote for independence from Indonesia QBE acquires Iron Trades Insurance Company Limited for $447 million QBE experiences the worst year on record for catastrophe losses Exposure to Australian equities has been reduced and US equities in particular are still below benchmark. Overall exposure to equities decreased from 24% of total investments at 30 June 2000 to 14% by the end of The fixed income portfolio was enlarged and geographically diversified. Duration was modified to more accurately reflect the risk profile of the Group s insurance liabilities, especially in the short tail portfolio. A number of non-operational property holdings were sold. Investments 31 DEC JUNE 2000 $m % $m % Equities * , Short-term deposits 2, , Other interest bearing securities 3, , Property , , * unrealised gains represent 4.2% (30 June %) of equities Investments geographic segments The outlook for the coming year, certainly for the first six months, is uncertain. Corporate earnings growth is clearly coming down and expectations are for central banks to further cut rates to avoid too strong a slowdown in economic activity. Against this backdrop, we remain cautious for the first part of 2001 but expect to see better share markets in the second half of the year. On the fixed income side, yield curves are trending back to a more normalised shape and our fixed income investment policy reflects this trend. Our objectives for 2001 are to: outperform investment benchmarks; complete the repositioning of the Group s investment portfolio; broaden the team s experience and expertise to cover areas of investments that are relatively new to the Group; upgrade and refine systems support for investment operations; and contain costs of the division to an internationally highly competitive percentage of funds under management. The very demanding investment climate, the implementation of new support systems and the personnel changes in the investment department have resulted in a very challenging period for the investment team. We thank the entire team for their tremendous effort. Mark ten Hove Group investment manager QBE event 1999 QBE commences joint venture operation with Mercantile Mutual in Australia to achieve cost savings World event 1999

28 2000 WORLD World enters new century smoothly. Computer experts surprised by smooth transition to year 2000 Biggest merger in history. America Online agrees to buy Time Warner, largest traditional media company, for $165 billion QBE 2000 QBE acquires a majority shareholding in Ador Makedonija for $29 million this is the sixth operation in central and eastern Europe QBE s tracking error on Australian equity portfolio reduced below 5% Shareholders information Annual General Meeting am Thursday, 19 April 2001 The Westin Sydney, 1 Martin Place, Sydney NSW Change of year end As previously advised, QBE s balance date has been changed from 30 June to 31 December. This annual report is for the six months to 31 December To assist shareholders and other readers of QBE s accounts, comparative information is set out on pages 64 to 67 on a calendar year reporting basis. Shares on issue At 31 December 2000, QBE had 21,736 shareholders and a market capitalisation of $4.2 billion. The issued capital was 428,641,744 ordinary shares of which 9,786,620 were shares issued to employees under the QBE Employee Share and Option Plan. Stock exchange listing The ordinary shares of QBE Insurance Group Limited (QBE) are listed on the Australian Stock Exchange. Place of incorporation QBE is incorporated in the Australian Capital Territory. Principal office QBE Insurance Group Limited Level 2, 82 Pitt Street Sydney NSW 2000 Australia Telephone: Facsimile: Registered office c/- Phipson Corporate Services Level 9, Minter Ellison Building 15 London Circuit Canberra ACT 2600 Australia Share registry ASX Perpetual Registrars Limited Level 8, 580 George Street Sydney NSW 2000 Australia Postal address Locked Bag A14 Sydney South NSW 1232 Australia Telephone: Facsimile: Internet: [email protected] Credit rating Standard & Poor s A+ Uncertificated share register QBE s share register is wholly uncertificated. Shareholding statements are issued to you within five business days after the end of any month in which transactions alter the balance of your shareholding. Recent QBE dividends RECORD CENTS PER SHARE DATE PAID TYPE DATE ORIGINAL ADJUSTED FRANKING % final interim final interim final interim final interim final Top twenty shareholders as at 31 January 2001 NUMBER OF % OF NAME OF SHAREHOLDER SHARES TOTAL Chase Manhattan Nominees Limited 94,253, Westpac Custodian Nominees Limited 35,010, National Nominees Limited 34,196, Permanent Trustee Australia Ltd 21,797, MLC Limited 12,677, Queensland Investment Corporation 9,529, Commonwealth Custodial Services Limited 9,415, Citicorp Nominees Pty Limited 6,647, AMP Life Limited 6,493, National Mutual Life Association of Australasia Limited 6,319, NRMA Nominees Pty Limited 6,150, ANZ Nominees Limited 5,647, Cogent Nominees Pty Limited 4,154, Zurich Australia Limited 3,955, Mercantile Mutual Life Insurance Company Limited 3,954, HSBC Custody Nominees (Australia) Limited 3,448, Perpetual Trustees Victoria Limited 2,673, Government Superannuation Office 2,579, National Australia Financial Management Limited 2,526, Victorian WorkCover Authority 2,134, TOTAL 273,565, QBE ANNUAL REPORT 2000

