ASX 26nov08 QBE Announces Acquisitions Etc

QBE INSURANCE GROUP LIMITED
ABN 28 008 485 014
82 Pitt Street
Sydney NSW 2000
Postal Address
26 November 2008 GPO Box 82
Sydney NSW 2001
Telephone: (02) 9375 4444

Facsimile: (02) 9231 6104
DX 10171 Sydney Stock Exchange
The Manager
Company Announcements
ASX Limited
Level 6
Exchange Centre
20 Bridge Street
SYDNEY NSW 2000
Dear Sir/Madam,
re: QBE ANNOUNCES ACQUISITIONS, UPDATED REVENUE

FORECASTS AND CAPITAL MANAGEMENT INITIATIVES
Please find attached for release to the market:
1. Market Announcement;
2. Supplement to Market Announcement;
3. Supplemental Disclosure Information; and
4. Market Announcement on offers to exchange outstanding
capital securities for new notes.
Yours faithfully,
Duncan Ramsay
Company Secretary
Encs.
MARKET ANNOUNCEMENT
QBE ANNOUNCES ACQUISITIONS, UPDATED REVENUE FORECASTS AND CAPITAL
MANAGEMENT INITIATIVES
THIS MARKET ANNOUNCEMENT OUTLINES:
• a number of acquisitions, the largest being ZC Sterling Corporation (“ZCS”)

• an upgrade of 2008 and 2009 premium revenue expectations, including the positive impact of
the lower Australian dollar and acquisitions
• an accelerated, fully underwritten institutional share placement to raise A$2 billion together with
a non-underwritten retail share purchase plan to raise a maximum of A$100 million to fund the
acquisitions and 2009 expected growth. The new shares will be entitled to participate in the final
2008 dividend
• a buyback of up to A$1.25 billion in face value of tier 1 securities, at a discount, in exchange for
senior debt securities to provide balance sheet flexibility for the future.
ACQUISITIONS
i) QBE Holdings Inc has entered into an agreement to purchase ZCS, a US based underwriting
agency for an up-front payment of US$575 million. ZCS specialises, and has sizeable market
shares, in:
• property insurance to protect the lender in the event that the original homeowners’ insurance
policy is either cancelled or not renewed; and
• voluntary homeowners’ insurance through relationships with homebuilders, mortgage
originators and real estate brokerage firms.
ZCS is not involved with lenders’ mortgage insurance.
ZCS earns commission revenue on the insurance policies placed with insurers. QBE’s
acquisition of ZCS provides access to both the agency income and underlying insurance
business. The ZCS acquisition is expected to generate additional gross written premium for
QBE of around US$425 million in 2009 and US$575 million in 2010.
ii) QBE has also reached agreement to acquire two further underwriting agencies in the US and
one in Europe and also a renewal rights portfolio in the US. Additional gross written premium is
expected to be US$100 million in 2009.
In the first full year, the five acquisitions are expected to produce gross written premium of close to
US$525 million and profit after tax of around US$175 million. The initial purchase price for all the
acquisitions is around US$695 million.
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GROUP REVENUE FORECASTS
For 2008, the targets advised to the market in August have been upgraded to 7.5% growth in gross
written premium or A$13.3 billion and 10% growth in net earned premium or A$11.2 billion if the
value of the Australian dollar continues at current levels for the remainder of the year.
For 2009, based on an average Australian dollar exchange rate equal to US 70 cents and Sterling 40
pence and anticipated organic growth and acquisitions in 2008, gross written premium is expected to
be around A$16.5 billion and net earned premium A$14.0 billion. Net earned premium for 2009 is
targeted to increase by 25% compared with our 2008 forecast.
With around 80% of QBE’s gross written premium in currencies other than the Australian dollar, the
weaker Australian dollar, particularly compared with the US dollar and Sterling, has had a significant
positive impact on QBE’s premium income.
CAPITAL MANAGEMENT INITIATIVES
QBE proposes to conduct an accelerated, fully underwritten share placement to institutional investors
to raise A$2 billion. QBE also proposes to conduct a non-underwritten share purchase plan for
eligible retail shareholders to raise up to A$100 million. QBE also intends to buy back up to A$1.25
billion in face value of its tier 1 perpetual securities issued in 2006 and 2007 in exchange for five year
senior notes. The buy back will be offered at a discount to face value.
A 24 hour trading halt has been requested to complete the share placement and the launch of the
capital management initiatives.
Mr Frank O’Halloran, Chief Executive Officer, said “The acquisition of the four underwriting agencies
and the renewal rights portfolio is consistent with our strategy to build our distribution channels for
profitable niche products. Based on our projections and the increased number of shares, the
acquisitions will be earnings per share accretive in year one.”
He further added ”The capital raising and the other capital management initiatives will assist in
funding the acquisitions and our 2009 growth as well as provide further balance sheet strength and
flexibility for other opportunities.”
For further information, please phone +61 2 9375 4226 or email investor.relations@qbe.com
26 November 2008
NOT FOR DISTRIBUTION OR RELEASE IN THE UNITED STATES OR TO U.S.

PERSONS
This market announcement does not constitute an offer to sell, or the solicitation of any offer to buy,
any securities in the United States or to, or for the account or benefit of, any “U.S. person” (as
defined in Regulation S under the U.S. Securities Act of 1933, as amended (the “Securities Act”).
Securities may not be offered or sold in the United States or to, or for the account or benefit of, U.S.
persons absent registration under the Securities Act or an exemption from registration.
QBE has lodged with the ASX a document entitled "Supplemental Disclosure Information" that
includes information relating to its business, results of operation and financial condition, as well as
risk factors relating to current market conditions, its proposed acquisitions and its business
operations, among other things. Investors are encouraged to read this document, in addition to
QBE's other ASX continuous disclosure documents.
QBE Insurance Group
Acquisitions, upgrade of revenue

forecasts and capital management
initiatives
Supplement to market announcement

26 November 2008
NOT FOR DISTRIBUTION OR RELEASE IN THE UNITED STATES OR TO U.S. PERSONS
Important Notice
This presentation has been solely prepared by QBE Insurance Group Limited ("QBE") and contains information
regarding certain proposed acquisitions (the “Acquisitions”) by QBE, including the acquisition of ZC Sterling
Corporation ("ZCS"), upgrade of revenue forecasts and certain capital management initiatives.
This presentation, including the information contained in this disclaimer, does not constitute a prospectus or offering
memorandum or an offer to sell, or a solicitation of an offer to buy, securities in the United States or to any U.S
persons (as defined in Regulation S under the U.S. Securities Act of 1933, as amended ("U.S. Securities Act")), and
is not available to persons in the United States or to U.S. persons. Securities may not be offered or sold in the
United States, or to or for the account or benefit of, any U.S. person, unless the securities have been registered
under the U.S. Securities Act or an exemption from registration is available. The shares the subject of the placement
referred to herein not been and will not be registered under the U.S. Securities Act.
The distribution of this presentation in other jurisdictions outside Australia may also be restricted by law and any
such restrictions should be observed. Any failure to comply with such restrictions may constitute a violation of
applicable securities laws.
This presentation, including the information contained in this disclaimer, does not constitute an offer, invitation,
solicitation, advice or recommendation with respect to the issue, purchase or sale of any security in any jurisdiction.
This presentation has been prepared for informational purposes only and does not take into account your individual
investment objectives, including the merits and risks involved in an investment in shares, or your financial situation or
particular needs. You must not act on the basis of any matter contained in this presentation, but must make your
own independent assessment, investigations and analysis of QBE and the shares the subject of the placement
referred to herein and obtain any professional advice you require before making any investment decision based on
your investment objectives.
This presentation has been prepared based on information available to QBE. It contains certain information relating
to the proposed Acquisitions which has been compiled by QBE from publicly available sources or from information
provided by ZCS, and has not been independently verified by QBE, its directors, employees, agents, consultants or
advisers. The proposed Acquisitions are subject to conditions, and may not be completed. All information in this
presentation is believed to be reliable, but no representation, warranty or guarantee, express or implied, is made by
QBE or its affiliates, partners, directors, officers, employees, agents, consultants, associates or advisers, nor any
other person (collectively, the “Beneficiaries”) as to the fairness, accuracy, completeness, reliability or correctness of
the information, opinions and conclusions contained in this presentation (including, without limitation, any estimates,
calculations, projections or forward looking statements). No action should be taken on the basis of the information,
and no reliance may be placed for any purpose on the accuracy or completeness of the information or opinions
contained in this presentation.
By accepting this presentation you represent and warrant that you are entitled to receive such presentation in
accordance with the above restrictions and agree to be bound by the limitations contained herein.

2
Forward looking statements
These materials include forward-looking statements regarding future events and the future financial performance of QBE,
including statements that the transactions are expected to be accretive. Any forward looking statements involve subjective
judgment and analysis and are subject to significant regulatory, business, competitive and economic uncertainties, risks and
contingencies, many of which are outside the control of, and are unknown to, QBE, and the success of QBE’s business
strategies.
No representation, warranty or assurance (express or implied) is given or made in relation to any forward looking statement
by any person (including QBE). In particular, no representation, warranty or assurance (express or implied) is given that the
occurrence of the events expressed or implied in any forward-looking statements in this presentation will actually occur.
Actual results, performance or achievement may vary materially from any projections and forward looking statements and the
assumptions on which those statements are based. Given these uncertainties, readers are cautioned to not place undue
reliance on such forward looking statements.
The forward looking statements included in these materials speak only as of the date of these materials. Subject to any
continuing obligations under applicable law or any relevant listing rules of the ASX, QBE disclaims any obligation or
undertaking to disseminate any updates or revisions to any forward looking statements in these materials to reflect any
change in expectations in relation to any forward looking statements or any change in events, conditions or circumstances on
which any such statement is based. Nothing in these materials shall under any circumstances create an implication that
there has been no change in the affairs of QBE or ZCS since the date of these materials.
Supplemental Disclosure Information

QBE has lodged with the ASX a document entitled "Supplemental Disclosure Information" that includes information relating to
its business, results of operation and financial condition, as well as risk factors relating to current market conditions, its
proposed acquisitions and its business operations, among other things. Investors are encouraged to read this document, in
addition to QBE's other ASX continuous disclosure documents.
The Supplemental Disclosure Information document includes statements on key risks, including those relating to the
proposed ZCS acquisition.

3
Executive Summary
QBE has agreed to purchase ZC Sterling Corporation (“ZCS”), a US based niche underwriting agency
placing insurance on behalf of mortgage lenders and homeowners
Reached agreement to acquire two additional underwriting agencies in the US and one in Europe and
a renewal rights portfolio in the US
Initial up-front cost of acquisitions is US$695 million with further incentives payable only if stringent
profit targets are met or exceeded
Acquisitions expected to add gross written premium of US$525 million and profit after tax of around
US$175 million in the first full year
Acquisitions expected to be EPS accretive in year one
At A$1 to US 70 cents and Sterling 40 pence, QBE Group’s 2009 gross written premium and net
earned premium targets up 25% on 2008 expectations
Proposed accelerated, underwritten institutional share placement of A$2 billion and non-underwritten
retail share purchase plan of up to A$100 million. The new shares will be entitled participate in the final
2008 dividend
Buyback of up to A$1.25 billion (face value) of Tier 1 securities at a discount, in exchange for senior
debt
Following the capital management initiatives, regulatory capital is expected to be around 2.0 times our
calculation of APRA’s minimum capital requirement applicable to Australian insurers, subject to the
level of take up of debt exchange

4
QBE makes five acquisitions
Acquisitions
ZCS is a US based underwriting agency specialising in providing banks and mortgage
originators with lender placed property insurance and also voluntary (conventional)
property insurance directly with homeowners
The up-front purchase price for ZCS is US$575 million
ZCS is estimated to produce gross written premium revenue in 2009 for QBE of around
US$425 million and estimated profit after tax of around US$150 million
Reached agreement to acquire a further three underwriting agencies in the US and
Europe and a US renewal rights portfolio for an upfront cost of close to US$120 million,
expected to provide additional gross written premium of around US$100 million and
profit after tax of around US$25 million in 2009
The acquisitions include incentives for meeting and exceeding targets. The expected
additional amount payable is close to US$400 million if profit targets over the next 2-3
years are met. The additional amount payable, if any, will predominantly be funded
from the underwriting agency profits
The acquisitions are projected to generate additional gross written premium in the first
full year of close to US$525 million and profit after tax of around US$175 million

5
Updated QBE revenue forecasts
• With around 80% of QBE’s premium income in currencies other than the Australian
dollar, the depreciation of the Australian dollar, particularly against the US dollar
and Sterling, has had a significant positive impact on QBE’s revenue
• 2008 targets advised in August now upgraded to gross written premium growth of
7.5% to A$13.3 billion and net earned premium growth of 10% to A$11.2 billion,
mainly due to the impact of the lower Australian dollar
• 2009 gross written premium expected to be around A$16.5 billion and net earned
premium around A$14.0 billion, based on cumulative average Australian dollar
exchange rates of US 70 cents and Sterling 40 pence and including anticipated
organic growth and acquisitions in 2008
GWP NEP
Australia A$3.5 bn A$2.8 bn
Asia Pacific A$0.8 bn A$0.6 bn
Americas A$6.4 bn (US$4.5 bn) A$3.8 bn (US$2.7 bn)
Europe A$5.8 bn (£2.3 bn) A$3.8 bn (£1.5 bn)
Equator Re n/a A$3.0 bn
Total A$16.5 bn A$14.0 bn
• Net earned premium for 2009 estimated to increase by 25% compared with our
2008 forecast

6
Capital management initiatives
Equity raising
In order to fund the proposed acquisitions, and expected premium growth in 2009 and to
provide extra capital for other opportunities, QBE proposes to issue equity through an
accelerated underwritten placement to institutional investors targeted to raise A$2 billion
QBE will also offer a non-underwritten share purchase plan to eligible shareholders to
raise up to A$100 million
Exchange offer
QBE will offer to buy back its £300 million and US$550 million non-cumulative perpetual
preferred securities (tier 1 securities) at a discount to face value, in exchange for the
issuance of £ sterling and US$ denominated senior debt securities
Target exchange value, circa A$900 million
Investors who exchange by the early participation deadline of 9 December 2008 will
receive a higher consideration
Impact of capital management initiatives
These initiatives will further strengthen QBE’s capital base by replacing hybrid tier 1
capital with ordinary equity and thereby positioning QBE for future growth
Standard & Poor’s A+ financial strength rating expected to be maintained for main
insurance subsidiaries
Subject to the level of acceptance of the debt exchange offer, we expect QBE’s capital
adequacy multiple using APRA’s risk weighted capital model applicable to Australian
insurers to be around 2.0 times the minimum capital requirement

7
QBE Insurance Group
Additional information on
ZC Sterling acquisition
Supplement to market announcement

26 November 2008
Acquisition of ZC Sterling
ZCS is a US based specialist property insurance underwriting agency with three lines of business:
– agent for lender placed property insurance to protect mortgage lenders where the original homeowners policy is
either cancelled or not renewed
– agent for voluntary homeowners’ property insurance (which is counter cyclical to lender placed insurance)
– provision of services to banks, mortgage companies and homebuilders
ZCS budgeted to manage in excess of US$800 million of premium revenue for insurers in 2009
ZCS is not involved with lenders’ mortgage insurance
QBE is acquiring a strong cash flow and earnings stream from commissions and fees as well as
access to a portfolio of profitable property insurance business
Insurance risk incepts only for new business written by QBE from completion date; no previous
insurance liabilities acquired
Acquisition price is made up of:
– up front cash payment of US$575 million; and
– additional incentive payments, subject to stringent profit targets, of an estimated US$325 million
over the next two years
Incentives will be substantially funded from agency profits
Completion expected to be on or before 31 December 2008, subject to regulatory approval

9
Company background and history
• ZCS is a successful niche insurance agent (not an insurance company) which provides
homeowners’ insurance monitoring and processing to the mortgage industry via a technology
based platform
• The company was founded in 1996 and has grown into the third largest agent for lender placed
homeowners’ insurance in the US with around 12% of the lender placed property market and is
one of the largest agents for construction homeowners’ insurance
• Homeowners’ insurance is sourced from two primary segments:
– the lender placed insurance division currently produces around 80% of ZCS’s premium income.
This division tracks compulsory homeowners’ insurance coverage on portfolios held by mortgage
lenders and places insurance where coverage has lapsed (refer next slide for more detail)
– the voluntary insurance division accounts for the remaining 20% of premium income from the
development and sale of voluntary homeowners insurance, primarily via homebuilders, mortgage
lenders and real estate agents
• In addition, ZCS provides real estate tax services, escrow related functions and workflow tools to
enable mortgage companies to in-source state tax processing on their portfolios
• The customer base comprises some of the largest mortgage companies and homebuilders in the
US
• Competitive advantage is maintained by excellence of service delivery and technology platforms
plus contractual arrangements that result in minimal client turnover
• Limited number of competitors due to the expertise and system investment required; no new
entrants in lender placed property insurance in over 10 years
• High quality, experienced staff including original company founder – lock in arrangements for
senior executives

10
What is lender placed property insurance?
US mortgage companies are required by legal and regulatory requirements to ensure

that mortgage portfolios have sufficient homeowners’ property insurance cover
ZCS tracks all loans in their clients’ portfolios to identify where homeowners insurance
has lapsed. Unless the insured obtains suitable cover, ZCS will, on behalf of the
mortgage company, place a limited property insurance policy to protect the interests of
the lender
Lender placed business is written on a portfolio basis and effected by way of a master
policy offered to the lender, not the individual homeowner
The premium is paid directly by the financial institution and no policy is issued until the
cash is received. Average duration of the policy is around nine months
Cover is for the property only. No contents or liability coverage is included
Insurance rates reflect a premium for the forced placement of cover and is significantly
higher than equivalent voluntary insurance rates
The claims incurred ratio for this class of business has significantly outperformed when
compared with conventional homeowners’ insurance

11
Competitive landscape - lender placed homeowners’ insurance
Other 2%
SWBC 8%
ZCS 12%
Balboa 22%
Assurant 57%
Market share
Source:
Assurant - Q4 2007 financial supplement, assumes $100 million of non LP homeowners
Balboa - SNL and Citi investment research
ZCS - Actual 2007 results
South West Business Corporation (SWBC) and Other per ZCS market analysis

12
Overview of voluntary homeowners insurance
This is a standard homeowners product with a fundamentally different

model of delivery offered exclusively through mortgage originators,
homebuilders and real estate brokerage firms
Competitive advantage built on underwriting driven by mortgage data,
not traditional detailed company applications
Sales driven by convenience not price with excellent conversion rate on
offers
Fully automated underwriting prior to customer contact
Ability to pre-underwrite client portfolios to manage risk
Focused on new homes and first time buyers
Cover is standard homeowners’ cover i.e. home and contents with limits
on replacement cost and liability exposures

13
Major benefits to QBE
High margin business providing enhanced earnings and diversity from a well
established distribution base and experienced management team with a strong
profit record
Unique technology platform and innovative underwriting process
New products for QBE with counter-cyclical earnings from the US housing market
dislocation and new housing construction
The level of lender placed business originating from the sub prime market is
expected to decline. However, this is estimated to be offset by ZCS conventional
lenders’ and voluntary homeowners’ business which is expected to increase from
30% in 2008 to 60% of total business in 2012
Complementary to QBE’s strategy of acquisition of specialist distribution channels
and offers leverage to distribution of other existing QBE products
Meets our stringent criteria on EPS accretion in year one and minimum ROE

14
QBE INSURANCE GROUP
www.qbe.com
15
QBE Insurance Group Limited
Supplemental Disclosure Information
November 26, 2008
50961.02-Sydney Server 1A MSW - Draft November 24, 2008 - 11:47 PM

TABLE OF CONTENTS
Page
SPECIAL NOTE REGARDING FORWARD-LOOKING STATEMENTS................................................................1

CERTAIN DEFINITIONS AND FINANCIAL INFORMATION PRESENTATION.................................................3
INFORMATION SUMMARY......................................................................................................................................4
SUMMARY CONSOLIDATED HISTORICAL FINANCIAL AND OTHER DATA ..............................................12
RISK FACTORS .........................................................................................................................................................14
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS........................................................................................................................................28
BUSINESS ..................................................................................................................................................................60
REGULATION ...........................................................................................................................................................87
OUR BOARD AND MANAGEMENT ....................................................................................................................109
OUR PRINCIPAL SHAREHOLDERS.....................................................................................................................120

SPECIAL NOTE REGARDING FORWARD-LOOKING STATEMENTS
The information set forth herein (the "Information") contains forward-looking statements. Examples of
such forward-looking statements include, but are not limited to: (i) statements regarding our future results of
operations and financial condition, (ii) statements of plans, objectives or goals, including those relating to our
products or services and acquisition plans and (iii) statements of assumptions underlying such statements. Words
such as "believes," "anticipates," "should," "estimates," "forecasts," "expects," "may," "intends" and "plans" and
similar expressions are intended to identify forward-looking statements but are not the exclusive means of
identifying such statements.
By their very nature, forward-looking statements involve inherent risks and uncertainties, both general and
specific, and as a result the predictions, forecasts, projections and other forward-looking statements may not be
achieved. We caution investors that a number of important factors could cause actual results to differ materially
from the plans, objectives, expectations, estimates and intentions expressed or implied in such forward-looking
statements. These factors include, but are not limited to:
• changes in general economic conditions, including the performance of financial markets and interest
rates which may affect our ability to raise capital;
• the performance of our investment portfolios, and changes to investment valuations;
• changes in exchange rates and economic, political and other risks relating to our international
operations;
• the scope and frequency of catastrophes;
• unanticipated changes in industry trends;
• differences between our actual claims experience and our underwriting and reserving assumptions;
• differences between actual experience and assumptions used in establishing liabilities related to other
contingencies or obligations;
• ineffectiveness of risk management policies and procedures;
• the financial strength of our insurance and reinsurance subsidiaries;
• heightened competition, including with respect to pricing, entry of new competitors, development of
new products by new and existing competitors, and for personnel;
• our ability to obtain the appropriate level and type of reinsurance;
• the financial condition of our reinsurance and retrocession counterparties and their performance under
any reinsurance or retrocession arrangements we have in place;
• changes in assumptions related to the value of businesses acquired or goodwill;
• downgrades in our and our affiliates' claims paying ability, financial strength or credit ratings;
• changes in accounting standards, practices and/or policies;
• changes in regulation and government policies, legislation or tax laws;
• changes in Lloyd's rules and policies;
1
• our strategy, including business plans and acquisitions;
• potential litigation, arbitration or regulatory investigations;
• our ability to complete acquisitions we currently anticipate and to identify and complete future
acquisitions on successful terms;
• the performance of businesses we have acquired or intend to acquire and our ability to integrate the
businesses and to realize anticipated benefits;
• systems and technology risks;
• our dependency on key personnel;
• our reliance on insurance agents and brokers;
• our holding company structure, our reliance on dividends from our subsidiaries to meet debt payment
obligations and any restrictions on the ability of our subsidiaries to pay such dividends;
• the effects of business disruption or economic contraction due to terrorism or other hostilities; and
• other factors discussed under "Information Summary—Recent Developments," "Risk Factors" and
"Management's Discussion and Analysis of Financial Condition and Results of Operations."
We caution that the foregoing list of factors is not exhaustive. Investors should carefully consider the
foregoing factors and other uncertainties and events. These forward-looking statements speak only as of the date of
this Information, and we do not undertake any obligation to update or revise any of them, whether as a result of new
information, future events or otherwise.
2
CERTAIN DEFINITIONS AND FINANCIAL INFORMATION PRESENTATION
In the Information, unless the context otherwise requires, references to:
• "2008 half year financial statements" means our unaudited consolidated interim financial statements
and related notes as at and for the six months ended June 30, 2008 and 2007 prepared in accordance
with Australian equivalents to International Financial Reporting Standards ("A-IFRS") and lodged with
the Australian Securities Exchange ("ASX");
• "2007 financial statements" means our audited consolidated financial statements and related notes as at
and for the years ended December 31, 2007 and 2006 prepared in accordance with A-IFRS and lodged
with the ASX;
with the ASX;
with the ASX;
• "APRA" means the Australian Prudential Regulation Authority or any successor;
• "QBE," "QBE Group," "Group," "we," "us" and "our" each means QBE Insurance Group Limited
(ABN 28 008 485 014) and its consolidated entities.
For definitions of certain insurance terms used in the Information, see "Appendix A: Glossary to Certain
Insurance Terms."
3
INFORMATION SUMMARY
QBE Insurance Group Limited is an international general insurance and reinsurance group underwriting
commercial and personal lines business in 45 countries around the world. The following table sets forth information
about our gross earned premium, net earned premium and general insurance and inward reinsurance premiums for
the periods indicated.
Six months ended Year ended

June 30, December 31,
2008 2007 2007 2006 2005
(A$ millions except percentages)
Gross earned premium ........................................................................... 5,958 5,751 12,361 10,069 9,171
Net earned premium............................................................................... 5,108 4,749 10,210 8,158 7,386
Direct and facultative as a percentage of net earned premium............... 89.1 87.1 87.5 85.9 83.3
Inward reinsurance as a percentage of net earned premium................... 10.9 12.9 12.5 14.1 16.7
As of June 30, 2008 and December 31, 2007, our shareholders' funds totaled A$8.8 billion and A$8.5
billion, respectively, and our assets totaled A$39.1 billion and A$39.6 billion, respectively.
Operations
Our operations are conducted through the following divisions:
• Australian operations consisting of our general insurance operations throughout Australia, providing
all major lines of insurance cover for commercial and personal risks;
• Asia Pacific operations providing personal, commercial and specialist insurance covers in 17 countries
in the Asia Pacific region, including professional and general liability, marine, corporate property and
trade credit;
• European operations consisting of QBE Insurance Europe and our Lloyd's division (operating as QBE
Underwriting Limited):
• QBE Insurance Europe writing insurance business in the United Kingdom, Ireland and 15
countries in mainland Europe and writing reinsurance business in Ireland;
• QBE Underwriting Limited (Lloyd's division) writing commercial insurance and reinsurance
business in the Lloyd's market. We are the largest managing agent and second largest provider of
capacity at Lloyd's for the 2008 underwriting year;
• the Americas writing general insurance and reinsurance business in the Americas with headquarters in
New York and operations in North, Central and South America and Bermuda;
• Equator Re consisting of our captive reinsurance business based in Bermuda; and
• Investments providing management of our investment funds.
Performance
Our net profit after tax, investment income (after unrealized gains/losses) and combined operating ratio
were A$859 million, A$379 million and 85.8%, respectively, for the six months ended June 30, 2008 and A$921
million, A$564 million and 86.2%, respectively, for the six months ended June 30, 2007. Our net profit after tax,
investment income (after unrealized gains/losses) and combined operating ratio were A$1,925 million, A$1,132
million and 85.9%, respectively, for the year ended December 31, 2007, A$1,483 million, A$822 million and 85.3%,
4
respectively, for the year ended December 31, 2006, and A$1,091 million, A$718 million and 89.1%, respectively,
for the year ended December 31, 2005.
Ratings
QBE Insurance Group Limited has been assigned an A-, A3, A and bbb+ counterparty credit rating by each
of Standard and Poor's Ratings Services ("S&P"), Moody's Investors Services, Inc. ("Moody's "), Fitch and A.M.
Best, respectively. Our main insurance and reinsurance subsidiaries have been assigned an A+ insurer financial
strength rating by each of S&P and Fitch. Our insurance and reinsurance subsidiaries in the United States and our
main insurance subsidiaries in Europe have been assigned an A rating by A.M. Best. A.M. Best's ratings are directed
toward the concerns of policyholders and insurance agencies and are not intended for the protection of investors.
The ratings described above reflect only the views of S&P, Moody's, Fitch or A.M. Best, as the case may be, and are
not a recommendation to buy, hold or sell securities. See "Business—Ratings."
Market Conditions
Since the second half of 2007, disruption in the global credit markets, coupled with the repricing of credit
risk, and the deterioration of the financial and property markets, particularly in the United States and Europe, have
created increasingly difficult conditions for financial institutions, including companies in our industry. These
conditions include greater volatility, significantly less liquidity, widening of credit spreads and a lack of price
transparency in certain markets. These conditions have resulted in the failures of a number of financial institutions
and resulted in unprecedented action by governmental authorities and central banks around the world. During
October 2008, the governments in Australia, Europe, the United Kingdom and the United States announced
measures to assist in strengthening their respective banking systems and to increase system liquidity. From
September to date, the volatility in capital, foreign exchange and equity markets has reached unprecedented levels
and credit markets have been illiquid. Through the year to date, the crisis has also begun to significantly affect the
global economy. Market volatility is likely to remain high as financial market uncertainty persists, and it is
impossible for us to predict the impact that the current financial turmoil around the world will have on our results of
operation or financial condition.
Since June 30, 2008, the Australian dollar has declined significantly against major currencies, with the
noon buying rate of US dollars for Australian dollars falling from US$0.9562 at that date to US$0.6254 at
November 21, 2008. This represents a 35% decrease over the period from July 1 to November 21, 2008. Investors
should be aware that we translate income and expense items using a cumulative average rate of exchange and
balance sheet items using the period end rate of exchange. For further information on the impact of changes in
exchange rates on our financial results, see "Management's Discussion and Analysis of Financial Condition and
Results of Operations— Impact of the Fluctuations of the Australian Dollar" and "Risk Factors—QBE's Business
Risk Factors—Our financial results are significantly affected by changes in exchange rates."
The current turmoil in the world's financial markets has had a significant potential impact on the value of
the investments that we hold and our investment returns. As described below under "—Investment Strategy," at
June 30, 2008, we held $23.3 billion in investments compared to A$24.6 billion at December 31, 2007, a decrease of
5% partly due to substantially weaker equity markets. This adverse trend resulted in a substantial decrease in gross
investment income from A$679 million at December 31, 2007 to A$513 million at June 30, 2008, which included
net realized and unrealized losses on equities of A$86 million for the six months ended June 30, 2008 compared to
net realized and unrealized gains of A$82 million for the six months ended June 30, 2007. Since June 30, 2008, our
equity investments, which represented 7.6% of our total investments and cash at that date, have declined in value
due to investment market movements. This has given rise to unrealized losses on equities and a consequent
deterioration of our gross investment income. We currently have no equity hedges in place. Since June 30, 2008,
the value of our cash and fixed income investments has not been adversely affected by the current market turmoil.
We have no direct investment exposure in the United States or elsewhere to sub-prime mortgage assets,
collateralized debt obligations, collateralized loan obligations or similar structured products. We have some indirect
exposure through our investments in, and deposits with, the major banks. Our investment portfolio has no direct
5
exposure to Lehman Brothers or American International Group ("AIG"). We have an immaterial exposure to
reinsurance recoveries on paid, outstanding and incurred but not reported claims to AIG mainly through its majority-
owned subsidiary, Transatlantic Re, and its wholly-owned subsidiary, Lexington. We have some exposure through
our insurance operations to claims that may arise related to mortgage-backed securities programs that include sub-
prime mortgages, which exposure is not material. We have made allowances in our insurance liabilities for potential
exposure to policies relating to financial institutions affected by the credit crisis.
Recent Developments
On November 26, 2008, QBE Holdings, Inc. entered into a merger agreement to acquire all of the shares in
ZC Sterling ("ZCS"). We agreed to pay an initial price of US$575 million plus a variable amount of potentially up
to US$525 million based on ZCS meeting agency profit forecasts in financial years 2009 and 2010. The merger is
conditional on the receipt of all necessary competition and government approvals and will be completed following
receipt of such approvals. Completion of the acquisition is expected to occur on or before December 31, 2008.
Founded in 1996 and based in Atlanta, Georgia, United States, ZCS is an underwriting agency specializing
in providing specialty insurance solutions through customized technology-enabled business process services to
mortgage originators, homebuilders, banks and real estate agents across the United States. ZCS provides hazard
insurance tracking and outsourcing, voluntary homeowners' insurance programs, in-house and outsourced real estate
tax services, online claims services, customer care services and mortgage outsourcing technology solutions. It does
not offer lenders' mortgage insurance. ZCS has operations in California, Florida, Georgia, Iowa, Maryland, New
Mexico, Nebraska, North Carolina and Texas and access to a call center in India.
We believe that ZCS's insurance and agency business will be complementary to our existing general
insurance operations in the United States and will allow us to expand our product and geographic diversity. Based
on ZCS management's projections and our due diligence, in the first full financial year following the acquisition,
ZCS is expected to contribute approximately US$425 million to our gross written premium and approximately
US$150 million to our net profit after tax. The acquisition is expected to be earnings per share accretive in the first
year of ownership. No assurance can be given in regard to these current estimates which are subject to various risks
and uncertainties.
QBE has acquired a renewal rights portfolio in the United States and has reached agreement to acquire two
underwriting agencies in the United States and one in Europe. The total upfront cost of these acquisitions is
approximately US$120 million and the purchases are expected to complete in late 2008 or early 2009.
As with any acquisition, there are numerous risks that may arise. ZCS derives the majority of its revenues
from a limited number of clients, and a loss of any one of these clients would have a material adverse effect on its
business. Additional acquisition risks include the risk that the actual results achieved by ZCS or the other agencies
may be lower than those indicated by our financial and business analyses; ZCS may fail to develop, operate or
maintain the sophisticated information technology systems that it provides to its clients; ZCS' clients may develop
their own internal business processes that significantly reduce or eliminate their demand for ZCS' services; and/or
legislative and regulatory changes to the mortgage industry may reduce or eliminate demand for ZCS' services. In
addition, we may face operational or management disruptions as a result of implementing these acquisitions or the
acquisitions may have other negative impacts on our results, financial condition or operations. The acquisition of
ZCS is subject to customary conditions to closing and certain other closing conditions that, if not satisfied or waived,
will result in the acquisition not being completed. If the conditions to the acquisition are not satisfied or waived, the
ZCS acquisition will not be completed. In addition, the purchase agreement may be terminated under certain
conditions. See also "Risk Factors—QBE's Business Risk Factors—Acquisitions and our acquisition strategy may
adversely affect our business." We regularly assess acquisition opportunities as part of our growth strategy and, if
we were to undertake other acquisitions, such risks may be exacerbated.
6
Recent Acquisitions
2008 Acquisitions
In 2008:
• on October 23, we acquired PMI Mortgage Insurance Australia (Holdings) Pty Ltd ("PMI Australia")
from a subsidiary of The PMI Group, Inc., for a purchase price of US$920 million, as described below;
• on April 30, we acquired North Pointe Holdings Corporation ("North Pointe"), a property and casualty
insurer in the United States which writes both commercial and personal insurance, for a purchase price
of US$143 million;
• on June 4, we acquired Deep South Holding, LP ("Deep South"), an underwriting agency in the United
States, for a purchase price of US$190 million, including the maximum potential cost of contingent
incentive arrangements for the next three years; and
• to date we have acquired three distribution channels in Australia and one distribution channel in the
United States for the aggregate purchase price of A$94 million.
We have considered a number of acquisitions and are looking at a number of acquisition opportunities in
Australia, the Asia Pacific region, the Americas and Europe. In the past 25 years, we have acquired over 100
businesses or portfolios throughout the world, including the recent acquisitions described above under "—Recent
Developments" and "—Recent Acquisitions." Our acquisition strategy has assisted our diversification by spreading
our business across both general insurance and reinsurance businesses and by increasing our geographic and product
spread. Our acquisition strategy is driven by seeking value for our shareholders rather than focusing on specific
business lines.
Acquisitions from The PMI Group, Inc.
On October 23, 2008, we acquired PMI Australia from a subsidiary of The PMI Group, Inc. The purchase
price for PMI Australia was US$920 million, with 80% paid in cash and the remaining 20% in the form of a
promissory note, the payment of which is contingent on the claims experience of PMI Australia over three years.
The amount payable on the promissory note will be reduced to the extent that the performance of the existing
insurance portfolios of PMI Australia does not achieve specified targets. QBE funded the initial cash component of
the PMI Australia using internally generated funds from operations and short-term bank loans of A$400 million.
PMI Australia is a mortgage insurer for lenders and writes approximately 40% of the residential mortgage insurance
policies in Australia. It has provided lenders with residential mortgage insurance for over 40 years.
In August 2008, we signed an agreement to acquire PMI Mortgage Insurance Asia Limited ("PMI Asia")
from The PMI Group, Inc. Completion of the acquisition remains subject to a number of closing conditions. PMI
Asia, operating for over nine years, provides reinsurance support to the primary Hong Kong mortgage insurer, Hong
Kong Mortgage Corporation.
For a discussion of the risks related to our acquisition of PMI Australia and PMI Asia and general risks
related to our acquisitions, see "Risk Factors—QBE's Business Risk Factors—We are subject to risks related to our
acquisitions of PMI Australia and PMI Asia." and "Risk Factors—QBE's Business Risk Factors—Acquisitions and
our acquisition strategy may adversely affect our business."
7
2007 Acquisitions
During 2007, we completed two large acquisitions in the United States, together with a number of smaller
acquisitions in Latin America, Europe and Australia. In particular, we acquired:
• Praetorian Financial Group ("Praetorian"), effective March 31, 2007, from Hannover
Ruckversicherung ("Hannover Re") for US$0.8 billion. Praetorian, based in New York, writes
specialist property and casualty insurance programs through various managing agents and brokers.
The Praetorian business has been substantially integrated with QBE's specialty insurance program
business. On September 30, 2008, we agreed to sell Praetorian Specialty Insurance Company, our
small and non-core excess and surplus lines insurance business, to Torus Insurance Holdings Limited,
which sale is subject to regulatory approvals and customary conditions to closing;
• Winterthur U.S. Holdings, Inc. ("Winterthur US"), effective May 31, 2007, for a base purchase price of
US$1.2 billion and repayment of intercompany indebtedness of US$557 million to the seller, a
subsidiary of The AXA Group. Winterthur US is a property and casualty insurer in the United States
focusing on small to medium sized commercial business and personal lines and operating primarily
under the names of General Casualty and Unigard. We have substantially integrated our existing
general insurance brands National Farmers Union and QBE Agri business with Winterthur US. This
business is now called QBE Regional Insurance;
• Cumbre Seguros, effective November 1, 2007, for US$33 million. Cumbre Seguros is a specialized
commercial lines insurer of small to medium clients with offices in Mexico City, Guadalajara and
Monterrey;
• a distribution channel in Switzerland that underwrites motor and general risks in Switzerland; and
• a number of underwriting agencies and renewal rights in Australia, including Universal Underwriting
Agency.
We also entered into a joint venture agreement to establish a new general insurance business in India.
The acquisitions of Praetorian and Winterthur US completed our strategy of building four major streams of
business in the Americas: specialist insurance programs; property and casualty insurance in regional markets;
reinsurance; and Latin America. The acquisitions of Praetorian and Winterthur US and, more recently, North Pointe,
have significantly increased our presence in the United States, particularly in the independent agency and specialty
insurance program business.
For a discussion of the general risks related to our acquisitions, see "Risk Factors—QBE's Business Risk
Factors—Acquisitions and our acquisition strategy may adversely affect our business."
Underwriting Strategy
Our underwriting strategy is to achieve consistency in our underwriting results and reduce our risk of loss
through:
• geographic and product diversification;
• selective acquisitions;
• attracting and retaining quality underwriters;
• ongoing actuarial assessment of premium pricing and outstanding claims reserves;
8
• decentralized, regional insurance operations;
• a group risk management strategy; and
• effective use of reinsurance and retrocession protection with financially strong and highly rated
reinsurers.
To date, our underwriting strategy has remained unchanged. In line with past experience in current market
conditions, as described above under "—Market Conditions," there could be an incremental increase in claims,
although we expect this would be partly offset by higher premiums. We have made allowances in our insurance
liabilities for potential exposure to policies relating to financial institutions affected by the credit crisis. Recent
market conditions are also giving rise to further acquisition opportunities, which we are considering in accordance
with our general acquisition strategy.
Investment Strategy
The investment committee of our board of directors reviews our investment strategy at each committee
meeting in respect of the investments we are permitted to make. The following table sets forth the percentage of our
investments represented by cash (net of overdrafts), short-term deposits, fixed interest and other interest bearing
securities, equities and investment properties as of the dates indicated.
As of June 30, As of December 31,
2008 2007 2007 2006 2005
(in A$ millions except percentages)
Cash (net of overdrafts) ..................... 1,197 5.1 2,140 9.0 988 4.0 1,019 5.1 1,061 6.0
Short-term deposits............................ 13,074 56.2 12,734 53.7 16,317 66.3 10,040 50.3 8,292 47.1
Fixed interest and other interest
bearing securities ............................... 7,136 30.7 6,934 29.2 5,552 22.6 7,134 35.7 7,537 42.9
Equities .............................................. 1,775 7.6 1,833 7.7 1,656 6.7 1,741 8.7 674 3.8
Investment properties......................... 86 0.4 86 0.4 93 0.4 38 0.2 33 0.2
Total investments and cash ................ 23,268 100.0 23,727 100.0 24,606 100.0 19,972 100.0 17,597 100.0
During the six months ended June 30, 2008, and in the period since, we have continued to maintain a
strategy of a low risk investment portfolio. Our general policy on investments is to reduce the risk to shareholders by
investing in high quality fixed interest securities and having a limited exposure to equity investments. We take this
approach because of the risk we have already assumed in our insurance business.
Our investment portfolio (including cash) decreased to A$23.3 billion at June 30, 2008 from A$24.6 billion
at December 31, 2007, a decrease of 5%. This decrease principally reflected the appreciation of the Australian
dollar against the US dollar and the pound sterling, lower US interest rates and substantially weaker equity markets,
partly offset by higher Australian interest rates. For the six months ended June 30, 2008, we incurred net realized
and unrealized losses on equities of A$86 million due to the market volatility. Since June 30, 2008, our equity
investments, which represented 7.6% of our total investments and cash at that date, have declined in value due to
investment market movements. This has given rise to unrealized losses on equities and a consequent deterioration
of our gross investment income. We currently have no equity hedges in place. Since June 30, 2008, the value of our
cash and fixed income investments has not been adversely affected by the current market turmoil.
The value of the overseas component of our cash and investment portfolio is also impacted by fluctuations
in foreign exchange rates. We translate income and expense items using the cumulative average rate of exchange.
On this basis, the Australian dollar appreciated against the pound sterling and the US dollar by 12% in the six
months ended June 30, 2008 compared to the six months ended June 30, 2007. Balance sheet items are translated at
the period end rate of exchange. On this basis, the Australian dollar appreciated against the pound sterling and the
US dollar by 8% comparing the exchange rates at June 30, 2008 with the exchange rates at December 31, 2007.
This significant appreciation of the Australian dollar substantially reduced the value of the overseas component of
our cash and investment portfolio when reported in Australian dollars by A$1.4 billion at June 30, 2008 compared to
December 31, 2007. Between July 1 and November 21, 2008, the Australian dollar depreciated 35% against the US
9
dollar. However, investors should note that we translate income and expense items using the cumulative average
rate of exchange and balance sheet items using the period end rate of exchange. For further information on the
impact of changes in exchange rates on our financial results, see "Management's Discussion and Analysis of
Financial Condition and Results of Operations— Impact of the Fluctuations of the Australian Dollar" and "Risk
Factors—QBE's Business Risk Factors—Our financial results are significantly affected by changes in exchange
rates."
Our fixed interest investments continue to be short in duration. At June 30, 2008, our cash, short-term
deposits and fixed interest and other interest bearing securities portfolios, taken together, had an average duration of
0.7 years. As of November 21, 2008, the average duration was approximately 0.5 years.
Operational Summary
Our portfolio of insurance and reinsurance business is geographically diversified, with 77% and 78% of our
gross earned premium for the six months ended June 30, 2008 and 2007, respectively, derived from non-Australian
operations and with 80%, 76% and 74% of our gross earned premium for the years ended December 31, 2007, 2006
and 2005, respectively, derived from non-Australian divisions.
The following table sets forth information about the gross earned premium for each of our insurance
divisions and our insurance product lines for the periods indicated.
Six months ended June 30, Year ended December 31,

