qbe insurance group global operational transformation … · · 2013-07-01global operational...

1

John Neal – Group Chief Executive Officer

Neil Drabsch – Group Chief Financial Officer

Colin Fagen – Chief Executive Officer, Australian & NZ Operations

Tuesday 2 July 2013

QBE Insurance Group Global Operational Transformation Program

All figures in US$ unless otherwise stated

2 2

Agenda

1. Introduction and overview of value creation model JN

2. Operational excellence – global reach and scale JN

3. Australian Operations case study CF

4. Financial strength and flexibility ND

5. Closing remarks JN

6. Q & A JN/ND/CF

QBE Insurance Group - Global Operational Transformation Program - 2 July 2013

3 3

Introduction and overview of value creation model



4 4

In February we rolled out our refreshed vision

QBE has a vision to be the most

successful global insurer and reinsurer in

the eyes of our customers, our people,

our shareholders and the community


5 5

Value creation model

Confidence in immediate (FY13)

business plans

Leveraging the value

opportunities of our global

business

Implementing Group wide

programs of change to improve

performance


6 6

Operational excellence: global reach and scale



7 7

Operational excellence: delivering a repeatable,

globally scalable engine for growth

2. STANDARDISATION

Adopt the one best QBE

way of working globally

and consolidate for scale

in the right location

3. ONGOING

EXCELLENCE

(scalability)

Use our global scale to

learn, innovate and

continuously improve

1. SIMPLIFICATION

Simplify how we do

things today, both across

and within divisions


• A simplified and unified operating

model

• Roles clearly defined and

accountabilities understood

• Process improvement, reduction in

administrative activities and improved

documentation

• Greater repeatability, consistency and

higher quality outcomes

• Core teams of skilled staff carrying out

high-value tasks

• Establishing platform for QBE as

employer of choice

• Acquisition ready – streamlined back

office model will fast track integration

Our recently

established

Group Shared

Services Centre

(GSSC) is integral

to operational

transformation

8 8

Key objectives of GSSC establishment

Cost Effectiveness

1. Optimise resource cost model

2. Standardise - drive economies

of scale

3. Reduce rework 1. Create scale

2. More easily absorb transaction

volume growth

Service Quality

1. Improve performance management

2. Improve process control

3. Improve turnaround time

4. Reduce leakage

5. Facilitate continuous improvement

Acquisition Integration

1. Centralised and standardised

processing

2. Simplified acquisition integration

Business Growth


9 9

Why Manila? Why a captive model?

• Philippines is now the #1 location for voice services*

• Cost competitiveness

• Robust and reliable infrastructure

• Government support and public-private partnership

• Proven capability

Why Manila?

• 100% tertiary educated

• 95% hold an undergraduate degree

• 30% have post graduate qualifications

• Minimum of 2 years relevant post

graduate work experience

• 34 years of age

• Commutes >1 hour to work each day Captive

• The business establishes its own

dedicated subsidiary and ownership of

all assets and staff is retained

• Low operational risk and medium

scalability

Third Party Provider

• An entire process or services is moved

out of its organisation and managed by a

third party service provider

• High scalability and operational risk

Build, Operate, Transfer

• The outsource provider helps the client

set up the centre from start to finish.

Management is transferred to the client

once the centre is established

• Medium to high operational risk and

medium scalability

Virtual Captive

• An entity is formed with a split in

investment, revenues and control

between client and provider

• Medium operational risk and medium to

high scalability

e.g. QBE model

Captive models have historically been

favoured to maximise managerial control

and ownership by the wider organisation

An average GSSC recruit

Why a captive model?

Delivery Models


*Source: Annual IBM Global Location Trends Report, January 2011

10 10

Operational transformation initiatives will deliver annual

run-rate benefits of at least $250M by the end of FY15

-156 -140 -14

25

190 240

225 250

US$ 300M

0

100

200

-200

-100

FY14 FY15 FY13

COST AND BENEFIT IMPACT (P&L)

85

Implementation and restructuring costs

Cost savings (earned in year)

Cost savings (run-rate at year end)

• Total project cost revised

downwards $20M but increased

expense in FY13

• Excludes estimated global claims

procurement run-rate savings of

at least $90M by FY15


11 11

Overview of $250M transformation program savings

by functional work streams

Operations

IT

Finance

Claims

Non-claims

procurement

• Clear and distinct roles, responsibilities and metrics for front, middle and back office functions

• Productivity and process improvement via centralisation of roles in GSSC

• Cross-divisional IT management and architecture functions

• Consolidate two data centres per division

• Enhance service through process simplification and automation via outsourced delivery centres