29 Air France Concorde crashes near Paris soon after take off Russian submarine sinks in Barents Sea, 118 dead High fuel prices spark protest in Europe David Burns retires from the board of directors after 37 years with QBE QBE s market capitalisation exceeds $4 billion Dividends The final dividend of 16.0 cents per share will be paid on 12 April 2001, 30% franked. Cash dividends can be paid directly into a bank, building society or credit union account in Australia. Advise the share registrar promptly if you change your bank and/or bank account. The Dividend Reinvestment Plan (DRP) enables you to apply to subscribe for additional shares at a discounted price. The Dividend Election Plan (DEP) is a bonus share plan whereby the dividend entitlement is forgone for bonus shares in lieu of the dividend. Shares issued under the DRP and DEP are issued at a 2.5% discount to a weighted five day average market price. Participants may change their election to participate in the DRP or DEP at any time. Application forms are available from the share registrar. QBE substantial shareholders as at 31 January 2001 NUMBER OF NAME SHARES % OF TOTAL DATE OF NOTICE Permanent Trustee Company Limited 23,074, July 1999 SAS Trustee Corporation 25,277, January 2000 Commonwealth Bank of Australia 33,676, June 2000 National Australia Bank Limited Group 25,007, June 2000 Deutsche Asset Management Limited 42,132, September 2000 The Capital Group Companies Inc 44,971, September 2000 Distribution of shareholders and shareholdings as at 31 January 2001 NUMBER OF NUMBER OF SIZE OF HOLDING SHAREHOLDERS % SHARES % 1 1,000 7, ,236, ,001 5,000 10, ,793, ,001 10,000 1, ,048, , ,000 1, ,688, ,001 or more ,275, TOTAL 21, ,041, QBE communications QBE does not produce a concise financial report. The next annual report will be for the year ending 31 December If you do not wish to receive this report in future, please advise the share registrar in writing. The half yearly results summary will be mailed with the interim dividend in early October. QBE s internet site at provides investors with information about QBE including copies of annual reports, half yearly reports and announcements to the Australian Stock Exchange. Change of address If you are broker sponsored, queries relating to incorrect registrations and changes to name and/or address can only be processed by your broker or brokers. The share registry cannot assist you with these changes. Please quote your Holder Identification Number (HIN). If you are issuer sponsored, queries relating to incorrect registrations and changes to name and/or address can be processed by the share registry. Please quote your Securityholder Reference Number (SRN) and provide details of your old address for security checks. QBE event 2000 QBE acquires Limit plc for $1 billion World event 2000

30 DIRECTORS REPORT for the six months ended 31 December 2000 Your directors present their report on the consolidated entity consisting of QBE Insurance Group Limited and the entities it controlled at the end of or during the period ended 31 December DIRECTORS The following directors held office during the whole of the financial period and up to the date of this report: EJ Cloney (Chairman) BJ Hutchinson CP Curran AO FM O Halloran The Hon NF Greiner AC MJ Phillips AM (Deputy Chairman) JDO Burns retired on 23 August 2000 and AC Copeman AM retired on 8 March LF Bleasel AM was appointed as a director on 17 January RESULTS SIX MONTHS YEAR ENDED ENDED 31 DECEMBER 30 JUNE $m $m Revenue 3,464 4,566 Expenses (3,294) (4,329) Movement in unrealised gains on investments (5) (20) Borrowing costs expense (36) (21) Profit from ordinary activities before income tax Income tax attributable to profit from ordinary activities Before movement in unrealised gains on investments Movement in unrealised gains on investments (2) (8) Income tax attributable to profit from ordinary activities Profit from ordinary activities after income tax Before movement in unrealised gains on investments Movement in unrealised gains on investments (3) (13) Profit from ordinary activities after income tax Net profit attributable to outside equity interests 3 5 Net profit attributable to members of the company Before movement in unrealised gains on investments Movement in unrealised gains on investments (3) (13) Net profit attributable to members of the company Net increase in foreign currency translation reserve 1 6 Total changes in equity other than those resulting from transactions with owners as owners DIVIDENDS The directors are pleased to announce a 30% franked final dividend of 16.0 cents a share for the six month period ended 31 December Dividends in respect of the year ended 30 June 2000 were 29.0 cents per share, of which 15.0 cents was declared and paid subsequent to the end of that year. The dividend payout for the period, including shares issued under the Dividend Election and Reinvestment Plans, will be $69 million. The dividend represents 68.3% of net profit attributable to members of the company compared with 77.6% for the year ended 30 June The Dividend Election and Reinvestment Plans are being reviewed but currently continue at a discount rate of 2.5%. The consolidated franking account balance, after taking into account the final dividend, franked at 30%, will be a deficit of $8 million. It is expected that the apparent deficit will be eliminated by the receipt of franked dividends and payment of Australian income tax in the ordinary course of business. ACTIVITIES The principal activities of the company and its controlled entities during the period were underwriting general insurance and reinsurance risks, management of seven Lloyd s syndicates, management of the consolidated entity s share of the New South Wales workers compensation scheme and investment management. 28 QBE ANNUAL REPORT 2000