2008 2007 2007 2006 2005
Division
Australian operations .......................... 1,352 22.7 1,249 21.7 2,518 20.4 2,428 24.1 2,405 26.2
Asia Pacific operations ....................... 291 4.9 291 5.0 570 4.6 570 5.7 545 5.9
European operations ........................... 2,211 37.1 2,584 45.0 5,158 41.7 5,195 51.6 4,786 52.2
the Americas ....................................... 2,104 35.3 1,627 28.3 3,976 32.2 1,876 18.6 1,435 15.7
Equator Re .......................................... 763 — 495 — 1,631 — 678 — 347 —
Elimination – internal reinsurance ...... (763) — (495) — (1,492) 1.1 (678) — (347) —
Total.............................................. 5,958 100.0 5,751 100.0 12,361 100.0 10,069 100.0 9,171 100.0
Product lines
Property(1).......................................... 1,615 27.1 1,518 26.4 3,239 26.2 2,648 26.3 2,414 26.3
Liability(2).......................................... 1,102 18.5 1,116 19.4 2,423 19.6 1,943 19.3 1,897 20.7
Motor and motor casualty(3) .............. 1,144 19.2 978 17.0 2,250 18.2 1,500 14.9 1,266 13.9
Professional indemnity ....................... 411 6.9 460 8.0 853 6.9 906 9.0 838 9.1
Workers' compensation(4) .................. 441 7.4 512 8.9 1,038 8.4 816 8.1 811 8.8
Marine, energy and aviation ............... 566 9.5 615 10.7 1,224 9.9 1,148 11.4 814 8.9
Accident and health ............................ 399 6.7 322 5.6 766 6.2 594 5.9 527 5.7
Financial and credit............................. 137 2.3 115 2.0 247 2.0 252 2.5 211 2.3
Other(5) .............................................. 143 2.4 115 2.0 321 2.6 262 2.6 393 4.3
Total.............................................. 5,958 100.0 5,751 100.0 12,361 100.0 10,069 100.0 9,171 100.0
General insurance ............................... 5,513 92.5 5,062 88.0 11,189 90.5 8,601 85.4 7,606 82.9
Inward reinsurance(6) ......................... 445 7.5 689 12.0 1,172 9.5 1,468 14.6 1,565 17.1
Total.............................................. 5,958 100.0 5,751 100.0 12,361 100.0 10,069 100.0 9,171 100.0
(1) Includes property excess of loss, engineering, war and energy.

(2) Includes medical malpractice and general, public and product liability.
(3) Includes compulsory third party ("CTP") insurance.
(4) Includes employers' liability.
(5) Includes agriculture, catastrophe, bloodstock, travel, satellite, transport, householders', commercial packages and other miscellaneous
classes of insurance.
(6) Excludes facultative reinsurance.
10
Our insurance products are classified as either short-tail or long-tail, principally based upon the average
amount of time that elapses between when we receive premiums and when we pay claims. The average amount of
time that elapses between the time premiums are received and claims are paid for our short-tail lines is generally one
year or less and for our long-tail lines is generally more than one year. Our principal short-tail lines of business
include commercial and domestic property such as motor vehicle physical damage. Our principal long-tail lines of
business include liability (casualty), professional indemnity, workers' compensation and CTP insurance. As of June
30, 2008, 56% of our gross earned premium was generated by short-tail lines and 44% was generated by long-tail
lines, compared to 54% and 46%, respectively of June 30, 2007. As at December 31, 2007, 55% of our gross earned
premium was generated by short-tail lines and 45% was generated by long-tail lines, compared to 57% and 43%,
respectively, at December 31, 2006 and 55% and 45%, respectively, at December 31, 2005. The weighted average
term to settlement of our outstanding claims as of June 30, 2008 was 2.9 years, 2.8 years as of December 31, 2007
and 2006 and 2.9 years as of December 31, 2005.
We primarily distribute our products through a diverse network of third party-owned brokers and agencies
and, to a much lesser extent, through our branch network.
We maintain comprehensive underwriting year or accident year statistics by product for every country in
which we operate. We use these statistics to monitor trends, to correct unprofitable portfolios and to identify
businesses that are growing in profitability. We employ over 140 persons throughout QBE who are engaged in
actuarial work and who assist with underwriters on trends, pricing and claims reserving. In addition, approximately
90% of our outstanding claims are also reviewed by external independent actuaries at least annually.
Our principal executive office and registered office is located at Level 2, 82 Pitt Street, Sydney, New South
Wales 2000, Australia. Our telephone number is +61-2-9375-4444.
11
SUMMARY CONSOLIDATED HISTORICAL FINANCIAL AND OTHER DATA
Until December 31, 2004, we prepared our financial statements in accordance with historical Australian
GAAP. Since January 1, 2005, we have been preparing our financial statements in accordance with A-IFRS.
The summary consolidated historical financial data as at December 31, 2007, 2006, 2005 and 2004 and for
the years ended December 31, 2007, 2006, 2005 and 2004 set forth below is presented under A-IFRS and has been
derived from our audited consolidated financial statements and related notes.
You should read the following financial information together with the information included elsewhere in
the Information, including under "Selected Consolidated Historical Financial and Other Data," "Management's
Discussion and Analysis of Financial Condition and Results of Operations" and "Risk Factors," and our audited
consolidated financial statements and unaudited consolidated interim financial statements and the related notes
thereto.
Six months ended
June 30, Year ended December 31,
2008 2007 2007 2006 2005 2004
(in A$ millions except ratios and earnings per share data)
Income statement
Gross written premium ......................................... 6,603 6,520 12,406 10,372 9,408 8,766
Gross earned premium .......................................... 5,958 5,751 12,361 10,069 9,171 8,571
Net earned premium.............................................. 5,108 4,749 10,210 8,158 7,386 6,781

Net claims incurred(1) .......................................... (2,790) (2,649) (5,553) (4,551) (4,417) (4,156)
Net commission .................................................... (881) (863) (1,885) (1,384) (1,251) (1,184)
Other acquisition costs.......................................... (284) (225) (600) (498) (428) (439)
Underwriting and other administration expenses.. (426) (359) (734) (525) (482) (405)
Underwriting result............................................... 727 653 1,438 1,200 808 597

Investment income on policyholders' funds.......... 389 400 824 588 480 331
Operating profit .................................................... 1,116 1,053 2,262 1,788 1,288 928

Investment income on shareholders' funds ........... (10) 164 308 234 238 188
Amortization of intangibles .................................. (11) (5) (21) (10) (3) (1)
Profit before income tax ....................................... 1,095 1,212 2,549 2,012 1,523 1,115
Income tax (expense) ............................................ (235) (287) (615) (519) (425) (251)
Minority interest ................................................... (1) (4) (9) (10) (7) (7)
Net profit after income tax.................................... 859 921 1,925 1,483 1,091 857
Other data
Claims ratio (%)(2) ............................................... 54.7 55.7 54.3 55.8 59.9 61.3
Commission ratio (%)(3) ...................................... 17.2 18.2 18.5 17.0 16.9 17.5
Expense ratio (%)(4)............................................. 13.9 12.3 13.1 12.5 12.3 12.4
Combined operating ratio (%)(5).......................... 85.8 86.2 85.9 85.3 89.1 91.2
Dividends per share (cents)................................... 61.0 57.0 122.0 95.0 71.0 54.0
Return on average shareholders' equity (%)(6) ..... 19.9 28.1 26.1 26.1 23.9 24.5
Basic earnings per share (cents)(7) ....................... 96.8 109.2 224.1 184.8 142.5 123.1
Diluted earnings per share (cents)(7) .................... 96.0 104.9 217.3 173.5 131.5 109.3
Weighted average number of shares(8)................. 882 837 853 795 757 695
12
Six months ended
2008 2007 2007 2006 2005 2004
Balance sheet (at period end)
Total assets .......................................................... 39,144 41,113 39,613 31,757 29,665 25,036
Total liabilities..................................................... 30,270 33,327 31,070 25,408 24,506 20,944
Net assets ............................................................. 8,874 7,786 8,543 6,349 5,159 4,092
Share capital.................................................... 4,744 4,428 4,737 3,461 3,195 2,780

Treasury shares held in trust ........................... — (16) (16) (16) — —
Equity component of hybrid securities............ 114 115 114 108 108 108
Reserves .......................................................... (72) 35 (75) 47 (20) (29)
Retained profits............................................... 4,030 3,159 3,719 2,683 1,810 1,173
Shareholder's funds ......................................... 8,816 7,721 8,479 6,283 5,093 4,032

Minority interest.............................................. 58 65 64 66 66 60
Total equity........................................................... 8,874 7,786 8,543 6,349 5,159 4,092
Statement of cash flows

Net cash flows from operating activities ......... 839 785 2,374 2,039 1,987 2,110
Net cash flows from investing activities ......... (5) (615) (3,201) (1,881) (2,203) (2,759)
Net cash flows from financing activities ......... (546) 1,031 804 (162) 161 1,053
Net increase (decrease) in cash and cash

equivalents held............................................ 288 1,201 (23) (4) (55) 404
Cash and cash equivalents at the beginning of
the period ..................................................... 988 1,019 1,019 1,061 1,121 717
Effect of exchange rate changes...................... (79) (80) (8) (38) (5) —
Cash and cash equivalents at the end of the

period ........................................................... 1,197 2,140 988 1,019 1,061 1,121
(1) Claims settlement expenses are included in net claims incurred.

(2) Claims ratio is calculated by dividing net claims incurred by net earned premium.
(3) Commission ratio is calculated by dividing net commissions by net earned premium.
(4) Expense ratio is calculated by dividing other acquisition costs and underwriting and other expenses by net earned premium.
(5) Combined operating ratio is calculated by adding the sum of our claims ratio, commission ratio and expense ratio.
(6) Return on average shareholders' equity is net profit after tax as a percentage of average shareholders' funds.
(7) Basic earnings per share is calculated with reference to issued share capital notified to the Australian Securities Exchange ("ASX"). Diluted
earnings per share includes employee options and convertible hybrid securities where they are dilutive.
(8) The weighted average number of ordinary shares is only applicable to the calculation of basic earnings per share.
13
RISK FACTORS
You should be aware that the risk factors set forth below are not exhaustive. Some of these risk factors are
beyond our control.
Risks Related to Current Market Conditions
Our businesses, and therefore our results of operation and financial condition, may be adversely affected by
the current disruption in the global credit markets and failing financial systems.
Since the second half of 2007, the disruption in the global credit markets, coupled with the repricing of
credit risk, and the deterioration of the financial and property markets, particularly in the United States and Europe,
have created increasingly difficult conditions for financial institutions, including companies in our industry. These
transparency in certain markets. These conditions have resulted in the failure of a number of financial institutions
and unprecedented action by governmental authorities and central banks around the world. From September 2008 to
date, the volatility in capital, foreign exchange and equity markets has reached unprecedented levels and credit
markets have been illiquid. Through the year to date, the crisis has also begun to significantly affect the global
economy. Market volatility is likely to remain high as financial market uncertainty persists, and it is difficult to
predict how long these conditions will exist and the extent to which our business plans, markets, products and
businesses will be adversely affected. Accordingly, these conditions could adversely affect our financial condition
and results of operations in future periods. In addition, companies in our industry may be subject to increased
litigation and regulatory or governmental scrutiny as a result of these events.
Prolonged adverse credit market conditions may significantly affect our ability to access international capital
markets, our cost of capital and our ability to meet liquidity needs.
Prolonged disruptions, uncertainty or volatility in the credit markets may limit our ability to access funding
and capital, particularly our ability to issue longer-dated securities in international capital markets. These market
conditions may limit our ability to replace, in a timely manner, maturing liabilities and access the capital necessary
to grow our business and pursue further acquisitions. As well, we may be forced to delay raising longer term
funding and capital, issue shorter tenors than we prefer, or pay unattractive interest rates, thereby increasing our debt
expense, decreasing our profitability and significantly reducing our financial flexibility.
We are dependent on the performance of our investment portfolio.
A substantial proportion of our profits are generated from our investment portfolio. While our general
strategic policy on investments is to reduce the risk to shareholders by investing in high quality fixed interest
securities and having a modest exposure to equity investments, our investment portfolio is subject to market forces.
Our exposure to equities at June 30, 2008 was 7.6% of total investments and cash compared with our benchmark of
10% of total investments and cash. For the six months ended June 30, 2008, our investment income was A$379
million, a decrease of A$185 million (33%) compared to the six months ended June 30, 2007, primarily due to the
impact of the appreciation of the Australian dollar, lower US interest rates and substantially lower equity returns,
while for the year ended December 31, 2007, our investment income was A$1,132 million, increasing A$310
million (38%) from the previous year. While we had equity hedges in place for the majority of the six months ended
June 30, 2008, we currently have no equity hedges in place. Global debt and equity markets have recently
experienced historic levels of volatility and the outlook remains uncertain. Since June 30, 2008, our equity
investments have declined in value due to investment market movements. This has given rise to unrealized losses
on equities and a consequent deterioration of investment income. Any further declines in equity markets, which are
typically more volatile than fixed income instruments, declines in the value of fixed income instruments, or changes
in interest or foreign exchange rates could materially adversely affect our investment income and overall
14
profitability. There can be no assurance that the investment returns achieved by us in the future will be sufficient to
enable us to achieve a net profit.
We may incur losses associated with our counterparty exposures.
Although we actively manage counterparty risk, we face the possibility that a counterparty will be unable to
honor its contractual obligations to us. These counterparties may default on their obligations to us due to bankruptcy,
lack of liquidity, operational failure or other reasons. This risk may arise, for example, from entering into swap or
other derivative contracts under which counterparties have obligations to make payments to us, executing currency
or other trades that fail to settle at the required time due to non-delivery by the counterparty or systems failure by
clearing agents, exchanges, clearing houses or other financial intermediaries.
QBE's Business Risk Factors
We are at risk from the severity and frequency of catastrophes or other events that may lead to an increased
frequency or severity of claims.
General insurers and reinsurers are subject to claims arising out of catastrophes and other events that may
result in an increased frequency or severity of claims and have a significant impact on their results of operations and
financial condition. Catastrophes can be caused by various natural events including cyclones, hurricanes,
earthquakes, wind, hail, floods, fires, volcanic eruptions and explosions. Catastrophes can also be man-made such as
terrorism, war and other hostilities. The frequency and severity of such events and the losses associated with them
are inherently unpredictable and may materially impact our results of operations. We have experienced, and can
expect in the future to experience, losses from catastrophes that may have a material adverse impact on our results of
operations and financial condition.
For the six months ended June 30, 2008, net claims above A$2.5 million from natural catastrophes totaled
A$160 million compared to A$144 million for the six months ended June 30, 2007. In 2007, net claims above
A$2.5 million from natural catastrophes were A$317 million compared to A$251 million in 2006. In 2008 to date,
we have experienced an increase in large individual risk and catastrophe claims compared with last year, although
the net cost of these claims is within the allowances included in our business plans. During this period, notable
weather-related market catastrophes impacting QBE include storms in Queensland and Victoria, two US midwest
floods, four US wind/hail storms, Hurricanes Ike, Hanna and Gustav and Hong Kong floods. During 2007 notable
weather-related catastrophes included Windstorm Kyrill, Indonesian floods, Cyclone Favio, Canberra storms,
Cyclone George, Cyclone Gonu, Newcastle storms, two UK floods, four US tornadoes, two US storms, Hurricane
Dean, Lismore storms, Californian wildfires, Sydney hailstorm, Melbourne hailstorm, and the Gisborne earthquake
in New Zealand. During 2006 notable weather-related market catastrophes included Cyclone Larry in Australia.
The extent of losses from a catastrophe is a function of two factors, namely, the total amount of insured
exposure in the area affected by the event and the severity of the event. Many catastrophes are localized to small
geographic areas. However, natural disasters have the potential to produce significant damage over large areas. In
addition, catastrophes can occur in heavily populated areas, which can lead to increased losses. Although
catastrophes can cause losses in a variety of general insurance and reinsurance lines, marine and property insurance
and reinsurance have in the past generated the vast majority of our catastrophe-related claims.
Although we monitor our aggregate exposures, they depend upon the estimates of probable maximum loss.
These estimates may prove to be incorrect and our aggregate losses may exceed our estimates. In addition, we take
into account the implications of climate change on the frequency, severity and potential locations of natural
catastrophes and generally on our business. Over the past several years, changing weather patterns and climatic
conditions such as global warming may have added to the unpredictability and frequency of natural disasters in
certain parts of the world and created additional uncertainty as to future trends and exposures. In addition, some
experts have attributed the recent high incidence of hurricanes in the Gulf of Mexico and the Caribbean to a
15
permanent change in weather patterns resulting from rising ocean temperature in the region. The international
geographic distribution of our business subjects us to catastrophe exposure from natural events occurring in a
number of areas throughout the world. The loss experience of catastrophe insurers and reinsurers has historically
been characterized as low frequency but high severity in nature. In recent years, the frequency of major natural
catastrophes appears to have increased. One of the more significant risks is the potential under-estimation of the
impact of climate change catastrophic events on us and the insurance industry in general. There is also the
operational risk of increased claims costs due to the impact of climate change scenarios.
While we have historically managed our exposure to catastrophes through, among other things, the
purchase of catastrophe reinsurance, retrocessional coverage and whole account reinsurance, there can be no
assurance that such coverage will continue to be available to us at acceptable rates and levels, that our existing
coverage, including through increased use of our captive reinsurer, Equator Reinsurance Limited ("Equator Re"),
will prove adequate or that counterparties to these arrangements will perform their obligations thereunder.
Acquisitions and our acquisition strategy may adversely affect our business.
As part of our growth strategy, to date in 2008 we have announced acquisitions in Australia, the Asia
Pacific region and the United States and are looking at a number of further acquisition opportunities in the Americas,
Europe, the Asia Pacific region and Australia. Although we conduct due diligence prior to making any acquisition,
acquisitions are subject to many risks, including the following:
• acquisitions may cause a disruption to our ongoing businesses, distract our management and other
resources and make it difficult to maintain our standards, internal controls and procedures;
• our current ratings by S&P, Moody's, A.M. Best or Fitch may be jeopardized;
• we may not be able to successfully integrate services, products and personnel into our operations,
especially if we acquire large businesses;
• we may not be successful in acquiring all entities that we seek to acquire;
• we may be required to take prudent actions such as the disposal or cancellation of certain product lines
and other measures;
• we may be required to incur debt or issue equity securities to pay for acquisitions, for which financing
may not be available or may not be available on acceptable terms;
• our acquisitions may not result in any return on our investment and we may lose our entire investment;
• we may assume unforeseen liabilities and exposures; and
• we may pay for goodwill which we may have to impair.
There can be no assurance that we will successfully identify suitable acquisition candidates or that we will
properly value the acquisitions we make. We are unable to predict whether or when any prospective acquisition
candidate will become available or the likelihood that any acquisition will be completed once negotiations have
commenced. If we are unable to implement our acquisition growth strategy effectively, our businesses, financial
condition and results of operations could be materially adversely affected. See also the risks described in
"Information Summary—Recent Developments" above.
16
We are subject to risks related to our acquisitions of PMI Australia and PMI Asia.
We have undertaken detailed financial and business due diligence of PMI Australia, which we acquired on
October 23, 2008, and PMI Asia, which we agreed to acquire in August 2008. However, there is a risk that the
actual results achieved by PMI Australia and PMI Asia may be lower than those indicated by our analyses and our
expected results of operations. The largest portion of PMI Australia's risk is concentrated in New South Wales,
where default rates of PMI Australia were highest of all Australian jurisdictions in 2007 at approximately 0.5%. If
the property market in Australia deteriorates significantly, this could have a material adverse effect on PMI
Australia's business. In addition, mortgage insurance is a new line of business for QBE. While QBE has reinsurance
covers, risk margins and the funds retained under their promissory note with the vendor to cover an unlikely
economic scenario, there can be no guarantee that these protections will be sufficient.
In addition, the acquisition of PMI Asia is subject to conditions to closing. If any condition to the
acquisition is not satisfied or waived, the acquisition will not be completed.
Our financial results are significantly affected by changes in exchange rates.
While our financial statements are maintained in Australian dollars, for the period ended June 30, 2008,
approximately 77% of our gross earned premium was derived from countries outside Australia, including the United
Kingdom, the United States and countries in the Asia Pacific region, Europe and Latin America. Although our
policy is to carefully manage our exposure to foreign currencies through matching of assets and liabilities in local
currencies and through the use of foreign exchange forward contracts to hedge our exposure, we are still exposed to
exchange rate risk in our financial reporting. Insofar as we are unable to hedge exposure to non-Australian
currencies, our reported profit or foreign currency translation reserve would be affected.
We translate income and expense items using the cumulative average rate of exchange. On this basis, the
Australian dollar appreciated 12% against the pound sterling and the US dollar in the six months ended June 30,
2008 compared to the six months ended June 30, 2007. This substantial appreciation of the Australian dollar has had
a material adverse impact on premium growth given that in excess of 76% of gross written premium is in currencies
other than the Australian dollar and consequentially our overall profitability. Balance sheet items are translated at
the period end rate of exchange. On this basis, the Australian dollar rose 8% against the US dollar and the pound
sterling compared to the exchange rates at June 30, 2008 with the exchange rates at December 31, 2007. Since June
30, 2008, the Australian dollar has declined significantly against major currencies, with the noon buying rate of US
dollars for Australian dollars falling from US$0.9562 at that date to US$0.6254 at November 21, 2008. This
represents a 35% decrease over the period from July 1 to November 21, 2008.
Investors should be aware that our results for the six months ended June 30, 2008 will again be translated at
the cumulative average exchange rate for the year ending December 31, 2008. This means that if the Australian
dollar remains weaker, as has been the case since June 30, 2008, then our first half year premium and results will
increase accordingly. Conversely, if the current trend reverses and the Australian dollar appreciates against overseas
currencies beyond the levels for the six months ended June 30, 2008, our first half year premium and results will be
reduced accordingly.
Differences between our actual claims experience and underwriting and reserving assumptions may require
us to increase our outstanding claims provisions.
Our earnings depend significantly upon the extent to which our actual claims experience is consistent with
the assumptions we use in setting the prices for our products and establishing the reserves for our obligations to pay
claims. Establishing reserves is an imprecise science, dependent upon the accuracy of the assessment of the
underlying risks and subject to both internal and external variables. Due to the high degree of uncertainty associated
with the determination of claims reserves, we cannot determine precisely the amounts that we will ultimately pay to
settle these claims. Such amounts may vary from the estimated amounts, particularly when those payments may not
occur until well into the future, as with our long-tail classes of insurance business, when our claims reserves increase
17
to the extent interest rates decrease, or when claims are paid, on average, more quickly than we originally assumed.
We evaluate our reserves periodically, factoring in any changes in the assumptions used to establish the reserves, as
well as our claims experience. If the reserves we originally establish prove inadequate, we would have to increase
our reserves, which could have a material adverse effect on our businesses, financial condition and results of
operations.
There can be no assurance that ultimate losses will not materially exceed our provisions and will not have a
material adverse effect on our businesses, financial condition and results of operations.
We operate in a highly competitive industry.
There is substantial competition among general insurance and reinsurance companies in Australia, the
United Kingdom, the United States and the other jurisdictions in which we do business. We compete with general
insurers and reinsurers who have greater financial and marketing resources and greater name recognition than we
have. The recent consolidation in the global financial services industry has also enhanced the competitive position of
some of our competitors compared to us by broadening the range of their products and services, and increasing their
distribution channels and their access to capital.
The level of profitability of a general insurance or reinsurance company is significantly influenced by the
adequacy of premium income relative to its risk profile and claims exposure, as well as the general level of business
costs. We have experienced overall weighted average reductions in premium rates for our worldwide portfolio of
approximately 2% on renewed business for the six months ended June 30, 2008 compared to 3% for the year ended
December 31, 2007. Low premium rates arising from competitive pricing have and may continue to adversely
impact our underwriting results. While we seek to maintain premium rates at targeted levels, the effect of
competitive market conditions may have a material adverse effect on our market share and financial condition. In
addition, development of alternative distribution channels for certain types of insurance products, including through
the internet, may result in increasing competition as well as pressure on margins for certain types of products.
We are dependent on our ability to reinsure risks.
A general insurance company will usually attempt to limit its risks in particular lines of business or from
specific events by using outward reinsurance arrangements. We enter into a significant number of reinsurance
contracts to limit our risk. Under these arrangements, other reinsurers assume a portion of the losses and related
expenses in connection with insurance policies we write. The availability, amount and cost of reinsurance depend on
prevailing market conditions, in terms of price and available capacity, which may vary significantly.
We have stringent controls with respect to the external reinsurers with which we do business, but there are
risks associated with the determination of the appropriate levels of reinsurance protection, matching of reinsurance
to underlying policies, the cost of such reinsurance and the financial security of such reinsurers.
Since January 1, 2002, our operating subsidiaries have had a worldwide excess of loss ("WEOL") policy
with our long standing, wholly-owned subsidiary, Equator Re, a Bermuda corporation. WEOL covers a selected
portion of the lines of business of our insurance subsidiaries. See "Business—Outward Reinsurance." Equator Re
also participates on a number of our excess of loss and proportional reinsurance protections placed with external
reinsurers. Since 2007, Equator Re has significantly increased its participation on excess of loss protections for our
insurance subsidiaries which would otherwise have been placed in the external markets and proportional reinsurance
with external reinsurers. It has also recently taken over the 50% quota share of the Praetorian business. There can
be no assurance regarding the adequacy of our current reinsurance or retrocessional coverage or the future
availability of coverage at adequate rates and levels for our external reinsurance arrangements. In the event that
adequate reinsurance capacity at acceptable rates becomes unavailable, we would attempt to reduce our exposures to
within available insurance capacity or acceptable levels of risk. However, we may not be successful and we may
remain exposed to certain risks unless and until this reduction could be completed.
18
Ceding of risk to our reinsurers does not relieve us of our primary liability to our insured. Accordingly, we
are subject to credit risk with respect to our reinsurers. Although we initially place our reinsurance with reinsurers
that we believe to be financially stable, this may change adversely by the time recoveries are due which could be
many years later. A reinsurer's failure to make payment under the terms of a significant reinsurance contract would
have a material adverse effect on our businesses, financial condition and results of operations. In addition, after
making large claims on our reinsurers, we may have to pay substantial reinstatement premiums to continue
reinsurance cover.
There are risks associated with our inward reinsurance business.
In addition to purchasing reinsurance coverage, we (primarily through our European and United States
subsidiaries and Lloyd's syndicates) provide reinsurance coverage for third party insurance company cedants. Due to
various factors, including reliance on ceding company information concerning the underlying risks, reporting delays
and the cyclical nature of reinsurance rates, our inward reinsurance business may be more volatile and present
greater risks than our primary insurance business, especially for cover given in respect of catastrophes.
Changes in government policy, regulation or legislation in the countries in which we operate may affect our
profitability.
We are subject to extensive regulation and supervision in the jurisdictions in which we do business. This
includes, by way of example, matters relating to licensing and examination, rate setting, trade practices, policy
reforms, limitations on the nature and amount of certain investments, underwriting and claims practices, mandated
participation in shared markets and guarantee funds, reserve adequacy, capital and surplus requirements, insurer
solvency, transactions between affiliates, the amount of dividends that may be paid and regulations on underwriting
standards. Such regulation and supervision is primarily for the benefit and protection of policyholders and not for
the benefit of investors or shareholders. In some cases, regulation in one country may affect business operations in
another country. As the amount and complexity of these regulations increase, so may the cost of compliance and the
risk of non-compliance. If we do not meet regulatory or other requirements, we may suffer penalties including fines,
suspension or cancellation of our insurance licenses which could adversely affect our ability to do business. In
addition, significant regulatory action against QBE could have material adverse financial effects, cause significant
reputational harm or harm our business prospects.
As described in detail in "Regulation," we are experiencing, and particularly in light of current market
conditions, we expect to continue to experience a number of changes in regulation in certain markets in which we do
business, including in the Australian, UK and US markets. As a result, our executive management is, and we expect
will continue to be, increasingly required to spend significantly more time on compliance matters. Therefore we
expect the cost of regulatory supervision in many of our markets to increase.
In addition, we may be adversely affected by changes in government policy or legislation applying to