• Significant portion of global workload via GSSC

• Review of current processes to eliminate waste

• Consolidation, standardisation and process improvement

• Easier and faster group wide financial reporting

• Codify processes and roles and improve process design/productivity

• Back office claims roles moving offshore

• Establishing expert team to manage complex claims within divisions

• Blend of GSSC and outsourcing arrangements for NA

• Implement Group wide strategic sourcing and procurement capability

• Establish global category management with global accountability

• Work with business units to deliver savings whilst maintaining quality

HR

• Deliver target operating model and develop centres of excellence

• Outsourced payroll for AO and EO

• Move administrative processes to the GSSC

• Remaining business partners in divisions delivering improved service


12 12

Global procurement initiatives: ranked by value and

degree of complexity

QBE Insurance Group - Global Operational Transformation Program - 2 July 2013 * Included within $250m GOTP savings on slide 10

13 13

Transformation timeline

FY13 FY14 FY15

AO

• On track for majority

completion by 1Q14

EO

• Planning in progress

• Commence 2Q14 and complete by 2Q15


AO

NA EO

GSSC

• Established in

Manila

NA

• Plan completed June

• Commence 4Q13

• Complete majority of activity by 2Q15

Other divisions

Further iterations

14 14

Australia & New Zealand


Colin Fagen – Chief Executive Officer, Australian & NZ operations

15 15

Key objectives of GSSC establishment for Australia

Cost Effectiveness

1. Optimise resource cost model

2. Standardise - drive economies

of scale

3. Reduce rework 1. Create scale

2. More easily absorb transaction

volume growth

Service Quality

1. Improve performance management

2. Improve process control

3. Improve turnaround time

4. Reduce leakage

5. Facilitate continuous improvement

Acquisition Integration

1. Centralised and standardised

processing

2. Simplified acquisition integration

Business Growth


16 16

Australia will deliver annual run-rate benefits of at least

$85M by the end of FY15

-55 -29 -2

12

78 84 29

84 85

-60

40

FY15 FY14 FY13

COST AND BENEFIT IMPACT (P&L)

Excludes claims procurement

Implementation and restructuring costs

Cost savings (earned in year)

Cost savings (run-rate at year end)


17 17

Jan 13 Feb 13 Mar 13 Apr 13 May 13 Jun 13 Jul 13 Aug 13 Sep 13 Oct 13 Nov 13 Dec 13

Finance

HR

Claims

Operations

IT

Non-claims

procurement

Planning

Legend

Transition to GSSC / third party

Australia’s transformation: all streams on track to deliver

$6M

$36M

$6M

$15M

$5M

$17M

$85M savings

by FY15


18 18

Parallel processes: knowledge transition

Service Delivery Design Transition

Stage Gate1: Solution

design sign off

• BU/project

• Geographic steering

committee

• Head of GSSC

• Design authority

Stage Gate 2: Pre KT

sign off

• Business stream

lead

• Onshore stream

lead

• KT factory lead

Stage Gate 4:

Go/no-go sign off

• Geographic steering

committee

• Head of GSSC


Stage Gate 3: Pre

SRT sign off

• Business stream lead

• Onshore stream lead

• Functional operations

Lead

• KT factory lead

• Lead ops managers

Onshore

KT

Stage Gates &

Responsibility

Solution

design

Go Live

Stage Gate 5:

Transition exit

• Head of GSSC


• Functional ops lead

Offshore

KT

Technology enablement

Change management & communication activities

for retained organisation

Service

rehearsal

testing

Recruit

Implement operational excellence & quality assurance

1 week 4-5 weeks 4-6 weeks 2 weeks 2 weeks 4 weeks

Volume

ramp Stabilisation

GSSC

Operations

Checkpoint:

• Geographic Lead

• Transition Lead

• Business Owner

KT prep

Checkpoint +60 days:

• Transition lead

• Operations manager/

Service manager

• Business owner

• Onshore streams

lead

Checkpoint +90 days:

• Transition lead

• Operations manager/

Service manager

• Business owner

• Onshore stream

lead

Production

T+30 T+60 T+90 T+15 T+1 Pre go-live

Processes picked up from Australia, structured and transferred to GSSC before rehearsal and

gradual go live Operational excellence assessments


19 19

Process reengineering: operations


20 20

Developing our Employee Brand:

GSSC Employee Value Proposition

OUR EVP PROMISE

We believe…

that our people‟s ultimate ability and potential should be realised through their employment at QBE.

