QBE Syndicate 2999 Annual Report and Accounts 2009

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Report of the directors of the managing agent continued Emilio Di Silvio – QBE Aviation Syndicate 5555 Gross written premium £million Net earned premium £million Net underwriting loss £million Combined operating ratio % 09 08 Gross written premium for 2009 was down by £21.8 million, representing 20% of plan. This reflects our cautious approach to the airline and general aviation sectors of our portfolio which have experienced rate increases but not to our required level given the continued underwriting loss being experienced. During 2009, airline rates increased significantly as the year progressed although there was a softening in the last month when approximately 50% of the global income renews. As a result of this softening, we elected to further reduce our exposure in this area and either did not renew, or reduced our participation in a number of airline accounts which has resulted in reduction of our planned income. The rate increases has meant that even with the reduction in exposure we have retained a similar income base to the previous underwriting year. We believe this to be the correct strategy until the market further improves. We anticipate further rate increases during 2010. The most noticeable incidents in the year were Colgan Air and Yemenia Airways which together resulted in deterioration in the projected financial year result of our airline account. We declined the Air France renewal and therefore missed any loss falling under the airline placement. Our General Aviation business has fallen short of our plan due to the anticipated recovery of the market being slower than we expected. As a result our premium base is lower than we had planned, but we believe the portfolio now to be less volatile having focused on proven business. On a positive note, the market is beginning to show further signs of improvement which we believe will place us in a better position for 2010. Our Products and Airports portfolio continues to be profitable and is producing a result in line with plan. During the year we have been able to improve our position on some core/profitable accounts. The past year has been another challenging one but we believe that we have turned the corner. The market continues to improve and our portfolio is better balanced which should give us the opportunity to achieve our plan and result for 2010. Investment policy QBE European Operations operates an investment committee which is responsible for developing and monitoring the company’s investment policy and strategy, subject to UL Board approval. The committee also monitors the syndicate’s investment managers performance and their compliance with the internal guidelines set by the committee and external regulation. The investment policy is designed to ensure that appropriate levels of liquidity, credit and investment risk are maintained. Syndicate investments are currently limited to fixed income bonds and money market instruments. The majority of portfolios have an average credit rating equivalent to or better than Standard & Poor’s “AA”. The minimum permitted credit quality per the guidelines is “A-” grade instruments. The performance of the investment managers is monitored against an absolute return mandate, using other reference benchmarks or peer group performance used as key performance indicators. Management of the investment portfolios for the syndicate is delegated, under an arm’s length agreement, to Minster Court Asset Management (UK) Ltd, (the investment manager), a wholly owned subsidiary of the QBE Group. The activities of the investment manager are regulated by the Financial Services Authority (FSA). The syndicate operates a policy to minimise foreign exchange risk by holding assets in foreign currencies in order to match underwriting liabilities in such currencies where size is deemed material. The syndicate also holds foreign exchange derivatives in order to minimise foreign exchange risk. In order to reduce volatility of investment return in each financial year, the syndicate holds investments with shorter, average durations than would normally be expected if it were matching the duration of liabilities relating to long-tail classes of business. 16 QBE Syndicate 2999 Annual report 2009 86 99 09 08 72 72 09 08 11 20 09 08 120.0 121.4