companies in the insurance industry. These include possible changes in regulations covering pricing and benefit
payments for certain statutory classes of business (e.g., CTP and workers' compensation in Australia and employers'
liability in the UK), the deregulation and nationalization of certain classes of business, the regulation of selling
practices and insurance solvency standards and capital requirements (including consideration of this on a Group
basis in both Australia and the UK), the regulations covering policy terms (including initiatives in the UK to
improve standards in contract certainty) and policy termination and the imposition of new taxes and assessments.
From time to time in the United States there is also consideration of the introduction of federal regulation in addition
to, or in lieu of, the current system of state regulation of insurers and proposals in various state legislatures (some of
which proposals have been enacted). Regulatory changes may affect our existing and future businesses by, for
example, causing customers to cancel or not renew existing policies or requiring us to change our range of products
or to provide certain products (such as terrorism cover where it is not already required) and services, redesign our
technology or other systems, retrain our staff, pay increased tax or incur other costs. It is not possible to determine
what changes in government policy or legislation will be adopted in any jurisdiction and, if so, what form they will
take or in what jurisdictions they may occur. Insurance laws or regulations that are adopted or amended may be
19
more restrictive than our current requirements, may result in higher costs or limit our growth or otherwise adversely
affect our operations.
For more information, see "Regulation."
A downgrade in our ratings may increase policy cancellations and non-renewals, adversely affect
relationships with distributors and negatively impact new business.
Our insurer financial strength ratings are important factors in establishing and maintaining our competitive
position. Our main insurance and reinsurance subsidiaries have been assigned an A+ insurer financial strength rating
by each of S&P and Fitch. Our main insurance and reinsurance subsidiaries in the United States and our main
insurance subsidiaries in Europe have been assigned an A rating by A.M. Best. QBE Insurance Group Limited has
been assigned an A-, A3, A and bbb+ counterparty credit rating by each of S&P, Moody's, Fitch and A.M. Best,
respectively. The rating agencies regularly review our rating and the ratings of our main insurance and reinsurance
subsidiaries. Future downgrades in the ratings of any of our insurance or reinsurance subsidiaries (or the potential
for such a downgrade) could, among other things, materially increase the number of policy cancellations and non-
renewals, adversely affect relationships with the distributors of our products and services, including new sales of our
products, and negatively impact the level of our premiums and adversely affect our ability to obtain reinsurance at
reasonable prices or at all. This could adversely affect our businesses, financial condition, results of operations and
our cost of capital. See "Business—Ratings."
Our performance is affected by general economic conditions and the cyclical nature of the insurance and
reinsurance industries.
Our performance is affected by changes in economic conditions, both globally and in the particular
countries in which we conduct our business. Premium and claim trends in the general insurance and reinsurance
markets are cyclical in nature. Insurance pricing in most markets was less favorable in the first half of 2008 and
2007 than in 2006. We experienced an overall average reduction in premium rates for our worldwide portfolio of
approximately 2% on renewed business for the six months ended June 30, 2008 and 3% for the year ended
December 31, 2007. Furthermore, the timing and application of these cycles differ among our geographic and
product markets. Currently there is a deterioration of economic conditions in numerous major western economies
and a deceleration of global growth. We will continue to monitor the effect of this on our business. Unpredictable
developments also affect the industry's profitability, including changes in competitive conditions and pricing
pressures, unforeseen developments in loss trends, market acceptance of new coverages, changes in operating
expenses, fluctuations in inflation and interest rates and other changes in investment markets that affect market
prices of investments and income from such investments. Fluctuations in the availability of capital could also have a
significant influence on the cyclical nature of general insurance and reinsurance markets. These cycles influence the
demand for and pricing of our products and services and therefore affect our financial position, profits and dividends.
Our extensive international operations subject us to various risks.
We operate in 45 countries around the world and continually assess opportunities to expand our operations.
Even though we typically have management and shareholder control of our non-Australian affiliates, we are subject
to the attendant risks of doing business in many foreign countries such as:
• political instability;
• difficulties in enforcing our rights;
• changes in foreign regulation or their interpretation or enforcement;
• unstable economic conditions;
20
• foreign taxes;
• adverse currency fluctuations; and
• lack of experience in new markets.
We are dependent on key personnel.
Our success is dependent on the efforts and abilities of our executive officers, particularly our chief
executive officer, our chief financial officer, our chief risk officer, our chief operating officer, the chief executive
officers of our divisions, our group general manager–investments, our group general counsel and company secretary,
our group general manager–human resources and our chief actuarial officer. Some of our executive officers are not
bound by detailed service agreements. We do not have key person insurance on any personnel. If we were to lose the
services of Frank O'Halloran, who is our chief executive officer, Neil Drabsch, who is our chief financial officer, or
other executive officers, such losses could have a material adverse effect on our business.
Our financial success and development are also dependent upon our ability to hire additional personnel as
necessary to meet our management, underwriting, investment, administration and other needs. Although we believe
that, to date, we have been successful in attracting and obtaining the highly qualified professionals we require, there
can be no assurance that we will continue to be successful in this regard.
We rely on our insurance agents and brokers.
We primarily distribute our products through third party-owned insurance agents and brokers. Even though
we are not reliant on any individual distribution outlet, the failure, inability or unwillingness of third party-owned
insurance agents and brokers to successfully market our insurance products could have a material adverse effect on
our businesses, financial condition and results of operations. Third party-owned brokers and insurance agents are not
obligated to promote our insurance products and third party-owned agents and brokers may sell competitors'
insurance products. As a result, our business depends to a significant extent on our relationships with agents and
brokers, the marketing efforts of those agents and brokers and our ability to offer insurance products and services
that meet the requirements of the clients and customers of those agents and brokers.
Our holding company structure affects our ability to receive funds.
We are a holding company and our principal assets consist primarily of our investments in our insurance
and investment subsidiaries. Our primary sources of funds are dividends and payments received on loans from our
insurance and investment subsidiaries. Our insurance subsidiaries are subject to significant government regulation
and our ability to receive dividends, loans and loan payments from these subsidiaries to enable us to satisfy our
obligations may be restricted by such regulations. Such regulations usually give priority to the payment of
policyholders' claims. Furthermore, our right to participate in any distribution of assets of any subsidiary upon its
liquidation or reorganization or other event is subject to the prior claims of creditors of that subsidiary, except to the
extent that we may be recognized as a senior or equal ranking creditor of that subsidiary. If the funds we receive
from our subsidiaries are insufficient to fund our obligations, we may be required to raise cash through the
incurrence of debt, the issuance of additional equity or the sale of assets.
21
Significant legal proceedings and litigation may adversely affect our business, financial condition and results
of operations.
All insurance companies are exposed to litigation relating to claims on policies they underwrite.
Accordingly, we are currently involved in such legal proceedings relating to claims lodged by policyholders, some
of which involve claims for substantial damages and other relief. Judicial decisions may expand coverage beyond
our pricing and reserving assumptions by widening liability on our policy wording or by restricting the application
of policy exclusions. There can be no assurance that the outcome of any of our judicial proceedings will be covered
by our existing provisions for outstanding claims or our reinsurance protections or will not otherwise have a material
adverse effect on our businesses, financial condition and results of operations.
We rely to a significant degree on our computer systems.
We rely to a significant degree on our computer systems in our daily operations, as well as in calculating
underwriting risks, and incur considerable expense on systems development and maintenance. We are exposed to a
number of systems risks, including:
• complete or partial failure of the computer systems;
• lost or impaired functionality of the computer systems;
• temporary and/or intermittent failure of the computer systems;
• lack of capacity; and
• system integration.
The above events may cause a loss of customers, damage to our reputation and significant remediation
costs, resulting in a material adverse effect on our businesses, financial condition and results of operations.
Our risk management policies and procedures may leave us exposed to unidentified or unanticipated risk,
which could negatively affect our business.
Management of operational, legal, regulatory and other risks requires, among other things, policies and
procedures to record properly and verify a large number of transactions and events. We have devoted significant
resources to develop our risk management policies and procedures and expect to continue to do so in the future.
Nonetheless, our policies and procedures may not be fully effective. Many of our methods for managing risk and
exposures are based upon the use of observed historical market behavior or statistics based on historical models. As
a result, these methods may not predict future exposures, which could be significantly greater than our historical
measures indicate. Other risk management methods depend upon the evaluation of information regarding markets,
clients, catastrophe occurrence or other matters that is publicly available or otherwise accessible to us. This
information may not always be accurate, complete, up-to-date or properly evaluated.
22
SELECTED CONSOLIDATED HISTORICAL FINANCIAL AND OTHER DATA
Until December 31, 2004, we prepared our financial statements in accordance with historical Australian
GAAP. From January 1, 2005, we prepared our financial statements in accordance with A-IFRS. We prepared our
financial statements as at and for the years ended December 31, 2007, 2006 and 2005 in accordance with A-IFRS.
We applied AASB 1: First Time Adoption of Australian Equivalents to International Financial Reporting Standards
in preparing our financial statements as at and for the year ended December 31, 2005. In preparing our 2005
financial statements, management amended certain accounting and valuation methods applied in the historical
Australian GAAP financial statements to comply with A-IFRS and in our 2005 financial statements the comparative
figures as at and for the year ended December 31, 2004 were restated in accordance with A-IFRS to reflect these
adjustments. The information based on historical Australian GAAP is not comparable to information prepared in
accordance with A-IFRS. See Note 1 to our 2007 financial statements for a summary of our significant accounting
policies under A-IFRS.
The selected consolidated historical financial data as at December 31, 2007, 2006 and 2005 and 2004 and
for the years ended December 31, 2007, 2006, 2005 and 2004 set forth below have been derived from our audited
consolidated financial statements and related notes, which were presented in accordance with A-IFRS as described
above.
You should read the following financial information together with the information in the sections of the
Information titled "Management's Discussion and Analysis of Financial Condition and Results of Operations," "Risk
Factors" and our audited consolidated financial statements and unaudited consolidated interim financial statements
and related notes.
23
Six months ended
2008 2007 2007 2006 2005 2004
Income statement
Gross written premium.................................... 6,603 6,520 12,406 10,372 9,408 8,766
Gross earned premium..................................... 5,958 5,751 12,361 10,069 9,171 8,571
Outward reinsurance premium ........................ (1,064) (1,112) (1,987) (1,842) (1,785) (1,781)
Deferred reinsurance premium movement ...... 214 110 (164) (69) — (9)
Outward reinsurance premium expense........... (850) (1,002) (2,151) (1,911) (1,785) (1,790)
Net earned premium ........................................ 5,108 4,749 10,210 8,158 7,386 6,781
Gross claims incurred...................................... (3,258) (3,161) (6,651) (5,528) (6,744) (5,327)
Reinsurance and other recoveries .................... 468 512 1,098 977 2,327 1,171
Net claims incurred(1)..................................... (2,790) (2,649) (5,553) (4,551) (4,417) (4,156)
Net commissions ............................................. (881) (863) (1,885) (1,384) (1,251) (1,184)
Other acquisition costs .................................... (284) (225) (600) (498) (428) (439)
Underwriting and other administration
expenses ....................................................... (426) (359) (734) (525) (482) (405)
Underwriting result ......................................... 727 653 1,438 1,200 808 597
Investment income on policyholders' funds .... 389 400 824 588 480 331
Insurance profit ............................................... 1,116 1,053 2,262 1,788 1,288 928
Investment income on shareholders' funds ...... (10) 164 308 234 238 188
Amortization of intangibles............................. (11) (5) (21) (10) (3) (1)
Operating profit before income tax ................. 1,095 1,212 2,549 2,012 1,523 1,115
Income tax expense ......................................... (235) (287) (615) (519) (425) (251)
Minority interest.............................................. (1) (4) (9) (10) (7) (7)
Operating profit ............................................... 859 921 1,925 1,483 1,091 857
Other data
Claims ratio (%)(2).......................................... 54.7 55.7 54.3 55.8 59.9 61.3
Commission ratio (%)(3)................................. 17.2 18.2 18.5 17.0 16.9 17.5
Expense ratio (%)(4) ....................................... 13.9 12.3 13.1 12.5 12.3 12.4
Combined operating ratio (%)(5) .................... 85.8 86.2 85.9 85.3 89.1 91.2
Dividends per share (cents) ............................. 61.0 57.0 122.0 95.0 71.0 54.0
Return on average shareholders' equity (%)(7) 19.9 28.1 26.1 26.1 23.9 24.5
Basic earnings per share (cents)(6)(8) ............. 96.8 109.2 224.1 184.8 142.5 123.1
Diluted earnings per share (cents)(6)(8) .......... 96.0 104.9 217.3 173.5 131.5 109.3
Weighted average number of shares(8) ........... 882 837 853 795 757 695
24
Six months ended
2008 2007 2007 2006 2005 2004
Balance Sheet (at period end)
Assets
Cash and cash equivalents ............................................ 1,197 2,140 988 1,019 1,061 1,121
Investments................................................................... 21,985 21,501 23,525 18,915 16,503 13,822
ABC financial assets pledged for funds at Lloyd's(9) ... 824 934 900 995 1,032 998
Derivative financial instruments ................................... 735 295 266 102 82 78
Trade and receivables ................................................... 5,141 6,130 4,616 3,837 3,607 3,146
Swaps relating to ABC Securities ................................. 1 — — — — —
Current tax assets .......................................................... 9 47 52 3 — 2
Reinsurance and other recoveries on outstanding
claims......................................................................... 4,040 4,361 4,360 3,624 4,213 3,143
Other assets................................................................... 38 52 41 6 5 36
Deferred insurance costs ............................................... 1,849 2,385 1,683 1,409 1,446 1,358
Defined benefit plan surplus ......................................... 2 1 3 2 2 2
Property, plant and equipment ...................................... 416 425 435 260 232 186
Deferred tax assets ........................................................ 159 328 158 72 67 73
Investment properties.................................................... 86 86 93 38 33 32
Intangible assets............................................................ 2,662 2,428 2,493 1,475 1,382 1,039
Total assets ............................................................... 39,144 41,113 39,613 31,757 29,665 25,036
Liabilities
Trade and other payables .............................................. 2,075 2,769 1,934 1,466 1,282 1,084
Derivative financial instruments ................................... 119 111 231 37 35 53
Current tax liabilities .................................................... 263 187 86 193 162 73
Unearned premium ....................................................... 6,045 6,842 5,698 4,642 4,287 3,948
ABC Securities for funds at Lloyd's(9)......................... 799 886 867 946 1,015 968
Swaps relating to ABC Securities ................................. 22 57 30 58 29 30
Outstanding claims ....................................................... 17,152 18,426 18,231 15,269 15,083 12,605
Provisions ..................................................................... 109 90 67 66 64 54
Defined benefit plan deficit .......................................... 55 49 53 8 168 202
Deferred tax liabilities .................................................. 344 334 415 359 251 122
Borrowings ................................................................... 3,287 3,576 3,458 2,364 2,130 1,805
Total liabilities ......................................................... 30,270 33,327 31,070 25,408 24,506 20,944
Net assets ..................................................................... 8,874 7,786 8,543 6,349 5,159 4,092
Equity
Share capital ................................................................. 4,744 4,428 4,737 3,461 3,195 2,780
Treasury shares held in trust ........................................ — (16) (16) (16) — —
Equity component of hybrid securities due 2024 and
2027 ........................................................................... 114 115 114 108 108 108
Reserves........................................................................ (72) 35 (75) 47 (20) (29)
Retained profits............................................................. 4,030 3,159 3,719 2,683 1,810 1,173
Shareholders funds ....................................................... 8,816 7,721 8,479 6,283 5,093 4,032
Minority interest ........................................................... 58 65 64 66 66 60
Total equity .............................................................. 8,874 7,786 8,543 6,349 5,159 4,092
25
Six months ended
2008 2007 2007 2006 2005 2004
Statement of cash flows
Operating activities
Premium received ........................................................ 6,033 5,806 12,667 10,483 8,756 8,598
Reinsurance and other recoveries received .................. 620 763 1,665 1,805 1,309 907
Outwards reinsurance paid .......................................... (1,116) (1,128) (2,108) (1,874) (1,479) (1,664)
Claims paid.................................................................. (3,445) (2,989) (7,053) (6,025) (4,620) (4,006)
Insurance costs paid..................................................... (1,183) (1,087) (2,199) (2,044) (1,748) (1,629)
Other underwriting costs.............................................. (594) (643) (836) (379) (343) (374)
Interest received........................................................... 607 418 933 611 562 471
Dividends received ...................................................... 29 34 64 45 44 50
Other operating income ............................................... 98 9 12 30 — 18
Other operating payments............................................ (65) (23) (49) (171) (208) (16)
Interest paid ................................................................. (91) (98) (194) (84) (115) (103)
Income taxes paid ........................................................ (54) (277) (528) (358) (171) (142)
Net cash flows from operating activities .................. 839 785 2,374 2,039 1,987 2,110
Investing activities
Proceeds on sale of equity investments ....................... 544 937 1,428 418 1,403 1,526
Proceeds on sale of investment property...................... 1 1 1 1 1 9
Proceeds on sale of property, plant and equipment...... 1 — 5 2 2 4
Payments for purchase of equity investments.............. (837) (979) (1,382) (1,376) (589) (1,498)
(Payments for) proceeds from foreign exchange
transactions............................................................... (170) 175 160 39 188 30
Proceeds on sale (payments for purchase) of other
financial
assets ........................................................................ 721 1,281 (1,277) (817) (2,755) (1,620)
Payments for purchase of controlled entities and
businesses acquired .................................................. (235) (2,002) (2,052) (88) (402) (877)
Payments for purchase of investment property............ — — (6) (2) (4) —
Proceeds on disposal of controlled entities .................. — 3 2 3 35 —
Payments for purchase of property, plant and equipment
.................................................................................. (30) (31) (80) (61) (82) (38)
Payments for purchase of ABC financial investments(9)
.................................................................................. — — — — — (295)
Net cash flows from investing activities ................... (5) (615) (3,201) (1,881) (2,203) (2,759)
Financing activities
Proceeds from issue of shares...................................... — 772 772 — — 3
Payments for purchase of treasury shares .................... (9) — (37) (38) — —
Share issue expenses.................................................... — (3) (4) (5) (4) —
Proceeds from settlement of staff share loans.............. 6 31 43 47 34 33
Proceeds from borrowings ........................................... 3 1,286 1,534 731 400 1,796
Repayment of borrowings............................................ (1) (689) (695) (400) (45) (932)
Dividends paid............................................................. (545) (366) (809) (497) (224) (141)
Proceeds from issue of ABC Securities ....................... — — — — — 294
Net cash flows from financing activities................... (546) 1,031 804 (162) 161 1,053
Net increase (decrease) in cash and cash equivalents

held........................................................................... 288 1,201 (23) (4) (55) 404
Cash and cash equivalents at the beginning of the
period........................................................................ 988 1,019 1,019 1,061 1,121 717
Effect of exchange rate changes .................................. (79) (80) (8) (38) (5) —
Cash and cash equivalents at the end of the period 1,197 2,140 988 1,019 1,061 1,121
26
(1) Claims settlement expenses are included in net claims incurred.
(2) Claims ratio is calculated by dividing net claims incurred by net earned premium.
(3) Commission ratio is calculated by dividing net commissions by net earned premium.
(4) Expense ratio is calculated by dividing other acquisition costs and underwriting and other expenses by net earned premium.
(5) Combined operating ratio is calculated by adding the sum of our claims ratio, commission ratio and expense ratio.
(6) Basic earnings per share is calculated on the weighted average number of ordinary shares outstanding during the year. Diluted earnings per
share includes employee options and hybrid securities where they are dilutive.
(7) Return on average shareholders' equity is net profit after tax as a percentage of average shareholders' funds.
(8) The weighted average number of ordinary shares is only applicable to the calculation of basic earnings per share.
(9) See Note 34(C) to our 2007 financial statements for a description of the ABC Securities.
27
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
Please read the following information in conjunction with the "Selected Consolidated Historical Financial
and Other Data" and our financial statements. This discussion contains forward-looking statements that involve
risks, uncertainties and assumptions. Our actual results may differ materially from those anticipated in these
forward-looking statements as a result of a number of factors including those set forth under the captions "Special
Note Regarding Forward-Looking Statements" and "Risk Factors" in the Information.
Overview
Our founding company was established in Queensland, Australia in 1886. We have since grown into
Australia's largest international general insurance and reinsurance group based on net earned premium for the year
ended December 31, 2007. We underwrite commercial and personal lines business in 45 countries around the world.
Our total assets amounted to A$39.1 billion and A$39.6 billion at June 30, 2008 and December 31, 2007,
respectively, and our shareholders' funds totaled A$8.8 billion and A$8.5 billion at June 30, 2008 and December 31,
2007, respectively. As of November 21, 2008, our market capitalization was A$21.2 billion, as compared to A$19.9
at June 30, 2008.
We discuss the comparison of our financial condition and results of operations under the following
divisions:
all major lines of insurance cover for personal and commercial risks;
• Asia Pacific operations providing personal, commercial and specialist insurance covers in 17
countries in the Asia Pacific region, including professional and general liability, marine, corporate
property and trade credit;
• European operations consisting of QBE Insurance Europe and QBE Underwriting Limited (Lloyd's
division).
countries in mainland Europe, and reinsurance business in Ireland;
business in the Lloyd's market;
• the Americas writing insurance and reinsurance business in the Americas with headquarters in New
York and operations in North, Central and South America and Bermuda;
• Equator Re consisting of our captive reinsurance business which is based in Bermuda. Equator Re
provides reinsurance protections at various levels for most of our subsidiaries around the world.
Equator Re's primary role is to assist in our capital and balance sheet management, as well as to
provide buying power for our Group reinsurance arrangements. Equator Re provides protection below
the retentions deemed appropriate for the Group and also participates on a number of our excess of loss
and proportional reinsurance protections placed with external reinsurers. The exposures written by
Equator Re are included in our maximum event retention, which is our estimated net loss from our
largest single realistic disaster scenario. All business written by Equator Re is priced at market rates.
Equator Re's intercompany transactions are eliminated upon consolidation of our overall Group results.
See Note 37 to our 2007 financial statements; and
28
Effective January 1, 2007, the management responsibility for our Central and Eastern European Operations
was transferred from our Australia Pacific Asia Central Europe ("APACE") division to our European operations
division, in order to have a single consistent approach for our European businesses and to better utilize the
substantial product skills that we have based in London. The APACE division was subsequently separated into two
divisions, with the Australian and Asia Pacific business units becoming separate operational divisions in their own
right. Our financial information for 2006 and 2005 has been restated as if the reorganization had been effective as at
January 1, 2005.
Market Conditions
Since the second half of 2007, disruption in the global credit markets, coupled with the repricing of credit
risk, and the deterioration of the financial and property markets, particularly in the United States and Europe, have
created increasingly difficult conditions for financial institutions, including companies in our industry. These
transparency in certain markets. These conditions have resulted in the failures of a number of financial institutions
and resulted in unprecedented action by governmental authorities and central banks around the world. During
October 2008, the governments in Australia, Europe, the United Kingdom and the United States announced
measures to assist in strengthening their respective banking systems and to increase system liquidity. From
September 2008 to date, the volatility in capital, foreign exchange and equity markets has reached unprecedented
levels and credit markets have been illiquid. Through the year to date, the crisis has also begun to significantly
affect the global economy. Market volatility is likely to remain high as financial market uncertainty persists, and it
is impossible for us to predict the impact that the current financial turmoil around the world will have on our results
of operation or financial condition.
Since June 30, 2008, the Australian dollar has declined significantly against major currencies, with the
noon buying rate of US dollars for Australian dollars falling from US$0.9562 at that date to US$0.6254 at
November 21, 2008. This represents a 35% decrease from July 1 to November 21, 2008. Investors should be aware
that we translate income and expense items using a cumulative average rate of exchange and balance sheet items
using the period end rate of exchange. For further information on the impact of changes in exchange rates on our
financial results, see "Management's Discussion and Analysis of Financial Condition and Results of Operations—
Impact of the Fluctuations of the Australian Dollar" and "Risk Factors—QBE's Business Risk Factors—Our
financial results are significantly affected by changes in exchange rates."
The current turmoil in the world's financial markets has had a significant potential impact on the value of
the investments that we hold and our investment returns. As described below under "—Investment Strategy," at
June 30, 2008, we held $23.3 billion in investments compared to A$24.6 billion at December 31, 2007, a decrease of
5% partly due to substantially weaker equity markets. This adverse trend resulted in a substantial decrease in gross
investment income from A$679 million at December 31, 2007 to A$513 million at June 30, 2008, which included
net realized and unrealized losses on equities of A$86 million for the six months ended June 30, 2008 compared to
net realized and unrealized gains of A$82 million for the six months ended June 30, 2007. Since June 30, 2008, our
equity investments, which represented 7.6% of our total investments and cash at that date, have declined in value
due to investment market movements. This has given rise to unrealized losses on equities and a consequent
deterioration of our gross investment income. We currently have no equity hedges in place. Since June 30, 2008,
the value of our cash and fixed income investments has not been adversely affected by the current market turmoil.
exposure through our investments in, and deposits with, the major banks. Our investment portfolio has no direct
exposure to Lehman Brothers or AIG. We have an immaterial exposure to reinsurance recoveries on paid,
outstanding and incurred but not reported claims to AIG mainly through its majority-owned subsidiary, Transatlantic
Re, and its wholly-owned subsidiary, Lexington. We have some exposure through our insurance operations to
claims that may arise related to mortgage-backed securities programs that include sub-prime mortgages, which
exposure is not material. We have made allowances in our insurance liabilities for potential exposure to policies
relating to financial institutions affected by the credit crisis.
29
Recent Developments
On November 26, 2008, QBE Holdings, Inc. entered into a merger agreement to acquire all of the shares in
ZCS. We agreed to pay an initial price of US$575 million plus a variable amount of potentially up to US$525
million based on ZCS meeting agency profit forecasts in financial years 2009 and 2010. The merger is conditional
on the receipt of all necessary competition and government approvals and will be completed following receipt of
such approvals. Completion of the acquisition is expected to occur on or before December 31, 2008.
Founded in 1996 and based in Atlanta, Georgia, United States, ZCS is an underwriting agency specializing
in providing specialty insurance solutions through customized technology-enabled business process services to
mortgage originators, homebuilders, banks and real estate agents across the United States. ZCS provides hazard
insurance tracking and outsourcing, voluntary homeowners' insurance programs, in-house and outsourced real estate
tax services, online claims services, customer care services and mortgage outsourcing technology solutions. It does
not offer lenders' mortgage insurance. ZCS has operations in California, Florida, Georgia, Iowa, Maryland, New
Mexico, Nebraska, North Carolina and Texas and access to a call center in India.
We believe that ZCS's insurance and agency business will be complementary to our existing general
insurance operations in the United States and will allow us to expand our product and geographic diversity. Based
on ZCS management's projections and our due diligence, in the first full financial year following the acquisition,
ZCS is expected to contribute approximately US$425 million to our gross written premium and approximately
US$150 million to our net profit after tax. The acquisition is expected to be earnings per share accretive in the first
year of ownership. No assurance can be given in regard to these current estimates which are subject to various risks
and uncertainties.
QBE has acquired a renewal rights portfolio in the United States and has reached agreement to acquire two
underwriting agencies in the United States and one in Europe. The total upfront cost of these acquisitions is
approximately US$120 million and the purchases are expected to complete in late 2008 or early 2009.
As with any acquisition, there are numerous risks that may arise. See "Information Summary—Recent
Developments" and "Risk Factors—QBE's Business Risk Factors—Acquisitions and our acquisition strategy may
adversely affect our business" for a description of those risks.
Recent Acquisitions
2008 Acquisitions
In 2008:
• on October 23, we acquired PMI Australia from a subsidiary of The PMI Group Inc., as described
below;
• on April 30, we acquired North Pointe, a property and casualty insurer in the United States which
writes both commercial and personal insurance, for a purchase price of US$143 million;
• on June 4, we acquired Deep South, an underwriting agency in the United States for a purchase price
of US$190 million, including the maximum potential cost of contingent incentive arrangements for the
next three years; and
• to date we have acquired three distribution channels in Australia and one distribution channel in the
United States for an aggregate purchase price of A$94 million.
30
Acquisitions from The PMI Group Inc.
On October 23, 2008, we acquired PMI Australia from a subsidiary of The PMI Group, Inc. PMI Australia
is a mortgage insurer for lenders and writes approximately 40% of the residential mortgage insurance policies in
Australia. The purchase price for PMI Australia was US$920 million, with 80% paid in cash and the remaining 20%
in the form of a promissory note, the payment of which is contingent on the claims experience of PMI Australia over
three years. The amount payable on the promissory note will be reduced to the extent that the performance of the
existing insurance portfolios of PMI Australia do not achieve specified targets. PMI Australia is a mortgage insurer
for lenders and writes approximately 40% of the residential mortgage insurance policies in Australia. It has
provided lenders with residential mortgage insurance for over 40 years.
In August 2008, we signed an agreement to acquire PMI Asia from The PMI Group, Inc. Completion of
the acquisition remains subject to a number of closing conditions. PMI Asia, operating for over nine years, provides
reinsurance support to the primary Hong Kong mortgage insurer, Hong Kong Mortgage Corporation.
2007 Acquisitions
During 2007, we completed two large acquisitions in the United States, together with a number of smaller
acquisitions in Latin America, Europe and Australia. In particular we acquired:
• Praetorian Financial Group in the United States, effective March 31, 2007;
• Winterthur U.S. Holdings, Inc., now called QBE Regional Insurance, effective May 31, 2007;
• Cumbre Seguros in Mexico, effective November 1, 2007;
• a distribution channel in Switzerland; and
• a number of underwriting agencies and renewal rights in Australia, including Universal Underwriting
Agency.
We also entered into a joint venture agreement to establish a new general insurance business in India.
For a discussion of recent acquisitions, see "Information Summary—Recent Acquisitions."
The funding of these acquisitions to date has been from existing resources and increased short-term
borrowings. QBE funded the initial cash components of the PMI Australia acquisition using internally generated
funds from operations and short-term bank loans of A$400 million.
Factors and Trends Affecting our Results
The following section describes certain factors and trends that have a material impact on our financial
condition and results of operations. See "—Market Conditions" and "Business—Investment Strategy" for a
discussion of the expected effects of the current market conditions on our financial condition and results of operation.
31
Growth by Acquisition Generally
Historically, we have grown primarily through acquisitions. In 2008 to date, we have announced eleven
acquisitions, including the acquisition of PMI Australia and PMI Asia. See "—Recent Developments " and "—
Recent Acquisitions" above. These acquisitions are expected to benefit gross premium growth in 2008 and 2009. In
2007, we completed two large acquisitions in the United States, along with a number of smaller acquisitions in Latin
America, Europe and Australia. The consolidation of a number of our reinsurance programs following the
acquisitions in 2007 and the more effective use of our captive reinsurer, Equator Re, have enabled us to reduce the
cost of reinsurance by approximately 2% of gross written premium in 2008 without increasing the maximum event
retention of the Group.
In the past 25 years, we have acquired over 100 businesses or portfolios throughout the world. We are
experiencing increased acquisition activity with opportunities being presented in many of the markets in which we
operate. We are currently looking at a number of acquisition opportunities in Australia, the Asia Pacific region, the
Americas and Europe. Our acquisition strategy has assisted our diversification by spreading our business across both
general insurance and reinsurance businesses and by increasing our geographic and product spread. Our acquisition
strategy is driven by seeking value for our shareholders rather than focusing on specific business lines. In addition,
recent market conditions are giving rise to further acquisition opportunities, which we are considering in accordance
Severity and Frequency of Catastrophes
In 2008 to date, notable weather-related market catastrophes impacting QBE have included storms in
Queensland and Victoria, two US midwest floods, four US wind/hail storms, Hurricanes Gustav, Hanna and Ike and
Hong Kong floods. In 2007, notable natural market catastrophes impacting QBE included Windstorm Kyrill,
Indonesian floods, Cyclone Favio, Canberra storms, Cyclone George, Cyclone Gonu, Newcastle storms, two UK
floods, four US tornadoes, two US storms, Hurricane Dean, Lismore storms, Californian wildfires, Sydney hailstorm,
Melbourne hailstorm and the Gisborne earthquake in New Zealand. For the six months ended June 30, 2008, net
claims above A$2.5 million from natural catastrophes were A$160 million compared to A$144 million for the six
months ended June 30, 2007. In 2007, net claims above A$2.5 million from natural catastrophes were A$317
million compared to A$251 million in 2006.
We limit the financial impact of market catastrophes on us through disciplined underwriting policies, risk
management practices and extensive reinsurance arrangements. We currently rely partly on self-insurance
arrangements and partly on external reinsurers as described under "Business—Outward Reinsurance," and have
recently reduced the amount of external reinsurance and consequently the cost of external reinsurance protections
through a more effective use of our captive reinsurer, Equator Re. The net cost of catastrophes and large individual
risk claims in the six months ended June 30, 3008 and in 2007 was within the allowances included in our business
plans.
Investment Income
As an insurer, we manage investments to satisfy potential claims by our policyholders. The investment
income earned on our policyholders' funds added to our underwriting result is equal to our insurance profit or loss.
We also manage our investment portfolio in an effort to maximize shareholders' funds for the long term.
To do this, we allocate the majority of our equity portfolio to our shareholders' funds. The volatility of equity
markets, however, gives rise to unrealized gains or losses on our equity portfolios. We mark our investments to
market at each balance sheet date and the unrealized gain or loss is recognized in our consolidated income
statements. The unrealized gains/losses are allocated to shareholders' funds and, as a result, the investment income
on shareholders' funds is impacted in part by the volatility of the equity markets.
32
Factors that affect the performance of our investment portfolio include fluctuations in interest rates,
fluctuations in exchange rates and other changes in investment markets, including volatility in fixed income and
equity markets, that affect the market prices of investments and income from such investments. As described in "—
Market Conditions" above, since the second half of 2007, disruption in the global credit markets, coupled with the
repricing of credit risk, and the deterioration of the financial and property markets, particularly in the United States
and Europe, have resulted in greater volatility, significantly less liquidity, widening of credit spreads and a lack of
price transparency in certain markets. The decrease in US interest rates and substantially lower equity returns,
combined with the impact of the appreciation of the Australian dollar against the US dollar and the pound sterling,
adversely impacted the performance of our investment portfolio for the six months ended June 30, 2008. Since then,
global debt and equity markets have experienced historic levels of volatility and the outlook remains uncertain. Any
further declines in equity markets, which are typically more volatile than fixed-interest investments, or declines in
the value of fixed income instruments, changes in interest or foreign exchange rates, could materially adversely
affect our investment income and overall profitability. See "Business—Investment Strategy" for a discussion of the
expected effects on investment income of the current market conditions.
Impact of the Fluctuations of the Australian Dollar
We translate income and expense items using the cumulative average rate of exchange. On this basis, the
Australian dollar appreciated against the pound sterling and the US dollar by 12% in the six months ended June 30,
2008 compared to the six months ended June 30, 2007. Balance sheet items are translated at the period end rate of
exchange. On this basis, the Australian dollar appreciated against the pound sterling and the US dollar by 8%
comparing the exchange rates at June 30, 2008 with the exchange rates at December 31, 2007. This substantial
appreciation of the Australian dollar has had a material impact on premium growth given that in excess of 76% of
gross written premium is in currencies other than the Australian dollar. The strength of the Australian dollar also
substantially reduced the value of the overseas component of our cash and investment portfolio when reported in
Australian dollars by A$1.4 billion at June 30, 2008 compared to December 31, 2007.
The impact of movements in the Australian dollar on our operating profit, premium income, assets and
liabilities for the six months ended or as at June 30, 2008 and the year ended or as at December 31, 2007 is set forth
below.
Six months June 30, 2008 at Year ended December 31, 2007
ended June 2007 exchange Exchange December 31, at 2006 exchange Exchange
30, 2008 rates(1) rate impact 2007 rates(2) rate impact
(A$ millions) (A$ millions) (%) (A$ millions) (A$ millions) (%)
(actual) (pro forma) (actual) (pro forma)
Gross written premium.................. 6,603 7,218 (9) 12,406 13,113 (6)
Gross earned premium .................. 5,958 6,514 (9) 12,361 13,074 (6)
Net earned premium...................... 5,108 5,581 (9) 10,210 10,746 (5)
Net investment income.................. 379 415 (9) 1,132 1,184 (5)
Net profit after income tax ............ 859 933 (9) 1,925 1,997 (4)
Total investments and cash 23,268 24,687 (6) 24,606 26,262 (7)
(period end) ...................................
Total assets (period end) ............... 39,144 41,531 (6) 39,613 42,296 (7)
Gross outstanding claims (period 17,152 18,190 (6) 18,231 19,452 (7)
end) ...............................................
Total liabilities (period end).......... 30,270 32,133 (6) 31,070 33,183 (7)
________________
(1) Income and expense items are restated to June 30, 2007 cumulative average rates of exchange and balance sheet items are restated to
December 31, 2007 period end rates of exchange.
(2) Income and expense items are restated to December 31, 2006 cumulative average rate of exchange and balance sheet items are restated to
December 31, 2006 closing rate of exchange.
33
Between July 1 and November 21, 2008, the Australian dollar depreciated 35% against the US dollar. As
we translate income and expense items using the cumulative average rate of exchange, our results for the six months
ended June 30, 2008 will again be translated at the cumulative average rate of exchange for the year ending
December 31, 2008. This means that if the Australian dollar continues to depreciate, as has happened since June 30,
2008, then our half-year premium and results will increase accordingly. Conversely, if the trend reverses and the
Australian dollar appreciates against overseas currencies, our first half year premium and results will be reduced
accordingly.
We have a policy of matching insurance liabilities with assets of the same currency. The continued growth
of our overseas businesses and substantial investment in foreign operations have resulted in the decentralization of
the management of foreign exchange exposures such that the operating divisions manage their foreign exchange
exposures under the guidance of the Group and divisional treasury functions. All of our overseas controlled entities
manage their own foreign exchange exposures. We also have a policy of matching all "tradable" overseas
shareholders' funds back into Australian dollars by holding offshore borrowings and offshore Australian dollars
assets or by using currency hedges.
Our minimum capital requirement is sensitive to the appreciation or depreciation of the Australian dollar
against other currencies due to the significance of our overseas operations. Our policy of actively hedging our
currency exposures to our overseas operations means, in simple terms, that our net equity in Australian dollar terms
is maintained (preserved) in periods of foreign exchange volatility. However, if the Australian dollar weakens, the
value of overseas assets and liabilities will increase when translated into Australian dollars giving rise to higher
capital charges, a higher minimum capital requirement and, therefore, a lower minimum capital multiple.
Conversely, when the Australian dollar strengthens, the value of overseas net assets will decrease when translated
into Australian dollars giving rise to lower capital charges, a lower minimum capital requirement and therefore a
higher minimum capital multiple.
Operating Ratios
We believe it is appropriate to analyze our underwriting operations by focusing on our combined operating
ratio and its components, namely the claims ratio, commission ratio and expense ratio. This practice is the insurance
industry standard. Accordingly, the discussion of our underwriting results below primarily focuses on the
percentage movements of those ratios in addition to the movement in the actual monetary amounts of the
components of those items.
Below is a table detailing our gross earned premium, net earned premium and operating ratios for each of
our divisions for the six months ended June 30, 2008 and 2007 and the years ended December 31, 2007, 2006 and
2005.
Six months ended

