New Zealand General Insurance

Transcription

1 Asia Pacific/Australia Equity Research Property & Casualty Insurance (Insurance (AU)/Diversified Financials (AU)) Research Analysts Andrew Adams andrew.adams@credit-suisse.com New Zealand General Insurance SECTOR REVIEW Earthquake reserving risk remains Earthquake risk pushing up margins: The settlement of the 2010/11 Canterbury earthquake claims continue to be delayed, representing ongoing earnings risk for the insurers. This has in turn led to an increase in the required return that insurers demand from policyholders, which has been achieved in recent years. Overall we expect the underlying margin to be sustainably higher in New Zealand going forward; however, earnings risk in the near term is elevated as the earthquake claims settle. SUN least exposed to reserving risk: As the earthquake claims settle and with the benefit of hindsight, it appears that SUN's gross claims estimate was more accurate than most others in the industry and its reinsurance cover more conservative. By way of sensitivity, on our estimates, a further 10% increase in the February 2011 claims estimate by each of the listed insurers would result in a ~20% earnings hit to IAG, ~5% for SUN and ~80% for TWR. Profit margins rebasing up: The RBNZ estimate of the ultimate insurance claims from the Canterbury earthquake is NZ$32-37bn. With the industry collecting ~NZ$5bn of premiums annually, the impact on long-term profitability is significant and implies that the underlying profitability achieved in the industry is not adequate to compensate for the earnings downside. The financial results of recent years have demonstrated a clear trend in increasing the core profitability for insurers, with a higher insurance margin expected to be the new norm in our view. Post premium rate increases in recent years there has been a significant improvement in the loss ratio for home insurance, with an observable step improvement in the motor loss ratio. This has also been evident in listed company earnings, with IAG's underlying margin continuing to step up in recent years. Delayed reviews: There have been a number of reviews with potential to impact the insurance industry in recent years (primarily privatising of ACC accounts and FSL funding); however, the review of the EQC remains of most interest. With the EQC model unsustainable in its current form, the outcome of this review could have the largest impact on the industry, resulting in further policy repricing. Investment view: IAG has more exposure to the attractive New Zealand insurance market (~20% of GWP) versus SUN (~14% of GWP); however, in the near term, the earnings risk from prior year earthquake claims outweighs this longer-term positive exposure. We have a preference for SUN over QBE and IAG, with our complete insurance sector order of preference being SUN, SDF, AMP, IAG, QBE, AUB, TWR, NHF and MPL. DISCLOSURE APPENDIX AT THE BACK OF THIS REPORT CONTAINS IMPORTANT DISCLOSURES, ANALYST CERTIFICATIONS, AND THE STATUS OF NON-US ANALYSTS. US Disclosure: Credit Suisse does and seeks to do business with companies covered in its research reports. As a result, investors should be aware that the Firm may have a conflict of interest that could affect the objectivity of this report. Investors should consider this report as only a single factor in making their investment decision. CREDIT SUISSE SECURITIES RESEARCH & ANALYTICS BEYOND INFORMATION Client-Driven Solutions, Insights, and Access

2 Table of contents Current focus points 3 Earthquake reserving risk 3 Rebased profit margins 5 EQC a very long review 6 Fire service levy another lengthy review 8 ACC no further privatisation talk 9 New Zealand general insurance market 11 Distribution channels 13 Industry trends 15 IAG New Zealand 19 SUN NZ 21 Lumley NZ 22 QBE NZ 23 Tower NZ 24 Financials 25 Appendix 1 29 Accident Compensation Commission (ACC) History 29 Appendix 2 36 Earthquake Commission (EQC) 36 Appendix 3 38 RBNZ regulation 38 New Zealand General Insurance 2

3 Current focus points The New Zealand insurance industry is still being impacted by the flow on effects of the Christchurch earthquakes, primarily the February 2011 event. While many companies were confident that they had adequate reinsurance in place, increases in estimates are starting to test the upper limits of reinsurance programs. This has also led to increased regulation, with changes continuing to transition in 2015 and While downside risk to earnings from ongoing cost increases to the earthquakes continues, insurers have sufficiently passed on the increased costs to policyholders and the industry profitability is now at record levels. Post recent acquisitions market concentration should assist in maintaining elevated profit margins in the near term. Longer-term risk to margins will be via new entrants, with Youi recently gaining a licence in New Zealand. Outside of the core insurance industry, topics from pre-earthquake have been put to the side, ACC now unlikely to open up and FSL likely to remain in place, with the EQC review being of most interest, but pushed out again. Earthquake reserving risk In recent years the listed insurers have outlined the ongoing progress that they have made in claims settlements in respect of the Canterbury earthquakes. The percent of claims fully settled was continuing to increase and while there was always uncertainty around the final cost, investors were confident that a conservative approach had been taken to reserving. This confidence was proven to be false in late 2014 (two days before Christmas on 23 December) when IAG announced the need to increase its expected claims costs for the New Zealand earthquakes by ~20%. Further to this, in April 2015, TWR announced to the market that they had purchased adverse development cover for their exposure to increased claims costs from the earthquakes. While the number of outstanding claims is decreasing, the events of the last six months have highlighted that there remains significant earnings risk in coming years as a result of increased claim costs above reserves. Based on a simple measure of gross claims estimate (for the February 2011 earthquake) divided by GWP exposure (in 2010), we highlight that SUN remains the most conservatively reserved. We note also that SUN has a significant amount of reinsurance protection remaining, while IAG is at the top of its cover and TWR has already exceeded its limit. Figure 1: Comparison of current February 2011 reserves NZ$mn IAG SUN TWR 2010 GWP 1, Gross estimate 3,900 3, % of GWP Source: Company data, Credit Suisse estimates IAG limited reinsurance remaining On 23 December 2014, IAG announced that the expected final claims cost related to the series of earthquakes in New Zealand in 2010 and 2011 was likely to be NZ$750mn to NZ$1bn higher than previously expected. This would have no impact on IAG's FY15 earning as all events remained within IAG's reinsurance covers ie IAG would receive a full recovery from its reinsurers. At the 1H15 result IAG increased their earthquake reserves by NZ$950mn, the upper end of their NZ$750mn to NZ$1bn estimate provided on 23 December. The majority of the increase was allocated to the February 2011 event, which is now reserved slightly below the top of IAG's FY11 reinsurance limit of NZ$4bn. While IAG have settled slightly less than 70% of claims by number, the remaining 30% bring earnings risk should delay and inflation continue to be an issue. New Zealand General Insurance 3