31 DIRECTORS REPORT REVIEW OF OPERATIONS Profit after tax for the six months to 31 December 2000 is $101 million, a 28% increase on the previous corresponding period. This is a very satisfactory result, reflecting the impact of initiatives undertaken and acquisitions made over the past 18 months, generally improved market conditions and fewer large losses. Gross earned premium was $2,519 million, an increase of 80% on the previous corresponding period. Significant premium growth was achieved from our acquisitions in the UK, expansion of our general insurance business in the Americas and premium rate increases in most markets. Net earned premium increased 68% to $1,924 million. The consolidated ratio of claims, commissions and expenses to net earned premium (combined operating ratio) was 102.9% compared with 102.4% for the year ended 30 June 2000 and 102.7% for the previous corresponding period. The claims ratio of 70.9% was a slight deterioration on 70.4% for the year ended 30 June 2000 and 68.6% for the previous corresponding period. This increase is due to deterioration in prior year claims reserves in European companies and the Americas offset by recoveries under the Group s extensive reinsurance arrangements. The expense and commission ratio is unchanged at 32%. Australian general insurance produced one of its best results with a combined operating ratio of 101.3%. This pleasing result is in line with the strong performance for the year ended 30 June 2000 of 100.9% and 101.7% for the previous corresponding period. Net earned premium of $485 million was down slightly on the previous corresponding period of $491 million due to the cancellation of consistently unprofitable business and lower rates for NSW compulsory third party business, offset by premium rate increases for other classes of business. The expense ratio was 15.1% compared with 15.3% for the year ended 30 June 2000 and 14.2% for the previous corresponding period. Economies of scale from the commencement of the QBE Mercantile Mutual joint venture have contributed to the improvement in this financial period, with a substantial part of the integration costs occurring in the six months to June Asia-Pacific general insurance produced a combined operating ratio of 102.0%, compared with 100.3% for the year ended 30 June 2000 and 101.7% for the previous corresponding period. Difficult market conditions and a frequency of large losses in some Asian offices offset the benefits of underwriting profits in the Pacific region. Net earned premium increased 12% to $149 million, from $133 million for the previous corresponding period. Acquisitions in the Pacific assisted premium growth, offsetting the underlying reduction in premium due to the cancellation of consistently unprofitable business. The claims ratio of 53.6% is unchanged from the year ended 30 June 2000 and represents an improvement on the previous corresponding period of 55.0% due to management actions taken on unprofitable portfolios. The expense ratio increased to 25.0% from 22.7% for the year ended 30 June 2000 and 21.7% for the previous corresponding period, due to costs relating to the integration of our businesses in Japan and the Philippines. the Americas produced a combined operating ratio of 101.0% compared with 104.2% for the year ended 30 June 2000 and 102.6% for the previous corresponding period claim. An absence of catastrophes and increased levels of reinsurance protection have mitigated the impact of an increase in prior year claims reserves on the casualty facultative portfolio. Net earned premium increased significantly to $160 million, up 29% on the previous corresponding period, due to the continued growth of general insurance business through QBE Insurance Corporation. The claims ratio of 68.1% was an improvement on 73.9% for the year ended 30 June 2000 and 73.1% for the previous corresponding period. The commission ratio increased to 26.7%, up from 24.2% for the year ended 30 June 2000 and 23.4% for the previous corresponding period, reflecting an increase in the proportion of general insurance business written. The expense ratio continued at a relatively low 6.2%. European companies, which now excludes all Lloyd s business, continues to show strong growth, with gross earned premium up 135% to $1,133 million. Premium growth benefited from a full six months of premium for Iron Trades (acquired in December 1999), Macedonia (acquired in March 2000) and other smaller acquisitions. The division achieved a combined operating ratio of 105.0% compared with 103.8% for the year ended 30 June 2000 and 104.6% for the previous corresponding period. The increased underwriting loss was primarily due to the deterioration of prior year claims reserves, partly mitigated by the Group s extensive reinsurance arrangements and corrective actions taken on problem portfolios. The claims ratio increased to 77.4% compared with 71.7% for the year ended 30 June 2000 and 62.3% for the previous corresponding period. The commission ratio decreased to 16.7% from 21.2% for the year ended 30 June 2000 and 28.4% for the previous corresponding period, primarily due to a full six months impact of the lower commission structure of Iron Trades. Expenses increased in line with growth but the expense ratio reduced to 10.9%, again due to the full six months impact of the lower expense ratio of Iron