2008 2007 2007 2006 2005
Australian operations
Gross earned premium................................................. 1,352 1,249 2,518 2,428 2,405
Net earned premium .................................................... 1,131 1,059 2,141 2,051 2,015
Claims ratio % ............................................................. 54.9 57.3 55.2 55.9 56.1
Commission ratio % .................................................... 12.8 12.7 12.0 11.8 12.7
Expense ratio % ........................................................... 14.4 12.4 15.7 15.2 14.8
Combined operating ratio %........................................ 82.1 82.4 82.9 82.9 83.6
34
Six months ended
2008 2007 2007 2006 2005
Asia Pacific operations
Gross earned premium................................................. 291 291 570 570 545
Net earned premium .................................................... 207 205 416 446 415
Claims ratio % ............................................................. 43.9 40.0 41.3 42.6 37.2
Expense ratio % ........................................................... 21.3 20.0 21.4 19.7 22.3
European operations
Net earned premium .................................................... 1,567 1,892 3,653 3,970 3,819
Claims ratio % ............................................................. 51.8 56.2 51.8 56.2 62.6
Expense ratio % ........................................................... 15.5 15.2 15.3 12.6 12.0
QBE Insurance Europe

Net earned premium .................................................... 902 1,048 2,026 2,326 2,076
Claims ratio % ............................................................. 54.0 61.1 60.6 61.0 61.8
Expense ratio % ........................................................... 17.1 16.1 15.4 13.1 13.1
QBE Underwriting Limited (Lloyd's division)