We are committed to…

supporting and developing everyone to realise their full potential. We will help them “make it

happen” for the benefit of both themselves and QBE and we will reward them well for their effort and

performance.

HOW WE MAKE WORKING AT QBE A SPECIAL EXPERIENCE

CULTURE OPPORTUNITY REWARD


21 21

The GSSC is already delivering improvements in our

operational metrics

Function Metric Result*

Claims – Motor Direct Finalisation rates 36% improvement in finalisation rates

Claims – Motor Intermediated Finalisation rates 6% improvement in finalisation rates

Claims – Motor Financial

Institutions Finalisation rates 2% improvement in finalisation rates

Claims – Customer Support

YTD tax invoice turnaround (Working

Days) 13% improvement in meeting SLAs

YTD same day claims registration % 6% improvement in same day claims

registrations

Credit Control

Outstanding debtors >90 days as % of

GWP 22% reduction in outstanding debts

Unmatched cash as % of GWP 2% reduction in unmatched cash

eBusiness

% eReferrals completed within 1 hour 2% improvement in eReferrals

completed within 1 hour

% Manual quotes completed within 2

days 0.5% improvement in manual quotes

% Renewals actioned prior to 6 weeks

before expiry 75% improvement in renewals actioned


* Comparison is based on YTD 2013 compared with FY 2012

22 22

We are already realising efficiencies through the GSSC

Solid Performance

• Exceeding both our quality

and performance SLAs

• Positive customer feedback

Consistent Processes

• Daily reporting has driven

process consistency

• Key improvements made to

existing processes

Motivated Workforce

• Clear team structures

• Clearly defined

responsibilities

• Flexible resource pool


0

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8000

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BAU Target ID TOTAL ID MOTOR ID PROP Business as

usual target

Intermediary

distribution

Intermediary

distribution

motor

Intermediary

distribution

property

Volume of work in progress (shown in units)

23 23

Customer feedback on the GSSC has been positive

We have already begun receiving customer commendations for the high customer

service they have experienced in dealing with our GSSC teams:

April

"Please give him [the GSSC claims officer] a

pat on the back. I'm in a very difficult situation,

and he showed me nothing but understanding

and kindness. His whole manner towards me

has been perfect. He is a real credit to QBE”

April

"She [GSSC claims officer] was

terrific. She was absolutely terrific”

April

“She [GSSC claims officer] has

been wonderful and very helpful”

May

“Claims officers from Manila are very

courteous”

May

The GSSC claims officer let me know exactly what to

expect with my claim and kept his promise in calling

me back… even BEFORE he said he was going to!

Professional customer service"


24 24

„Ultimately QBE is responsible

for making decisions on how to

best manage their business,

and we respect this‟ „We have appreciated the

opportunity to have

discussions and input into the

process‟

„We will be judging QBE

on their execution and

performance – that‟s

what matters to us‟

April 22, 2013

“She [GSSC Claims officer]

has been wonderful and very

helpful”

„We can understand the

reasons why QBE has

undertaken this journey‟

Broker networks remain supportive and informed

April

May

April

May


25 25

A large proportion of impacted staff in Australia have

been redeployed to date

521

190

51

174

0

50

100

150

200

250

300

350

400

450

500

550

In

redeployment

Natural turnover

to mid June

Redundancies

to mid June

39

Contract staff

(not for

renewal)

52

Voluntary

Acceptable

Positions

(VAP)

15

Redeployed

to mid June

Total

Impacted to

mid June

Overview of FTE redeployment to mid June 2013

Staff that have

accepted VAP may

opt back into

redeployment

High redeployment driven by AO

strategy to reduce redundancy and

manage via natural turnover


26 26

Delivering operational excellence

Model established in Australia

Consistent processes across Australia

Speed of improvement when influx of claims or policy count increases

Sales & distribution balance - scalability

Australia‟s retained organisation refocused on high priority tasks

Increase value and return from IT strategy

Acquisition ready

Australia's transformation report card


27 27

Financial strength and flexibility

Neil Drabsch – Group Chief Financial Officer


28 28


• Financial strength and flexibility is integral to QBE‟s value creation model

• Balancing the capital needs of all stakeholders

• Flexibility for future growth

• Optimising gearing

• Achievable ambition for book equity growth

• Capital has been strengthened over the past 18 months through capital initiatives

• Share placement A$600M (2012)

• Issued Tier 2 subordinated convertible securities $500M (2012)

• Lower dividend payout policy (likely weighted 40% interim: 60% final)

• Tender to repurchase SCS and issue $300M equity (2013)