Trades, offset by the write off of systems upgrade costs. Lloyd s division was established in July 2000 and incorporates Limit, acquired in August 2000, with QBE s existing Lloyd s agencies and syndicates. The integration of Limit into QBE is now complete. The results of Limit are included from 17 August Net earned premium grew 256% to $256 million. The combined operating ratio was 100.6% compared with 102.7% for the year ended 30 June 2000 and 103.5% for the previous corresponding period. The change in the commission ratio to 28.9% from 26.0% for the year ended 30 June 2000 and 29.8% for the previous corresponding period is due to the different mix of business in Limit. The expense ratio has increased to 15.2% compared with 12.6% for the year ended 30 June 2000 and 12.7% for the previous corresponding period due to the costs of integrating Limit. Outstanding claims The liability for outstanding claims is determined for the majority of entities after consultation with actuaries. The outstanding claims assessment takes into account the statistical analysis of past claims, allowance for claims incurred but not reported, recoveries, and future interest and inflation factors. As in previous years, the directors consider that substantial prudential margins are required in addition to actuarial central estimates to cover uncertainties such as latency claims, changes in interest rates and superimposed inflation. It is considered that there is a probability in excess of 85% that the provision for outstanding claims will be adequate to settle claims as they become payable in the future. QBE ANNUAL REPORT

32 DIRECTORS REPORT Investment division Investment income increased by 36% to $185 million. This was a good result in a difficult market and reflected the larger investment portfolio as a result of the acquisition of Limit. The investment division realised significant gains on the equity portfolio during the year as part of a strategy to reduce the risk profile of our investment portfolio and better match the Group s international diversity. Realised gains on equities increased to $49 million from $46 million for the previous corresponding period. The movement in unrealised gains on investments was a decrease of $5 million compared with a gain of $1 million for the previous corresponding period. Income tax The income tax charge for the year was 19.4% compared with 17.3% at June The higher tax rate is a result of profits arising in higher tax paying countries offset by the impact of a reduction in the tax rate in Australia. INDEMNIFICATION AND INSURANCE In the year ended 30 June 2000, a controlled entity paid a premium in respect of a contract insuring directors and officers of the company and its controlled entities against liability, for which the period of cover includes the current financial year. The officers of the company covered by the insurance contract include the directors listed on page 28, the secretary, NG Drabsch, and assistant secretaries, DAM Ramsay, PE Barnes and AL Trimmer. Other officers covered by the insurance contract are directors and secretaries of controlled entities who are not also directors and secretaries of the company, and executive officers of the company and controlled entities ( excluded officers ). The functions of the excluded officers are management of insurance related operations and finance, investment and corporate services. In accordance with normal commercial practice, disclosure of the total amount of premium payable under, and the nature of liabilities covered by, the insurance contract is prohibited by a confidentiality clause in the contract. No insurance cover has been provided for the benefit of the auditors of any entity in the consolidated entity. CHANGE OF YEAR END The directors have changed the financial year end of the company to 31 December commencing with the six month period ended 31 December The change to a 31 December year end aligns the Group s financial reporting with that of its international peers and eliminates substantial administrative time and expense. The Australian Securities and Investments Commission approved the change of financial year end by an exemption order under subsection 340(1) of the Corporations Law dated 3 March SIGNIFICANT CHANGES There were no significant changes in the state of affairs of the consolidated entity during the financial period, other than the purchase and funding of Limit plc. EVENTS SUBSEQUENT TO BALANCE DATE Other than the announcement on 6 March 2001 concerning a possible joint venture with HIH Insurance Limited, there is, at the date of this report, no matter or circumstance that has arisen since 31 December 2000 that has significantly affected, or may significantly affect: (i) the consolidated entity s operations in future financial years; (ii) the results of those operations in future financial years; or (iii) the consolidated entity s state of affairs in future financial years. LIKELY DEVELOPMENTS Information on likely developments in the consolidated entity s operations in future financial years and the expected results of those operations has not been included in this report because disclosure of the information would be likely to result in unreasonable prejudice to the consolidated entity. ENVIRONMENTAL REGULATION The consolidated entity s operations are not subject to any significant environmental regulations under either Commonwealth or state legislation. ROUNDING OF AMOUNTS The company is of a kind referred to in the Australian Securities and