Net earned premium .................................................... 665 844 1,627 1,644 1,743
Claims ratio % ............................................................. 48.6 50.1 40.9 49.4 63.6
Expense ratio % ........................................................... 13.4 14.1 15.2 12.0 10.6
the Americas
Net earned premium .................................................... 1,469 1,199 2,574 1,153 843
Claims ratio % ............................................................. 57.3 56.4 59.4 55.9 60.0
Expense ratio % ........................................................... 14.6 8.4 11.4 8.2 7.4
35
Six months ended
2008 2007 2007 2006 2005
Equator Re
Gross earned premium(1) ............................................ 763 495 1,631 678 347
Net earned premium .................................................... 734 394 1,426 538 295
Claims ratio % ............................................................. 58.2 56.1 54.6 63.6 80.0
Expense ratio % ........................................................... 6.3 5.8 3.9 4.8 –
(1) Gross earned premium for Equator Re is eliminated upon consolidation of our overall Group results. See Note 37 to our 2007 financial
statements.
Critical Accounting Policies
Our accounting policies are set forth in Note 1 to our 2007 financial statements. Details of the critical
accounting estimates and judgments applied in the preparation of our financial statements are set forth in Note 3 to
our 2007 financial statements.
Regulatory changes
As described in detail in "Regulation," we are experiencing and expect to continue to experience a number
of changes in regulation in certain markets in which we do business, including in the Australian, UK and US
markets. As a result, our executive management is, and we expect will continue to be, increasingly required to
spend significantly more time on compliance matters. Therefore we expect the cost of regulatory supervision in
many of our markets to increase.
36
Six Months Ended June 30, 2008 Compared to Six Months Ended June 30, 2007
Gross Earned Premium
For the six months ended June 30, 2008, our total gross earned premium was A$5,958 million, which
represents a 4% increase over our total gross earned premium of A$5,751 million for the six months ended June 30,
2007. This increase was primarily the result of the impact of the 2007 acquisitions, higher retention of customers
and less than anticipated premium rate reductions on existing business. These factors were partly offset by the
negative impact of the stronger Australian dollar against both the US dollar and the pound sterling and the new
business in Europe and the United States performing being below expectations due to risk selection, increased
competition and inadequate pricing.
Australian operations. Gross earned premium for our Australian operations was A$1,352 million for the
six months ended June 30, 2008 compared to A$1,249 million for the six months ended June 30, 2007, representing
an increase of 8% due primarily to the acquisition of additional distribution channels since June 30, 2007, and the
transfer of portfolios by intermediaries from other insurers to us. In addition, customer retention remained strong
and premium rate reductions were less than 1%, which is less than we anticipated.
Asia Pacific operations. Gross earned premium for our Asia Pacific operations was A$291 million for the
six months ended June 30, 2008, unchanged from A$291 million for the six months ended June 30, 2007, despite the
stronger Australian dollar and increased competition, particularly for large corporate risks.
European operations. Gross earned premium for our European operations was A$2,211 million for the six
months ended June 30, 2008 compared to A$2,584 million for the six months ended June 30, 2007, representing a
decrease of 14%. Premium growth was impacted by the appreciation of the Australian dollar against the pound
sterling, an estimated 4% reduction in premium rates on renewed business and the reduction or elimination of
certain small portfolios where we estimated that the potential rewards for the risks underwritten were not sufficient.
• QBE Insurance Europe. Gross earned premium for QBE Insurance Europe was A$1,122 million for
the six months ended June 30, 2008 compared to A$1,292 million for the six months ended June 30,
2007, representing a 13% decrease. Premium growth was impacted by a slight reduction in premium
rates on renewed business and the impact of translation to the stronger Australian dollar. In addition,
new business was below expectations due to inadequate pricing for an increased number of risks.
• QBE Underwriting Limited (Lloyd's division). Gross earned premium for QBE Underwriting Limited
was A$1,089 million for the six months ended June 30, 2008 compared to A$1,292 million for the six
month ended June 30, 2007, a decrease of 16%. Despite the high level of customer retention, premium
growth was adversely affected by the appreciation of the Australian dollar and the discontinuation of
certain portfolios, in particular small portfolios of US Directors and Officers and Errors and Omissions
reinsurance and product contamination where we estimated that the underwriting risks outweighed the
potential rewards.
the Americas. Gross earned premium for the Americas was A$2,104 million for the six months ended June
30, 2008 compared to A$1,627 million for the six months ended June 30, 2007, an increase of 29%. Premium
growth benefited from the US acquisitions made in 2007, partly offset by the appreciation of the Australian dollar,
lower than expected new business due to inadequate pricing, increased competition in some of our regional and
specialty portfolios and a less than 1% reduction in overall weighted average premium rates on renewed business.
37
Equator Re. Gross earned premium for our captive reinsurer, Equator Re, was A$763 million for the six
months ended June 30, 2008 compared to A$495 million for the six months ended June 30, 2007, a 54% increase
primarily due to additional excess of loss protections written by Equator Re for business previously placed
externally to the QBE Group and participation on internal quota share arrangements. Equator Re's intercompany
transactions are eliminated upon consolidation of our consolidated accounts.
Outward Reinsurance Premium
Our outward reinsurance premium expense decreased 15% to A$850 million for the six months ended June
30, 2008 compared to A$1,002 million for the six months ended June 30, 2007. As a percentage of gross earned
premium, our outward reinsurance premium expense decreased from 17% for the six months ended June 30, 2007 to
14% for the six months ended June 30, 2008. The decrease was primarily due to increased reinsurance to Equator
Re, thereby reducing the amount spent on reinsurance from third parties. Our outward reinsurance premium
expense also benefited from the synergies from the acquisitions of Praetorian and Winterthur US in 2007.
Net Earned Premium
Net earned premium, being gross earned premium net of outward reinsurance premium expense, was
A$5,108 million for the six months ended June 30, 2008 compared to A$4,749 million for the six months ended
June 30, 2007, representing an 8% increase. Analyzed by our divisions, net earned premium for the six months
ended June 30, 2008 compared to the six months ended June 30, 2007 was:
• Australian operations. A$1,131 million compared to A$1,059 million (an increase of 7%);
• Asia Pacific operations. A$207 million compared to A$205 million (an increase of 1%);
• European operations. A$1,567 million compared to A$1,892 million (a decrease of 17%);
• QBE Insurance Europe. A$902 million compared to A$1,048 million (a decrease of 14%);
• QBE Underwriting Limited (Lloyd's division). A$665 million compared to A$844 million (a
decrease of 21%);
• the Americas. A$1,469 million compared to A$1,199 million (an increase of 23%); and
• Equator Re. A$734 million compared to A$394 million (an increase of 86%).
Underwriting Results
Our combined operating ratio decreased to 85.8% for the six months ended June 30, 2008 from 86.2% for
the six months ended June 30, 2007. This translates to an underwriting profit of A$727 million for the six months
ended June 30, 2008 compared to an underwriting profit of A$653 million for the six months ended June 30, 2007,
an 11% increase. The following section discusses the results of individual components of our combined operating
ratio.
Claims Ratio
Our claims ratio decreased to 54.7% for the six months ended June 30, 2008 from 55.7% for the six months
ended June 30, 2007. Net claims incurred increased 5% to A$2,790 million for the six months ended June 30, 2008
from A$2,649 million for the six months ended June 30, 2007, while net earned premium rose by 8% to A$5,108
million for the six months ended June 30, 2008 from A$4,749 million for the six months ended June 30, 2007,
giving rise to the improved claims ratio. Gross incurred claims increased 3% to A$3,258 million for the six months
ended June 30, 2008 from A$3,161 million for the six months ended June 30, 2007. The absolute value of claims
incurred increased due mainly to the fact that the result for the period ended June 30, 2008 includes full six months
38
results from Praetorian and Winterthur US, which we acquired in 2007. While the net claims ratio was negatively
impacted by the overall weighted average reduction in premium rates on renewed business of approximately 2% and
a higher large individual risk and catastrophe claims ratio due to increased weather-related losses in Australia, Asia
and the United States, this was more than offset by a continued low attritional claims ratio (i.e., claims less than
A$2.5 million divided by net earned premium).
Commission Ratio
Our commission ratio decreased to 17.2% for the six months ended June 30, 2008 from 18.2% for the six
months ended June 30, 2007, reflecting a change in the mix of business during the period and the acquisition of
underwriting agencies, which reduced commissions and increased expenses. Net commission expense increased 2%
to A$881 million for the six months ended June 30, 2008 from A$863 million for the six months ended June 30,
2007.
Expense Ratio
Our expense ratio increased to 13.9% for the six months ended June 30, 2008 from 12.3% for the six
months ended June 30, 2007 mainly as a result of the higher expenses ratios for Praetorian and Winterthur US,
which we acquired in 2007, the acquisition of a number of underwriting agencies, the impact of the stronger
Australian dollar, lower fee income from workers' compensation managed funds in Australia and increased
expenditure on new strategic initiatives to improve efficiencies and distribution in Australia and Europe.
Combined Operating Ratio by Division
Australian operations. The combined operating ratio for our Australian operations improved slightly to
82.1% for the six months ended June 30, 2008 from 82.4% for the six months ended June 30, 2007 despite an
increase in the frequency of large individual risk and catastrophe claims from various weather-related losses and
slightly lower overall average premium rates. The claims ratio decreased to 54.9% for the six months ended June 30,
2008 from 57.3% for the six months ended June 30, 2007. The continued low attritional claims ratio in most classes
enabled us to absorb the increased frequency of large individual risk and catastrophe claims. The commission ratio
increased slightly to 12.8% for the six months ended June 30, 2008 from 12.7% for the six months ended June 30,
2007. The expense ratio increased to 14.4% for the six months ended June 30, 2008 from 12.4% for the six months
ended June 30, 2007 primarily due to higher costs associated with new strategic initiatives to further improve
efficiencies and our interface with intermediaries going forward. The expense ratio for the six months ended June
30, 2007 benefited from a special performance fee from the workers' compensation managed funds in New South
Wales.
Asia Pacific operations. The combined operating ratio for our Asia Pacific operations increased to 86.0%
for the six months ended June 30, 2008 from 80.5% for the six months ended June 30, 2007. The increase in
combined operating ratio reflects an increase in large individual risk and catastrophe claims and lower premium
rates due to increased competition. The claims ratio increased to 43.9% for the six months ended June 30, 2008
from 40.0% for the six months ended June 30, 2007 for the same reasons. The commission ratio increased slightly
to 20.8% for the six months ended June 30, 2008 from 20.5% for the six months ended June 30, 2007 mainly as a
result of a change in the product and geographical mix of the business. The expense ratio increased to 21.3% for the
six months ended June 30, 2008 from 20.0% for the six months ended June 30, 2007 due to the cost of establishing
our joint venture in India and additional business development staff costs to support the growth in our corporate
business through intermediaries.
European operations. The combined operating ratio for our European operations improved to 83.6% for
the six months ended June 30, 2008 from 88.4% for the six months ended June 30, 2007. While the number of large
individual risk and catastrophe claims was similar to that experienced in the six months ended June 30, 2007, the
combined operating ratio benefited from a profitable earn-out from prior underwriting years, our focus on portfolio
profitability and a continued low level of attritional claims in the six months ended June 30, 2008.
39
QBE Insurance Europe. The combined operating ratio for QBE Insurance Europe improved to 86.1%
for the six months ended June 30, 2008 from 92.3% for the six months ended June 30, 2007, primarily due to
the better than expected earn-out of prior underwriting years and a continued low attritional claims ratio. The
claims ratio was 54.0% for the six months ended June 30, 2008 compared to 61.1% for the six months ended
June 30, 2007 as a result of the attritional claims ratio remaining low during the period and a reduction in large
individual risk and catastrophe claims. The profitable earn-out from prior underwriting years, particularly in
our casualty and motor portfolios, also contributed to the improved claims ratio. The commission ratio
decreased slightly to 15.0% for the six months ended June 30, 2008 from 15.1% for the six months ended June
30, 2007 and the expense ratio increased to 17.1% for the six months ended June 30, 2008 from 16.1% for the
six months ended June 30, 2007 due to lower premium income and the costs related to our expansion of
profitable commercial line products into regional United Kingdom and mainland Europe, particularly with
regard to infrastructure and the hiring of underwriting teams.
QBE Underwriting Limited (Lloyd's division). The combined operating ratio for QBE Underwriting
Limited improved to 80.2% for the six months ended June 30, 2008 from 83.6% for the six months ended June
30, 2007, primarily due to the continued low level of attritional claims, a reduction in large individual risk and
catastrophe claims and the profitable earn-out of prior underwriting years. These factors also contributed to the
claims ratio decreasing to 48.6% for the six months ended June 30, 2008 from 50.1% for the six months ended
June 30, 2007. The commission ratio decreased to 18.2% for the six months ended June 30, 2008 from 19.4%
for the six months ended June 30, 2007 due to the change in the mix of business. The expense ratio decreased
to 13.4% for the six months ended June 30, 2008 from 14.1% for six months ended June 30, 2007 due to
synergies resulting from our management restructure.
the Americas. The combined operating ratio for the Americas was 91.2% for the six months ended June 30,
2008 compared to 90.7% for the six months ended June 30, 2007, despite a significant increase in the number of
tornadoes, hailstorms and floods losses. The result includes full six months results of Praetorian and Winterthur US,
which we only included for three months and one month, respectively, in the period to June 30, 2007. The claims
ratio increased to 57.3% for the six months ended June 30, 2008 from 56.4% for the six months ended June 30, 2007
due to the increased frequency of large individual risk and catastrophe claims from the abnormally bad weather in
the first half of 2008 which more than offset the lower attritional claims ratio. The commission ratio decreased to
19.3% for the six months ended June 30, 2008 from 25.9% for the six months ended June 30, 2007 mainly as a
result of the change in the mix of business following the acquisitions of Praetorian and Winterthur US in 2007 and
the reduced commission following the purchase of Deep South in June 2008. The expense ratio increased to 14.6%
for the six months ended June 30, 2008 from 8.4% for the six months ended June 30, 2007 due to the acquisitions of
Praetorian and Winterthur US in 2007 and the purchase of North Pointe and Deep South in the first half of 2008.
Equator Re. The combined operating ratio for our captive reinsurer, Equator Re, was 85.3% for the six
months ended June 30, 2008 compared to 75.6% for the six months ended June 30, 2007, reflecting increases in
large individual risk and catastrophe claims and increased quota share protections for our divisions. The claims ratio
increased to 58.2% for the six months ended June 30, 2008 from 56.1% for the six months ended June 30, 2007 due
to the higher level of large individual risk and catastrophe claims during the first half of 2008 and prudent reserving
of increased casualty exposures. The commission ratio increased to 20.8% for six months ended June 30, 2008 from
13.7% for the six months ended June 30, 2007 due to the increase in proportional reinsurance business during the
period. The expense ratio remained low at 6.3% for the six months ended June 30, 2008, slightly up from 5.8% for
the six months ended June 30, 2007 due to increased quota share reinsurance.
40
Investments
at December 31, 2007, a decrease of 5%. This decrease principally reflects the appreciation of the Australian dollar,
which reduced the value of the overseas component of our cash and investment portfolio in Australian dollars by
A$1.4 billion, lower US interest rates and substantially weaker equity markets, partly offset by higher Australian
interest rates and the interest rate differentials on the significant hedges of our overseas shareholders' funds into
Australian dollars. At June 30, 2008, approximately 26% of our investments and cash were in Australian dollars,
approximately 23% in pounds sterling, approximately 39% in US dollars and approximately 12% in other currencies.
Our gross investment income decreased substantially for the six months ended June 30, 2008 to A$513 million from
A$679 million for the six months ended June 30, 2007, a decrease of 24%. Net investment income, which is gross
investment income after taking into account borrowing costs, foreign exchange gains and losses and investment
expenses, decreased to A$379 million for the six months ended June 30, 2008 compared to A$564 million for the six
months ended June 30, 2007, a 33% decrease. The main factors contributing to the decrease in net investment
income included:
• net realized and unrealized losses on equities of A$86 million for the six months ended June 30, 2008
compared to net realized and unrealized gains on equities of A$82 million for the six months ended
June 30, 2007;
• borrowing costs increased to A$114 million for the six months ended June 30, 2008 compared to A$84
million for the six months ended June 30, 2007 due to the issuance of US$550 million of capital
securities and £258 million of hybrid securities in mid 2007 to fund the acquisitions of Praetorian and
Winterthur US; and
• net realized and unrealized gains on fixed interest securities of A$57 million for the six months ended
June 30, 2008 compared to net realized and unrealized gains on fixed interest securities of A$97
million for the six months ended June 30, 2007.
These were partially offset by exchange gains of A$8 million for the six months ended June 30, 2008 compared to
A$1 million for the six months ended June 30, 2007.
During the six months ended June 30, 2008, we continued to maintain our strategy of a low risk investment
portfolio. Our general policy on investments is to reduce the risk to shareholders by investing in high quality, fixed
interest securities and having a modest exposure to equity investments. This is because of the risk we have already
assumed in our insurance business. Even though our net investment income decreased for the six months ended
June 30, 2008, the majority of our portfolios in the UK, US, Australian and Euro markets managed to outperform
external benchmarks on cash and fixed interest securities. Although we also substantially outperformed equity
market benchmarks, we still incurred a sizeable net realized and unrealized loss on equities of A$86 million for the
six months ended June 30, 2008 due to the continuing market volatility. While our exposure to equities as at
December 31, 2007 was substantially protected through derivatives, these protections gradually expired during the
six months ended June 30, 2008, and we currently have no equity hedges in place. Our exposure to equities at June
30, 2008 was around 8% of total investments and cash compared with our benchmark of 10% of total investments
and cash.
Our fixed interest investments continued to be short in duration to reduce the effect of the potential market
volatility from rising interest rates. At June 30, 2008, our cash and fixed interest portfolio had an average duration
of 0.7 years. This varies by currency based on interest rate expectations. Our cash and fixed interest portfolio
produced a gross yield of 5.1% for the six months ended June 30, 2008 compared to 5.8% for the six months ended
June 30, 2007 due to lower US and pound sterling interest rates. The overall gross investment yield was 4.3% for
the six months ended June 30, 2008 compared to 6.5% for the six months ended June 30, 2007.
41
We continued to maintain a policy of matching liabilities with assets of the same currency where practical
and matching all "tradable" overseas shareholders' funds back into Australian dollars by holding offshore Australian
assets or by using currency hedges. The nature of our business is such that we have a slight mismatch from time to
time which, for the six months ended June 30, 2008, resulted in an operational exchange gain of A$8 million
compared to a gain of A$1 million for the six months ended June 30, 2007.
Investment Income on Policyholders' Funds and Insurance Profit
We earned A$389 million and A$400 million in investment income on policyholders' funds for the six
months ended June 30, 2008 and the six months ended June 30, 2007, respectively. Our results for the six months
ended June 30, 2008 reflected lower interest rates on US dollar investment portfolios and the impact of the stronger
Australian dollar. This income, together with our underwriting result, produced an insurance profit of A$1,116
million for the six months ended June 30, 2008 compared to A$1,053 million for the six months ended June 30,
2007, an increase of 6%.
Investment Income on Shareholders Funds
Investment income on shareholders' funds was a loss of A$10 million for the six months ended June 30,
2008 compared to a gain of A$164 million for the six months ended June 30, 2007. The loss was mainly due to
realized and unrealized losses on equities.
Profit Before Income Tax
As a result of the above, we had a profit before income tax of A$1,095 million for the six months ended
June 30, 2008 compared to A$1,212 million for the six months ended June 30, 2007, a decrease of 9.7%.
Income Tax
We had an income tax expense of A$235 million for the six months ended June 30, 2008 compared to
A$287 million for the six months ended June 30, 2007. Income tax expense for the six months ended June 30, 2008
was approximately 21% of pre-tax profit, compared with 24% of pre-tax profit for the six months ended June 30,
2007. Income tax expense benefited from increased profits earned in countries with lower tax rates, including
Bermuda, the base for our captive reinsurer, Equator Re.
Minority Interest
For the six months ended June 30, 2008, minority interest in our net profit after income tax was A$1
million compared to A$4 million for the six months ended June 30, 2007.
Profit After Tax
As a result of the foregoing, our net profit after income tax was A$859 million for the six months ended
June 30, 2008 compared to A$921 million for the six months ended June 30, 2007, a decrease of 7%. By division,
for the six months ended June 30, 2008 compared to the six months ended June 30, 2007, respectively:
• our Australian operations had a net profit after tax of A$234 million compared to A$228 million;
• our Asia Pacific operations had a net profit after tax of A$32 million compared to A$52 million;
• our European operations had a net profit after tax of A$299 million compared to A$375 million;
• the Americas had a net profit after tax of A$131 million compared to A$147 million; and
42
• Equator Re had a net profit after tax of A$163 million compared to A$119 million.
43
Year Ended December 31, 2007 Compared to Year Ended December 31, 2006
For 2007, our total gross earned premium was A$12,361 million, a 23% increase over our total gross
earned premium of A$10,069 million for 2006. This increase was primarily the result of the acquisitions of
Praetorian and Winterthur US made in 2007 in the United States and continued high customer retention, partly offset
by the appreciation of the Australian dollar against many of the currencies in which we receive premiums,
particularly the pound sterling and the US dollar, an overall reduction in premium rates of 3% and increased
competition.
Australian operations. Gross earned premium for our Australian operations was A$2,518 million for 2007
compared to A$2,428 million for 2006, an increase of 4% primarily due to continued high customer retention and
organic growth, with increased market share achieved in some lines of business.
Asia Pacific operations. Gross earned premium for our Asia Pacific operations was A$570 million for
2007, unchanged from 2006, despite overall average premium rate reductions of 6%, the appreciation of the
Australian dollar and increased competition in most markets in which we operate.
European operations. Gross earned premium for our European operations was A$5,158 million for 2007
compared to A$5,195 million for 2006, a 1% decrease. Premium growth was affected by overall average premium
rates being reduced by 4.5% during 2007, the appreciation of the cumulative average Australian dollar rate of
exchange against the pound sterling by 2% and the appreciation of the cumulative average pound sterling rate of
exchange against the US dollar by 8.5%. These factors more than offset a continued high level of customer
retention and new business written from initiatives such as our new Lloyd's aviation syndicate 5555, which
commenced business in October 2006.
QBE Insurance Europe. Gross earned premium for QBE Insurance Europe was A$2,537 million
for 2007 compared to A$2,720 million for 2006, a 7% decrease, primarily due to the overall premium rate
reductions for most classes of business, the impact of the appreciation of the Australian dollar and the
impact of the substantial appreciation of the pound sterling against the US dollar on the conversion of
business written in US dollars.
QBE Underwriting Limited (Lloyd's division). Gross earned premium for QBE Underwriting
Limited increased 6% to A$2,621 million for 2007 compared to A$2,475 million for 2006 due mainly to
the impact of syndicates 1886 and 5555, both of which began underwriting in 2006.
the Americas. Gross earned premium for the Americas was A$3,976 million for 2007 compared to
A$1,876 million for 2006, a 112% increase. This substantial increase primarily reflects the acquisitions of
Praetorian and Winterthur US in 2007, partly offset by a reduction in overall average premium rates of less than 1%
and the need to cancel some existing business due to competition and less than adequate pricing.
Equator Re. Gross earned premium for our captive reinsurer, Equator Re, was A$1,631 million for 2007
compared to A$678 million for 2006, an increase of 141% primarily due to increased participation in divisional
reinsurance programs and a 50% quota share of the Praetorian Financial Group business from January 1, 2007,
which had been written previously by the former owner, Hannover Re. Equator Re's intercompany transactions are
eliminated upon consolidation of our overall Group results.
44
Our outward reinsurance premium expense increased to A$2,151 million for 2007 compared to A$1,911
million for 2006. As a percentage of gross earned premium, our outward reinsurance premium expense decreased
from 19.0% in 2006 to 17.4% in 2007. The decrease was primarily due to increased reinsurance to Equator Re,
thereby reducing the amount of reinsurance protection purchased from third parties.
Net Earned Premium
For 2007, our net earned premium was A$10,210 million compared to A$8,158 million for 2006 (an
increase of 25%). Analyzed by our divisions, net earned premium for 2007 compared to 2006 was:
• Asia Pacific operations. A$416 million compared to A$446 million (a decrease of 7%);
• European operations. A$3,653 million compared to A$3,970 million (a decrease of 8%);
• QBE Insurance Europe. A$2,026 million compared to A$2,326 million (a decrease of 13%);
• QBE Underwriting Limited (Lloyd's division). A$1,627 million compared to A$1,644 million (a
decrease of 1%);
• the Americas. A$2,574 million compared to A$1,153 million (an increase of 123%); and
• Equator Re. A$1,426 million compared to A$538 million (an increase of 165%).
Our combined operating ratio increased to 85.9% for 2007 from 85.3% for 2006. This translates to an
underwriting profit of A$1,438 million for 2007 compared to an underwriting profit of A$1,200 million for 2006, a
20% increase. The following section discusses the results of individual components of our combined operating ratio.
Claims Ratio
Our claims ratio decreased to 54.3% for 2007 from 55.8% for 2006. Net claims incurred increased 22% to
A$5,553 million for 2007 compared to A$4,551 million for 2006, while net earned premium rose by 25% to
A$10,210 million for 2007 compared to A$8,158 million for 2006, giving rise to the improved claims ratio. The
claims ratio reflects a 20% increase in gross claims to A$6,651 million in 2007 from A$5,528 million in 2006 due to
an increase in the number of claims for small to medium sized natural catastrophes, with 21 claims for catastrophes
with a net cost of A$317 million in 2007 compared to 5 claims for catastrophes in 2006 with a net cost of A$251
million. In addition, the increase in claims ratio reflects the slightly higher attritional claims ratio as a result of the
Praetorian and Winterthur US acquisitions in 2007 in the United States, which generally have higher attritional
claims ratios but lower large individual risk claims due to the more modest insured values.
Commission Ratio
Our commission ratio increased to 18.5% for 2007 from 17.0% for 2006, reflecting a change in the mix of
business during 2007, particularly as a result of the acquisitions in the United States where commission ratios are
generally higher, increased distribution through agents during the year and the relatively lower level of inward
reinsurance business. Net commissions increased 36% to A$1,885 million for 2007 from A$1,384 million for 2006.
45
Expense Ratio
Our expense ratio increased to 13.1% for 2007 from 12.5% for 2006 mainly due to higher IT costs for new
systems in many of our operations around the world and the costs of business development initiatives. The expense
ratio also increased due to the respective appreciation of the Australian dollar and the pound sterling against the US
dollar as most Group head office costs charged to the divisions are incurred in Australian dollars and the substantial
majority of UK expenses are incurred in pound sterling whereas 46% of the Group's business is written in US
dollars.
Australian operations. The combined operating ratio for our Australian operations was 82.9% for 2007,
unchanged from 2006. This result benefited from our diversified portfolio and strict risk selection criteria. The
claims ratio slightly decreased to 55.2% for 2007 from 55.9% for 2006 despite the increased frequency of large
individual risk and catastrophe claims due to several natural catastrophes during 2007, in particular Cyclone George
and storms in Canberra, Newcastle, Lismore, Melbourne and Sydney, offset by the continued low attritional claims
ratio in most classes of business and higher customer retention. The commission ratio marginally increased to
12.0% for 2007 from 11.8% for 2006 primarily due to increased broker sourced business. The expense ratio
increased to 15.7% for 2007 from 15.2% for 2006 due to increased government fire brigade levy charges and the
cost of new business initiatives designed to improve efficiencies, customer service and interface with intermediaries,
partly offset by higher performance fees from the New South Wales workers' compensation managed fund.
Asia Pacific operations. The combined operating ratio for our Asia Pacific operations was 82.7% for 2007,
unchanged from 2006. This result reflected a lower frequency of large individual property claims and the continued
low attritional claims ratio, partly offset by an increase in catastrophe claims across the region, including floods in
Indonesia and Fiji, the Gisborne earthquake in New Zealand and a tsunami in the Solomon Islands. The claims ratio
decreased to 41.3% for 2007 from 42.6% for 2006 for the same reasons. The commission ratio decreased to 20.0%
for 2007 from 20.4% for 2006 and the expense ratio increased to 21.4% for 2007 from 19.7% for 2006 mainly due
to increased IT costs.
European operations. The combined operating ratio for our European operations was 84.8% for 2007
compared to 86.1% for 2006, reflecting the continued low level of large catastrophe claims and the continued low
attritional claims ratio in most classes of business, partially offset by an overall reduction in average premium rates
by a further 4.5% during the year.
QBE Insurance Europe. The combined operating ratio for QBE Insurance Europe increased to
92.1% for 2007 from 88.9% for 2006, primarily due to an increase in large individual risk and catastrophe
claims and an increase in the commission and the expense ratios as addressed below. The claims ratio
decreased slightly to 60.6% for 2007 from 61.0% for 2006 reflecting the continued low attritional claims
ratio on the majority of our portfolios, offset by an increase in large individual risk claims and the impact of
overall average premium rate reductions, particularly on our employers' liability, professional liability and
general liability portfolios. The commission ratio increased to 16.1% for 2007 from 14.8% for 2006 due to
the change in mix of business. The expense ratio increased to 15.4% for 2007 from 13.1% for 2006 due to
increased IT costs, lower net earned premium and expenses incurred in connection with the implementation
of our strategy for organic growth in core commercial line products in the regional UK and mainland
European markets. The acquisition of a Swiss motor intermediary in July 2007 and the transfer of the
Central and Eastern European operations from APACE to QBE Insurance Europe also contributed to the
increase in expenses.
46
QBE Underwriting Limited (Lloyd's division). The combined operating ratio for QBE
Underwriting Limited improved to 75.7% for 2007 compared to 82.1% for 2006, reflecting the low level of
large catastrophes in 2007 and the profitable earn-out of the 2006 and 2005 underwriting years, particularly
for syndicates 386, 566 and 1036, which all produced underwriting profits ahead of expectations. The
claims ratio improved to 40.9% for 2007 from 49.4% for 2006 due to reasons described above. The
significant improvement in claims ratio also resulted from the continued low frequency of claims across the
majority of our portfolios due to the focus of our various syndicates on portfolio segmentation. The
commission ratio decreased slightly to 19.6% for 2007 from 20.7% for 2006 primarily due to slight
changes in our business mix. The expense ratio increased to 15.2% for 2007 from 12.0% for 2006 due to
lower net earned premium, higher staff incentives from increased profits and increased spending on
systems and information technology projects.
the Americas. The combined operating ratio for the Americas was 93.6% for 2007 compared to 89.7% for
2006. The increased combined operating ratio is primarily due to the strengthening of our risk margins in
outstanding claims, the impact of the higher combined operating ratio of Winterthur US (now trading as QBE
Regional Insurance) business and the increased frequency of large individual risk claims. In 2007, QBE Regional
Insurance produced a combined operating ratio of 93.7% and Praetorian produced a combined operating ratio of
86.1%. The claims ratio increased to 59.4% for 2007 from 55.9% for 2006 primarily due to the strengthening of risk
margins in outstanding claims, higher individual risk claims and the inclusion of the Praetorian and Winterthur US
acquisitions. The commission ratio decreased to 22.8% for 2007 from 25.6% for 2006 and the expense ratio
increased to 11.4% for 2007 from 8.2% for 2006. The changes in commission and expense ratios are primarily due
to the change in how the business is distributed, the higher expense ratios relating to the US acquisitions and the
change in mix between general insurance and reinsurance business.
Equator Re. The combined operating ratio for our captive reinsurer, Equator Re, improved to 80.5% for
2007 from 81.4% for 2006, reflecting the lower than anticipated incidence of catastrophe claims in 2007. The
claims ratio was 54.6% for 2007 compared to 63.6% for 2006 for the same reason and also as a result of lower
claims ratios on new proportional business written. The commission ratio increased to 22.0% for 2007 from 13.0%
for 2006 due to additional participation on divisional excess of loss protections otherwise placed in external markets
and a 50% quota share of the Praetorian business from January 1, 2007, which had previously been written by
Hannover Re. The expense ratio decreased to 3.9% for 2007 from 4.8% for 2006 due to the substantial growth in
premium resulting from the increased participation in divisional reinsurance programs.
Investments
Our investment portfolio (including cash) increased to A$24.6 billion at December 31, 2007 from A$20.0
billion at December 31, 2006, an increase of 23%. This increase principally reflects the impact of increases in
operational cash flows and acquisitions, partly offset by the appreciation of the Australian dollar, which reduced
overseas investment income significantly when converted into Australian dollars. At December 31, 2007,
approximately 26% of our investments and cash were in Australian dollars, approximately 24% in pounds sterling,
approximately 39% in US dollars and approximately 11% in other currencies. Our gross investment income was
A$1,398 million for 2007 compared to A$985 million for 2006, a 42% increase. Net investment income, which is
gross investment incomes net of borrowing costs, foreign exchange gains and losses and investment expenses,
increased to A$1,132 million for 2007 compared to A$822 million for 2006. The factors contributing to the increase
in net investment income included:
• net realized and unrealized gains on fixed interest securities of A$254 million for 2007 compared to
net realized and unrealized gains on fixed interest securities of A$103 million for 2006 reflecting the
success of our high quality short duration fixed interest investment strategy;
• increased interest income of A$957 million for 2007 compared to A$719 million for 2006;
• dividend income increased to A$66 million for 2007 compared to A$47 million for 2006; and
47
• the net cost of the ABC Securities decreased to A$9 million in 2007 compared to A$21 million in 2006.
These were partially offset by:
• net realized and unrealized gains on equities of A$100 million in 2007 compared to net realized and
unrealized gains on equities of A$104 million in 2006;
• interest expense increased to A$218 million in 2007 compared to A$128 million in 2006 due mainly to
the issue of US$550 million of capital securities and £258 million of hybrid securities during 2007; and
• exchange gains of A$15 million for 2007 compared to A$18 million for 2006.
During 2007, we continued to maintain our strategy of a low risk investment portfolio with short duration
on cash and fixed interest investments and low exposure to equities. At December 31, 2007, we held equity hedges
to protect our listed equity portfolio which represented 7% of total investments and cash. We had a diverse
geographic spread of our portfolio with approximately 51% of our listed equity portfolio at December 31, 2007
denominated in Australian dollars, approximately 24% in pounds sterling, approximately 18% in US dollars and
approximately 7% in other currencies. In 2007, we outperformed internal benchmarks on cash and fixed interest
securities for our major portfolios in the UK, US, Australian and Euro markets. We also outperformed internal
benchmarks in equity markets, primarily because of our focus on absolute returns, including locking in equity gains
for 2007 in April, which protected our equity gains from substantial fluctuations, particularly during the latter part of
2007.
volatility from rising interest rates. At December 31, 2007, our cash and fixed interest portfolio had an average
maturity of 0.3 years. Our cash and fixed interest portfolio produced an annualized gross yield of 5.9% for 2007
compared to 4.7% for 2006 due to higher interest rates.
In 2007, we continued to maintain a policy of matching liabilities with assets of the same currency where
practical and matching all "tradable" overseas shareholders' funds back into Australian dollars by holding offshore
Australian assets or by using currency hedges. The nature of our business is such that there is a slight mismatch
from time to time which, for the year ended December 31, 2007, resulted in an operational exchange gain of A$15
million compared to a gain of A$18 million for 2006.
We earned A$824 million and A$588 million in investment income on policyholders' funds for 2007 and
2006, respectively. Our results for 2007 reflected slightly higher investment yields during the period. This income,
together with our underwriting result, produced an insurance profit of A$2,262 million for 2007 compared to
A$1,788 million for 2006, an increase of 27%.
Investment Income on Shareholders' Funds
Investment income on shareholders' funds increased to A$308 million for 2007 from A$234 million for
2006. This result reflected the higher interest rates and the relatively strong performance of our equity portfolios.
As a result of the above, we had a profit before income tax of A$2,549 million for 2007 compared to
A$2,012 million for 2006.
48
Income Tax
We had an income tax expense of A$615 million for 2007 compared to A$519 million for 2006. Income
tax expense for 2007 was approximately 24% of pre-tax profit, compared with approximately 26% for 2006
primarily due to higher profits earned in countries with lower tax rates, including Bermuda where Equator Re is
based, and reduced corporate tax rates on deferred tax balances in the United Kingdom.
Minority Interest
For 2007, minority interest in our net profit after income tax was A$9 million compared to A$10 million
for 2006.
Profit After Tax
As a result of the foregoing, our net profit after tax increased to A$1,925 million for 2007 compared to
A$1,483 million for 2006. By division, for 2007 compared to 2006, respectively:
• our Australian operations division had a net profit after tax of A$445 million compared to A$387
million;
• our Asia Pacific operations division had a net profit after tax of A$89 million compared to A$73
million;
• the European operations division had a net profit after tax of A$806 million compared to A$773
million;
• the Americas division had a net profit after tax of A$247 million compared to A$109 million; and
49
Year Ended December 31, 2006 Compared to Year Ended December 31, 2005
For 2006, our total gross earned premium was A$10,069 million, a 10% increase over our total gross
earned premium of A$9,171 million for 2005. This increase was primarily the result of acquisitions made in 2005,
higher retention of business and overall premium rate increases.
Australian operations. Gross earned premium for our Australian operations was A$2,428 million for
2006 compared to A$2,405 million for 2005, an increase of 1% primarily due to the higher retention of customers
and organic growth being slightly ahead of lapsed business despite lower overall premium rates in most classes of
business.
Asia Pacific operations. Gross earned premium for our Asia Pacific operations increased 5% to A$570
million for 2006 compared to A$545 million for 2005. Premium growth was affected by a slight reduction in
overall premium rates and increased competition.
European Operations. Gross earned premium for our European operations was A$5,195 million for 2006
compared to A$4,786 million for 2005, a 9% increase, primarily due to acquisitions in 2005 and overall premium
rate increases in this division, particularly for energy and US based property risks. Our new Lloyd's aviation
syndicate 5555 commenced business in October 2006, contributing slightly to our earned premium for the year.
Premium growth was affected by the weak US dollar and by the decision to significantly reduce our exposures to US
and Gulf of Mexico hurricanes compared with 2005.
QBE Insurance Europe. Gross earned premium for QBE Insurance Europe was A$2,720 million
for 2006 compared to A$2,513 million for 2005, an 8% increase, primarily due to premium income from
acquisitions in 2005 offset by the transfer of a large portion of reinsurance business to syndicate 566.
Organic growth was affected by a reduction in overall premium rates for most classes of business and
increased competition for motor, employers' liability, professional liability and general liability business.
QBE Underwriting Limited (Lloyd's division). Gross earned premium for QBE Underwriting
Limited increased 9% to A$2,475 million for 2006 compared to A$2,273 million for 2005 due to overall
premium rate increases on property and energy businesses exposed to catastrophes, the transfer of
reinsurance business from QBE Insurance Europe and a small contribution from our new aviation syndicate
5555 which commenced in October 2006. Premium growth was affected by our decision to reduce
exposure to US and Gulf of Mexico hurricanes and the appreciation of the pound sterling against the US
dollar for the conversion of our substantially US dollar denominated business. Growth in premium for our
casualty business (primarily non-US) was affected by lower overall premium rates and increased
competition.
the Americas. Gross earned premium for the Americas was A$1,876 million for 2006 compared to
A$1,435 million for 2005, a 31% increase. This increase primarily reflects acquisitions made in 2005 and 2006,
higher overall premium rate increases and continued high retention of business.
Equator Re. Gross earned premium for our captive reinsurer, Equator Re, was A$678 million for 2006
compared to A$347 million for 2005, an increase of 95% primarily due to increased participation in divisional
reinsurance programs, particularly Lloyd's, and some rate increases. Equator Re's intercompany transactions are
eliminated upon consolidation of our overall Group results.
50
Our outward reinsurance premium expense increased to A$1,911 million for 2006 from A$1,785 million
for 2005. As a percentage of gross earned premium, our outward reinsurance premium expense decreased from
19.5% in 2005 to 19.0% in 2006. The decrease was primarily due to increased reinsurance to Equator Re, thereby
reducing the amount of reinsurance purchased from third parties.
Net Earned Premium
For 2006, our net earned premium was A$8,158 million compared to A$7,386 million for 2005 (an increase
of 10%). Analyzed by our divisions, net earned premium for 2006 compared to 2005 was:
• Asia Pacific operations. A$446 million compared to A$415 million (an increase of 7%);
• European operations. A$3,970 million compared to A$3,819 million (an increase of 4%);
• QBE Insurance Europe. A$2,326 million compared to A$2,076 million (an increase of 12%);
• QBE Underwriting Limited (Lloyd's division). A$1,644 million compared to A$1,743 million (a
decrease of 6%);
• the Americas. A$1,153 million compared to A$843 million (an increase of 37%); and
• Equator Re. A$538 million compared to A$295 million (an increase of 82%).
Our combined operating ratio decreased to 85.3% for 2006 from 89.1% for 2005. This translates into an
underwriting profit of A$1,200 million for 2006 compared to an underwriting profit of A$808 million for 2005, a
49% increase. The following section discusses the results of individual components of our combined operating ratio.
Claims Ratio
Our claims ratio decreased to 55.8% for 2006 from 59.9% for 2005. Net claims incurred increased 3% to
A$4,551 million for 2006 compared to A$4,417 million for 2005 while net earned premium rose by 10% to A$8,158
million for 2006 compared to A$7,386 million for 2005, giving rise to the improved claims ratio. The claims ratio
reflects an 18% decrease in gross claims to A$5,528 million in 2006 from A$6,744 million in 2005 due to a
reduction of catastrophe claims and the continued low frequency of attritional claims in most of our portfolios.
Commission Ratio
Our commission ratio increased slightly to 17.0% for 2006 from 16.9% for 2005, reflecting a change in the
mix of business during the year, particularly, the growth in the Americas and QBE Underwriting Limited where
commission ratios are higher, offset partially by the benefits from small acquisitions in Australia. Net commissions
increased 11% to A$1,384 million for 2006 from A$1,251 million in 2005.
Expense Ratio
Our expense ratio increased slightly to 12.5% for 2006 from 12.3% for 2005 mainly due to higher IT costs
for new systems in many of our operations around the world and the acquisition of intermediaries in Australia.
51
Australian operations. The combined operating ratio for our Australian operations improved to 82.9% for
2006 from 83.6% for 2005 primarily due to a continuation of the low frequency of claims in most classes of business,
higher customer retention and the lapsing of business that did not meet our profit criteria as a result of increased
competition. The claims ratio decreased to 55.9% for 2006 from 56.1% for 2005 due to the lower frequency of
claims. The commission ratio decreased to 11.8% for 2006 from 12.7% for 2005 due to the acquisition of a number
of intermediaries over the past two years. The expense ratio increased to 15.2% for 2006 compared to 14.8% for
2005 due to the expense of the new intermediaries and higher information technology costs.
Asia Pacific operations. The combined operating ratio for our Asia Pacific operations increased to 82.7%
for 2006 from 78.0% for 2005 mainly due to premium rate reductions and an increase in the frequency of large
property claims. The claims ratio increased to 42.6% for 2006 from 37.2% for 2005 for the same reasons. The
commission ratio increased to 20.4% for 2006 compared to 18.5% for 2005, primarily because of a change in
product and geographical mix and slightly higher commissions required to retain business. The expense ratio
decreased to 19.7% for 2006 from 22.3 % for 2005, even though we commenced implementation of new
information technology systems in a number of countries in order to eliminate duplicate processes in key operations.
European operations. The combined operating ratio for our European operations was 86.1% for 2006
compared to 92.3% for 2005 due to the lower level of catastrophe claims and overall premium rate increases,
partially offset by an increase in large individual risk claims. The combined operating ratio benefited from the low
frequency of claims on our non-catastrophe exposed business.
QBE Insurance Europe. The combined operating ratio for QBE Insurance Europe improved to
88.9% for 2006 from 90.4% for 2005, primarily due to a lower frequency of claims on the majority of
portfolios, particularly on the UK and non-US casualty accounts. The claims ratio was 61.0% for 2006
compared to 61.8% for 2005 reflecting a lower overall claims frequency, partially offset by an increase in
large individual risk claims. The commission ratio decreased to 14.8% for 2006 compared to 15.5% for
2005 due to the change in mix of business, primarily the acquisition of British Marine which in 2006 had a
lower commission ratio than the average for QBE Insurance Europe. The expense ratio was 13.1% for
2006, unchanged from the expense ratio for 2005. This includes synergies from the restructure of the
European operations in 2005.
QBE Underwriting Limited (Lloyd's division). The combined operating ratio for QBE
Underwriting Limited improved to 82.1% for 2006 compared to 94.5% for 2005 due to the lower level of
large catastrophes and higher premium rates, principally on US catastrophe-exposed property and energy
business. The claims ratio improved to 49.4% for 2006, compared to 63.6% for 2005 as a result of lower
net claims from catastrophes, the continued low frequency of claims across the majority of portfolios and
positive development of prior year claims. The commission ratio increased slightly to 20.7% for 2006 from
20.3% for 2005 primarily due to slight changes in our business mix. The expense ratio increased to 12.0%
for 2006 from 10.6% for 2005 due to higher incentives for increased profits, lower profit commission from
external capital providers to syndicate 386, and higher information technology costs for the implementation
of new systems.
the Americas. The combined operating ratio for the Americas improved to 89.7% for 2006 compared to
92.9% for 2005 partially due to higher overall premium rates and a slightly lower level of catastrophes, despite a
number of small tornado and hail losses in 2006. The claims ratio improved to 55.9% for 2006 from 60.0% for 2005
reflecting lower claims frequency and very low exposure to long tail casualty business. The commission ratio
increased to 25.6% for 2006 from 25.5% for 2005, primarily due to low profit commissions received from
proportional reinsurance protections. The expense ratio increased to 8.2% for 2006 compared to 7.4% for 2005 due
to the higher expense ratio on growth in general insurance business, higher staff incentives because of our
improvement in insurance results and increased costs of information technology.
52
Equator Re. The combined operating ratio for our captive reinsurer, Equator Re, improved to 81.4% for
2006 from 89.8% for 2005, reflecting the lower incidence of catastrophe and large individual risk losses in 2006.
The claims ratio decreased to 63.6% for 2006 from 80.0% for 2005 for the same reason. The commission ratio
increased to 13.0% for 2006 from 9.8% for 2005 due to the increased participation in divisional reinsurance
programs. The expense ratio for 2006 was 4.8% compared to nil% for 2005 due to the change in the mix of business.
Investments
Our investment portfolio (including cash) increased to A$20.0 billion at December 31, 2006 from A$17.6
billion at December 31, 2005, an increase of 14%. This increase principally reflects the impact of increases in
operational cash flows and acquisitions. At December 31, 2006, approximately 28% of our investments and cash
were in Australian dollars, approximately 35% in pounds sterling, approximately 24% in US dollars and
approximately 13% in other currencies. Our gross investment income was A$985 million for 2006 compared to
A$843 million for 2005, a 17% increase. Net investment income, which is gross investment income net of
borrowing costs, foreign exchange gains and losses and investment expenses, increased to A$822 million for 2006
compared to A$718 million for 2005. The factors contributing to the increase in net investment income included:
• net realized and unrealized gains on fixed interest securities of A$103 million for 2006 compared to
net realized and unrealized gains on fixed interest securities of A$87 million for 2005;
• increased interest income of A$719 million for 2006 compared to A$567 million for 2005;
• exchange gains of A$18 million for 2006 compared to A$3 million for 2005; and
• dividend income increased to A$47 million for 2006 compared to A$41 million for 2005.
These were partially offset by:
• net realized and unrealized gains on equities of A$104 million in 2006 compared to net realized and
unrealized gains on equities of A$130 million in 2005;
• interest expense increased to A$128 million in 2006 compared to A$96 million in 2005;
• realized loss on sale of controlled entities of A$1 million for 2006 compared to a gain of A$11 million
for 2005; and
• net cost of ABC Securities increased to A$21 million in 2006 compared to A$17 million in 2005.
In 2006, we continued to maintain our strategy of a low risk investment portfolio. In 2006, we
outperformed external benchmarks on cash and fixed interest securities for our major portfolios in the UK, US,
Australian and Euro markets. We underperformed equity markets, primarily because of our focus on absolute
returns, including locking in equity gains for 2006 in October.
volatility from rising interest rates. At December 31, 2006, our cash and fixed interest portfolio had an average
maturity of 0.4 years. Our cash and fixed interest portfolio produced an annualized gross yield of 4.7% for 2006
compared to 4.3% for 2005 due to higher interest rates.
In 2006, we continued to maintain a policy of matching liabilities with assets of the same currency where
practical and matching all "tradable" overseas shareholders' funds back into Australian dollars by holding offshore
Australian assets or by using currency hedges. The nature of our business is such that there is a slight mismatch
from time to time which, for the year ended December 31, 2006, resulted in an operational exchange gain of A$18
million compared to a gain of A$3 million for 2005.
53
We earned A$588 million and A$480 million in investment income on policyholders' funds for 2006 and
2005, respectively. Our results for 2006 reflected higher interest rates during the period and active management of
our investment portfolio. This income, together with our underwriting result, produced an insurance profit of
A$1,788 million for 2006 compared to A$1,288 million for 2005, an increase of 39%.
Investment Income on Shareholders' Funds
Investment income on shareholders' funds decreased slightly to A$234 million for 2006 compared to
A$238 million for 2005 mainly due to the reduction in realized and unrealized equity gains.
As a result of the above, we had a profit before income tax of A$2,012 million for 2006 compared to
A$1,523 million for 2005.
Income Tax
We had an income tax expense of A$519 million for 2006 compared to A$425 million for 2005. Income
tax expense for 2006 was approximately 26% of pre-tax profit, compared with approximately 28% for 2005
primarily due to higher profits earned in countries with lower tax rates, including Bermuda, the base for our captive
reinsurer, Equator Re.
Minority Interest
For 2006, minority interest in our net profit after income tax was A$10 million compared to A$7 million
for 2005.
Profit After Tax
As a result of the foregoing, our net profit after tax increased to A$1,483 million for 2006 from A$1,091
million for 2005. By division, for 2006 compared to 2005, respectively:
• our Australian operations division had a net profit after tax of A$387 million compared to A$360
million;
• our Asia Pacific operations division had a net profit after tax of A$73 million compared to A$93
million;
• our European operations had a net profit after tax of A$773 million compared to A$537 million;
• the Americas division had a net profit after tax of A$109 million compared to A$62 million; and
54
Liquidity and Capital Resources
Liquidity
Liquidity is a measure of a company's ability to generate sufficient cash flows to meet the short and long
term cash requirements of its business operations.
Our principal sources of funds historically have been cash flows from operating activities (including
interest and dividends received on our investments) and proceeds from external borrowings and the sale of equity
securities (particularly through our DRP and DEP). While our DEP continues, our DRP was suspended in
September 2007 due to the Group's strong level of capital adequacy. We expect that our liquidity needs in the future
will continue to be met by these sources despite the recent disruption in the global credit markets.
Our insurance operations provide liquidity in that premiums are generally received months or even years
before claims are paid under the policies purchased by such premiums. For over ten years, cash receipts from
operations, consisting of premiums, reinsurance and other recoveries received and investment income, have
provided more than sufficient funds to pay claims, operating expenses, interest expenses, income taxes and
dividends to shareholders. The declaration and payment of dividends is at the discretion of our Board of Directors
and depends upon many factors, including our operating results, financial condition, capital requirements and any
regulatory constraints. After satisfying our cash requirements, we have used excess cash flows to fund acquisitions
and build our investment portfolio (thereby increasing future investment income).
Our subsidiaries maintain a high percentage of their investments in highly liquid, short-term and other
marketable securities. We do not anticipate having to sell long-term fixed interest or equity investments to meet our
liquidity needs.
As a holding company, our ability to continue to pay dividends to shareholders and to satisfy our debt
obligations relies on the availability of liquid assets, which is dependent in large part on the dividend paying ability
of our subsidiaries. Such subsidiaries are subject to laws and regulations in the jurisdictions in which they operate
that may restrict that amount of dividends they may pay. The restrictions are generally based on net income and on
certain levels of policyholders' surplus as determined in accordance with statutory accounting practices. During
2007 and 2006, our subsidiaries paid us dividends totaling A$2,826 million and A$2,275 million, respectively,
reflecting the benefit of on-going restructuring of our operations.
Capital Resources
Capital resources provide protection for policyholders, furnish financial strength to support the business of
underwriting insurance risks and facilitate continued business growth. At June 30, 2008, we had consolidated
shareholders' equity of A$8,816 million, a 4% increase over our shareholders' equity at December 31, 2007, due
mainly to the profit for the period, partly offset by the payment of the 2007 final dividend in March 2008. As a
consequence, our shareholders' equity grew by approximately A$337 million.
We regularly monitor our capital resources. The capacity to manage our level of dividend reinvestment,
together with current levels of capital, expected future profits and the structure of our debt securities should enable
us to finance our normal level of growth and future acquisition activities. In the event we were to need additional
capital to make strategic investments in light of market opportunities, we may take a variety of actions which could
include reinstating our DRP and the issuance of additional debt and/or equity securities. We believe that, subject to
market conditions, our strong financial position and conservative debt level provide us with the flexibility and
capacity to obtain funds externally through debt or equity financings on both a short-term and long term basis.
55
We use external borrowings to support the capital requirements of our overseas subsidiaries, to fund
acquisitions and to support our growth. These borrowings are principally in foreign currencies which provide a
hedge against the exposure of our shareholders' funds to such currencies.
At June 30, 2008 we had outstanding:
• £175 million of 5.625% senior debt due September 2009;
• US$250 million of subordinated notes due July 2023, which we issued in June 2003 with a fixed
annual interest rate of 5.647% for the first ten years and a floating rate of US dollar three-month
LIBOR rate plus 3.18% for the remaining ten years;
• A$170 million and €115 million under a Eurobond subordinated note program with optional
redemption from August 2010 and maturing in August 2020;
• Hybrid securities due 2027 repayable in the amount of £258 million in cash or ordinary shares in May
2027. To date, none of those securities have been converted.
• Hybrid securities due 2024 repayable in the amount of US$375 million in cash or ordinary shares. To
date, approximately 70% of the hybrid securities have been converted. The total number of shares
issued to date as a result of the conversion is 22 million;
• US$550 million of capital securities with no fixed maturity date with a semi-annual, non-cumulative
cash distribution at a fixed rate of 6.8% per annum until June 1, 2017 and thereafter quarterly
distributions at a floating rate of 2.6% above the London interbank offered rate for three month US$
deposits (i.e. the Dollar Capital Securities); and
• £300 million of capital securities with no fixed maturity date with a semi-annual, non-cumulative cash
distribution at a fixed rate of 6.9% per annum until July 18, 2016 and thereafter quarterly distributions
at a floating rate of 2.9% above the London interbank offered rate for three months pound sterling
deposits (i.e. the Sterling Capital Securities).
As of June 30, 2008 we also had US$550 million and US$220 million of ABC Securities to support funds
at Lloyd's pursuant to Lloyd's collateral requirements, due 2008 and 2009, respectively. See note 34(C) to our 2007
financial statements for a description of our ABC Securities. Of the total ABC Securities, US$550 million was
repaid in November 2008 with the proceeds from the assets held by the applicable SPV. New letters of credit have
been arranged to replace the funds at Lloyd's provided by the US$550 million of ABC Securities. The balance of
the ABC Securities will be repaid in November 2009.
Our debt to equity ratio (excluding the ABC Securities) was 37.3% as at June 30, 2008 compared to 40.8%
as at December 31, 2007 and was 37.6% as at December 31, 2006. Our annualized weighted average cost of
borrowings in respect of amounts outstanding was 6.7% at June 30, 2008 compared to 6.7% at December 31, 2007
and 5.8% at December 31, 2006.
Subject to acquisitions which we are generally actively seeking out, and taking into account the pending
acquisitions, as described under "Information Summary—Recent Developments" and "Management's Discussion
and Analysis of Financial Condition and Results of Operations—Recent Developments" above, we believe that our
cash flows from operations will be sufficient to meet our estimated cash requirements for at least the next twelve
months.
PMI Australia had no borrowings owing to non-affiliated third parties at June 30, 2008.
56
The following table summarizes our cash flows from operating activities, investing activities and financing
activities for the six months ended June 30, 2008 and 2007 and the years ended December 31, 2007, 2006 and 2005.

2008 2007 2007 2006 2005
(A$ in millions)
Operating activities.................................................... 839 785 2,374 2,039 1,987
Investing activities..................................................... (5) (615) (3,201) (1,881) (2,203)
Financing activities.................................................... (546) 1,031 804 (162) 161
Cash flows from operating activities for the six months ended June 30, 2008 were A$839 million compared
to A$785 million for the six months ended June 30, 2007. Although operating cash flows from operating activities
in local currency were strong, they were adversely impacted by the significant appreciation of the Australian dollar
against the US dollar and the pound sterling. For the year ended December 31, 2007, cash flows from operating
activities increased to A$2,374 million compared to A$2,039 million for the year ended December 31, 2006. This
increase primarily reflected an increase in premium received, partially offset by a decrease in reinsurance and other
recoveries received, an increase in claims paid and an increase in insurance and other underwriting costs and higher
income tax payments following increased profits in recent years. Cash flows from operating activities for the year
ended December 31, 2006 increased 3% to A$2,039 million from A$1,987 million for the year ended December 31,
2005, primarily due to increases in premium and reinsurance and other recoveries received.
Cash outflows from investing activities for the six months ended June 30, 2008 were A$5 million compared
to an outflow of A$615 million for the six months ended June 30, 2007. Cash outflows from investing activities for
the year ended December 31, 2007 were A$3,201 million compared to an outflow of A$1,881 million for the year
ended December 31, 2006. In 2007, payments for purchase of controlled entities and businesses acquired were
A$2,052 million compared to A$88 million for 2006 as a result of the Praetorian and Winterthur US acquisitions
and a number of smaller acquisitions, and payments for the purchase of other financial assets were A$1,277 million
compared to A$817 million in 2006. Cash outflows from investing activities for the year ended December 31, 2006
were A$1,881 million compared to an outflow of A$2,203 million for the year ended December 31, 2005. In 2006
payments for the purchase of equity investments exceeded proceeds from the sale of such investments by A$958
million. In 2005 the reverse occurred, proceeds from sales of equity investments exceeded purchases by A$814
million. Investments in other financial assets (principally short-term deposits and fixed interest and other interest
bearing securities) were A$817 million in 2006 as compared with A$2,755 million in 2005. The foregoing reflects
our decision to reduce our exposure to equities in 2005 and to increase such exposure to equities again in 2006.
Cash flows from financing activities decreased to an outflow of A$546 million for the six months ended
June 30, 2008 compared to an inflow of A$1,031 million for the six months ended June 30, 3007. The decrease is
primarily attributable to proceeds from the issue of £258 million of hybrid securities and the issue of US$550
million of capital securities in the six months to June 30, 2007 in order to fund the acquisitions of Praetorian and
Winterthur US. Cash flows from financing activities increased to an inflow of A$804 million for the year ended
December 31, 2007 compared to an outflow of A$162 million for the year ended December 31, 2006 for the same
reasons. Cash flows from financing activities decreased to an outflow of A$162 million for the year ended
December 31, 2006 compared to an inflow of A$161 million for the year ended December 31, 2005. The decrease
is primarily attributable to repayment of our A$400 million bank loan in 2006 and an increase in dividends paid,
partially offset by the proceeds from the sale of £300 million of capital securities.
Our major fundraising activity in 2007 was the issue of £258 million (approximately A$619 million) of
hybrid securities and the issue of US$550 million of capital securities (A$667 million). In addition, we conducted a
placement of 12.5 million ordinary shares to institutional investors in March 2007 which raised net proceeds of
A$403 million.
The following table summarizes our contractual obligations and other commercial commitments as of
December 31, 2007.
57
Amount of commitment expiration per period from
December 31, 2007
Less than After 5
Total 1 year 2-5 years years
(A$ in millions)
Contractual Obligations
Long-term indebtedness ...................................................... 3,458 300 419 2,739
ABC Securities (1)............................................................... 867 618 249 –
Operating leases................................................................... 667 71 198 398
Other Commercial Commitments
Letters of credit.................................................................... 283 283 – –
(1) See Note 34(C) to our 2007 financial statements for a description of our ABC Securities.
Off-Balance Sheet Arrangements
We have contingent liabilities and enter into various credit commitments in the ordinary course of our
business. See Notes 24(C) and 31 to our 2007 financial statements for information on these contingent liabilities
and credit commitments as at December 31, 2007.
Quantitative and Qualitative Disclosures about Market Risk
Our operating activities expose us to financial risks such as market risk, credit risk and liquidity risk. Our
risk management framework recognizes the unpredictability of financial markets and seeks to minimize potential
adverse effects on our financial performance. The key objective of our asset and liability management strategy is to
ensure sufficient liquidity is maintained at all times to meet our obligations, including settlement of insurance
liabilities and, within these parameters, to optimize investment returns for policyholders and shareholders.
See Note 5 to our 2007 financial statements for a description of these risks as applicable to us as at
December 31, 2007.
See Note 12 to our 2007 financial statements for a discussion of our derivative financial instruments.
Insurance Solvency
We are subject to a number of different regulations that require, among other things, capital to be held to
support our business activities. Insurance solvency, represented by the ratio of net tangible assets to net earned
premium, is an important indicator in assessing the ability of general insurers to pay their existing liabilities. See
"Regulation." We continue to maintain insurance solvency margins in excess of the statutory minimum insurance
solvency margins where we operate.
We believe our insurance solvency is strong and our directors will continue to carefully monitor our capital
requirements for the future, particularly in view of our strategy of growth by acquisition.
The table below details our insurance solvency ratio, calculated as the ratio of net tangible assets
(calculated as net assets less intangible assets) to net earned premium for the periods presented.