Investment performance The total investment returns achieved for each financial year are set out below. These include income earned on funds which are not managed by the investment manager, such as short term liquid deposits and certain regulatory overseas deposits. The combined total currency return for the year was 2.4% (2008 3.8%). 2009 2009 2009 2008 2008 2008 Average Average Target Average Average Target funds return return funds return return Portfolio currency £000 % % £000 % % Canadian dollar 221,365 1.2 2.5 183,311 5.0 4.3 Euro 49,657 3.4 2.9 46,770 1.9 4.0 Sterling 171,322 4.0 2.8 228,482 6.9 5.2 US dollar 1,681,339 2.2 1.8 1,643,560 3.0 4.6 The benchmark target for fixed income portfolios is an absolute return yield to be agreed for each currency on an annual basis by the QBE European Operations executive board. Targets for each currency agreed for each financial year are shown above. Individual currency investment returns varied in performance when compared to their respective currency targets for the year. Outperformance was achieved in all currencies except Canadian dollars which fell short of the benchmark. Overall performance for the syndicate was ahead of the annual weighted target return of 2.0% and compared favourably to cash and industry benchmarks. The outperformance of investment return predominately relates to the significant narrowing or corporate credit spreads which occurred during the year. During 2009, the syndicate’s fixed income portfolios were managed conservatively with average duration of less than one year. As a result of the fund manager’s cautious stance, the syndicate incurred no credit defaults or write downs in any of its fixed interest portfolios. After taking account of the investment return, profit payments and significant exchange rate movements, overall syndicate funds closed the year in line with the forecast target. Managing agency board The board is committed to high standards of corporate governance and has established a practical governance framework which includes the delegation of considerable authority to divisional product management committees and a number of other authorised committees. All of the committees comprise appropriately skilled and experienced members, and operate under formal terms of reference. Divisional product management committees These committees are responsible for the reporting and review of all aspects of the division’s day to day management of underwriting. Each committee is chaired by the divisional Managing Director and comprises senior underwriting and management representatives of the division, together with representatives of the managing agency board. QBE Management Services (UK) Limited board This is a service company specifically established to provide key services to support the day to day management of the business, including: accounting, actuarial, claims, human resources, information technology, operations services, technical support and such other services as may be agreed. The board monitors and reports on the levels of service as set out in the respective customer services agreements. Other committees • Strategic underwriting committee: the committee is responsible for developing the business strategy of the syndicate. The committee is chaired by the Chief Underwriting Officer. • General business committee: the committee reviews and approves routine matters and regulatory returns which do not require board approval; reviews and approves matters where the board has delegated authority to the committee; and makes recommendations as such where board approval is required. The committee is chaired by the Compliance and Governance Director. • Group security committee: the committee is responsible for establishing and monitoring procedures and systems for the evaluation of all reinsurance security and outwards reinsurance intermediaries to be utilised by the syndicate. The committee is chaired by the Group Chief Risk Officer. • Investment committee: the committee is responsible for making recommendations to the board as to the appropriate investment policy and guidelines for each of the syndicates’ funds and to take responsibility for the day to day implementation and monitoring of the agreed strategy. The committee is chaired by the Chief Financial Officer. 17 QBE Syndicate 2999 Annual report 2009
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Page 3 and 4: QBE Syndicate 2999 highlights QBE S
Page 5 and 6: Major events in 2009 • Growth ach
Page 7 and 8: 3. Empowers through a collaborative
Page 9 and 10: Business of the syndicate QBE Syndi
Page 11 and 12: QBE Marine and Energy Syndicate 103
Page 13 and 14: QBE Property Syndicate 2000 Busines
Page 15 and 16: Report of the directors of the mana
Page 17: During 2009 we installed a new Head
Page 21 and 22: Statement of managing agent’s res
Page 23 and 24: Risk management The syndicate’s a
Page 25 and 26: Profit and loss account: technical
Page 27 and 28: Balance sheet As at 31 December 200
Page 29 and 30: Statement of cash flows For the yea
Page 31 and 32: 1 Accounting policies continued b)
Page 33 and 34: 1 Accounting policies continued g)
Page 35 and 36: 4 Claims outstanding During the yea
Page 37 and 38: 9 Other financial investments conti
Page 39 and 40: 10 Financial risk continued i) Mark
Page 41 and 42: 12 Overseas deposits These are lodg
Page 43 and 44: 17 Related parties The managing age
Page 45 and 46: Net investment income Gross investm
Page 47 and 48: Designed and produced by 85FOUR www

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