Investments Commission class order 98/0100, relating to the rounding off of amounts in the financial report and directors report. Amounts have been rounded off in the financial report and the directors report to the nearest million dollars or the nearest thousand dollars, in accordance with that class order. DIRECTORS AND EXECUTIVES EMOLUMENTS As detailed in the Corporate Governance statement, the remuneration committee of the board makes recommendations to the board on remuneration policy and practices for the Group. It provides specific recommendations on the remuneration packages and other terms of employment for executive directors, senior executives and non-executive directors. In making its recommendations, it receives independent advice to ensure that the policies and practices assist in the attraction and retention of high quality people. The remuneration of non-executive directors for directors fees and related committee costs for the six months amounted to $362,000 (year ended 30 June 2000 $747,000). The amount approved at the 1999 annual general meeting was $1,000,000 per annum. 30 QBE ANNUAL REPORT 2000

33 DIRECTORS REPORT Executive directors and senior executives receive bonuses based on the achievement of specific goals relating to the performance of the consolidated entity and entities comprising the consolidated entity. The remuneration committee reviews the performance-related remuneration criteria annually. Executives, including executive directors, are eligible to participate in the Employee Share and Option Plan. Non-executive directors do not receive any performance-related remuneration. Remuneration packages contain the following key elements: (a) base salary; (b) incentives; (c) other benefits including superannuation, motor vehicle, the deemed value of interest on loans provided to acquire shares in the company, the deemed value of options exercised in the period (calculated as the difference between the market value of the shares issued at the date of exercise and the exercise price) and other benefits; and (d) retirement benefits. Options are valued at nil on the date they are granted on the basis that the exercise price is equal to the market value of the underlying shares on that date. Accordingly, no amount has been included in total emoluments in respect of options granted in the year. Details of directors options are set out under Shares and Options Held by Directors below. Details of the nature and amount of each element of the remuneration of each director of the company and each of the five officers of the consolidated entity receiving the highest remuneration in respect of the six months ended 31 December 2000 are: BASE OTHER RETIREMENT NUMBER SALARY INCENTIVES BENEFITS BENEFITS TOTAL OF OPTIONS $000 $000 $000 $000 $000 GRANTED Directors of the company JDO Burns (retired 23 August 2000) EJ Cloney AC Copeman AM (retired 8 March 2001) CP Curran AO The Hon NF Greiner AC BJ Hutchinson FM O Halloran (managing director) MJ Phillips AM Officers of the consolidated entity RM Grant* 292 2, ,105 MD ten Hove ,000 TM Kenny* ,000 NG Drabsch (company secretary) RL Jones ,000 * Mr Grant was located in London until his departure from QBE in October Mr Kenny is located in New York. Their remuneration has been converted to Australian dollars using the average rates of exchange for the period. SHARE OPTIONS Details of the Employee Share and Option Plan ( the Plan ) are included in note 20(d) to the consolidated financial statements. The names of all persons who currently hold options granted under the Plan are entered in the register kept by the company pursuant to section 173 of the Corporations Law and the register may be inspected free of charge. There have been no options granted or exercised between the balance date and the date of this report. SHARES AND OPTIONS HELD BY DIRECTORS DIRECTOR RELATED DIRECTORS ENTITIES SHARES OPTIONS SHARES EJ Cloney* 724, ,000 AC Copeman AM 4,145 CP Curran AO 41,326 1,107,882 The Hon NF Greiner AC 27,911 10,000** BJ Hutchinson 6, FM O Halloran 843, ,000 MJ Phillips AM 46,345 LF Bleasel AM 4,000 * options were granted while Mr Cloney was managing director **warrants to purchase shares QBE ANNUAL REPORT

34 DIRECTORS REPORT MEETINGS OF DIRECTORS FULL MEETINGS MEETINGS OF COMMITTEES OF DIRECTORS AUDIT REMUNERATION INVESTMENT NUMBER OF MEETINGS HELD NUMBER NUMBER NUMBER NUMBER ATTENDED ATTENDED ATTENDED ATTENDED LF Bleasel AM (appointed 17 January 2001) JDO Burns (retired 23 August 2000) 2 1 EJ Cloney AC Copeman AM (retired 8 March 2001) CP Curran AO The Hon NF Greiner AC BJ Hutchinson 5 2 FM O Halloran 5 2 MJ Phillips AM 5 2 DIRECTORS EJ Cloney and The Hon NF Greiner AC retire by rotation and offer themselves for re-election. AUDITORS PricewaterhouseCoopers, Chartered Accountants, continue in office in accordance with Section 327 of the Corporations Law. Signed in SYDNEY this 14th day of March 2001 in accordance with a resolution of the directors. EJ Cloney Director FM O Halloran Director 32 QBE ANNUAL REPORT 2000