4 Figure 2: IAG Canterbury earthquake reserves by event 4,500 4,000 3,500 3,000 2,500 2,000 1,500 1, Sep-10 Feb-11 Jun-11 Source: Company data, Credit Suisse estimates SUN sharing reserve risk with reinsurers FY14 1H15 Reinsurance cap SUN put in place a high claims estimate very soon after the event and at the time was criticised heavily for having inadequate reinsurance and poor risk selection, etc. Over three years later, with the benefit of hindsight now, it appears that SUN's gross claims estimate was more accurate than most others in the industry and its reinsurance cover more conservative. While SUN has exceeded its full protection reinsurance limit (A$2.5bn), it continues to have partial protection up to A$5.6bn. SUN have previously noted that they share ~15% of gross claims above A$2.5bn and ~25% above A$3.5bn. With ongoing concern about increasing repair and rebuild costs and new claim notifications from EQC, SUN's reinsurance protection should assist in reducing the earnings downside risk in coming periods. TWR sizeable earnings risk remains In September 2012, TWR notified the market that they would likely exceed their NZ$325mn reinsurance limit for the February 2011 event. TWR incurred a NZ$13.6mn (post-tax) adjustment in 2011 and a further NZ$15.2mn (post-tax) in FY12. The increase in claims reserves were not split by individual earthquake; however, if we assume that the bulk of the increase was due to the February 2011 event, we estimate that TWR's current gross reserve is ~NZ$365mn for the February 2011 event. On 16 April 2015, despite having settled and closed 93% of claims, TWR purchased an Adverse Development Cover (ADC) for the February 2011 earthquake. Under this reinsurance agreement, TWR is exposed to the next NZ$30mn of claims above their current reserves, and then incurs only 12.5% of the next NZ$50mn (or a maximum of NZ$6.25mn). TWR's portfolio is purely personal lines versus as opposed to the commercial lines and personal lines split that IAG and SUN have. For this reason, we expect TWR's gross claims as a percent of GWP to be lower. However, the current estimate does appear less conservative, if we assume that commercial claims are double that of personal claims. Our concern about downside earnings risk is supported the ADC put in place by TWR recently. While we appreciate the extent to which TWR has reduced the ultimate downside risk from further reserve deterioration, we note that TWR is fully exposed for the next NZ$30mn of reserve deterioration (less than 10% increase on current estimate). On our forecasts, TWR makes an annual underwriting profit just over NZ$30mn, i.e., a full year of earnings are at risk before the reinsurance kicks in. New Zealand General Insurance 4

5 Rebased profit margins The RBNZ estimate of the ultimate insurance claims from the Canterbury earthquake is NZ$32-37bn. There is a risk that this will be at the upper end or even above this estimate as claims inflation continues to rise. With the industry collecting ~NZ$5bn of premiums annually, the impact on long-term profitability is significant and as outlined above this event could continue to impact earnings in the near term as ultimate estimates are increased. The financial cost of the earthquake highlighted the earnings risk in New Zealand; however, it also implies that the underlying profitability achieved in the industry is not adequate to compensate for the earnings downside. The financial results of recent years have demonstrated a clear trend in increasing the core profitability for insurers, with a higher insurance margin expected to be the new norm, in our view. Natural perils still remain a significant driver of earnings volatility. While industry data is impacted by volatility in natural peril events, it has been an active few years of catastrophe claims recently and despite this there has been a significant improvement in the loss ratio for home insurance. There has also been an observable step down in the motor loss ratio in recent years. Figure 3: New Zealand industry loss ratio home and motor 90% 80% 70% 60% 50% 40% 30% 20% 10% 0% Motor Home & contents Source: ICNZ data, Credit Suisse estimates The increase in profitability has been observed in the results of the listed players. While the underlying insurance margin was on a path to recovery in FY10 and FY11 for IAG, this was temporarily impacted by the increase in reinsurance costs post the Canterbury earthquakes. Since then, IAG has not only recovered the increase in reinsurance costs but also further improved their underlying insurance margin. It is our view that the targeted insurance margin has increased in recent years, more explicitly allowing for the earnings volatility driven by natural peril events. New Zealand General Insurance 5

6 Figure 4: IAG reported versus underlying insurance margin (New Zealand business) 25.0% 20.0% 15.0% 10.0% 5.0% 0.0% -5.0% FY8 FY9 FY10 FY11 FY12 FY13 FY14 FY15 Reported insurance margin Underlying insurance margin Source: Company data, Credit Suisse estimates EQC a very long review The Canterbury earthquake sequence tested the EQC model like never before and raised questions over the existing policy settings. In September 2012, the New Zealand Finance Minister Bill English and the Minister Responsible for the Earthquake Commission Gerry Brownlee announced a legislative review of the Earthquake Commission Act The Government noted that: The review will not examine options such as closing the commission The review will not impact current Earthquake Commission claims and entitlements. The review will look at the level of cover provided by EQC, how the EQC prices its insurance and the financial management of the Crown s risk exposure The review committee was to release a document for public comment in March 2013 and legislation changes introduced in mid-2013; however, over two years after the proposed release date, the consultation document has not been published. We assume that the review has been put on hold due to the continued delay in finalising all of the claims from the Christchurch earthquakes. In our view, the current EQC model is not sustainable and this will be addressed in the review. However, with a number of claims still outstanding, EQC continues to play a very important role and hence the review is unlikely to be released in the near term. The November 2014 financial stability report notes that as at the end of September 2014, only 60-70% of the total claim cost had been paid, with the tail-end of the claims unlikely to be settled until at least The EQC remains a very important party in these final years. New Zealand General Insurance 6