2008 2007 2007 2006 2005
Insurance solvency ratio %............................................... 58.8 60.1 59.3 59.7 51.1
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Prudential standards for Australian general insurers introduced by APRA under legislation which became
effective July 1, 2002 require a more comprehensive, risk based approach to the calculation of the minimum capital
requirement for licensed insurers. APRA has not yet finalized the prudential standards for calculating consolidated
capital adequacy requirements for non-operating insurance holding companies such as QBE. We have made a
number of assumptions in applying the risk based capital standards for Australian licensed insurers to the QBE
Group. Based on those assumptions, our calculation of the Group's capital adequacy multiple on a consolidated
basis as at June 30, 2008 was approximately 2.4 times the minimum capital requirement, unchanged from the capital
adequacy multiple as at December 31, 2007 and December 31, 2006. See also "—Factors and Trends Affecting our
Results—Impact of the Fluctuations of the Australian Dollar" for further information about the sensitivity of our
minimum capital requirement to the appreciation or depreciation of the Australian dollar against other currencies
due to the significance of our overseas operations.
59
BUSINESS
Overview
QBE Insurance Group Limited is an international general insurance and reinsurance group underwriting
commercial and personal lines business in 45 countries around the world. The following table sets forth information
about our gross earned premium, net earned premium and general insurance and inward reinsurance premiums for
the periods indicated.
Six months ended Year ended

2008 2007 2007 2006 2005
(A$ millions except percentages)
Gross earned premium ........................................................................... 5,958 5,751 12,361 10,069 9,171
Net earned premium............................................................................... 5,108 4,749 10,210 8,158 7,386
Direct and facultative as a percentage of net earned premium............... 89.1 87.1 87.5 85.9 83.3
Inward reinsurance as a percentage of net earned premium................... 10.9 12.9 12.5 14.1 16.7
As of June 30, 2008 and December 31, 2007, our shareholders' funds totaled A$8.8 billion and A$8.5
billion, respectively, and our assets totaled A$39.1 billion and A$39.6 billion, respectively.
Operations
Our operations are conducted through the following divisions:
all major lines of insurance cover for commercial and personal risks;
• Asia Pacific operations providing personal, commercial and specialist insurance covers in 17 countries
in the Asia Pacific region, including professional and general liability, marine, corporate property and
trade credit;
• European operations consisting of QBE Insurance Europe and our Lloyd's division (operating as QBE
Underwriting Limited):
countries in mainland Europe and writing reinsurance business in Ireland;
business in the Lloyd's market. We are the largest managing agent and second largest provider of
capacity at Lloyd's for the 2008 underwriting year;
• the Americas writing general insurance and reinsurance business in the Americas with headquarters in
New York and operations in North, Central and South America and Bermuda;
• Equator Re consisting of our captive reinsurance business based in Bermuda; and
Effective January 1, 2007, the management responsibility for our Central and Eastern European operations
was transferred from our APACE division to our European operations division, in order to have a single consistent
approach for our European businesses and to better utilize the substantial product skills that we have based in
London. The APACE division was subsequently separated into two divisions, with the Australian and Asia Pacific
business units becoming separate operational divisions in their own right. Our financial information for 2006 and
2005 has been restated as if the reorganization had been effective as at January 1, 2005.
60
Performance
Our net profit after tax, investment income (after unrealized gains/losses) and combined operating ratio
were A$859 million, A$379 million and 85.8%, respectively, for the six months ended June 30, 2008 and A$921
million, A$564 million and 86.2%, respectively, for the six months ended June 30, 2007. Our net profit after tax,
investment income (after unrealized gains/losses) and combined operating ratio were A$1,925 million, A$1,132
million and 85.9%, respectively, for the year ended December 31, 2007, A$1,483 million, A$822 million and 85.3%,
respectively, for the year ended December 31, 2006, and A$1,091 million, A$718 million and 89.1%, respectively,
for the year ended December 31, 2005.
Recent Developments
For a discussion of our pending acquisitions, see "Information Summary—Recent Developments" and
"Management's Discussion and Analysis of Financial Condition and Results of Operations—Recent Developments."
Recent Acquisitions
For a discussion of our recent acquisitions see "Information Summary—Recent Acquisitions" and
"Management's Discussion and Analysis of Financial Condition and Results of Operations—Recent Acquisitions."
Underwriting Strategy
Our underwriting strategy is to achieve consistency in our underwriting results and reduce our risk of loss
through:
• geographic and product diversification;
• selective acquisitions;
• attracting and retaining quality underwriters;
• ongoing actuarial assessment of premium pricing and outstanding claims reserves;
• decentralized, regional insurance operations;
• a group risk management strategy; and
• effective use of reinsurance and retrocession protection with financially strong and highly rated
reinsurers.
To date, our underwriting strategy has remained unchanged. In line with past experience in current market
conditions, as described above under "—Market Conditions.", there could be an incremental increase in claims,
although we expect this would be partly offset by higher premiums. We have made allowances in our insurance
liabilities for potential exposure to policies relating to financial institutions affected by the credit crisis. Recent
market conditions are also giving rise to further acquisition opportunities, which we are considering in accordance
Investment Strategy
The investment committee of our board of directors reviews our investment strategy at each committee
meeting in respect of the investments we are permitted to make. The following table sets forth the percentage of our
investments represented by cash (net of overdrafts), short-term deposits, fixed interest and other interest bearing
securities, equities and investment properties as of the dates indicated.
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2008 2007 2007 2006 2005
Cash (net of overdrafts) ..................... 1,197 5.1 2,140 9.0 988 4.0 1,019 5.1 1,061 6.0
Short-term deposits............................ 13,074 56.2 12,734 53.7 16,317 66.3 10,040 50.3 8,292 47.1
Fixed interest and other interest
bearing securities ............................... 7,136 30.7 6,934 29.2 5,552 22.6 7,134 35.7 7,537 42.9
Equities .............................................. 1,775 7.6 1,833 7.7 1,656 6.7 1,741 8.7 674 3.8
Investment properties......................... 86 0.4 86 0.4 93 0.4 38 0.2 33 0.2
Total investments and cash ................ 23,268 100.0 23,727 100.0 24,606 100.0 19,972 100.0 17,597 100.0
During the six months ended June 30, 2008, and in the period since, we have continued to maintain a
strategy of a low risk investment portfolio. Our general policy on investments is to reduce the risk to shareholders by
investing in high quality fixed interest securities and having a modest exposure to equity investments. We take this
approach because of the risk we have already assumed in our insurance business.
at December 31, 2007, a decrease of 5%. This decrease principally reflected the appreciation of the Australian
dollar against the US dollar and the pound sterling, lower US interest rates and substantially weaker equity markets,
partly offset by higher Australian interest rates. For the six months ended June 30, 2008, we incurred net realized
and unrealized losses on equities of A$86 million due to the market volatility. Since June 30, 2008, our equity
investments, which represented 7.6% of our total investments and cash at that date, have declined in value due to
investment market movements. This has given rise to unrealized losses on equities and a consequent deterioration
of our gross investment income. We currently have no equity hedges in place. Since June 30, 2008, the value of our
cash and fixed income investments has not been adversely affected by the current market turmoil.
The value of the overseas component of our cash and investment portfolio is also impacted by fluctuations
in foreign exchange rates. We translate income and expense items using the cumulative average rate of exchange.
On this basis, the Australian dollar appreciated against the pound sterling and the US dollar by 12% in the six
months ended June 30, 2008 compared to the six months ended June 30, 2007. Balance sheet items are translated at
the period end rate of exchange. On this basis, the Australian dollar appreciated against the pound sterling and the
US dollar by 8% comparing the exchange rates at June 30, 2008 with the exchange rates at December 31, 2007.
This significant appreciation of the Australian dollar substantially reduced the value of the overseas component of
our cash and investment portfolio when reported in Australian dollars by A$1.4 billion at June 30, 2008 compared to
December 31, 2007. Between July 1 and November 21, 2008, the Australian dollar depreciated 35% against the US
dollar.
Our fixed interest investments continue to be short in duration. At June 30, 2008, our cash, short-term
deposits and fixed interest and other interest bearing securities portfolios, taken together, had an average duration of
0.7 years. As of November 21, 2008, the average duration was approximately 0.5 years.
Our History
Our founding company, The North Queensland Insurance Company Limited, was established in
Queensland, Australia in 1886. By 1890, we had established over 36 agencies throughout the Asia Pacific region
and Europe providing general insurance services. In 1973, we merged with Bankers and Traders Insurance Company
Limited and Equitable Life and General Insurance Company Limited, were renamed QBE Insurance Group Limited
on October 3, 1973 (ABN 28 008 484 014) and were listed on the ASX. We have since grown into an international
general insurance and reinsurance Group operating in 45 countries around the world. We are domiciled in Australia.
Our principal executive office and registered office is located at Level 2, 82 Pitt Street, Sydney, New South Wales
2000, Australia. Our telephone number is 61-2-9375-4444. For a list of QBE's subsidiaries and controlled entities,
see Note 18 to our 2007 financial statements.
62
In 1986, we entered the inward reinsurance market with the acquisition of an Australian reinsurer, Sydney
Reinsurance Company Limited (formerly Storebrand International Reinsurance), and expanded our inward
reinsurance business in 1988 through the purchase of two European reinsurance companies.
In the past two decades we have experienced substantial growth, largely through acquisitions, with gross
written premium increasing from A$629 million for the year ended June 30, 1990 to A$6,603 million for the six
months ended June 30, 2008 and A$12,406 million for the year ended December 31, 2007. Major acquisitions have
included Australian-based multiline underwriter Australian Eagle Insurance Company Limited, which we acquired
in 1992, New York-based reinsurer American Royal Reinsurance Company which we acquired in 1993, London-
based Allstate Reinsurance Company Limited, which we acquired in 1996, and the Australian-based trade credit
business Trade Indemnity Australia Limited, which we acquired in 1997. In December 1999, we acquired Iron
Trades Insurance Company Limited, a United Kingdom direct insurer. In August 2000, we acquired Limit plc (now
trading as QBE Underwriting Limited), which currently manages six ongoing Lloyd's syndicates and makes us the
largest manager and second largest provider of capacity in the Lloyd's market for the 2008 underwriting year. In
June 2004, we purchased ING's 50% share in the QBE Mercantile Mutual joint venture in Australia including ING's
Australian general insurance underwriting businesses conducted through Mercantile Mutual Insurance (Australia)
Limited (the "ING Acquisition"). In 2007, we acquired Praetorian and Winterthur US in the United States (noting
that on September 30, 2008, we agreed to sell Praetorian Specialty Insurance Company, our small and non-core
excess and surplus lines insurance business, to Torus Insurance Holdings Limited, which sale is subject to regulatory
approvals and customary conditions to closing). On October 23, 2008, we acquired PMI Australia from a subsidiary
of The PMI Group Inc. and in August 2008, we signed an agreement to acquire PMI Asia from The PMI Group, Inc.
Completion of the PMI Asia acquisition remains subject to a number of closing conditions. See "Recent
Acquisitions" above.
We have grown primarily through acquisitions. For the remainder of 2008, we expect to continue to
achieve growth primarily through inclusion of operating results from acquisitions we made in 2007 and in the first
half of 2008 and through continued high retention of customers.
Operational Summary
For a discussion of our key ratios by division, see "Management's Discussion and Analysis of Financial
Condition and Results of Operations."
Description of Products and Services
Our major products and services are described below.
Property—Property insurance refers to the underwriting of a broad range of risks including policies for fire,
industrial special risks and consequential loss, as well as schemes tailored for specific classes of cover for both
personal and property damage. We focus on providing specialized insurance coverage and offer cover for
catastrophe, property facultative, direct and excess of loss risks.
Motor Vehicle and Motor Casualty—Private motor insurance includes the provision of comprehensive
insurance for damage to or loss and theft of a vehicle, as well as third party property damage. Commercial motor
insurance refers to the underwriting of risks for business vehicles and fleets. Private motor policies are generic,
unlike commercial motor coverage, where policies are often tailored to a customer's specific needs. We both insure
and reinsure motor vehicle risks. It includes CTP insurance (see below).
63
Compulsory Third Party—CTP insurance covers insureds in Australia against liability to third parties
injured in motor vehicle accidents and is the means by which those third parties are compensated for their injuries in
Australia. The insurance is compulsory for all motor vehicles in Australia. Claims are governed by legislation and
disputes can be resolved by the courts. In New South Wales, Queensland and the Australian Capital Territory, CTP
is underwritten by private insurers. In other states and the Northern Territory, CTP is underwritten by the respective
state and territory governments.
Liability (Casualty)—Liability insurance is purchased to insure against claims made by third parties who
are injured or who suffer property damage arising out of the insured's activities or statutory obligations. It includes
professional indemnity (see below), medical malpractice and general, public and product liability. We believe that
our liability insurance and reinsurance portfolio is diversified, both in terms of business risk and geographic location.
Marine and energy—Marine insurance covers a broad range of risks including marine hull (insurance
which covers loss or damage to a marine vessel) and marine cargo (insurance that covers the loss of or damage to
goods being transported). In the energy sector we provide for physical loss or damage and business interruption
coverage on risks such as offshore oil and gas platforms, onshore oil wells and segments of the petrochemical
industry.
Aviation—Aviation insurance covers both aviation hull and aviation liability, including passengers. Both
our Australian general insurance and Lloyd's divisions have significant aviation businesses.
Accident and Health—Accident and health insurance covers insureds for expenses incurred in association
with medical costs, including hospital stays and fixed lump sums such as in accidental death or loss of limbs. We
both insure and reinsure accident and health risks.
Professional Indemnity—Professional indemnity insurance is purchased by professional advisers such as

engineers, architects and lawyers and by company directors and officers to insure against damages arising from
actions for the provision of negligent advice or services. We provide this cover primarily on a general insurance
basis.
Workers' Compensation—Workers' compensation insurance is provided for work-related injuries. The

provision of workers' compensation insurance is typically a statutory class of business, as it is required by local or
state government legislation. Legislation also typically requires employers to either self-insure with adequate
reinsurance or to obtain appropriate workers' compensation insurance with an approved insurer. The level of
insurance required is mainly determined by reference to the number of workers employed and the nature of work
performed. It includes employers' liability (see below).
In Australia in the states of New South Wales, Victoria, South Australia and Queensland, workers'
compensation underwriting is administered by the state governments. Our role in the first three of these states is
currently largely limited to providing a claims management service on a fee basis. As of July 1, 2006, we stopped
providing claims management services in South Australia.
Employers' Liability—We provide general insurance cover for employers' liability in the United Kingdom
and Ireland through our European operations. This is similar to workers' compensation insurance as described above.
Financial and Credit—Financial and credit insurance includes products such as residual value bonds or
other credit enhancement tools.
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Catastrophe—Catastrophe insurance is purchased to insure against catastrophes such as natural disasters.
Typically, a form of excess of loss reinsurance is offered, subject to specified limits, to indemnify the reinsured for
the amount of loss resulting from a catastrophic event or series of events in excess of a specified amount.
Householders'—Householders' insurance refers to the underwriting of home, contents, personal effects and
personal liability risks. We both insure and reinsure householders' risks.
Commercial Packages—Commercial package insurance is a flexible package of insurance options designed

to provide cost-effective protection for our customers in retail, commercial and industrial businesses.
Terrorism cover
Because of the unpredictable nature of terrorist attacks, providing terrorism cover without the support of
reinsurance can be uneconomic. Consequently, where matching reinsurance is unavailable, we generally provide
terrorism cover only after careful consideration. For example, in some lines of business, such as US property risks
outside major metropolitan areas, where we believe our terrorism exposure is not material, we are not excluding
terrorism from our policies. This is consistent with our underwriting policy since the events of September 11, 2001
to only insure terrorism risks where terrorism losses are expected to be minimal. We continue to work with industry
bodies and governmental authorities to further reduce our and the industry's exposure to terrorism risks. Many
governments have already passed legislation or have committed to introduce legislation that would have this effect.
For information on this legislation, see "Regulation—Australian Insurance Regulation—Terrorism Insurance Act"
and "Regulation—United States Insurance Regulation—Terrorism Risk Insurance Act."
Australian operations
Our Australian operations comprise a broad range of product lines, each of which applies specific product
management focus to its respective portfolios. The seven core business units are specialist risk, intermediary
distribution, third party distribution, credit and surety, statutory classes, aviation and direct distribution.
The strategy of our Australian general insurance operations is to ensure optimum retention of quality
customers, maintain profitability of existing and new business, eliminate consistently unprofitable lines of business
and distribution channels, extend distribution and service of insurance products and reduce costs. On October 23,
2008, we acquired PMI Australia, which provides mortgage insurance for lenders. In 2008, we acquired three
distribution channels in Australia. In 2007, we acquired a number of underwriting agencies and renewal rights,
including Universal Underwriting Agency. In 2006, we made a number of small acquisitions consisting of Austral
Mercantile Collections Pty Limited, a debt collection agency, and the remaining 50% of the Concord underwriting
agencies. In 2005, we acquired National Credit Insurance Brokers in Australia and New Zealand to support our trade
credit operations. In 2005, we also commenced writing builders' warranty and medical malpractice insurance in
Australia. This followed changes made by various state governments and the Commonwealth Government to
improve the claims experience and affordability of these classes of insurance.
For a summary of certain financial data and key ratios for our Australian general insurance operations for
the six months ended June 30, 2008 and 2007 and for the years ended December 31, 2007, 2006 and 2005, see
Products
Our Australian operations underwrite a broad mix of both personal and corporate insurance business. The
table below indicates the contribution of each class of business to gross earned premium for our Australian
operations for the periods indicated.
65
2008 2007 2007 2006 2005
Business Class
Professional indemnity ....... 65 4.8 61 4.9 121 4.8 136 5.6 125 5.2
Credit and surety................. 66 4.9 56 4.5 113 4.5 97 4.0 113 4.7
Accident and health ............ 127 9.4 111 8.9 234 9.3 209 8.6 175 7.3
Property .............................. 255 18.9 242 19.4 489 19.4 435 17.9 399 16.6
Motor and motor casualty ... 164 12.1 129 10.3 272 10.8 242 10.0 224 9.3
Travel.................................. 26 1.9 18 1.4 40 1.6 32 1.3 43 1.8
Householders'...................... 143 10.6 134 10.7 265 10.5 255 10.5 255 10.6
Compulsory third party....... 84 6.2 87 7.0 171 6.8 177 7.3 178 7.4
General liability .................. 241 17.8 237 19.0 438 17.4 498 20.5 450 18.7
Workers' compensation....... 123 9.1 116 9.3 247 9.8 211 8.7 197 8.2
Marine and aviation ............ 58 4.3 54 4.3 108 4.3 112 4.6 111 4.6
Other (1) ............................. — — 4 0.3 20 0.8 24 1.0 135 5.6
Total ........................... 1,352 100.0 1,249 100.0 2,518 100.0 2,428 100.0 2,405 100.0
(1) Includes agriculture, bloodstock, casualty and other miscellaneous classes.
Competition
We are the third largest general insurer in the Australian market based on net earned premium for the year
ended December 31, 2007. Our main competitors include other large insurers operating in the Australian market,
such as Insurance Australia Group (formerly NRMA) ("IAG"), Suncorp-Metway Limited and Allianz. Because of
the significant number of companies with market shares of between 5% to 10%, as well as smaller companies with
market shares just below 5%, the insurance market is highly competitive in Australia. The general insurance market
has many niche participants and there is a high number of general insurers for a relatively small market.
There has been rationalization in the general insurance industry in Australia since January 2003. The main
developments were:
• CGU Insurance Australia was acquired by IAG in early 2003;
• Wesfarmers acquired Lumley Insurance Group Limited in August 2003;
• Our ING Acquisition in June 2004; and
• The merger of Suncorp-Metway and Promina Group in March 2007.
In 2008, we made a proposal to acquire IAG which was declined due to price.
Distribution
We write the majority of our business in Australia through third party-owned brokers and agents. The
remainder of our products are written directly through our branch network.
66
The third party-owned agents we use typically also sell the insurance products of our competitors. While
these third party-owned agents receive a commission on any business we accept, we are generally not committed to
accept any business from any particular agent. Certain third party-owned brokers and agents with limited authority
write certain policies on our behalf, but only up to a specified amount of cover and within prescribed parameters.
We do not rely on any single broker or agent for a significant portion of our Australian business. Additional
distribution channels include banks and other financial institutions. More recently, there has been an increase in the
commoditization of selected product lines of general insurance products, consolidation of distribution channels and
the establishment of new lines of underwriting.
Asia Pacific operations
The Asia Pacific operations conducts general insurance business outside Australia in 17 countries
throughout the Asia Pacific region: China, Fiji, French Polynesia, Hong Kong, India, Indonesia, Macau, Malaysia,
New Caledonia, New Zealand, Papua New Guinea, Philippines, Singapore, Solomon Islands, Thailand, Vanuatu and
Vietnam. We have had a representative office in China since 1997. We provide personal, commercial and specialist
insurance covers, including professional and general liability, marine, corporate property and trade credit products.
We have had a presence in the Asia Pacific region for over 100 years, and have a well known brand name and strong
market share in most countries in this region.
This division tends to be more capital intensive than our other divisions because of the number of
jurisdictions in which we operate in these regions. However, we believe these are still important and profitable
markets for us, as evidenced by the claims ratio for this division. Our strategy is to continue to increase business
retention and grow our specialist product lines through international and local insurance brokers. We are considering
several acquisitions that are compatible with our existing operations.
The majority of our ongoing operations in the Asia Pacific regions were profitable for the six months ended
June 30, 2008 and all of them were profitable for the year ended December 31, 2007. Overall attritional claims ratios
continue to be low although we did experience an increase in the level of large individual risk and catastrophe
claims for the six months ended June 30, 2008. Our recent developments include entering into a joint venture
agreement in India to establish a general insurance operation.
Products
The Asia Pacific division underwrites a broad mix of both personal and corporate insurance business. The
table below indicates the contribution of each class of business to gross earned premium for our Asia Pacific
operations for the periods indicated.

2008 2007 2007 2006 2005
Business Class
Professional indemnity ........ 37 12.8 38 13.1 76 13.3 71 12.5 28 5.1
Marine.................................. 41 14.0 37 13.0 78 13.7 78 13.7 66 12.1
Workers' compensation........ 19 6.5 20 6.8 29 5.1 32 5.7 11 2.0
Motor and motor casualty .... 42 14.6 44 15.1 87 15.3 87 15.2 121 22.2
Property ............................... 63 21.7 66 22.8 129 22.6 123 21.6 150 27.7
Accident and health ............. 19 6.6 22 7.6 40 7.0 46 8.1 49 9.0
Liability ............................... 29 9.8 25 8.5 57 10.0 56 9.8 52 9.5
Engineering.......................... 14 4.7 13 4.4 27 4.7 26 4.5 22 4.0
Travel................................... 6 1.9 6 2.0 12 2.1 8 1.4 21 3.8
Householders'....................... 6 2.2 7 2.3 13 2.3 17 2.9 24 4.4
Financial and credit.............. 10 3.4 9 3.0 11 1.9 14 2.4 — —
Other(1) ............................... 5 1.8 4 1.4 11 2.0 12 2.2 1 0.2
Total ............................ 291 100.0 291 100.0 570 100.0 570 100.0 545 100.0
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(1) Includes credit and surety, agriculture and other miscellaneous classes.
The business that we underwrite in this division reflects the nature and development of the underlying
markets. In more established markets like Hong Kong, Malaysia and Singapore, the premium base is split between
personal lines (such as motor, home, accident and health) and commercial lines. In developing markets, such as
Indonesia and Thailand, insurance is still essentially a commercial product. As these economies and insurance
markets develop, we expect to see increasing demand for commercial liability products (such as public liability,
product liability, directors' and officers' liability, professional indemnity and workers' compensation) from
businesses and for personal products like private motor vehicle, home and travel insurance.
New product development under the banner of "specialized insurance solutions" has resulted in the
introduction of professional liability, directors' and officers' liability, medical malpractice, specialist liability, marine
liability, trade credit products and coverage for cargo in transit by sea, land and air into a number of Asian markets.
A team of specialists, including staff from our London and Sydney operations, support these new products.
Business in this division is conducted in 17 countries where we largely have shareholder and management
control and a strong distribution base of agents and longstanding business relationships with key insurance brokers.
We use a large network of agents and brokers to distribute personal and commercial lines of business. We do not
rely on any of these agents or brokers for a significant portion of our business in this division. Where we write
commercial lines of business, we focus on the small-to-medium sized business market, where we believe
competition is less intense and longer-term relationships can be formed. We believe that developing personal
relationships is important to having a competitive advantage in this region.
European operations
QBE's European operations principally comprise QBE Insurance Europe and our Lloyd's division,
operating as QBE Underwriting Limited. In addition, from January 1, 2007 this division also consists of our Central
and Eastern European operations which were transferred from our former APACE division in order to have a single
consistent approach for our European businesses and to better utilize the substantial product skills that we have
based in London. As of June 30, 2008, we had operations in the UK, Ireland and 15 countries across mainland
Europe.
The underwriting and support functions of QBE Insurance Europe and QBE Underwriting Limited have
been successfully integrated over recent years. Our management structure and underwriting teams now present
themselves on a unified basis across the Lloyd's and company market distribution platforms. The key differentiator
is underwriting product. We operate eight underwriting business units, namely casualty, property, motor,
reinsurance, marine and energy, aviation, specialty and British Marine. We will continue, however, to report the
results of QBE Insurance Europe and QBE Underwriting Limited separately.
QBE Insurance Europe
The QBE Insurance Europe operations, with a head office in London, are comprised of:
• general insurance businesses in the UK, Bulgaria, Czech Republic, Denmark, Estonia, France,
Germany, Hungary, Ireland, Italy, Macedonia, Romania, Slovakia, Spain, Sweden, Switzerland and
Ukraine; and
• inward reinsurance business in London and Dublin.
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We write reinsurance and specialty lines of business in the London market (see "—London versus United
Kingdom Insurance Markets").
The strategy for our QBE Insurance Europe operations is to continue to rationalize the division's United
Kingdom corporate and capital structure, review business processes to gain long and short-term efficiencies and cost
reduction and management information systems to improve the risk management of our business. In addition, we are
looking at opportunities to further diversify our products and our mainland European operations.
For a summary of certain financial data and key ratios for our QBE Insurance Europe operations for the six
months ended June 30, 2008 and 2007 and for the years ended December 31, 2007, 2006 and 2005, see
Products
The table below indicates the contribution of each class of business to gross earned premium for our QBE
Insurance Europe division for the periods indicated.

2008 2007 2007 2006 2005
Business Class
Professional indemnity ........ 191 17.0 222 17.2 421 16.6 381 14.0 380 15.1
Financial and credit.............. 33 2.9 26 2.0 66 2.6 90 3.3 66 2.6
Marine energy and aviation . 103 9.2 130 10.1 216 8.5 245 9.0 119 4.8
Accident and health ............. 20 1.8 14 1.1 30 1.2 46 1.7 81 3.2
Bloodstock ........................... 18 1.6 25 1.9 46 1.8 62 2.3 55 2.2
Property treaty ..................... 47 4.2 56 4.3 106 4.2 114 4.2 150 6.0
Property facultative and
direct................................. 159 14.2 145 11.2 294 11.6 305 11.2 228 9.1
Motor and motor casualty .... 246 21.9 293 22.7 576 22.7 634 23.3 437 17.4
Public/product liability ........ 186 16.6 212 16.4 452 17.8 484 17.8 548 21.8
Workers' compensation(1) ... 86 7.7 138 10.7 254 10.0 288 10.6 355 14.1
Other(2) ............................... 33 2.9 31 2.4 76 3.0 71 2.6 94 3.7
Total................................. 1,122 100.0 1,292 100.0 2,537 100.0 2,720 100.0 2,513 100.0
Direct and facultative........... 1,058 94.3 1,209 93.6 2,393 94.3 2,479 91.1 2,099 83.5
Inward reinsurance............... 64 5.7 83 6.4 144 5.7 241 8.9 414 16.5
Total................................. 1,122 100.0 1,292 100.0 2,537 100.0 2,720 100.0 2,513 100.0
(1) Includes employers' liability.

(2) Includes agriculture, engineering and other miscellaneous classes of insurance.
London versus United Kingdom Insurance Markets
We write business in both the United Kingdom insurance market and in what is known as the London
market. The London market is the largest international underwriting market for international insurance and
reinsurance business. The London market is distinctly different from the United Kingdom general insurance market.
Differences between the two markets include:
• the London market writes a broad range of coverages internationally, whereas the United Kingdom
general insurance market only writes cover for United Kingdom risks, of which the majority are in
personal lines;
69
• the London market underwrites a broad mix of both direct and reinsurance business, whereas the
United Kingdom general insurance market does not underwrite a significant amount of reinsurance
business;
• there are specialty markets within the London market, such as the large marine, aviation and satellite
markets, which do not exist in the United Kingdom general insurance market; and
• there is a subscription market in the London market where risk is shared among various insurers and
reinsurers, a feature not common in the United Kingdom general insurance market.
The London market itself is composed of two different sub-markets, namely, Lloyd's and the International
Underwriting Association of London (the "IUA"). The IUA was formed by the merger of the London Insurance and
Reinsurance Market Association ("LIRMA") and The Institute of London Underwriters (the "ILU"). LIRMA was a
bureau for non-Lloyd's markets in London and dealt with central processing of premiums, accounts and claims for
the company markets. The ILU was a marketplace for the marine underwriting companies (excluding Lloyd's). The
IUA is based at the London Underwriting Centre and carries on the functions formerly performed by the ILU and
LIRMA. We operate both in the Lloyd's market and IUA. Commencing in 2000, we established a new Lloyd's
division as a result of our acquisition of Limit plc (now trading as QBE Underwriting Limited). See "—QBE
Underwriting Limited (Lloyd's Division)".
General Insurance
From the late 1990s, we have expanded our general insurance business through acquisitions in Europe. In
December 1999, we acquired Iron Trades, a direct insurer in the United Kingdom that primarily writes employers'
liability and motor vehicle insurance, as well as property and public liability insurance. In 2005, we completed the
acquisitions of: MiniBus Plus underwriting agency in the UK with its commercial motor business; Greenhill
underwriting agency with offices in France, Spain and Germany; and British Marine, a specialist small tonnage
marine underwriting business. In 2005 we sold Garwyn, our non-core loss adjusting business in the UK and Ireland.
Inward Reinsurance
Our reinsurance business comprises two key segments:
• London market business, which is based in London, underwrites reinsurance globally and is focused on
specialty lines of business such as property, marine and aviation and energy coverage. We distribute
products in the London market through brokers; and
• Other European, which is based in Dublin, underwrites reinsurance risks in continental Europe and
also manages run-off portfolios.
Our underwriting teams focus on building long-term relationships with brokers and clients. We receive
business from a large number of brokers and do not rely on any one broker for a significant portion of our business.
The reinsurance industry is highly competitive. We compete worldwide with major reinsurers, as well as
reinsurance departments of numerous multi-line insurance organizations. We believe we compete effectively
because of our strong capital position, the quality of service provided to customers and our customized approach to
risk selection.
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QBE Underwriting Limited (Lloyd's division)
The Lloyd's market currently comprises 75 syndicates which underwrite insurance risks both globally and
in London. The structure of the Lloyd's market has changed considerably since 1993. Before 1993, all capital was
subscribed by individual members of Lloyd's, with unlimited personal liability. Today, a significant portion of
capital is provided by corporates on a limited liability basis. The Lloyd's market constitutes approximately half of
the London market.
In 2000, we acquired Limit plc, which operates in the Lloyd's insurance market. We changed the name of
Limit plc to QBE Underwriting Limited in 2008. QBE Underwriting Limited currently manages six Lloyd's
syndicates and is the largest manager and the second largest provider of capacity at Lloyd's with approximately a 7%
share of the total market capacity for the 2008 underwriting year. It provided 100% of capacity for syndicates 566,
1036, 2000, 5555 and 1886 and 70% of capacity for syndicate 386 in the 2008 underwriting year. On October 1,
2006 we launched syndicate 5555, our dedicated aviation syndicate. Our Lloyd's syndicates write the following
general insurance and reinsurance product lines:
• non-marine liability (principally product, employers', public and directors' and officers' liability and
professional indemnity);
• non-marine short-tail (principally commercial property, energy, pecuniary loss and credit and political
risks);
• marine, aviation and transport (including hull, cargo, aviation and space); and
• excess of loss reinsurance.
Our Lloyd's capacity for 2008 remains the same as 2007 at £1.1 billion, and was £1.0 billion in 2006.
Set out below is the total capacity for each of our Lloyd's syndicates for the 2008 and 2007 underwriting
years and our percentage share for the 2008 underwriting year:
Syndicate
Number Type of business Total capacity QBE share
2007 2008 2008
(in £ millions) %
5555(1) Aviation......................................................................................................... 85 95 100
386 Non-marine liability (ex-USA)...................................................................... 340 340 70
566(1) Property & aviation reinsurance .................................................................... 245 290 100
1036(1) Direct marine & energy ................................................................................. 220 210 100
1886(1) Non-marine liability ...................................................................................... 35 100 100
2000(1) Non-marine property & liability.................................................................... 195 85 100
Total .................................................................................................................................... 1,120 1,120 91
(1) From a Lloyd's reporting and regulatory perspective, syndicates that are 100% supported by us are sub-syndicates of an umbrella syndicate,
syndicate 2999. We established syndicate 2999 to maximize the efficient allocation of capacity across our 100% supported syndicates.
Syndicate 2999 does not underwrite risks on its own.
For a summary of certain financial data and key ratios for QBE Underwriting Limited for the six months
ended June 30, 2008 and 2007 and for the years ended December 31, 2007, 2006 and 2005, see "Management's
Discussion and Analysis of Financial Condition and Results of Operations."
71
Products
The table below indicates the contribution of each class of business to gross earned premium for QBE
Underwriting Limited for the periods indicated.