35 QBE DIRECTORS JOHN CLONEY FAII, FAIM, FAICD Chairman Age 60 Mr Cloney joined QBE as Managing Director in He retired in January 1998, at which time he was appointed a non-executive director. He was appointed Deputy Chairman in April 1998 and Chairman in October He is also a member of the Investment and Remuneration Committees. Mr Cloney is a director of Boral Ltd, Brambles Industries Limited, Capral Aluminium Limited, C&W Optus Limited, Maple Brown Abbott Limited and the Australian Institute of Management NSW & ACT Limited. JOHN PHILLIPS AM BEc, FAIB, FCPA Deputy Chairman Age 70 Appointed a director of QBE in 1992 and Deputy Chairman in October 1998, Mr Phillips is also Chairman of the Investment Committee and a member of the Audit Committee. He is Chairman of the Foreign Investment Review Board, The Australian Gas Light Company and IBJ Australia Bank Limited, Deputy Chairman of Woolworths Ltd and a director of WMC Limited. He was the Deputy Governor and Deputy Chairman of the Reserve Bank of Australia from 1987 to FRANK O HALLORAN FCA Managing Director Age 54 Mr O Halloran was appointed Managing Director in January 1998 and is a member of the Investment Committee. He joined QBE in 1976 as Group Financial Controller. He was Director of Finance from 1987 to 1994 and Director of Operations from 1994 to He has had extensive experience in professional accountancy for 13 years and insurance management for over 24 years. Mr O Halloran is a director of the Insurance Council of Australia. CORPORATE GOVERNANCE Board of directors The Board of directors comprises seven directors, six of whom are non-executive directors. The Chairman, who is a non-executive director, oversees the nomination and review of Board membership in conjunction with all Board members. Directors are selected to achieve a broad range of skills and experience on the Board. Details of individual directors are included on pages 33 to 35. The Constitution requires that one-third of the directors, excluding the Managing Director, retire from office each year, providing no director retains office for more than three years. Retiring directors may offer themselves for re-election. The Board provides direction to management, approves the aims, strategies and policies of the company, monitors the achievement of these aims, reviews the resources of people in the company and ensures the Board has the information it requires to be effective including, where necessary, the support of independent professional advice. Strategic issues and management s detailed business plans are reviewed annually by the Board and visits by non-executive directors to the company s offices in key locations are encouraged. The Board is supported by several committees comprising non-executive directors or a majority of non-executive directors who meet regularly to consider the audit process, investment strategies, remuneration and other matters. The main committees of the Board are the Audit Committee, the Investment Committee and the Remuneration Committee. Procedures for each committee, setting out the responsibilities, duties and reporting requirements, are established and controlled by the Board. Details of directors attendance at Board and committee meetings are outlined in the table of meeting attendance set out in the directors report on page 32. In addition, the Board has established a Chairman s Committee, comprising the Chairman, the Deputy Chairman and the Managing Director. The Committee meets as required to deal with such matters as are referred by the Board from time to time. Audit committee The Audit Committee membership comprises three non-executive directors. The Chairman is appointed by the Board. The current members of the Audit Committee are Mr LF Bleasel, The Hon NF Greiner AC (Chairman), and Mr MJ Phillips AM. The responsibilities of the Audit Committee include: reviewing the quality of financial reporting to shareholders and the Australian Stock Exchange; reviewing the accounting policies, internal controls, practices and disclosures to assist the Board in making informed decisions; reviewing the scope and outcome of internal and external audits; and nominating external auditors and reviewing the adequacy of existing external audit arrangements. QBE ANNUAL REPORT

36 QBE DIRECTORS CONTINUED LEN BLEASEL AM FAIM, FAICD Age 58 Mr Bleasel was appointed a director of QBE in January 2001 and is also a member of the Audit Committee. He joined The Australian Gas Light Company in 1958 and was Managing Director and CEO from May 1990 until March He is a director of St George Bank Limited. Mr Bleasel is also Chairman of the Zoological Parks Board of NSW and is a member of the advisory boards of the Salvation Army and The Mary MacKillop Foundation. CHARLES COPEMAN AM BEng(Min), MA Age 71 Mr Copeman was appointed a director of QBE in He is Chairman of Mosaic Oil NL and a director of Simsmetal Ltd. Mr Copeman retired from the QBE board of directors on 8 March CHARLES CURRAN AO LLB, FCPA Age 62 Mr Curran was appointed a director of QBE in He is Chairman of the Remuneration Committee and a member of the Investment Committee. Mr Curran is Chairman of Capital Investment Group Pty Ltd and Deputy Chairman of Perpetual Trustees Australia Ltd. CORPORATE GOVERNANCE CONTINUED Meetings of the Audit Committee also include, by invitation, the Managing Director, the Chief Financial Officer, the Group Internal Audit Manager and the external auditor. The Audit Committee has the right of access to the external and internal auditors and management and the right to consult independent experts. The Group Internal Audit Manager and the external auditor have direct access to the Chairman of the Audit Committee. Investment committee The membership of the Investment Committee comprises up to four non-executive directors and one executive director. The Chairman is a non-executive director. The current members of the Investment Committee are Mr EJ Cloney, Mr CP Curran AO, Ms BJ Hutchinson, Mr FM O Halloran and Mr MJ Phillips