7 Figure 5: Canterbury earthquake paid claims (cumulative six-monthly totals) Figure 6: Distribution of Canterbury earthquake insurance claims Private insurers 5% EQC Govt support 2% AMI Govt support 2% EQC's reinsurers 17% Private insurer's reinsurers 49% EQC fund 25% Source: Reserve Bank of New Zealand Financial Stability Report Nov 2014 Source: Reserve Bank of New Zealand Financial Stability Report Nov 2011, Credit Suisse estimates In our view, it is likely that the level of cover provided by the EQC will be reduced, passing on more risk to the insurance industry, and the price for EQC will increase again. The potential to transition to any new arrangements could assist in limiting the impact on policyholders in any one year, but this could also result in a continuation of premium rate increases for a number of years. For insurers, the outcome of the review could change the risk they retain and the price of such cover (passed on to policyholders). The review will cover: Which layer of loss (first loss/second loss) should be covered? Which types of natural disasters should be covered? How should multiple events be treated? Which types of property should be covered (residential, commercial)? Coverage of land/buildings/contents What types of limits, caps, and excesses should the scheme have? Should the EQC be mandatory or voluntary? Should the EQC levy be risk-based? If so, should it be a uniform levy reflecting national risk, or some finer level of pricing better reflecting particular regional or policyholder risks? What revenue collection mechanism should the EQC use? The EQC issues We outline the structure of the EQC, etc., in Appendix 2, but in summary the EQC provides natural disaster cover for purchases of home insurance and as a result of the multiple Christchurch earthquakes, EQC has insufficient funds to meet its liabilities. The EQC was set up as a self-funding entity and manages its risk exposure via a combination of self-insurance and purchasing reinsurance. Self-insurance involves the EQC using some of the levy income it collects to build up a pool of assets that can be used to meet claims in the event of a disaster. This pool of assets is referred to as the Natural Disaster Fund (NDF). New Zealand General Insurance 7

8 As at 30 June 2009, the NDF stood at ~NZ$6bn and the EQC held reinsurance of NZ$2.5bn. As a result of the Christchurch earthquakes, as at 30 June 2011 EQC did not have enough assets in the NDF to meet its expected claims costs, with liabilities expected to exceed assets by NZ$3.52bn. The Crown is ultimately liable for any shortfall and hence the government will pick up the bill once the NDF is fully depleted. In the process of meeting claims, the Fund s global equities were entirely liquidated by May A portion of Government stock holdings was also sold. Since then, the Fund has been made up of only New Zealand Government stock and bank securities. During the first half of 2012, EQC received its first payments from reinsurers. These payments are expected to continue until the reinsurers contractual obligations to EQC have been reached. At that time, the remaining earthquake claims will again be met by the Fund. If the Fund is fully exhausted, the Crown Guarantee will be activated i.e., the Government will meet further claims. As at 24 April 2015, EQC had paid out NZ$8.5bn out of an estimated NZ$12bn. As at 30 June 2014, the EQC had net liabilities of NZ$1.1bn, which is expected to be financed by the Government. Further to this, the EQC levy imposed on most households was generating income of around NZ$86mn per annum for the EQC. The EQC annual costs are ~NZ$100mn, including NZ$39mn for the cost of reinsurance. Fire service levy another lengthy review In August 2012, Internal Affairs Minister Chris Tremain announced a review of the functions and funding of New Zealand s fire services. In addition to the structure and operation of the New Zealand fire service, the review was also to look at the future options for funding the fire service. While the report was delivered in December 2012, there has been no change in legislation to date. On 31 October 2014, Internal Affairs Minister, the Honourable Peter Dunne outlined the next stage in the fire services review at the United Fire Brigades Association s Annual General Meeting. Mr Dunne noted that due to the election being brought forward (September 2014) the legislation process which aimed to address the mandate and governance issues unfortunately lost a bit of momentum. Parliament had to progress higher priority legislation at the time. Mr Dunne said that it would be a high priority over coming months; however, to date minimal changes have been made. Current FSL The Fire Service Act imposes an obligation on insurance companies that insure property located in New Zealand against loss or damage from fire to pay a levy to the Commission. The levy is calculated on the amount for which property is insured subject to certain limits and exclusions and is recovered by the insurance companies as a debt due from the insured party. The Act establishes three separate bases for calculating levy: for residential and personal property, the levy is calculated on the amount for which the property is insured subject to caps on the insured value of $100,000 and $20,000 respectively. The rate is set at 7.6 cents per $100 of insured value; for motor vehicles under 3.5 tonnes a flat rate of levy applies (presently $6.08 cents per vehicle); and for all other property the levy is calculated on the amount for which the property is insured subject to a cap of the indemnity value of the property. Indemnity value is not defined in the Act but is generally agreed to mean the actual value of the loss at the time the loss was incurred. It is usually calculated by reference to replacement value less accumulated depreciation. New Zealand General Insurance 8

9 Figure 7: Levy income by insurance class 2012/13 Insurance class Amount NZ$mn Percentage Residential buildings % Domestic contents % Private motor % Material damage % Commercial motor % Other business % Total % Source: NZ Government, Credit Suisse estimates Recommendations of review After reviewing submissions and discussions, the panel submitted a report to the Minister of Internal Affairs in December 2012 and recommended that the Fire Service levy provisions and other funding arrangements be amended to: shift the levy base for non-residential property from a levy on the amount for which property is insured to a levy on premiums; extend the levy base for non-residential property from contracts of fire insurance to all contracts of material damage; retain the present levy arrangements for residential and personal property but with the caps adjusted from their 1994 levels to the equivalent levels in the property market today; attract an appropriate contribution from the transport sector; and continue to have the discretion to charge for services delivered, with the exception of attendances at fires and other emergencies for which fire services are pre-funded under the new funding arrangements. Proposals for reform Minister Tremain reported back to Cabinet in August 2013 with details of his reform proposals. In regards to fire services funding, the proposals noted: Cabinet has agreed that a comprehensive review of fire services' funding will proceed on a more measured track. The Commission has a robust financial position, and there is no urgent need to reform its funding model Further consultation in early 2014 on options for reform of the funding model, and Cabinet decisions by 30 June 2014 on the preferred direction of funding reform Conclusion While the FSL calculation is likely to change from sum insured to premiums, to overcome some of the multi-property policies, it is likely that the funding remains via insurance in New Zealand in the near term. Any potential premium savings (via a reduction of this tax) that the insurance industry has lobbied for will not eventuate. ACC no further privatisation talk During the 2011 election campaign, the National party's policy on ACC included introducing choice to the Work account (allowing private insurers to compete with the ACC) and considering introducing choice in the Motor Vehicle and Earners accounts. With the ACC scheme now in a positive net asset position, well ahead of the 2019 target, opening the accounts up to private insurers is no longer a discussion point. New Zealand General Insurance 9