2008 2007 2007 2006 2005
Business class:
Professional indemnity ........... 120 11.0 139 10.8 241 9.2 319 12.9 305 13.4
Marine, energy and aviation ... 346 31.8 380 29.4 768 29.3 688 27.8 518 22.8
Property treaty ........................ 170 15.6 212 16.4 445 17.0 453 18.3 520 22.9
Public/product liability ........... 260 23.9 318 24.6 681 26.0 507 20.5 488 21.5
Property, facultative and direct 74 6.8 102 7.9 197 7.5 191 7.7 151 6.7
Workers' compensation........... 63 5.8 86 6.7 176 6.7 215 8.7 208 9.2
Financial and credit................. 24 2.2 22 1.7 47 1.8 47 1.9 32 1.4
Accident and health ................ 21 1.9 17 1.3 39 1.5 30 1.2 - -
Motor and motor casualty ....... 9 0.8 12 0.9 21 0.8 20 0.8 51 2.2
Bloodstock .............................. 2 0.2 4 0.3 5 0.2 5 0.2 - -
Total ............................... 1,089 100.0 1,292 100.0 2,621 100.0 2,475 100.0 2,273 100.0
Direct and facultative.............. 819 75.2 913 70.6 1,875 71.5 1,720 69.5 1,543 67.9
Inward reinsurance.................. 270 24.8 379 29.4 746 28.5 755 30.5 730 32.1
Total ............................... 1,089 100.0 1,292 100.0 2,621 100.0 2,475 100.0 2,273 100.0
(1) Includes extended warranty, credit, motor and other miscellaneous classes.
Since the acquisition of QBE Underwriting Limited, we integrated our pre-existing Lloyd's business with
QBE Underwriting Limited's Lloyd's business. We increased our share of QBE Underwriting Limited's managed
syndicates from 55% for the 2000 underwriting year to 91% for the 2008 underwriting year. These purchases of
additional capacity create an obligation for us to accept the additional share of insurance liabilities in exchange for
an equal amount of investments and other assets.
Our strategy for Lloyd's is to focus on those classes where we have specific expertise, a proven track record
and a strong leadership position. We do this by correcting or canceling consistently unprofitable business,
maximizing benefits from improved market conditions, seeking to achieve synergies from our various syndicates to
improve the expense ratio by optimizing syndicate operating structures and capital utilization and contributing to the
process of regulatory change. In 2007, we cancelled some business and withdrew from a few classes such as
contaminated products and our small US casualty, directors and officers and errors and omissions portfolios due to
our concerns with class and contagion risk in the United States.
Over time we have been able to merge our London market casualty operations and now have a single team
of professionals controlling all casualty business written through European operations.
There is significant competition in all classes of business transacted from a number of different markets
worldwide. Depending on the class of business concerned, competition comes from the London market, other
Lloyd's syndicates and major international insurers and reinsurers. On international risks, competition also comes
from the domestic insurers in the country of origin of the insured. We believe we are able to compete successfully
by employing specialist underwriters and by developing and maintaining close, long-term relationships through high
quality service and an ability to deliver innovative solutions tailored to our clients' needs. See "Risk Factors—
QBE's Business Risk Factors—We operate in a highly competitive industry."
72
In November 2003 and 2004, we restructured our Lloyd's division capital base by replacing virtually all our
bank letters of credit with ABC Securities. See Note 34(C) to our 2007 financial statements. US$550 million of the
ABC Securities was repaid in November 2008. New letters of credit have been arranged to replace the funds at
Lloyd's provided by the US$550 million of ABC Securities. The balance of the ABC Securities will be repaid in
November 2009.
the Americas
Our operations in the Americas are comprised of four main streams of insurance and reinsurance business.
The specialist insurance program business focuses on niche products and markets through managing agents. Our
general insurance business comprises regional brands that focus on small to medium clients throughout the
Americas and uses agents to distribute insurance products. The Latin America division comprises general insurance
operations in Argentina, Brazil, Colombia and Mexico and reinsurance businesses through our joint venture QBE
Del Istmo in Colombia, Mexico, Panama and Peru. Our fourth stream is our reinsurance business, supporting
predominantly small to medium insurers with limited exposure to major catastrophes.
Effective March 31, 2007, we acquired Praetorian from Hannover Re. Praetorian, based in New York,
writes specialist property and casualty insurance programs through various managing agents and brokers. The
Praetorian business has been substantially integrated with QBE's specialty insurance program business. The final
stage is to transfer all Praetorian data to QBE's systems, which is projected to be completed by the end of 2008. We
have replaced Praetorian's reinsurance of 50% of its business by way of quota share agreements to Hanover Re and
its affiliates with internal reinsurance.
Effective May 31, 2007, we acquired Winterthur US. Winterthur US is a property and casualty insurer in
the United States focusing on small to medium sized commercial business and personal lines and operating
primarily under the names of General Casualty and Unigard. Winterthur US is now called QBE Regional Insurance.
We have merged National Farmers Union and QBE Agri business, our existing general insurance brands, into QBE
Regional Insurance and have appointed a team of professionals to ensure that QBE Regional Insurance adopts best
practice for all its general insurance business written through independent and captive agents. The integration is
substantially complete, with final completion in 2009.
Our estimate of synergies from the two acquisitions has been increased from A$50 million after income tax
to A$100 million after income tax. Following a thorough review of the various insurance portfolios included in the
acquired companies, we have decided to cancel some business which we believe will not meet our profit
requirements going forward. On September 30, 2008, we agreed to sell, Praetorian Specialty Insurance Company,
our small and non-core excess and surplus lines insurance business, to Torus Insurance Holdings Limited, which
sale is subject to regulatory approvals and customary conditions to closing. We have also implemented a number of
changes to improve the profitability of the QBE Regional Insurance personal motor business.
For further information on the acquisitions, see "Information Summary—Recent Developments " and
"Management's Discussion and Analysis of Financial Condition and Results of Operations—Recent Developments"
above.
In the Americas division, we have continued to focus on a strategy of diversification which, combined with
additional marketing efforts, has improved the product and geographic diversity of our reinsurance and general
insurance portfolios. Our growth strategy in this division is to continue to develop relationships with existing clients,
to pursue acquisitions that meet our criteria and to add new program business.
73
Products
The table below indicates the contribution of each class of business to gross earned premium for our
Americas division for the periods indicated.

2008 2007 2007 2006 2005
Business class
Property ............................... 677 32.2 532 32.7 1,245 31.3 728 38.8 537 37.4
Casualty ............................... 387 18.4 327 20.1 755 19.0 405 21.6 359 25.0
Motor and motor casualty ..... 600 28.5 408 25.1 1,078 27.1 332 17.7 191 13.3
Accident and health .............. 213 10.1 156 9.6 429 10.8 263 14.0 222 15.5
Workers' compensation......... 147 7.0 150 9.2 310 7.8 58 3.1 40 2.8
Other(1) ............................... 80 3.8 54 3.3 159 4.0 90 4.8 86 6.0
Total............................... 2,104 100.0 1,627 100.0 3,976 100.0 1,876 100.0 1,435 100.0
Direct and facultative
insurance............................... 1,868 88.8 1,416 87.0 3,547 89.2 1,437 76.6 1,048 73.0
Inward reinsurance................ 236 11.2 211 13.0 429 10.8 439 23.4 387 27.0
Total............................... 2,104 100.0 1,627 100.0 3,976 100.0 1,876 100.0 1,435 100.0
(1) Includes agriculture, financial and credit, engineering and other miscellaneous classes of insurance.
Because we are a relatively small competitor in the United States reinsurance market, our reinsurance
strategy in this market has been to develop an expertise in health, facultative property and casualty lines and to focus
on specialty lines of the market that are less exposed to capacity-driven competition from larger reinsurers. Over the
last ten years, we have reduced the significance of catastrophe coverage in the overall mix of our business in this
division by diversifying our portfolio and not renewing certain unprofitable lines of business. Our strategy is to
focus on program business and, when possible, to convert reinsurance relationships into primary insurance. We
intend to continue to pursue selective growth in both the insurance and reinsurance markets.
We market our insurance products in the Americas division predominantly through third party-owned
brokers and agents. We receive business from a number of brokers and do not rely on any one broker for a
significant portion of our business.
For a summary of certain financial data and key ratios for the Americas division for the six months ended
June 30, 2008 and 2007 and for the years ended December 31, 2007, 2006 and 2005, see "Management's Discussion
and Analysis of Financial Condition and Results of Operations."
Equator Re
Equator Re is our wholly-owned captive reinsurance business based in Bermuda. Equator Re provides
reinsurance protections at various levels for most of our subsidiaries around the world. Equator Re's primary role is
to assist in our capital and balance sheet management, as well as to provide buying power for our Group reinsurance
arrangements. Equator Re provides protection below the retentions deemed appropriate for the Group and also
participates on a number of our excess of loss and proportional reinsurance protections placed with external
reinsurers. The exposures written by Equator Re are included in our maximum event retention, which is our
estimated net loss from our largest single realistic disaster scenario. All business written by Equator Re is priced at
market rates.
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Each of the operating division's reinsurance costs include the amount reinsured to Equator Re and these
amounts are eliminated upon consolidation of our overall Group results. See Note 37 to our 2007 financial
statements. For a summary of certain financial data for Equator Re for the six months ended June 30, 2008 and 2007
and for the years ended December 31, 2007, and 2006 and 2005, see "Management's Discussion and Analysis of
Financial Condition and Results of Operations."
Products
The table below indicates the contribution of each class of business to gross earned premium for Equator
Re for the six months ended June 30, 2008 and 2007 and for the years ended December 31, 2007 and 2006.
Contributions to gross earned premium for Equator Re for the year ended December 31, 2005 are not available as
QBE did not report this information on that basis in that year.

2008 2007 2007 2006
Business class
Public/product liability ................... 171 22.4 117 23.7 507 31.1 319 47.0
Property .......................................... 233 30.5 188 38.0 409 25.1 145 21.4
Marine, energy and aviation ........... 143 18.7 96 19.3 251 15.4 71 10.5
Motor and motor casualty ............... 107 14.0 20 4.0 207 12.7 37 5.5
Workers' compensation................... 49 6.4 15 3.1 137 8.4 1 0.2
Accident and health ........................ 19 2.5 27 5.5 56 3.4 59 8.7
Professional indemnity ................... 34 4.4 24 4.8 49 3.0 33 4.8
Financial and credit......................... 4 0.6 6 1.1 10 0.6 12 1.7
Bloodstock ...................................... 1 0.2 1 0.2 – – – –
Other ............................................... 2 0.3 1 0.3 5 0.3 1 0.2
Total................................ 763 100.0 495 100.0 1,631 100.0 678 100.0
Investments
We manage our worldwide investments from our head office in Sydney, Australia. We controlled an
investment portfolio (including cash) of approximately A$23.3 billion at June 30, 2008, down from A$24.6 billion
at December 31, 2007, primarily due to the effect of the stronger Australian dollar, lower interest rates and the
weaker equity markets. We are required to observe the prudential and insurance solvency requirements of the
various countries in which we operate with respect to the amount and nature of the investment assets held relative to
our liabilities. See "Management's Discussion and Analysis of Financial Condition and Results of Operations—
Liquidity and Capital Resources—Insurance Solvency." We hold investment assets to provide a return on
shareholders' funds and to provide funds for the claims that arise in relation to the policies we underwrite. Our
investment income for the six months ended June 30, 2008 and 2007 was A$379 million and A$564 million,
respectively. Our investment income for the years ended December 31, 2007, 2006 and 2005 was A$1,132 million,
A$822 million and A$718 million, respectively.
For a discussion of the results of our Investments division, see "Management's Discussion and Analysis of
Financial Condition and Results of Operations."
We maintain a strategy of a low risk investment portfolio. Our general policy on investments is to reduce
the risk to shareholders by investing in high quality fixed interest securities and having a modest exposure to equity
investments. This is because of the risk we have already assumed in our insurance business. We continue to
maintain a policy of matching liabilities with assets of the same currency as far as practicable and matching
"tradeable" overseas shareholders' funds back into Australian dollars. Our investments are designated as fair value
through profit or loss on initial recognition. They are initially recorded at fair value and are subsequently remeasured
to fair value at each reporting date. We monitor fair value on a daily basis.
75
Our fixed interest investments continue to be short in duration to reduce the effect of the potential market
volatility from rising interest rates. At June 30, 2008, our cash, short-term deposits and fixed interest and other
interest bearing securities portfolios had an average duration of 0.7 years. As of November 21, 2008, the average
duration is approximately 0.5 years.
Our policy is to manage cash, fixed interest and equity holdings within constraints approved by the
investment committee of our board of directors. Our asset allocation policy is set by our investment committee
which formulates asset allocation ranges with consideration given to applicable insurance solvency standards, sets
investment guidelines on currency and property dealings and reviews the performance of internal and external fund
managers against approved benchmarks. This asset allocation is usually reviewed by our investment committee at
each meeting, and our investments are generally managed in-house by our investment division. Our exposure to
equities as at June 30, 2008 was 8%, of total investments and cash compared with our benchmark of 10% of total
investments and cash. We currently have no equity hedges in place.
See "—Strategy" above for a summary of our investments and cash by class for the six months ended June
30, 2008 and 2007 and for the years ended December 31, 2007, 2006 and 2005.
We have a Group-wide investment credit risk policy in place to mitigate our exposure to credit risk on our
investment portfolio. Compliance with the policy is monitored and exposures and breaches are reported to our
Group investment committee. Net exposure limits are set for each counterparty or group of counterparties in
relation to investments, cash deposits and forward foreign exchange exposures. Our policy also sets out minimum
credit ratings for investments that may be held.
The tables below provide information regarding our aggregate credit risk exposure as of December 31,
2007, in respect of our major classes of financial assets. The analysis classifies the assets according to S&P's
counterparty credit ratings. Rated assets falling outside the range of AAA to BBB are classified as speculative grade.
Credit Rating
Speculative Not
AAA AA A BBB Grade Rated Total
(in millions )
As at December 31, 2007
Cash and cash equivalents ........................ 350 465 119 2 39 13 988
Interest bearing investments ..................... 7,916 13,210 546 26 126 45 21,869
ABC financial assets pledged for funds
at Lloyd's .................................................. 900 — — — — — 900
Derivative financial instruments ............... 26 214 26 — — — 266
Due to the diversity of our operations, exposure to foreign currencies requires close management.
Currency management is defensive in nature and any hedging strategies are undertaken with a view to minimizing
net exposure so as to make neither profit nor loss on currencies. See "Management's Discussion and Analysis of
Financial Condition and Results of Operations—Liquidity and Capital Resources" and see Notes 5 and 12 to our
2007 financial statements for a general discussion of our foreign exchange rate risk and management policies.
Through our investments we are exposed to interest rate risk. See Note 5(A)(ii) to our 2007 financial
statements for a more detailed discussion of the interest rate risk.
exposure through our investments in, and our deposits with, the major banks. Our investment portfolio has no direct
exposure to Lehman Brothers or AIG.
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Underwriting Policy
We have developed an underwriting and pricing methodology that incorporates underwriting, claims,
expenses, actuarial analysis and product development disciplines for our various classes of business. This approach
utilizes proprietary data gathered and analyzed by us over many years and is designed to maintain high quality
underwriting and pricing discipline. The underwriters use this information to assess and evaluate risks prior to
quoting the premium on a particular policy. This information provides specialized knowledge about industry
segments and catastrophe management and helps analyze and manage risk based on account characteristics and
pricing parameters. This approach is designed to ensure that we do not compromise our underwriting integrity and
we believe this provides us with a competitive advantage. We have a disciplined approach to underwriting and risk
management that emphasizes profitability rather than premium volume or market share.
We have a policy of reinforcing our underwriting performance with a range of operational controls and
procedures aimed at enhancing financial performance. Our underwriting performance to date has primarily reflected
a policy of diversifying risk through geographic and product diversity and also through a combination of strict
underwriting standards and risk management controls. Comprehensive underwriting year or accident year statistics
are maintained by product for every country in which we operate. This enables us to monitor trends and take action
at an early stage to correct unprofitable portfolios and focus on growing profitable business. There are over 140
persons throughout QBE engaged in actuarial work and who assist underwriters on trends and pricing. We also have
external actuarial reviews performed by independent actuaries for most portfolios. We use sophisticated computer
modeling techniques to assess underwriting risks and monitor accumulations of risk. Our pricing includes substantial
allowances for large losses and catastrophes.
Pricing levels for property and casualty insurance products are generally developed by us based upon the
estimated frequency and severity of losses, reinsurance costs, the expenses associated with writing business and
administering claims and a reasonable allowance for profit.
Pricing for personal motor insurance is driven primarily by changes in the frequency of claims and by
inflation in the cost of automobile repairs and medical care, litigation of liability claims and by legislative
requirements. As a result, the profitability of the business is largely dependent on promptly identifying and
rectifying disparities between premium levels and expected claim costs and obtaining approval of the regulatory
authorities, where applicable, for rate increases. The premiums on coverage for motor physical damage reflect the
values of the automobiles we insure.
Pricing in the householders' business is driven primarily by changes in the frequency of claims and by
inflation in building supplies, labor costs and household possessions. Most householders' policies offer, but do not
require, automatic increases in coverage to reflect growth in replacement costs and property values. The profitability
and pricing of householders' insurance is affected by the incidence of natural disasters, particularly hurricanes,
winter storms, earthquakes, floods and tornadoes. In order to limit our exposure to catastrophes, we have
implemented price increases in certain catastrophe-prone areas, introduced strict controls on the accumulation of
risks, purchased comprehensive reinsurance protection and instituted deductibles in hurricane-prone areas, all
subject to restrictions imposed by insurance regulatory authorities.
Pricing in long-tail classes of business is driven primarily by inflation, legal costs, developments in medical
care, changing levels of court awards and the governing legislation of CTP and workers' compensation schemes.
Long-tail lines are relatively more difficult to price because there is generally a longer period of time before claims
are settled. Extensive historical data, claims development tables and other benchmarks are typically used to assist in
pricing long-tail business.
77
Claims Administration
We seek to achieve minimal levels of net losses and loss adjustment expenses while maintaining our high
level of service. Our claims departments are organized to meet these goals. The organization distinguishes among
operating regions and delegates to the region's authority to address the needs of local customers, underwriters,
agents and brokers. Outsourcing of certain functions may occur if appropriate and if it makes business sense to do so.
In addition, we have created teams around technical specialties to better support the regional operations. The claims
organization structure in each region is driven by the composition of the portfolio of our business. This structure
permits us to maintain economies of scale while maintaining flexibility that allows us to quickly respond to the
needs of our customers, underwriters, agents and brokers. We centrally monitor adherence to claims policies and
procedures, the adequacy of case reserves, loss and expense controls and productivity and service standards. We
continuously review our claims practices in an effort to meet our service and loss and expense objectives.
Outward Reinsurance
We reinsure a portion of the risks we underwrite in order to control our exposure to losses, stabilize
earnings and protect capital resources. We cede to reinsurers a portion of these risks and pay premiums based upon
the risk and exposure of the policies subject to such reinsurance. These programs protect us against severity and
frequency of losses and have played an important role in managing our combined operating ratio. Our total external
reinsurance expense for the six months ended June 30, 2008 was A$850 million compared with A$1,002 million for
the six months ended June 30, 2007 and A$2,151 million for the year ended December 31, 2007 compared with
A$1,911 million for the year ended December 31, 2006. The amount of reinsurance expense ceded to our captive
reinsurer, Equator Re, was A$763 million for the six months ended June 30, 2008 compared with A$495 million for
the six months ended June 30, 2007 and A$1,631 million for the year ended December 31, 2007 compared with
A$678 million for the year ended December 31, 2006. Internal reinsurance is eliminated on consolidation. See
"Management's Discussion and Analysis of Financial Condition and Results of Operations." We believe our own
reinsurance operations provide us with insight and valuable knowledge on how the reinsurance market operates.
Reinsurance involves credit risk and is generally subject to aggregate loss limits. Although the reinsurer is liable to
us to the extent of the reinsurance ceded, we remain primarily liable as the direct insurer on all risks reinsured.
Reinsurance recoverables are reported after allowances for uncollectible amounts (approximately A$129 million and
A$224 million at June 30, 2008 and 2007, respectively and A$196 million, A$243 million and A$239 million at
December 31, 2007, 2006 and 2005, respectively). We monitor the financial condition of reinsurers on an ongoing
basis and review our reinsurance arrangements periodically. Reinsurers are selected based on their financial
condition, business practices and the price of their product offerings. We also hold collateral, including escrow funds
and letters of credit, under certain reinsurance agreements. Substantially all of our reinsurance assets (approximately
92% at June 30, 2008, on an undiscounted basis) are due from counterparties which are A- rated or better by S&P.
See Note 4(B) to our 2007 financial statements for further information on our reinsurance counterparty risk.
We use a variety of reinsurance agreements to control our exposure to large property and casualty losses.
We utilize the following types of reinsurance: (i) facultative reinsurance, in which reinsurance is provided for all or
a portion of the insurance provided by a single policy and each policy reinsured is separately negotiated; (ii) treaty
reinsurance, in which reinsurance is provided for a specific type or category of risks; and (iii) catastrophe
reinsurance, in which we are indemnified for an amount of loss in excess of a specified retention with respect to
losses resulting from a catastrophic event. In addition to the external reinsurance arrangements, since January 1,
2002 our operating subsidiaries also had a WEOL with our long standing, wholly-owned subsidiary, Equator Re.
WEOL covers a selected portion of the lines of business of our insurance subsidiaries. WEOL protections for our
insurance subsidiaries have an aggregate limit exceeding our historical large loss experience. The aggregate limit is
fully funded from the premiums charged at market rates. The reinsurance premiums for WEOL are paid to and held
by Equator Re to pay claims of our insurance subsidiaries under their individual reinsurance agreements with
Equator. The WEOL profits are either taken to our income statement or retained in our balance sheet as part of our
risk margins in outstanding claims. In addition, we recently purchased protection against a frequency of large
individual risk and catastrophe claims between 8.5% and 10.3% of net earned premium for the 2008 financial year.
78
Major reinsurance contracts are sometimes arranged on a Group basis, incorporating both Australian and
international subsidiaries, so as to enable us to benefit from lower premiums applying to the larger, diversified group.
Treaties comprise both proportional and non-proportional arrangements. We believe our net retention levels are
reasonable relative to our capital base and our external reinsurances are well spread across international reinsurers,
mainly European and American rated A or better by S&P. Management actions after September 11, 2001 have
reduced our risk profile through less exposure to major catastrophes, selectively writing terrorism cover and
minimizing event losses across multiple classes of business and divisions.
The following table sets forth our net results of external reinsurance ceded for the six months ended June
30, 2008 and 2007 and for the years ended December 31, 2007, 2006 and 2005.

2008 2007 2007 2006 2005
(in A$ millions)
Total reinsurance expense..................................... (850) (1,002) (2,151) (1,911) (1,785)
Reinsurance commission ...................................... 47 36 179 185 179
Reinsurers' share of claims incurred ..................... 468 512 1,098 977 2,327
Net amount recovered from (paid to) reinsurers ... (335) (454) (874) (749) 721
Reserving Policy
We are required by applicable insurance laws and regulations to establish provisions for payment of claims
and claims expenses that arise from the policies we issue. Our provisions are segmented into two major categories:
provisions for reported claims and provisions for incurred but not reported ("IBNR") claims. We establish our
provisions on an aggregate basis, after allowances for the particular requirements of each class of business. A
separate provision is also made for future claims handling costs.
Provisions are established to recognize the estimated costs necessary to bring all pending reported claims
and IBNR claims to final settlement. Provisions are estimated based on the particular facts available at a given time.
Estimating the ultimate liability for a claim is an imprecise science subject to both internal and external variables.
This is true because claim settlements to be made in the future may be impacted by changes in our claims handling
procedures, changing rates of inflation and other economic conditions and changing legislative, judicial and social
environments. This is particularly the case with respect to long-tail claims in which significant periods of time,
ranging up to several years or more, may elapse between the occurrence of an insured loss, the reporting of the loss
to us and the settlement of our liability for that loss. Our team of actuaries and management conduct quarterly
reviews of our provisions to assess whether to adjust our provisions in light of such changes.
Provisions for reported claims are established on a case-by-case basis. The provisions are estimates based
upon the facts of each case and upon our experience with similar cases. Consideration is given to such historical
trends as provisioning patterns, loss payments, pending levels of unpaid claims and product mix, as well as policy
limits, court decisions, economic conditions and public attitudes. All of these can affect the ultimate costs of claims
and therefore the estimation of provisions.
IBNR provisions are established to recognize the estimated cost of losses that have occurred of which we
have not yet been notified. Because nothing is known about the occurrence, we must rely upon our historical
information to estimate the IBNR liability. The statistical methods used to calculate IBNR provisions are based upon
historical reporting patterns. Adjustments are made to these initial projections in light of changes in exposure, trends
in underlying data and the strength of previously established IBNR provisions.
79
Outstanding claims and recoveries from reinsurers are each assessed by reviewing individual reported
claims on a case-estimates basis and estimating IBNR claims based on past experience and foreseeable events.
Approximately 90% of our outstanding claims provisions are reviewed at least annually by independent actuaries.
Total reserves are then discounted to the net present value as required under Australian Accounting Standard AASB
1023. Additional reserves or risk margins are taken up in many portfolios to partially offset the effect of the discount
on outstanding claims.
We believe that, taking into account our internal procedures and the views of our independent actuaries, we
have made adequate provision for losses incurred as of June 30, 2008. Risk margins in our outstanding claims
provision have generally increased in recent years, largely as a result of the increase in our exposure to long-tail
classes of business resulting in a probability of adequacy of 95.1% at June 30, 2008. This is also in excess of the
prudential standards issued by APRA that became effective on July 1, 2002. The standards provide that, for our
Australian licensed insurers, outstanding claims must be set at a level that provides a probability of at least 75% that
the provision for outstanding claims will be adequate to settle claims as they become payable in the future. See
"Regulation—Australian Insurance Regulation." Consistent with previous years, we believe that the higher
probability of adequacy is warranted at June 30 due to the cyclical nature of our business, particularly with the
historically high incidence of catastrophes in the second half of the year. The probability of adequacy of the Group's
outstanding claims will vary from time to time depending on the mix of short, medium and long tail business and
economic and industry conditions such as latency claims, claims inflation, interest rates and foreign exchange
movements.
The following table is a summary of our outstanding claims provisions on an undiscounted and discounted
basis and split between the current and non-current outstanding claims provisions (before and after reinsurance
recoveries) as at June 30, 2008 and 2007 and December 31, 2007, 2006 and 2005:
As at June 30, As at December 31,

2008 2007 2007 2006 2005
(in A$ millions)
Gross outstanding claims (including prudential
margins) ...................................................................... 19,052 20,723 20,116 17,140 16,694
Claims settlement costs............................................... 455 404 477 395 365
Discount to present value............................................ (2,355) (2,701) (2,362) (2,266) (1,976)
Gross outstanding claims provision ............................ 17,152 18,426 18,231 15,269 15,083
Less than 12 months ................................................... 5,715 5,909 5,908 5,098 4,904
Greater than 12 months............................................... 11,437 12,517 12,323 10,171 10,179
Gross outstanding claims provision ............................ 17,152 18,426 18,231 15,269 15,083
claims(1) ..................................................................... 4,597 5,041 4,941 4,207 4,769
Discount to present value............................................ (557) (680) (581) (583) (556)
claims.......................................................................... 4,040 4,361 4,360 3,624 4,213
Less than 12 months ................................................... 1,289 1,268 1,268 1,238 1,357
Greater than 12 months............................................... 2,751 3,093 3,092 2,386 2,856
claims.......................................................................... 4,040 4,361 4,360 3,624 4,213
Net outstanding claims................................................ 13,112 14,065 13,871 11,645 10,870
Central estimate(2)...................................................... 11,620 12,233 12,280 10,256 9,627
Risk margin(3) ............................................................ 1,492 1,832 1,591 1,389 1,243
Australian operations .................................................. 2,509 2,550 2,537 2,433 2,357
Asia Pacific operations ............................................... 342 357 361 407 362
European operations ................................................... 6,063 6,857 6,607 7,288 6,859
the Americas ............................................................... 2,774 3,307 2,897 679 742
Equator Re .................................................................. 1,424 994 1,469 838 550
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(1) Reinsurance and other recoveries on outstanding claims are shown net of an allowance for default of A$73 million and A$121 million for
the six months ended June 30, 2008 and 2007, respectively, A$109 million in 2007, A$139 million in 2006 and A$152 million in 2005.
(2) Central estimate is an estimate of the level of claims provision that is intended to contain no intentional under or over estimation. See Note
3(A)(ii) to our 2007 financial statements for a discussion of the process used to determine central estimate.
(3) See Note 3(A)(iii) to our 2007 financial statements for a discussion of the process used to determine risk margins.
See Note 22(C) to our 2007 financial statements for a reconciliation of movement in our discounted
outstanding claims provision. The inflation and discount rates we apply depend upon the division to which the
outstanding claims relate. As a result, the range of rates can vary significantly. See Notes 3(vi) and (vii) to our 2007
financial statements for the details of our discount rates. The estimated weighted average term to settlement for our
outstanding claims as of June 30, 2008 and 2007, and December 31, 2007 and 2006 was as follows:
As of As of
2008 2007 2007 2006
(years)
Australian operations ......................................................... 2.7 2.8 2.9 2.8
Asia Pacific operations ...................................................... 1.9 1.8 1.9 2.1
QBE Insurance Europe ...................................................... 3.0 3.0 3.1 3.1
QBE Underwriting Limited .............................................. 2.9 2.9 2.9 2.8
the Americas ...................................................................... 2.9 2.3 2.6 2.2
Equator Re ......................................................................... 2.8 2.4 2.4 2.3
QBE .................................................................................. 2.8 2.7 2.8 2.8
The following tables summarize (i) net claims incurred, split between direct insurance and inward
reinsurance business and (ii) net claims incurred separated between current year claims and prior year claims for the
periods presented.