AM (Chairman). The meetings also include, by invitation, the Group Investment Manager and the Chief Financial Officer. The role of the Investment Committee is to recommend policy and to establish and monitor broad guidelines in respect of: investment strategies and risk management; solvency standards; borrowings; currency exposure; and credit exposures with financial counterparties. Remuneration committee The current members of the Remuneration Committee are Mr EJ Cloney, Mr CP Curran AO (Chairman) and The Hon NF Greiner AC. Meetings of the Remuneration Committee also include, by invitation, the Managing Director. The Remuneration Committee makes recommendations to the Board on remuneration policies and practices for the company and provides specific recommendations on the remuneration packages and other terms of employment for executive and non-executive directors and senior management. The committee considers independent advice in determining policies and practices that will attract and retain high quality people. Non-executive directors are remunerated for their services within an amount approved by shareholders at the Annual General Meeting. The amount paid to individual directors is based on a recommendation of the Remuneration Committee and may vary according to specific responsibilities and involvement on the committees of the Board. Further details of directors remuneration are set out on pages 31 and 56 of the annual report. 34 QBE ANNUAL REPORT 2000

37 QBE DIRECTORS CONTINUED THE HON NICK GREINER AC BEc, MBA Age 53 Appointed a director of QBE in 1992, Mr Greiner is Chairman of the Audit Committee and a member of the Remuneration Committee. He is Chairman of Baulderstone Hornibrook, British American Tobacco Australasia and BMCMedia.Com Limited, Deputy Chairman of the Stockland Trust Group and a director of Brian McGuigan Wines Group. BELINDA HUTCHINSON BEc, FCA Age 47 Ms Hutchinson was appointed a director in 1997 and is also a member of the Investment Committee. She is a director of Energy Australia, TAB Ltd, Crane Group Limited, St Vincent s Hospital Sydney Limited, Sacred Heart Hospice Limited and the State Library of NSW Council. Ms Hutchinson was an executive director of Macquarie Bank Limited from 1992 to 1997 and remains a consultant to the bank. She was vice president of Citibank Limited between 1981 and CORPORATE GOVERNANCE CONTINUED Business risk The consolidated entity has established internal controls to manage risk in the key areas of exposure relevant to its business. Practices have been designed by management to identify significant areas of business risk and to effectively and expeditiously manage those risks. Systems are designed to provide reasonable assurance that the assets of the company are safeguarded, insurance risk exposure is within desired limits, reinsurance protections are adequate and counterparties are subject to security assessment. It is the practice of the directors to ensure that the majority of the Group s insurance liabilities are assessed by actuaries. A global internal audit function is critical to the risk management process and assists management and the directors in their assessment and monitoring of the Group s worldwide operations. Group policies on ethics and conduct The Group has adopted a Code of Ethics and Code of Conduct, which form the basis for the manner in which QBE people perform their work. The Code of Ethics requires that business be carried on in an open and honest manner with our customers, shareholders, employees, regulatory bodies and the community at large. There are other Group policies in respect of anti-discrimination, employment, harassment, essential behaviours, health and safety and many of our other business practices. These policies are underpinned by a Vision Statement together with a Values Statement and a Mission Statement. The Vision and Values Statements form part of the induction information given to all new employees. One of the values of the Group is integrity. This value is discussed in detail in the QBE manager programme, which gives our managers and staff an understanding of essential management conduct in carrying out their work. The Group has strict controls over expenditure for travel and entertainment. QBE has adopted the Insurance Code of Practice, a self-regulated code developed by the Insurance Council of Australia relating to the provision of products and services to customers of the insurance industry of Australia. QBE is a corporation involved in an industry that seeks to play an important role, in conjunction with governments, individuals and organisations, in managing and reducing environmental risk. In an initiative to collaborate with the United Nations Environment Programme, QBE, together with a number of other major international insurers, is a signatory to a Statement of Environmental Commitment by the insurance industry. QBE ANNUAL REPORT