10 Market summary The ACC collected NZ$4.7bn in levies in the year ending 30 June 2014 with the work account contributing NZ$1,029mn. Figure 8: ACC levies for the year ending 30 June ,600 1,400 1,200 1, Earners account Motor account Work account Non-earners account Injury account Source: ACC, Credit Suisse estimates The unfunded liability has decreased significantly in recent years, to NZ$0.1bn at 30 June This is down from NZ$2.25bn at 30 June 2013 and NZ$7.2bn at 30 June The Work Account and the Earners Account are currently in the best financial condition compared to the other accounts, with significant surpluses. Total assets increases ~NZ$2.8bn in FY14, while total liabilities increase ~NZ$0.6bn, resulting in a significant improvement in the unfunded liability. This was assisted by 100bp increase in the discount rate. We note that in the December 2013 quarter, the total scheme moved to a positive net asset position. This was a again driven by an increase in the discount rate. Figure 9: ACC net funding position NZ$bn 30-Jun Jun Jun Jun-14 Earners account Work account Motor account Non-earners account Injury account Source: Company data, Credit Suisse estimates New Zealand General Insurance 10

11 Gross Written Premium (NZ$mn) 30 April 2015 New Zealand general insurance market Background The New Zealand general insurance market represents around A$5.1bn (NZ$5.3bn) in gross written premiums (as at 30 September 2014), around 15% of the combined Australian and New Zealand premium pool. The insurance companies operating in New Zealand are similar to those operating in Australia, as highlighted below: Figure 10: New Zealand market consolidated top 5 control 75% of market Gross written premium (NZ$mn) and market share 2,400 2,200 2,000 1,800 1,600 42% Top 5 control ~75% of market 1,400 1,200 24% 1, % % 6% 6% 3% 0% IAG SUN AMI WES QBE TWR FMG Other Source: Company data, Credit Suisse estimates, WES includes one half only The somewhat unique features of the New Zealand market are as follows: Liability classes publicly insured most types of personal injury (i.e. that would normally be insured under worker s compensation, CTP or public liability) are covered by the Accident Compensation Commission). The ACC is funded through levies on companies, employees, petrol, vehicle registration and indirectly though general taxation. The premium pool is around NZ$4.7bn and we consider it unlikely that this will be opened up to private insurers in the near term. Earthquake risk also largely public with the NZ Earthquake Commission (EQC) being the primary provider of insurance for residential property owners (to a maximum of NZ$100k + NZ$20k of personal effects). It insures against damage caused by earthquake, natural landslip, volcanic eruption, hydrothermal activity, tsunami (and storm, flood or fire caused by any of these). Direct channel immature relative to markets like Australia, the direct channel in New Zealand remains somewhat immature, with a large proportion of personal lines insurance still sold through intermediaries. New Zealand General Insurance 11

12 Net Earned Premium (A$m) Gross Written Premium (NZ$mn) 30 April 2015 Key insurance companies As in Australia, IAG and SUN are the dominant insurance groups in New Zealand, controlling ~70% of the New Zealand market (post IAG's acquisition of WES). The insurance companies operating in New Zealand are similar to those operating in Australia with the exceptions being FMG (mutual) and Tower (TWR.NZ/AX) operating only in New Zealand. We note that as of 5 April 2012, AMI new business came under the ownership of IAG, and as of 1 July 2014, the Wesfarmers underwriting business was transferred to IAG. As in Australia, QBE and WES (Lumley) have a substantial market position in commercial lines, with both companies running more specialist operations in NZ. Major overseas companies include: AIG, Ace, Allianz and Zurich. The successful personal lines insurers Youi obtained a license to operate in New Zealand on 28 July Figure 11: New Zealand market consolidated Gross written premium (NZ$mn) and market share 2,400 2,200 2,000 1,800 42% Figure 12: with bias to personal lines / short tail New Zealand gross written premium by class (%) Top 5 control Earthquake ~75% of market Motor 12% 29% Other* 6% 1,600 1,400 1,200 24% Marine and hull 3% 1, % Commercial liability 9% % 6% 6% 3% 0% IAG SUN AMI WES QBE TWR FMG Other Commercial property 13% Home & contents 28% Source: ICNZ, Company data, Credit Suisse estimates Mainly a short tail (property) market Source: ICNZ, Credit Suisse estimates * accident, travel etc Given the role of the ACC scheme in insuring personal injury, the privately insured New Zealand market has a heavy bias to short tail classes (91% of gross written premium in 2014 as highlighted in Figure 12). Despite also having large segments of the Australian liability market run by public schemes, liability classes make up a much larger proportion of the Australian market (~30%) as highlighted in Figure 14. Figure 13: Similar insurers operating in Australia Gross written premium (A$mn) and market share 8,000 7,000 6,000 25% 23% Figure 14: with larger long tail mix Australian gross written premium by class (%) Professional Other 4% 3% Top 5 control Public ~75% of market 23% 6% Motor (Personal) Employers 23% 4% 5,000 4,000 3,000 14% 11% Marine 2% Fire 11% 2,000 1, % 2% IAG SUN QBE Allianz WES Zurich Others Commercial motor 5% Mortgage 4% CTP 10% Other accidents 3% Home 22% Source: Company data, APRA, Credit Suisse estimates As mentioned above, ~NZ$4.7bn of liability insurance sits within the ACC scheme. Source: APRA, Credit Suisse estimates * accident, travel etc New Zealand General Insurance 12

13 Distribution channels The NZ general (P&C) insurance market remains dominated by intermediaries, with the following distribution channels: Intermediated (61% of market) sold through intermediaries (brokers). Main brokers in NZ include Marsh, Aon, Crombie Lockwood (owned by SDF). Direct (26% of market) much smaller percentage of the market than Australia, with only a few large direct operators in NZ, namely: State (IAG), AMI (IAG), Tower and AA Insurance (SUN). We deem there to be significant scope for this channel to grow in NZ over the medium term as demonstrated by Youi recently gaining a licence. Alliance (13% of market) this channel mostly relates to insurance (mainly personal lines) sold through the major banks in New Zealand (Figure 18 highlights which insurers underwrite which banks). Figure 15: New Zealand market positioning by channel (NZ$mn premium) IAG SUN WES QBE TWR AIG Allianz FMG ACE Others Direct Alliances Broker Source: Company data, ICNZ, Credit Suisse estimates, TWR includes Pacific Islands, WES is pre the acquisition by IAG and also incorporated in IAG now New Zealand General Insurance 13

14 Market shares by channel Market share by intermediated and direct channels as follows: Figure 16: NZI and Vero dominate broker channel Intermediated GWP (NZ$mn) and market share (%) Figure 17: with IAG largest in direct post AMI purchase Direct channel GWP (NZ$mn) and market share (%) % 28% % % 9% % 200 5% 4% 4% % 9% 0 NZI (IAG) Vero (SUN) QBE Lumley (WES) AIG Allianz ACE 0 State/AMI (IAG) AA Insurance (SUN) Tower FMG Source:Company data, Credit Suisse estimates Insurance brands by channel Source: Company data, Credit Suisse estimates The key insurance groups and operating brand by channel are highlighted below. For the major banks in New Zealand, we highlight the current underwriter of their general (P&C) insurance sales. New Zealand General Insurance 14