29 29


• Uncertainty surrounding APRA LAGIC framework resolved

• PCA multiple expected to be within our targeted range of 1.55-1.80x APRA requirement at 30 June 2013

• APRA conglomerates capital standard not expected to have any impact and QBE currently not being considered a Level 3 group

• Uncertainty surrounding revised S&P model resolved

• Insurer financial strength rating affirmed at „A+‟ and outlook revised to „stable‟ from „negative‟

• Issuer credit rating revised down to „A-‟ from „A‟ as expected

• Initiatives to optimise liability management

• Reduce borrowings

• Take advantage of current low interest rates


30 30

Financial strength and flexibility: liability management

• $220M of sub-debt repaid at first call date on 1 July 2013

• $600M 5 year 2.4% pa coupon senior debt issue completed in April

• Proceeds largely used to repay/repurchase SCS

• Majority of SCS repaid or repurchased

• $234M put option exercised

• $317M repurchased via tender including the issue of 20.9M ordinary shares bolstering T1 capital

• $223M redemption value outstanding at 30 June 2013 (excluding QBE owned)

• Potential SCS dilution fallen from 80M shares at 31 December 2012 to 52M shares at 30 June 2013

• On target for debt to equity to be less than 40% by 31 December 2013


31 31

Financial strength and flexibility: non-core asset sales

and other initiatives

• Non-core asset sales with cumulative sale proceeds of around $80M expected by year end including

• Australian broker/agency – NCIB (subject to Steadfast IPO) and Invivo

• Majority stake in QBE Macedonia

• Other initiatives being considered

• Further sale of non-core assets

• Commutation and sale of run-off portfolios

• Purchase of additional reinsurance


32 32

Summary and 1H13 update



33 33


Reflect on work done to date

Demonstrated successes

Roadblocks identified and remediated

Renewed Executive level bench strength

Platform for growth and accelerated synergies from future acquisitions

Building towards our goal of being a truly global organisation


34 34


• Premium rate increases in line with expectations at +5% overall

• Annualised first half investment yield expected to be in line with FY13 guidance of

approximately 2.25%

• Sustained A$ weakness is positive for A$ earnings but adversely impacts reported

US$ premium and earnings

• Large individual risk and catastrophe losses are expected to be within our allowances

of 9.5% of NEP (ex crop)

• Relatively quiet period for catastrophe incidence (but main risk resides in 2H)

• Slightly higher than usual incidence of large individual risk losses

• Currency weighted average discount rate has increased since 31 Dec 2012 with

expected positive impact on central estimate of outstanding claims at 30 June 2013

• Balance sheet strengthened through capital initiatives


35 35

Important disclaimer The information in this presentation provides an overview of QBE‟s global operational transformation program. This presentation should be read in conjunction with all information which QBE has lodged with the Australian Securities Exchange (“ASX”). Copies of those lodgements are available from either the ASX website www.asx. com.au or QBE‟s website www.qbe.com. Prior to making a decision in relation to QBE‟s securities, products or services, investors, potential investors and customers must undertake their own due diligence as to the merits and risks associated with that decision, which includes obtaining independent financial, legal and tax advice on their personal circumstances.

This presentation contains certain "forward-looking statements“ for the purposes of the U.S. Private Securities Litigation Reform Act of 1995. The words "anticipate", “believe", "expect", "project", "forecast", "estimate", "likely", "intend", "should", "could", "may", "target", "plan" and other similar expressions are intended to identify forward-looking statements. Indications of, and guidance on, future earnings and financial position and performance are also forward-looking statements. Such forward-looking statements are not guarantees of future performance and involve known and unknown risks, uncertainties and other factors, many of which are beyond the control of QBE that may cause actual results to differ materially from those expressed or implied in such statements. There can be no assurance that actual outcomes will not differ materially from these statements. You are cautioned not to place undue reliance on forward-looking statements. Such forward-looking statements only speak as of the date of this presentation and QBE assumes no obligation to update such information. Any forward-looking statements assume large individual risk and catastrophe claims do not exceed the significant allowance in our business plans; no overall reduction in premium rates; no significant fall in equity markets and interest rates; no major movement in budgeted foreign exchange rates; no material change to key inflation and economic growth forecasts; recoveries from our strong reinsurance panel; and no substantial change in regulation. Should one or more of these assumptions prove incorrect, actual results may differ materially from the expectations described in this presentation. Comments on 1H13 are based on estimates at this date and subject to completing the consolidation process and management, actuarial and external auditors‟ review.


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qbe insurance group global operational transformation … · · 2013-07-01global operational...

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