38 QBE CORPORATE DIRECTORY 2000 DESIGNED AND PRODUCED BY ARMSTRONG MILLER+McLAREN AUSTRALIAN GENERAL INSURANCE Australian Capital Territory (1) 2nd Floor 33 Ainslie Avenue Canberra 2600 Phone: New South Wales Newcastle Branch (1) 3rd Floor 134 King Street Newcastle 2300 Phone: NSW Motor Accident (CTP) Unit (1) 8th Floor 82 Pitt Street Sydney 2000 Phone: Professional Liability Division (1) 4th Floor 82 Pitt Street Sydney 2000 Phone: QBE Mercantile Mutual Limited (Joint Venture Company) 85 Harrington Street Sydney 2000 Phone: QBE/Mercantile Mutual Marine Underwriting Agency Pty Limited 17th Floor 6 O Connell Street Sydney 2000 Phone: QBE Trade Indemnity NSW Branch 13th Floor 82 Pitt Street Sydney 2000 Phone: QBE Workers Compensation (NSW) Limited 6th Floor 82 Pitt Street Sydney 2000 Phone: Western QBE Insurance Limited 56 Station Street Parramatta 2150 Phone: Workers Compensation (Active States and National) (1) 9th Floor 82 Pitt Street Sydney 2000 Phone: Northern Territory (1) 3 Whitfield Street Darwin 0800 Phone: Queensland (1) 5th Floor 82 Eagle Street Brisbane 4000 Phone: South Australia (1) King William Street Adelaide 5000 Phone: Tasmania (1) 85 Macquarie Street Hobart 7000 Phone: Victoria (1) Marland House 24th Floor, 570 Bourke Street Melbourne 3000 Phone: QBE Trade Indemnity 6th Floor 31 Queen Street Melbourne 3000 Phone: Transport Industries Insurance Co Ltd 310 Queen Street Melbourne 3000 Phone: Western Australia Western QBE Insurance Limited Head Office Level 6, 95 William Street Perth 6000 Phone: WA Branch (1) Level 5 95 William Street Perth 6000 Phone: ASIA PACIFIC GENERAL INSURANCE China QBE Insurance Group Limited Guangzhou representative office Unit 1812, South Tower World Trade Centre Huan Shi Dong Road Guangzhou Guangdong Province Phone: Fiji Queensland Insurance (Fiji) Limited Queensland Insurance Centre 18 Victoria Parade, Suva Phone: France (2) Place Vendome Bat. A, 2ème étage Paris Phone: French Polynesia (2) Immeuble Gallieni Front de Mer Boulevard Pomare BP Papeete, Tahiti Phone: Guam (2) 647 Harmon Loop Road Suite 216 Dededo Phone: Hong Kong Hongkong & Shanghai Insurance Company Ltd 6/F DCH Commercial Centre 25 Westlands Road, Quarry Bay Phone: Indonesia PT Asuransi QBE Pool Indonesia MidPlaza 2, 23rd Floor Jl. Jendral Sudirman Kav Jakarta Phone: Japan (2) Assend Kanda Building 10-2, Kanda-Tomiyamacho Chiyoda-ku, Tokyo Phone: Macau (2) Avenida Da Praia Grande No , 9 Andar B Edificio Keng Ou Phone: Malaysia QBE Insurance (Malaysia) Berhad 15th Floor, Bangunan MAS Jalan Sultan Ismail Kuala Lumpur Phone: New Caledonia (2) 5 Rue Anatole France, BP Noumea-Cedex Noumea Phone: New Zealand (2) Level 16 The ANZ Centre Albert Street Auckland Phone: Norfolk Island (2) Taylors Road, Burnt Pine Norfolk Island 2899 Phone: Papua New Guinea QBE Insurance (PNG) Limited QBE Insurance Building Musgrave Street, Port Moresby Phone: Philippines QBE Insurance (Philippines) Inc. 3rd Floor, Prudential Life Building 843 A. Arnaiz Avenue Legaspi Village 1229 Makati City Phone: Singapore (2) 143 Cecil Street, #08-01 GB Building Singapore Phone: Solomon Islands (2) 1st Floor Centrepoint Building Mendana Avenue Honiara Phone: Thailand QBE Insurance (Thailand) Co Ltd 161/1, 11th Floor, SG Tower Bldg SOI Mahatlekluang 3 Rajdamri Road Lumpinee Pathumwan Bangkok Phone: Vanuatu QBE Insurance (Vanuatu) Limited La Casa D Andnea Building Port Vila Phone: Vietnam BIDV-QBE Insurance Company Limited 7th Floor, North Star Building 4 Da Tuong Street Hoan Kiem District Hanoi Phone: THE AMERICAS Bermuda Equator Reinsurances Limited Clarendon House, Church Street Hamilton HM EX Phone: USA QBE Insurance Corporation QBE Reinsurance Corporation Wall Street Plaza 88 Pine Street, 16th Floor New York NY Phone: Panama Reaseguradora del Istmo, SA Calle 48, Este No Urbanizacion Marbella Bella Vista Panama Zona 5 Apartado Postal 8512 Phone: Mexico (5) Alborada 124, 6th floor Parques del Pedregal Mexico DF Phone: Peru (5) Av Los Naranjos 394 Lima 27 Phone: EUROPE Australia Sydney Reinsurance Company Limited Level George Street Sydney 2000 Phone: Unit 4, Level 2 50 Market Street Melbourne 3000 Phone: Bulgaria (3) 8 Iskar Street Sofia 1000 Phone: France (3) Place Vendome Paris Phone: Germany (3) Oberstrasse Hamburg Phone: Hungary QBE Atlasz Biztosito Rt H 1143 Budapest Stefania Ut 51 Phone: Ireland QBE Insurance & Reinsurance (Europe) Limited St Stephen s Green House Earlsfort Terrace Dublin 2 Phone: Italy (3) Via Conservatorio Milano Phone: Japan (4) Room 412, Level 4 Fuji Building Marunouchi Chiyoda-ku, Tokyo Phone: Korea (4) #1713 Chang Kang Building 22 Dohwa-Dong, Mapo-Gu Seoul Phone: Macedonia Ador Makedonija MB Makos 11 Okromvri Skopje Phone: Moldova QBE ASITO 57/1 Str Mitropolit Banulescu-Bodini Chisinau (Kishinev) 2005 Phone: Singapore (4) 16 Collyer Quay, #11-02 Hitatchi Tower Singapore Phone: Slovakia QBE Slovenska Investicna Poistovna as Bozeny Nemcovej Kosice Phone: South Africa (6) 2nd Floor 31 Princess of Wales Terrace Parktown 2193 Gauteng Phone: Ukraine QBE-UGPB Insurance 13 Dniprovska Naberezhna Kiev Phone: United Kingdom QBE International Insurance Limited Iron Trades Insurance Company Limited Corn Exchange Mark Lane London EC3R 7NE Phone: QBE International Insurance Limited 1 Minster Court Mincing Lane London EC3R 7AA Phone: Minster Court Mark Lane Entrance London EC3R 7BB Phone: London Underwriting Centre 3 Minster Court Mincing Lane London EC3R 7DD Phone: USA (7) Suite Brickell Avenue Miami Florida Phone: LLOYD S Limit Underwriting Limited QBE Corporate Limited 88 Leadenhall Street London EC3A 3BP Phone: (1) branch or division of QBE Insurance (Australia) Limited (2) branch of QBE Insurance (International) Ltd (3) branch or representative office of QBE International Insurance Limited (4) branch of representative office of Sydney Reinsurance Company Limited (5) branch office of Reaseguradora del Istmo, SA (6) representative office of QBE Insurance and Reinsurance (Europe) Limited (7) representative office of QBE Management (UK) Limited

39 QBE INSURANCE GROUP LIMITED 82 PITT STREET SYDNEY 2000 AUSTRALIA PHONE: QBE INSURANCE GROUP ANNUAL REPORT DECEMBER 2000