15 Figure 18: New Zealand general (P&C) insurance market brands by segment / market share Group Direct Broker Alliances Source: Company data, ICNZ, Credit Suisse Industry trends Industry profitability Industry profitability deteriorated in 2006 and remained low for a number of years, primarily driven by an increase in the level of insured losses from natural catastrophes (see Figure 19 and Figure 20). The 2011 year was impacted by the Christchurch earthquakes. In recent years industry profitability has been improving, with 2014 deliver a combined ratio back in line with We note that reserve increases from the 2011 earthquake continue to impact current financial year profits, excluding the impact of earthquake claims, profitability in 2014 was back to historically record levels. New Zealand General Insurance 15

16 Equivalent insurance cost (NZ$mn) 30 April 2015 Figure 19: Combined ratios improving Combined ratio (% net earned premium) 150% 125% 100% 75% 50% 25% 0% Figure 20: main improvement in home Loss ratios by class (% net earned premium) Loss ratios (%) Motor 74.5% 69.6% 63.5% 64.9% 66.0% Home & contents 73.2% 79.7% 59.3% 58.1% 52.2% Commercial property* 73.0% 56.7% 65.5% 59.6% 63.3% Commercial liability 43.8% 38.2% 43.9% 42.0% 31.0% Marine and hull 59.9% 65.7% 64.4% 42.7% 47.5% Earthquake 0.5% 1.2% 201.8% 115.1% 108.8% Other* 61.6% 50.8% 59.2% 53.4% 49.4% Market 68.0% 63.3% 67.9% 62.0% 60.1% Expense Ratio Loss Ratio Source: ICNZ, Company data, Credit Suisse estimates Source: ICNZ, Company data, Credit Suisse estimates We note that the large earthquakes in Christchurch resulted in significant increases in reinsurance costs and as a result large increases were passed on to home policies. In our view, underlying profitability was also targeted with the home rate increases recovering more than the increased cost of reinsurance for many players. Figure 21: New Zealand natural catastrophe insured losses Insured losses from NZ natural catastrophes (equivalent current cost NZ$mn) by half year Canterbury earthquakes ~$17bn Storms - Auckland/ Coromandel $64mn yr average (pre 2010) ~NZ$27m p/h Jun-04 North Island storms NZ$112m Canterbury Snowstorm NZ$43m North Island Storms Greymount tornado / Christchruch hailstorm 0 Dec-14 Jun-14 Dec-13 Jun-13 Dec-12 Jun-12 Dec-11 Jun-11 Dec-10 Jun-10 Dec-09 Jun-09 Dec-08 Jun-08 Dec-07 Jun-07 Dec-06 Jun-06 Dec-05 Jun-05 Dec-04 Jun-04 Dec-03 Jun-03 Dec-02 Jun-02 Dec-01 Jun-01 Dec-00 Jun-00 Dec-99 Jun-99 Dec-98 Jun-98 Dec-97 Jun-97 Dec-96 Jun-96 Dec-95 Jun-95 Source: ICNZ, Company data, Credit Suisse estimates Industry profitability improved in 2014, driven largely by the performance of SUN. We note that current year profits continue to be impacted by prior year earthquake reserve increases, distorting the true profitability for many players. New Zealand General Insurance 16

17 Figure 22: New Zealand general (P&C) insurers key financial metrics Gross written premium (NZ$mn / growth %p.a.), combined ratio (%), underwriting profit (%) and market share (%) GWP (NZ$mn) GWP growth (%pa) YE IAG Dec* 1,203 1,175 1,219 1,332 1,817 2,016 2,259 IAG 8.4% -2.3% 3.7% 9.3% 36.4% 10.9% 12.1% SUN Dec* ,125 1,237 1,280 SUN 11.2% -4.9% 9.2% 17.4% 14.3% 10.0% 3.5% AMI Jun AMI 7.4% 10.9% 9.5% 5.2% WES Jun WES 7.8% 2.6% 2.1% 4.9% 11.1% 13.5% 5.9% QBE Dec QBE 8.1% 4.9% 0.7% 12.3% 16.9% 4.3% -2.3% TWR Sept TWR 1.7% 1.8% -3.4% 3.9% 16.9% 12.2% 6.6% AIG Nov AIG -9.5% -6.3% 1.9% 18.2% 39.5% 0.6% 0.5% Allianz Dec Allianz 8.1% 11.6% 10.1% 30.2% -0.7% 1.8% 0.0% FMG Mar FMG -0.9% 5.0% -0.8% 7.6% 16.1% 21.9% 4.9% ACE Dec ACE -13.6% 1.6% 9.4% 51.1% 15.5% 1.5% 2.0% Market^ Sept 3,524 3,700 3,935 4,364 4,841 5,218 5,233 Market^ 5.3% 5.0% 6.4% 10.9% 10.9% 7.8% 3.8% NEP (NZ$mn) NEP / GWP (%) YE IAG Dec* 1,045 1,083 1,135 1,078 1,485 1,654 1,983 IAG 86.9% 92.1% 93.1% 80.9% 81.7% 82.0% 87.8% SUN Dec* ,026 SUN 88.7% 86.7% 87.3% 57.1% 68.8% 74.6% 80.2% AMI Jun AMI WES Jun WES 76.5% 79.1% 83.7% 82.9% 82.0% 85.2% 87.3% QBE Dec QBE 49.1% 49.9% 46.3% 37.6% 39.6% 49.4% 47.2% TWR Sept TWR 90.7% 91.9% 90.1% 86.8% 79.5% 78.5% 73.7% AIG Nov AIG 62.8% 67.9% 68.6% 53.2% 41.9% 41.6% 41.4% Allianz Dec Allianz 64.5% 59.7% 62.1% 48.3% 45.2% 62.9% 62.9% FMG Mar FMG 87.1% 87.4% 87.4% 88.9% 88.9% 87.2% 86.8% ACE Dec ACE 30.5% 30.7% 43.3% 45.5% 35.1% 34.6% 35.2% Combined ratio (%) Underwriting profit (NZ$mn) YE IAG Dec* 105.3% 91.3% 84.6% 109.4% 89.1% 84.8% 86.3% IAG SUN Dec* 93.7% 91.1% 97.1% 146.4% 95.2% 93.5% 85.5% SUN AMI Jun 93.7% 99.7% 92.3% 93.1% 0.0% 0.0% 0.0% AMI WES Jun 110.0% 99.6% 95.6% 107.4% 152.0% 92.9% 101.2% WES QBE Dec 92.9% 85.9% 102.8% 117.8% 80.5% 80.4% 86.3% QBE TWR Sept 94.5% 92.8% 86.7% 85.0% 96.3% 98.3% 90.0% TWR AIG Nov 94.5% 111.2% 163.7% 129.5% 110.4% 116.0% 110.3% AIG Allianz Dec 116.2% 81.4% 99.2% 118.1% 93.0% 70.8% 70.8% Allianz FMG Mar 87.8% 78.7% 80.0% 79.1% 65.1% 72.2% 75.2% FMG ACE Dec 109.1% 102.9% 90.7% 86.1% 92.8% 85.0% 85.3% ACE Market^ 101.1% 97.5% 100.7% 146.4% 98.9% 96.3% 93.7% Market^ , GWP market share (%) UW profit market share (%) YE IAG Dec* 34.1% 31.8% 31.0% 30.5% 37.5% 38.6% 43.2% IAG 44.5% 81.3% 26.9% 122.8% 55.7% 52.0% SUN Dec* 22.9% 20.8% 21.3% 22.5% 23.2% 23.7% 24.5% SUN 27.7% 10.0% 69.0% 28.0% 13.3% 28.5% AMI Jun 8.2% 8.7% 8.9% 8.5% 0.0% 0.0% 0.0% AMI 0.5% 12.6% -6.7% 0.0% 0.0% 0.0% WES Jun 8.9% 8.7% 8.4% 7.9% 7.9% 8.3% 8.8% WES 0.5% 5.7% 5.6% % 5.8% -0.9% QBE Dec 6.4% 6.4% 6.0% 6.1% 6.4% 6.2% 6.1% QBE 7.8% -1.4% 4.7% 18.3% 7.0% 3.9% TWR Sept 5.9% 5.7% 5.2% 4.9% 5.1% 5.4% 5.7% TWR 6.6% 11.4% -6.5% 21.0% 1.6% 0.7% AIG Nov 3.3% 2.9% 2.8% 3.0% 3.7% 3.5% 3.5% AIG -5.7% -32.5% 10.1% -14.2% -6.4% -3.6% Allianz Dec 2.5% 2.7% 2.8% 3.2% 2.9% 2.7% 2.7% Allianz 8.6% 0.4% 6.8% 7.5% 9.2% 8.0% FMG Mar 2.8% 2.8% 2.6% 2.5% 2.6% 3.0% 3.1% FMG 10.3% 9.5% -6.1% 33.7% 9.6% 7.7% ACE Dec 1.8% 1.8% 1.8% 2.5% 2.6% 2.4% 2.5% ACE -0.9% 3.1% -3.9% 6.7% 4.2% 3.6% Source: Source: Company data, ICNZ, Credit Suisse estimates, *IAG and SUN are Jun YE (AUD management accounts by half added to create Dec YE), ^QBE is branch office and their data has not been included in ICNZ statistics historically however EQC is included, TWR includes Pacific Islands. QBE, ACE and AIG complete data not available for most recent year New Zealand General Insurance 17

18 Growth outlook slowing The growth rate in New Zealand general (P&C) insurance premiums split by product in 2014 is distorted by QBE joining the ICNZ August The 2013 year therefore only had one quarter of QBE GWP however 2014 had the full 12 months. While we have adjusted for this at the total industry level, we don t have a product class split for QBE and hence the product breakdown in distorted. In our view, most of QBE's GWP (NZ$318mn in 2014) is in commercial property and liability. These lines of business appear to have a strong increase in the year; however, we estimate that property GWP was down by over 5% with liability close to flat in the year. Motor is also impacted slightly due to the inclusion of commercial motor. Overall the total industry GWP growth slowed to ~5% and we expect this to slow further in 2015, approaching zero, in our view. Figure 23: NZ growth rates continue to slow GWP by class (NZ$mn) 6,000 5,000 4,000 3,000 2,000 1, % 7.2% 11.8% 10.4% 5.5% 5.2% 4.8% 15.8% 5.7% 5.2% 0.6% 2.9% 18.0% Motor Home & contents Commercial property Commercial liability Marine and hull Earthquake Other* Source: ICNZ, Credit Suisse estimates Figure 24: product split distorted by QBE in 2014 Growth rate by class (%p.a.) Growth rates (%pa) Motor 5.8% 1.1% 4.1% 7.0% Home & contents 12.7% 11.2% 14.7% 10.1% Commercial property* 7.1% 17.4% 1.4% 14.4% Commercial liability 5.2% 7.8% 9.2% 24.0% Marine and hull 4.9% 15.1% -4.9% 2.4% Earthquake 59.1% 56.6% 11.0% 5.6% Other* -0.6% 2.4% 0.7% 13.7% Industry 10.4% 11.8% 7.2% 5.2% Source: ICNZ, Credit Suisse estimates New Zealand General Insurance 18

19 IAG New Zealand (GWP NZ$2.2bn, 42% market share, NZ 19% of group premiums) IAG New Zealand is New Zealand s largest general insurer, with ~NZ$2.2bn in gross written premium (year to 31 December 2014) and ~42% market share. Prior to the acquisition of AMI IAG had a ~30% market share and New Zealand contributed just over 10% of group premiums. IAG has recently acquired Lumley New Zealand, which will increase their market share to ~50% in Currently IAG offers most of its products under the State (direct), AMI (direct) and NZI (intermediated) brands. In addition, IAG also underwrites insurance for the ASB and BNZ banks in New Zealand. IAG also owns Mike Henry Travel Insurance (travel), NAC Insurance (higher-risk motor), Swann Insurance (motor, warranty and consumer credit) and Lantern (NZI direct). In acquiring Lumley, IAG now includes the Lumley brand and also the underwriting for Westpac Bank in New Zealand. Figure 25: IAG brands by channel Group Direct Broker Alliances Source: Company data, ICNZ, Credit Suisse The current CEO of IAG NZ is Jacki Johnson, who replaced Ian Foy in November Previously, she was building IAG s direct business, The Buzz, and running an intermediated business, as CEO of CGU s Business Partnerships. IAG NZ represents around 19% of total IAG group premiums (~12% pre AMI) and while 2011 was impacted by the earthquake claims, the business has produced industry-leading profitability in recent years, aided by AMI synergies. Figure 26: IAG NZ 19% of IAG group premiums New Zealand 19% Australia - intermediated 31% Europe 0% Asia 3% Australia - direct 47% Figure 27: IAG NZ combined ratio vs peers FY14 YE IAG Dec* 91.3% 84.6% 109.4% 89.1% 84.8% 86.3% SUN Dec* 91.1% 97.1% 146.4% 95.2% 93.5% 85.5% AMI Jun 99.7% 92.3% 93.1% 0.0% 0.0% 0.0% WES Jun 99.6% 95.6% 107.4% 152.0% 92.9% 101.2% QBE Dec 85.9% 102.8% 117.8% 80.5% 80.4% 86.3% TWR Sept 92.8% 86.7% 85.0% 96.3% 98.3% 90.0% AIG Nov 111.2% 163.7% 129.5% 110.4% 116.0% 110.3% Allianz Dec 81.4% 99.2% 118.1% 93.0% 70.8% 70.8% FMG Mar 78.7% 80.0% 79.1% 65.1% 72.2% 75.2% ACE Dec 102.9% 90.7% 86.1% 92.8% 85.0% 85.3% Market^ 97.5% 100.7% 146.4% 98.9% 96.3% 93.7% Source: Company data, Credit Suisse estimates Source: Company data, Credit Suisse estimates New Zealand General Insurance 19

20 Figure 28: IAG NZ key operating metrics, improving in recent periods IAG NZ Jun-08 Dec-08 Jun-09 Dec-09 Jun-10 Dec-10 Jun-11 Dec-11 Jun-12 Dec-12 Jun-13 Dec-13 Jun-14 Dec-14 GWP - A$mn ,116 NEP - A$mn ,005 GWP - NZ$mn ,009 1,004 1,038 1,223 Growth (%pa) 10.8% 6.1% -2.5% 0.1% -0.6% 5.7% 4.3% 14.3% 37.3% 35.6% 17.5% 4.8% 2.8% 21.8% NEP - NZ$mn ,101 Exp ratio (%) 21.7% 21.8% 19.9% 19.0% 20.2% 17.1% 21.2% 17.8% 18.1% 17.1% 18.5% 19.9% 17.8% 17.7% Comm ratio (%) 11.5% 12.6% 11.2% 12.1% 12.3% 11.9% 13.4% 12.3% 11.7% 10.7% 11.3% 11.1% 10.5% 12.0% Loss ratio (%) 68.5% 74.3% 65.6% 55.0% 55.7% 52.1% 91.4% 65.6% 56.4% 63.7% 56.7% 52.3% 61.7% 53.5% COR (%) 101.7% 108.7% 96.7% 86.1% 88.2% 81.1% 126.0% 95.8% 86.2% 91.5% 86.5% 83.2% 90.0% 83.3% Insurance Margin (%) 1.0% -3.9% 4.0% 15.0% 14.3% 19.8% -23.3% 7.3% 13.0% 8.3% 9.5% 12.4% 10.7% 19.2% Source: Company data, Credit Suisse estimates New Zealand General Insurance 20

21 SUN NZ (GWP NZ$1.3bn, 24% market share, NZ 14% of group premiums) SUN operates in New Zealand through Vero (intermediated) and AA Insurance (direct through the AAMI Australian franchise). Vero Insurance NZ consists of several specialist insurance and risk management companies including Vero Accident & Health, Vero Commercial & Personal, Vero Commercial Motor, Vero Consumer Insurance Specialists, Vero Liability, Vero Marine, Vero Specialist Risks, Mariner, Comprehensive Travel and Autosure. Figure 29: SUN NZ brands by channel Group Market Direct Broker Alliances Share 23% Source: Company data, ICNZ, Credit Suisse SUN replaced the CEO of 8 years, Roger Bell, in April The current Vero NZ CEO is Gary Dransfield, who was previously Executive General Manager, Retail Division for SUN s personal insurance business. Mr Dransfield has over 25 years of financial services experience in insurance and retail banking. SUN NZ represents around 14% of total Group premiums and has been impacted in recent periods by the Christchurch earthquakes and subsequent reinsurance increases. The most recent year saw SUN produce industry-leading financials in New Zealand. Figure 30: Vero NZ 14% of group premiums New Zealand 14% Western Australia 7% Victoria 18% Other 7% Queensland 26% New South Wales 28% Figure 31: Vero NZ combined ratio vs peers YE IAG Dec* 91.3% 84.6% 109.4% 89.1% 84.8% SUN Dec* 91.1% 97.1% 146.4% 95.2% 93.5% 85.5% AMI Jun 99.7% 92.3% 93.1% 0.0% 0.0% 0.0% WES Jun 99.6% 95.6% 107.4% 152.0% 92.9% 101.2% QBE Dec 85.9% 102.8% 117.8% 80.5% 80.4% 86.3% TWR Sept 92.8% 86.7% 85.0% 96.3% 98.3% 90.0% AIG Nov 111.2% 163.7% 129.5% 110.4% 116.0% 110.3% Allianz Dec 81.4% 99.2% 118.1% 93.0% 70.8% 70.8% FMG Mar 78.7% 80.0% 79.1% 65.1% 72.2% 75.2% ACE Dec 102.9% 90.7% 86.1% 92.8% 85.0% 85.3% Market^ 97.5% 100.7% 146.4% 98.9% 96.3% 93.7% Source: Company data, Credit Suisse estimates Source: Company data, Credit Suisse estimates Figure 32: Vero NZ key operating metrics Vero NZ Jun-08 Dec-08 Jun-09 Dec-09 Jun-10 Dec-10 Jun-11 Dec-11 Jun-12 Dec-12 Jun-13 Dec-13 Jun-14 Dec-14 GWP - A$mn NEP - A$mn GWP - NZ$mn Growth (%pa) 15.8% 6.8% -12.0% 4.4% 9.5% 7.0% 12.6% 21.4% 20.9% 8.9% 10.3% 9.0% 4.9% 2.8% NEP - NZ$mn Exp ratio (%) 10.1% 11.7% 8.6% 11.2% 10.1% 8.0% 15.3% 8.4% 8.8% 9.0% 9.7% 10.5% 9.5% 9.6% Comm ratio (%) 22.2% 21.6% 25.9% 23.4% 21.9% 23.9% 66.2% 16.4% 26.1% 26.9% 25.1% 24.0% 23.0% 23.8% Loss ratio (%) 54.5% 67.5% 57.3% 55.9% 58.0% 72.3% 150.3% 72.6% 65.4% 54.8% 56.6% 60.7% 54.8% 50.3% COR (%) 86.9% 100.8% 91.8% 90.5% 90.0% 104.2% 231.8% 97.4% 100.4% 90.7% 91.4% 95.2% 87.3% 83.7% Insurance Margin (%) 15.5% 5.2% 9.0% 11.9% 12.5% -1.7% % 4.7% 1.8% 11.5% 10.2% 5.0% 14.6% 19.0% Source: Company data, Credit Suisse estimates New Zealand General Insurance 21

22 Lumley NZ (GWP NZ$0.46bn, 9% market share, NZ 22% of group premiums) Lumley NZ was formerly part of the Wesfarmers (WES) group and accounted for around 22% of the general (P&C) insurance gross written premiums of WES insurance division. IN July 2014, IAG formerly acquired the Lumley New Zealand business. Going forward, Lumley will be included within the IAG financials; however, we have included the Lumley June 2014 results for comparison. Lumley is a specialist commercial lines insurer with a key strength in commercial motor (as in Australia). Lumley underwrites insurance for Westpac in NZ, which are mainly personal lines. In addition, Lumley NZ owned insurance broker Crombie Lockwood (recently acquired by Arthur J Gallaghers). Figure 33: WES NZ brands by channel Group Direct Broker Alliances Source: Company data, ICNZ, Credit Suisse John Lyon was appointed CEO of Lumley NZ in May 2008 and has over 30 years' experience in general insurance in NZ, Ireland and the UK. Prior to joining Lumley, John spent the previous 17 years with Vero (last role EGM Insurance Services). Lumley s New Zealand operation has historically not been one of the more profitable players in the market, with one of the highest COR s in the industry. Figure 34: Lumley NZ key financial metrics New Zealand (NZ$mn) Jun-09 Jun-10 Jun-11 Jun-12 Jun-13 Jun-14 Gross written premium Net earned premium Net claims incurred Commissions Underwriting result before expenses Administration costs Underwriting result Insurance inv income (technical and shareholders) Insurance result Claims Ratio 60.5% 56.8% 68.1% 118.2% 58.4% 68.1% Commission Ratio 31.1% 29.6% 29.1% 30.2% 29.7% 29.0% Expense Ratio 8.0% 9.1% 10.3% 3.6% 4.7% 4.1% Combined Ratio 99.6% 95.6% 107.4% 152.0% 92.9% 101.2% Insurance Margin 4.4% 7.0% -4.2% -49.4% 11.0% 3.3% Source: Company data, Credit Suisse estimates Figure 35: Lumley NZ combined ratio vs peers YE IAG Dec* 91.3% 84.6% 109.4% 89.1% 84.8% SUN Dec* 91.1% 97.1% 146.4% 95.2% 93.5% 85.5% AMI Jun 99.7% 92.3% 93.1% 0.0% 0.0% 0.0% WES Jun 99.6% 95.6% 107.4% 152.0% 92.9% 101.2% QBE Dec 85.9% 102.8% 117.8% 80.5% 80.4% 86.3% TWR Sept 92.8% 86.7% 85.0% 96.3% 98.3% 90.0% AIG Nov 111.2% 163.7% 129.5% 110.4% 116.0% 110.3% Allianz Dec 81.4% 99.2% 118.1% 93.0% 70.8% 70.8% FMG Mar 78.7% 80.0% 79.1% 65.1% 72.2% 75.2% ACE Dec 102.9% 90.7% 86.1% 92.8% 85.0% 85.3% Market^ 97.5% 100.7% 146.4% 98.9% 96.3% 93.7% Source: Company data, Credit Suisse estimates New Zealand General Insurance 22

23 QBE NZ (GWP NZ$0.3bn, 6% market share, NZ ~1.5% of group premiums) QBE Insurance has been operating in New Zealand since 1890 offering a comprehensive range of business insurance products to cover businesses of all sizes from smaller business to large corporates. Underwriting risk in the corporate, commercial and professional insurance sectors, QBE provides all classes of business insurance including liability insurance, property insurance, marine insurance, trade credit insurance, contract works & engineering insurance, and accident & health insurance. QBE recently moved the New Zealand business from the Asia Pacific region and combined it with the Australian business under Colin Fagen. Figure 36: QBE NZ key financial metrics NZ$mn Gross written premium Net earned premium Net claims incurred Commission expenses Other Underwriting exp Underwriting result Investment income Insurance result Claims Ratio 49.2% 45.6% 59.0% 66.6% 37.7% 34.9% Commission Ratio 17.0% 16.1% 18.3% 21.3% 16.6% 21.6% Expense Ratio 26.6% 24.1% 25.4% 29.9% 26.2% 23.9% Combined Ratio 92.9% 85.9% 102.8% 117.8% 80.5% 80.4% Insurance Margin 23.9% 27.6% 8.0% -7.0% 27.4% 26.1% Source: Company data, Credit Suisse estimates Figure 37: QBE NZ combined ratio vs peers YE IAG Dec* 91.3% 84.6% 109.4% 89.1% 84.8% SUN Dec* 91.1% 97.1% 146.4% 95.2% 93.5% 85.5% AMI Jun 99.7% 92.3% 93.1% 0.0% 0.0% 0.0% WES Jun 99.6% 95.6% 107.4% 152.0% 92.9% 101.2% QBE Dec 85.9% 102.8% 117.8% 80.5% 80.4% 86.3% TWR Sept 92.8% 86.7% 85.0% 96.3% 98.3% 90.0% AIG Nov 111.2% 163.7% 129.5% 110.4% 116.0% 110.3% Allianz Dec 81.4% 99.2% 118.1% 93.0% 70.8% 70.8% FMG Mar 78.7% 80.0% 79.1% 65.1% 72.2% 75.2% ACE Dec 102.9% 90.7% 86.1% 92.8% 85.0% 85.3% Market^ 97.5% 100.7% 146.4% 98.9% 96.3% 93.7% Source: Company data, ICNZ, Credit Suisse estimates QBE has historically outperformed the market, but experienced significant deterioration in Based on industry statistics we attribute most of this to QBE s dominance in the liability market. With a skew to liability exposure reserve releases can play a major part in financial year reported ratios and hence a true level of QBE s underwriting profitability for New Zealand is difficult to determine. New Zealand General Insurance 23