2008 2007 2007 2006 2005
(in A$ millions)
Gross claims incurred and related expenses
Direct................................................................. 3,036 2,810 6,001 4,773 4,936
Inward reinsurance ............................................ 222 351 650 755 1,808
Reinsurance and other recoveries 3,258 3,161 6,651 5,528 6,744
Direct................................................................. 446 432 1,086 833 1,408
Inward reinsurance ............................................ 22 80 12 144 919
468 512 1,098 977 2,327
Net claims incurred.................................................. 2,790 2,649 5,553 4,551 4,417
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Year ended Year ended Year ended
December 31, 2007 December 31, 2006 December 31, 2005
Current Prior Current Prior Current Prior
year years Total year years Total year years Total
(in A$ millions)
Gross claims incurred and
related expenses
Undiscounted ........................ 8,927 (2,180) 6,747 6,102 (284) 5,818 7,533 (651) 6,882
Discount ................................ (1,052) 956 (96) (543) 253 (290) (659) 521 (138)
7,875 (1,224) 6,651 5,559 (31) 5,528 6,874 (130) 6,744
Reinsurance and other
recoveries
Undiscounted ........................ 2,345 (1,249) 1,096 760 244 1,004 2,458 (33) 2,425
Discount ................................ (336) 338 2 (58) 31 (27) (233) 135 (98)
2,009 (911) 1,098 702 275 977 2,225 102 2,327
Net claims incurred................... 5,866 (313) 5,553 4,857 (306) 4,551 4,649 (232) 4,417
Current year claims relate to risks attaching in the current financial year. Prior year claims relate to a
reassessment of the risks borne in all previous financial years. The release of prior year undiscounted claims for the
year ended December 31, 2007 reflects the positive run-off of the 2003 to 2005 accident years due to our
conservative claims reserving policy, resulting in some release of risk margins as claims are settled below central
estimate. Claims incurred for prior years includes releases of risk margins consistent with the reduction in claims
liabilities associated with those years. Conversely, risk margins are taken up for claims incurred in the current year.
The following table summarizes net undiscounted outstanding claims for the seven most recent accident
years:
As of December 31,
2001 2002 2003 2004 2005 2006 2007 Total
(in A$ millions)
Estimate of net ultimate claims cost:
At end of accident year...................... 3,445 3,177 3,348 4,572 4,979 4,680 8,226
One year later .................................... 3,396 3,035 3,095 4,121 4,780 4,379 —
Two years later .................................. 3,524 2,963 2,852 3,869 4,515 — —
Three years later ................................ 3,637 2,924 2,727 3,732 — — —
Four years later.................................. 3,677 2,872 2,564 — — — —
Five years later .................................. 3,615 2,813 — — — — —
Six years later .................................... 3,589 — — — — — —
Current estimate of net cumulative
claims cost................................ 3,589 2,813 2,564 3,732 4,515 4,379 8,226
Cumulative net payments .................. (3,116) (2,232) (1,981) (2,360) (2,467) (1,916) (1,705)
Net undiscounted outstanding claims for
the seven most recent accident years . 473 581 583 1,372 2,048 2,463 6,521 14,041
The estimates of net ultimate claims cost and cumulative claims payments for seven most recent accident
years have been translated to Australian dollars using the closing rate of exchange at December 31, 2007.
The following table shows the reconciliation of net undiscounted outstanding claims for the seven most
recent accident years to net outstanding claims:
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Total
(in A$ millions)
Net undiscounted outstanding claims for the seven most recent accident years ................................................ 14,041
Outstanding claims—accident years 2000 and prior.......................................................................................... 1,256
Foreign exchange............................................................................................................................................... (237)
Discount on outstanding claims ......................................................................................................................... (1,781)
Claims settlement costs...................................................................................................................................... 477
Other .................................................................................................................................................................. 115
Net outstanding claims as at December 31, 2007 .............................................................................................. 13,871
See Note 22 to our 2007 financial statements for more information regarding our claims development.
Ratings
Ratings organizations assess the credit rating of a company's debt and, if an insurer, its financial strength
and ability to pay claims. By influencing a company's ability to raise capital and the cost of that capital, these ratings
may impact the financial performance of a company. We believe that our ratings are important factors in marketing
our products.
Insurance companies are rated by rating agencies to provide both industry participants and insurance
consumers with meaningful information on specific insurance companies. Higher insurer financial strength ratings
generally indicate financial stability and a strong ability to pay claims. These ratings are based upon factors relevant
to policyholders and are not directed toward the protection of investors. Such ratings are neither a rating of securities
nor a recommendation to buy, hold or sell any security and may be revised or withdrawn at any time. Ratings focus
primarily on the following factors: capital resources; financial strength; demonstrated management expertise in the
insurance business; credit analysis; systems development; market position and growth opportunities; marketing and
sales conduct practices; investment operations; minimum policyholders' surplus requirements; and capital
sufficiency to meet projected growth, as well as access to such traditional capital as may be necessary to continue to
meet standards for capital adequacy. Our ratings are continually monitored and are subject to change. Any investor
for whom these ratings may be important as of any date subsequent to the closing date should obtain those ratings
from the relevant ratings organizations and not rely on the ratings set out herein.
Rating Categories—Insurer Financial Strength Ratings
S&P
S&P's rating definitions are as follows:
Secure Vulnerable
AAA Extremely strong B Weak
AA Very strong CCC Very weak
A Strong CC Extremely weak
BBB Good R Regulatory action
BB Marginal NR Not rated
Note: Plus (+) or minus (–) signs following ratings from "AA" to "CCC" show relative standing within the major
rating categories. Lloyd's syndicate assessments evaluate, on a scale of 1 (very high dependency) to 5 (very
low dependency), the relative dependency of syndicates on Lloyd's infrastructure and the central fund,
reflecting their ability to offer continuity to policyholders.
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A.M. Best
A.M. Best's rating definitions are as follows:
Secure Vulnerable
A++, A+ Superior B, B – Fair
A, A – Excellent C++, C+ Marginal
B++, B+ Very Good C, C – Weak
D Poor
E Under Regulatory Supervision
F In Liquidation
S Rating Suspended
Fitch
Fitch's rating definitions are as follows:
Secure Vulnerable
AAA Exceptionally strong BB Moderately weak
AA Very strong B Weak
A Strong CCC Very weak
BBB Good CC Ceased or interrupted payments probable
C Ceased or interrupted payments imminent
Note: Plus (+) or minus (–) signs following ratings from "AA" to "CCC" show relative standing within the major
rating categories.
Moody's
Moody's rating definitions are as follows:
Secure Vulnerable
Aaa Exceptional Ba Questionable
Aa Excellent B Poor
A Good Caa Very Poor
Baa Adequate Ca Extremely Poor
C Lowest
Note: Numeric modifiers are used to refer to the ranking within the Group—one being the highest and three being
the lowest. However, the financial strength of companies within a generic rating symbol (Aa, for example)
is broadly the same.
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QBE Ratings
Our ratings as of November 18, 2008 are as follows:
A.M.
S&P Best Fitch Moody's
Insurer Financial Strength/Claims-paying Ability Ratings
National Farmers Union Property and Casualty Company ......................................... A
QBE Hongkong & Shanghai Insurance Limited......................................................... A A+ –
QBE Insurance (Australia) Limited ............................................................................ A+ – A+ –
QBE Insurance Corporation........................................................................................ A+ A A+ –
QBE Insurance (International) Limited ...................................................................... A+ A A+ –
QBE Insurance Europe Limited.................................................................................. A+ A A+ –
QBE Reinsurance Corporation ................................................................................... A+ A A+ –
QBE Reinsurance (Europe) Limited ........................................................................... A+ A A+ –
QBE Specialty Insurance Company............................................................................ – A – –
QBE Underwriting Limited Syndicate 2999(1)(2)...................................................... A+ A – B+
QBE Underwriting Limited Syndicate 386(2) ............................................................ A+ A – A
Blue Ridge Insurance Company ................................................................................. A A
Blue Ridge Indemnity Company................................................................................. A A
British Marine............................................................................................................. A+
General Casualty Company of Wisconsin .................................................................. A A
General Casualty Insurance Company ........................................................................ A A
Hoosier Insurance Company....................................................................................... A A
Regent Insurance Company ........................................................................................ A A
Southern Fire & Casualty Company ........................................................................... A A
Southern Guaranty Insurance Company ..................................................................... A A
Southern Pilot Insurance Company............................................................................. A A
Unigard Insurance Company ...................................................................................... A A
Unigard Indemnity Company ..................................................................................... A A
Praetorian Insurance Company ................................................................................... A+ A–
United Security Insurance Company .......................................................................... A A–
North Pointe Insurance Company ............................................................................... NR A–
Redland Insurance Company ...................................................................................... A+ A–
Equator Re .................................................................................................................. A+
(1) From a Lloyd's reporting and regulatory perspective, syndicates that are 100% supported by QBE are sub-syndicates of an umbrella
syndicate, syndicate 2999. We established syndicate 2999 to maximize the efficient allocation of capacity across our 100% supported
syndicates. Syndicate 2999 does not underwrite risks on its own.
(2) The Moody's ratings are performance ratings of the syndicate relative to the rest of the syndicates operating in the Lloyd's market. The
ratings do not assess the security underlying Lloyd's policies.
A.M.
S&P Best Fitch Moody's
Debt/Counterparty Ratings
QBE Insurance (Australia) Limited ............................................................................ A+ – – –
QBE Insurance Corporation........................................................................................ A+ a – –
QBE Insurance Group Limited ................................................................................... A– bbb+ A A3
QBE Insurance (International) Limited ...................................................................... A+ a+ – –
QBE Insurance Europe Limited.................................................................................. A+ a+ – –
QBE Reinsurance Corporation ................................................................................... A+ a – –
QBE Reinsurance (Europe) Limited ........................................................................... A+ a+ – –
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Employees
As of June 30, 2008 we had 11,192 employees, as follows:
Number
Australian operations........................................................... 3,561
Asia Pacific operations ........................................................ 1,217
European operations ............................................................ 2,748
the Americas........................................................................ 3,523
Investments.......................................................................... 54
Equator Re........................................................................... 11
Head office .......................................................................... 78
Total ..................................................................... 11,192
Litigation
We are involved in numerous lawsuits and arbitration proceedings arising in the ordinary course of
business either as a liability insurer defending third-party claims brought against insureds or an insurer defending
coverage claims brought against it. In the opinion of our management, the ultimate resolution of these legal
proceedings is not likely to have a material adverse effect on our results of operations, financial condition or
liquidity.
In the ordinary course of our business, certain of our subsidiaries receive claims asserting alleged injuries
and damages from asbestos and other hazardous waste and toxic substances. The conditions surrounding the final
resolution of these claims continue to change. Currently, it is not possible to predict legal and legislative changes
and their impact on the future development of asbestos and environmental claims. Such development will be
affected by future court decisions and interpretations as well as changes in legislation applicable to such claims.
Because of these variables, additional liabilities may arise exceeding current reserves by an amount that would be
material to our operating results in one or more future periods. The magnitude of these additional amounts, or a
range of these additional amounts, cannot now be reasonably estimated. However, we believe that it is not likely that
these claims will have a material adverse effect on our overall financial condition or liquidity. We are not involved
in, or in the previous twelve months have not been involved in, any governmental proceedings relating to claims
which have had or may have a material adverse effect on our overall financial condition or liquidity. See "Risk
Factors—QBE's Business Risk Factors—Significant legal proceedings and litigation may adversely affect our
business, financial condition and results of operations."
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REGULATION
Australian Insurance Regulation
The Insurance Act
The Insurance Act 1973 (Cth) ("Australian Insurance Act") provides a scheme for the prudential
supervision of private sector general insurance companies carrying on business in Australia. The Australian
Insurance Act seeks to ensure the financial soundness of companies carrying on general insurance business in
Australia.
The Australian Insurance Act provides that a company must not carry on general insurance business in
Australia unless it is authorized to do so. Our wholly-owned subsidiaries, QBE Insurance (Australia) Limited and
QBE Insurance (International) Limited, along with the recently acquired PMI Mortgage Insurance Ltd (now named
QBE Lenders' Mortgage Insurance Limited) and its 50.1% owned subsidiary Permanent LMI Pty Limited, are
authorized insurers under section 12 of the Australian Insurance Act. QBE Insurance Group Limited and the recently
acquired PMI Mortgage Insurance Australia (Holdings) Pty Limited (now named QBE Lenders' Mortgage Insurance
(Holdings) Pty Limited) are authorized non-operating holding companies ("NOHC") under section 18 of the
Australian Insurance Act.
APRA is responsible, among other matters, for the prudential supervision of general insurance companies
and NOHCs. The Australian Securities and Investments Commission ("ASIC") is responsible for the regulation of
market integrity, disclosure and other consumer protection issues in relation to general insurance products and
insurance agents and brokers.
Pursuant to section 32 of the Australian Insurance Act, APRA may determine prudential standards that
must be complied with by general insurers, NOHCs and their subsidiaries. APRA has determined Prudential
Standards and Guidance Notes applicable to general insurers authorized under the Australian Insurance Act.
Prudential standards for Australian general insurers regulated by APRA require a comprehensive, risk based
approach to the calculation of the minimum capital requirement for licensed insurers. Most recently, in 2008 APRA
completed a process of refinement to the general insurance prudential framework which, among other matters, gave
effect to the following:
• the Australian Commonwealth Government's policy in relation to Direct Offshore Foreign Insurers
("DOFIs") and, more generally to recognize different categories of insurer based on risk profiles;
• changes to the treatment of security of reinsurance recoverables (that is, changes as to how foreign
reinsurance is treated in related to minimum capital requirement calculations);
• revised investment capital factors for equity and real property investment along with other changes to
align the investment risk capital charge with the risks of an insurer's investment portfolio; and
• changes to the treatment of certain capital instruments in respect of an insurer's capital base.
As a consequence, a number of new and revised Prudential Standards were issued with effect from July 1,
2008. These Prudential Standards relate to:
• capital adequacy, including the measure of capital, investment risk capital charge, insurance risk
capital charge and concentration risk capital charge,
• assets in Australia;
87
• risk management;
• reinsurance management;
• outsourcing;
• audit and actuarial reporting and valuation;
• governance; and
• fit and proper.
There are further reforms proposed for the prudential supervision of general insurance groups which is
discussed at the end of this section.
General insurers and their subsidiaries are subject to continuous monitoring by APRA in relation to
prudential matters. APRA may conduct an investigation of a general insurer or NOHC under Part V of the
Australian Insurance Act where:
• it appears to APRA that the insurer or NOHC is, or is likely to become, unable to meet its liabilities, or
has contravened or failed to comply with a provision of the Australian Insurance Act or a condition or
direction applicable to it under the Australian Insurance Act;
• it appears to APRA that there is, or may be, a risk to the security of an insurer's or NOHC's assets;
• it appears to APRA that there is, or may be, a sudden deterioration in the insurer's or NOHC's financial
condition; or
• it appears to APRA that information in its possession calls for the investigation of the whole or part of
the business of a general insurer or NOHC.
Neither QBE nor any of its authorized insurers is subject to investigation by APRA.
Some of the most important requirements of the prudential regime for general insurers are described below.
Under the revised Prudential Standard GPS 110 Capital Adequacy, the following requirements are
specified:
• insurers may choose one of two methods for determining their minimum capital requirement ("MCR"),
an in-house capital adequacy model (referred to as the "Internal Model Based Method"), conditional on
APRA's approval, or the model prescribed in the Prudential Standard (referred to as the "Prescribed
Method");
• regardless of the method used to calculate the MCR, an insurer's MCR is determined having regard to a
range of risk factors that may threaten the ability of the insurer to meet policyholder obligations;
• under the Prescribed Method, these risks fall into three broad types: insurance risk, investment risk
and concentration risk. For insurers using the Prescribed Method, they must determine the insurance
risk charge having regard to Prudential Standard GPS 115 Insurance Risk Capital Charge, their
investment risk capital charge having regard to Prudential Standard GPS 114 Investment Risk Capital
Charge, and, their concentration risk capital charge having regard to Prudential Standard GPS 116
Concentration Risk Capital Charge;
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• where a general insurer uses the Internal Based Method, they will be expected to include at least these
risks but also other relevant risk factors within its method of calculation as set out in draft Prudential
Standard GPS 113 Minimum Capital Required: Internal Model-Based Method. A final GPS 113 is
expected to be released by APRA in 2008;
• insurers must hold a minimum amount of Tier 1 capital and capital base that exceeds their MCR at all
times. In addition, they may include an amount of Tier 2 capital as part of their required capital
holdings up to the limits specified in Prudential Standard GPS 112 Measurement of Capital. Tier 1
capital comprises the highest quality components of capital that fully satisfy the essential
characteristics of providing a permanent and unrestricted commitment of funds; are freely available to
absorb losses; do not impose any unavoidable servicing charge against earnings, and ranks behind the
claims of policyholders and creditors in the event of winding up. Tier 2 capital includes other
components of capital which, to varying degrees, falls short of the quality of Tier 1 capital but
nevertheless contributes to the overall strength of an insurer as a going concern; and
• insurers should disclose in their published annual accounts details of their eligible Tier 1 capital and
Tier 2 capital (to arrive at the total capital base of the insurer), MCR and the capital adequacy multiple
of the insurer.
Section 28 of the Australian Insurance Act requires Australian general insurers and authorized foreign
insurers to maintain assets in Australia (excluding goodwill and assets excluded by the Prudential Standards) of a
value that equals or exceeds their total amount of liabilities in Australia. The Prudential Standard GPS 120 Assets in
Australia provides guidance on what are not considered to be "assets in Australia" for the purposes of section 28 of
the Australian Insurance Act.
The Prudential Standard GPS 310 Audit and Actuarial Reporting and Valuation establishes a set of
principles for the consistent measurement and reporting of the insurance liabilities of all general insurers. The key
requirements of the Prudential Standard are as follows:
• an insurer must make arrangements to enable its appointed auditor and appointed actuary to undertake
their roles and responsibilities such as ensuring they have access to all relevant data, reports and staff
including access to the insurer's board and board audit committee;
• the appointed auditor must audit the yearly statutory accounts and review other aspects of an insurer's
operations (such as systems to address compliance with prudential requirements) on an annual basis.
The appointed auditor is also required to prepare a certificate and report on these matters for the board
of the insurer;
• a general insurer is required to submit to APRA all certificates and reports required to be prepared by
its appointed auditor and appointed actuary;
• the appointed actuary's primary roles are to provide advice on the valuation of insurance liabilities and
to provide an impartial assessment of the overall financial condition of the insurer. The reports
prepared by the appointed actuary are the financial condition report and insurance liability valuation
report. This requirement is designed to aid the board of directors to perform their duties by ensuring
they are adequately informed;
• insurance liabilities include both the insurer's outstanding claims liabilities and its premium liabilities
for each class of business. An insurer must value its insurance liabilities in accordance with this
Prudential Standard GPS 310; and
• an insurer must arrange to have the insurance liability valuation report peer reviewed by a reviewing
actuary.
89
The Prudential Standard GPS 220 Risk Management aims to ensure that an insurer has systems for
identifying, assessing, mitigating and monitoring risks that may affect its ability to meet its obligations to
policyholders. Under this Prudential Standard, an insurer must:
• have systems for identifying, assessing, mitigating and monitoring risks that affect its ability to meet
its obligations to policy holders. These systems for managing risk together with structures, processes,
policies and roles supporting these systems are described as a general insurer's risk management
framework. A general insurer must as part of its risk management framework have a documented risk
management strategy and sound risk management policies and procedures and clearly defined
managerial responsibilities and controls;
• submit its risk management strategy to APRA on an annual basis and resubmit it when any material
changes are made;
• have a dedicated risk management function (or role) responsible for assisting in the development and
maintenance of the risk management framework;
• must submit a 3-year business plan to APRA and resubmit after each annual review or when any
material changes are made; and
• submit a risk management declaration and a financial information declaration to APRA on an annual
basis in the prescribed form.
The Prudential Standard GPS 510 Governance sets out minimum foundations for good governance of
general insurers by imposing certain governance requirements to ensure that general insurers are managed in a
sound and prudent manner by a competent board of directors capable of making reasonable and impartial business
judgments in the best interests of the insurer and with due consideration of the impact of those decisions on
policyholders. The key requirements of the Prudential Standard include:
• specific requirements with respect to board size and composition;
• the chairperson of the board must be an independent director;
• a board audit committee must be established;
• a board must have a policy on board renewal and procedures for assessing board performance; and
• certain requirements dealing with independent requirements for auditors which are consistent with the
present regime under the Corporations Act.
The Prudential Standard GPS 520 Fit and Proper sets out minimum requirements for general insurers in
determining the fitness and propriety of individuals who hold positions of responsibility in the general insurer.
Those individuals will generally include members of its board, senior managers (being persons in positions of
influence and responsibility) and the appointed auditor and appointed actuary of the general insurer. The key
requirements of this Prudential Standard are that:
• a general insurer must have and implement a written fit and proper policy that meets the requirements
of the Prudential Standard;
• the fitness and propriety of a responsible person must generally be assessed prior to initial appointment
and then reassessed annually;
• a general insurer is required to take all prudent steps to ensure that a person is not appointed to, or does
not continue to hold a responsible person position for which they are not fit and proper;
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• additional requirements must be met for certain auditors and actuaries;
• information must be provided to APRA regarding responsible persons and the institution's assessment
of their fitness and propriety if requested in relation to the assessment and propriety of responsible
persons.
The Prudential Standard GPS 230 Reinsurance Management aims to ensure that a general insurer has in
place prudent reinsurance arrangements. The key requirements of this Prudential Standard are as follows:
• the board of directors and senior management of an insurer must develop, implement and maintain a
reinsurance management framework, a documented reinsurance management strategy and sound
reinsurance management policies and procedures and clearly defined managerial responsibilities and
controls. The insurer's reinsurance management strategy must be approved by the board of directors
and submitted to APRA on an annual basis;
• there must be a clear link between an insurer's risk management strategy and reinsurance management
strategy and the reinsurance management strategy must be subject to an annual review;
• an insurer must not intentionally deviate in a material way from its reinsurance management strategy
except where approved by the board and notified to APRA;
• an insurer must inform APRA immediately if there is a likelihood of a problem arising with its
reinsurance arrangements that is likely to materially detract from its current or future capacity to meet
its obligations and discuss with APRA its plans to redress this situation;
• an insurer must submit a reinsurance arrangements statement to APRA at least annually which details
its reinsurance arrangements as well as making an annual reinsurance declaration to APRA. The
purpose of the reinsurance statement is to provide substantiation of the implementation of the
reinsurance management strategy of the insurer. The reinsurance declaration is a declaration that the
insurer has placed its reinsurance arrangements and that those arrangements are legally binding.
APRA has set a 6-month and 2-month rule which requires that within a 2-month period, the insurer's
reinsurance arrangements have reached a particular stage of implementation and after 6 months the
insurer has in place slips pertaining to the reinsurance arrangements that have been signed and stamped
by all participating reinsurers and contains slip wording with no outstanding terms or conditions to be
agreed, or the insurer has in possession a full treaty contract wording that has been signed and stamped
by all contracting parties; and
• an insurer must also submit to APRA details of all proposed limited risk transfer arrangements for
approval prior to entering into such arrangements.
APRA also issued Prudential Standard GPS 231 Outsourcing which is designed to ensure that all
outsourcing arrangements by a general insurer involving material business activities are subject to appropriate due
diligence, approval and ongoing monitoring. The key requirements of this Prudential Standard include that a
general insurer must:
• have a policy relating to outsourcing of material business activities;
• have sufficient monitoring processes in place to manage the outsourcing of material business activities;
• for all outsourcing of material business activities with third parties, have a legally binding agreement in
place unless otherwise agreed by APRA; and
• consult with APRA prior to entering into agreements to outsource material business activities to
service providers who conduct their activities outside Australia and notify APRA after entering into
agreements to outsource material business activities.
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The Prudential Standard GPS 222 Business Continuity Management aims to ensure that a general insurer
implements a whole of business approach to business continuity management appropriate to the nature and scale of
its operations. The key requirements of this Prudential Standard are:
• the board and senior management of the insurer must consider the insurer's business continuity risks
and controls as part of its overall risk management systems when completing the Board Declaration
provided to APRA on an annual basis;
• an insurer must identify on a whole of business basis, critical business functions, resources and
infrastructure which, if disrupted, would have a material impact,
• an insurer must assess the impact of plausible disruption scenarios on all critical business functions,
resources and infrastructure, and have in place appropriate recovery strategies to ensure that all
necessary resources are readily available to withstand the impact of description;
• an insurer must develop, implement and maintain a business continuity plan that documents procedures
and information which enable the insurer to respond to disruptions and recover critical business
functions. The business continuity plan is to be reviewed at least annually by responsible senior
management and periodically by an insurer's internal audit function or an external expert; and
• an insurer is required to notify APRA as soon as possible and not later than 24 hours after experiencing
a major disruption that has the potential to materially impact policyholders.
APRA has also issued Prudential Practice Guides for each of these new Prudential Standards to assist
insurers in complying with the requirements outlined in the Prudential Standard and more generally to outline
prudent practices in relation to the elements of an insurer's business. In particular APRA has issued a Prudential
Practice Guide in relation to pandemic planning and risk management for general insurers which is aims to assist
general insurers in considering and prudentially managing the risk posed by a potential influenza pandemic and to
assist a general insurer in complying with the Prudential Standard GPS 222 Business Continuity Management.
Similarly APRA has issued a Prudential Practice for custody arrangements which is designed to provide general
insurers with prudential guidance on how to manage external custody arrangements and the risks associated with
those arrangements.
The Australian Insurance Act also provides that no part of the insurance business of a general insurer may
be transferred to another general insurer except under a scheme approved by the Federal Court of Australia.
Section 116 of the Australian Insurance Act provides that in the winding up of the insurer, the insurer's
assets inside Australia must not be applied in the discharge of its liabilities other than its liabilities in Australia, until
all Australian liabilities have been discharged.
APRA is in the process of finalizing proposed changes dealing with the prudential supervision of general
insurance groups. These changes will result in Prudential Standards dealing with capital adequacy, risk management
and audit and actuarial reporting and valuation to redress the new proposed requirements in regard to insurance
groups. It is anticipated that APRA will release final Prudential Standards dealing with general insurance groups in
the near future with those reporting standards to be applicable with effect from early 2009. The insurance group (or
level 2 requirements) proposed by APRA will impose a capital requirement on NOHCs for the first time with APRA
treating a level 2 general insurance group as a single consolidated entity. Overseas subsidiaries of an Australian
general insurance group are not expected to be required to satisfy APRA's requirements on an individual basis. A
group-wide risk management framework is expected to be required which would include reinsurance management,
business continuity management and policies relating to outsourcing arrangements. It is understood the
requirements are based on the principles applying to existing general insurers and appropriately modified for
application at a group level. Similarly, APRA proposes to require an insurance group to appoint a group auditor and
group actuary who may in fact be the appointed auditor or appointed actuary of any insurer within the group with
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some changes to reporting anticipated. It is proposed that the requirements of the Prudential Standards in respect of
governance and fit and proper will continue to apply in their current form but at an insurance group level once these
reforms are implemented.
QBE will be required to report on this basis for the first time for the six months ended June 30, 2009. We
have made a number of assumptions in applying the risk based capital prudential standards for Australian licensed
insurers to the QBE Group. Our calculation of our group capital adequacy multiple on a consolidated basis as at
June 30, 2008 and December 31, 2007, including Tier 1 and Tier 2 capital, was in each case 2.4 times the minimum
capital requirement.
APRA has also introduced changes to the prudential supervision of lenders' mortgage insurance. The
changes focus on reformulating and standardizing the calculation of an insurer's minimum capital requirements and
came into effect on January 1, 2006. Subsequently and as part of APRA's general refinements to the general
insurance prudential framework, which took effect from July 1, 2008, APRA issued Prudential Standard GPS 116
Adequacy: Concentration Risk Capital Charge and revoked the previous minimum capital requirements for lenders'
mortgage insurers. The new Prudential Standard sets out specific rules for lenders' mortgage insurers in relation to
the calculation of their maximum event retention ("MER") to reflect their specialist nature. The rules reflect that
while these insurers may not be exposed to the possibility of large losses due to natural perils such as those faced by
other general insurers, they may be exposed to large losses resulting from severe economic or property downturns.
APRA has determined that a three year economic or property downturn model is appropriate for determining the
MER of a lenders' mortgage insurer.
The calculation of the MER is determined by factors, such as whether or not the lenders' mortgage
insurance policies cover standard or non-standard loans. For example, APRA has specified the criteria for a
standard loan being where:
• the insurer or lender has formally verified the borrower's income and employment; and
• the borrower passes standard credit checks and income requirements as documented in the insurer or
lenders' underwriting or credit policies and procedures.
Where loans which are predominantly secured by registered mortgage over residential real property do not
meet these criteria, they are to be classified as non-standard loans. In addition, APRA may also by instrument in
writing direct an insurer to classify a loan as a non-standard loan where APRA considers that the probability of
default factors for standard loans do not reflect the inherent risk of that loan.
The prudential standards require that an insurer calculate its MER by:
• working out its probable maximum loss ("PML") ;
• deducting the amount of allowable reinsurance from the PML; and
• adding an allowance of 5% of the PML for claims handling expenses.
PML is the largest loss to which an insurer would be exposed (within the realms of possibility), due to a
concentration of policies, without any allowance for potential reinsurance assets. In the case of lenders' mortgage
insurers, the PML is assumed to arise from a catastrophic event that is expected to reoccur on average once in every
250 years. Prudential Standard GPS 116 sets out the relevant formulae to be used by an insurer for the purposes of
calculating its PML depending on the nature of the policies it has written. Different calculations will apply
depending on whether an insurer's policies cover standard or non-standard loans and whether these are by way of a
policy of pool mortgage insurance or by way of top cover.
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The Prudential Standard GPS 116 also requires that the reinsurance arrangements of lenders' mortgage
insurers satisfy certain criteria in order to be recognized in calculating their MER and PML.
The Financial System Legislation Amendment (Financial Claims Scheme and Other Measures) Act 2008
and the Financial Claims Schemes (General Insurers) Levy Act 2008 introduced a number of changes to the
Australian Insurance Act with effect from October 18, 2008. In summary, the changes introduced a Policyholder
Compensation Facility which provides certain eligible retail policyholders of certain protected general insurance
contracts with access to compensation for claims in the event of the failure of a general insurer. The intention of
such a facility is to protect retail policyholders from the adverse consequences of a general insurer failing and to
ensure that claims are paid in a timely manner. A Policyholder Compensation Facility will initially be funded by
appropriations from the Australian Federal Government however APRA will seek to recover the cost of a
Policyholder Compensation Facility by proving as a creditor in the liquidation of the failed insurer. If APRA is
unable to recover all of those costs from the failed insurer, the Financial Claims Schemes (General Insurers) Levy
Act 2008 enables the Government to impose a levy on general insurers up to a maximum of 5% of gross premium
received.
The changes also strengthen the prudential regulation of insurers by introducing the ability for APRA to
apply to the Federal Court of Australia in certain circumstances to have a judicial manager appointed to a general
insurer where it is considered to be in the best interests of its policyholders. A judicial manager has the power to
recapitalize the general insurer thereby facilitating the orderly transfer of the general insurance business to another
institution where appropriate. APRA also has new powers to require the assistance of, or provision of information
by general insurers where such assistance or information can assist APRA in the administration of a Policyholder
Compensation Facility.
State and Territory Legislation
Both CTP and workers compensation insurance are subject to state or territory legislation, with local
regulators different to APRA.
The Insurance Contracts Act
Most types of insurance contracts that QBE Insurance (Australia) Limited write are subject to the
provisions of the Insurance Contracts Act 1984 (Cth). The Act does not apply to CTP, workers compensation,
marine or reinsurance. The legislation, regulated by ASIC, codifies the duty of utmost good faith in applicable
insurance contracts and provides for appropriate disclosure of information by insurers and policyholders. It also
provides rules covering a wide variety of things such as cancellation of insurance, fraudulent claims and
misrepresentation.
In September 2003, the Federal government announced a review of the Insurance Contracts Act. The stated
objective of the review was to seek recommendations aimed at improving the overall operation of the Act by
correcting deficiencies and clarifying ambiguities in its operation. Following that review, the government prepared a
draft bill to address all of the review panel's key recommendations which was released for public comment in early
2007. The consultation period in respect of the reform package expired in March 2007. Although the bill has been
identified in the list of legislation proposed for introduction in the Spring 2008 sittings of the Australian Federal
Parliament possibly to be pushed back to the Autumn sittings of 2009, it is not known when or whether these
reforms will be implemented.
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Corporations Act
In addition to the existing disclosure requirements under the Insurance Contracts Act, there are disclosure
rules under Chapter 7 of the Corporations Act which apply to financial products (including insurance).
The disclosure regime aims to provide a uniform regulatory framework for the licensing and conduct of all
providers of financial services. It applies to most general insurance products other than those specifically excluded
from the definition of financial products which forms the basis of the regulatory framework. For example, workers
compensation insurance and CTP motor vehicle insurances are excluded from this framework on the basis that these
are insurance products that are state insurances.
For general insurance products that are financial products for the purposes of the Corporations Act, general
insurers are required to provide a Product Disclosure Statement ("PDS") in respect of the general insurance products
issued to retail clients (i.e. usually individuals or small business). Amongst other things, the PDS must set out the
cost and benefits of the insurance product, any risks associated with it, its significant characteristics such as
exclusions and the statutory cooling-off period. A PDS must be provided when a licensee first offers or recommends
insurance products to retail clients. Other disclosure requirements imposed under Chapter 7 may also require a
general insurer to provide financial services guides and/or statements of advice.
The Corporations Act also contains licensing requirements which apply to certain insurance agents, brokers
and other intermediaries which are in the business of providing a financial service. This includes businesses that do
any of the following things:
• provide financial product advice – this category includes insurers or intermediaries who make
recommendations or statements of opinion that are intended to influence a prospective insured's
decision in relation to a particular insurance product. It also includes recommendations or statements
that could reasonably be regarded as having such an influence; and
• deal in a financial product – this category includes insurers and agents who issue insurance and also
intermediaries who arrange for a person to acquire insurance.
Providers of services who do not obtain a license can be authorized by a licensee to provide such services
on the licensee's behalf. However where they are so appointed by a licensee that licensee becomes, subject to a few
exceptions, liable for the actions of the intermediary.
There are a number of exemptions which apply to the license requirement. For example:
• an insurer licensed by APRA will not need an Australian financial services license to provide a service
in relation to which APRA has regulatory or supervisory responsibility and which is provided only to
wholesale clients;
• insurance agents who provide insurance services only to their related bodies corporate are also
excluded from the license requirements; and
• insurance agents that act as distributors for insurers and satisfy the conditions of ASIC's class order
relief for general insurance distributors are also excluded from the licensing requirements.
Financial services licenses are issued by ASIC and may be issued subject to conditions imposed by ASIC
on the licensee. The licensee must comply with any conditions attached to the license in addition to statutory
obligations set out in the Corporations Act. The principal requirements are those set out below:
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• the licensee must ensure its financial services are provided efficiently, honestly and fairly;
• the licensee must have in place adequate arrangements for the management of conflicts of interest and
compensation arrangements for compensating persons for loss or damage suffered because of breaches
of relevant licensing obligations under the Corporations Act;
• the licensee must ensure its representatives also comply with the legislation and are adequately trained
to provide the services;
• the licensee must have risk management and dispute resolution systems in place;
• the licensee must deal with clients' money as required by the Corporations Act;
• the licensee must comply with ASIC requirements; and
• the licensee must comply with product disclosure requirements noted above.
Australian financial services licenses have been obtained by QBE Insurance (Australia) Limited. Our other
APRA regulated companies, QBE Insurance (International) Limited, PMI Mortgage Insurance Ltd (now named
QBE Lenders' Mortgage Insurance Limited) and its 50.1% owned subsidiary Permanent LMI Pty Limited, are not
required to obtain a license.
Since mid 2005, the former Federal Government has embarked on a process of refinement and reform to
the financial services regulation introduced by the Financial Services Reform Act 2001 (Cth):
In 2007, there was a change of Federal Government following elections. The new Labor Government has
confirmed its commitment to tackle the complexity in financial services. On February 5, 2008, the Minister for
Finance and Deregulation announced the commencement of a financial services working group to focus on solutions
to shorten financial product disclosure requirements and improve access to financial advice for consumers. ASIC
and the Federal Government continue to announce changes to streamline the financial services provisions and
reduce the cost of compliance.
The Insurance Acquisitions and Takeovers Act
The Insurance Acquisitions and Takeovers Act 1991 (Cth) requires the Australian Federal Treasurer to
approve, among other things, certain acquisitions and leasing of assets of an authorized insurer, or acquisitions of an
authorized insurer's interests, rights or benefits under contracts of insurance, including when:
• there occurs an acquisition or lease of 15% or more of the total book value of a company's assets; or
• the acquisition of the insurer's interests in its contracts of insurance results in a reduction of 15% or
more of a company's unearned premium or outstanding claims provisions.
Terrorism Insurance Act
The Federal Government enacted its own terrorism insurance legislation, the Terrorism Insurance Act 2003
(Cth) (the "TIA"). The TIA has the effect of imposing a compulsory terrorist cover on certain "eligible insurance
contracts" (as that term is defined in the TIA) which includes non-residential property, business interruption and
liability (where liability arises out of the insured being the owner or occupier of eligible property) insurance
contracts.
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Although the Federal Government has established a reinsurance pool for the risk, participation by insurers
in the pool is neither automatic nor compulsory. Insurers who issued eligible insurance contracts which were in
force prior to July 1, 2003 or incepted after July 1, 2003 but before October 1, 2003 will receive an automatic
indemnity from the pool. Otherwise, insurers of eligible insurance contracts wishing to purchase reinsurance cover
from the pool will be required to pay a reinsurance premium.
The TIA provides that if the Federal Government declares that a "terrorist incident" (as that term is defined
in TIA) has occurred in Australia, then in respect of an "eligible insurance contract" (as that term is defined in TIA),
any exclusion which would exclude liability for terrorism is deemed to have no effect to the extent that a loss or
liability covered by the policy is an "eligible terrorism loss" (as that term is defined in TIA).
The reinsurance terms and premiums for the pool are as follows. A retention will be imposed on
participating insurers. The retention will be the lesser of A$1 million or 4% of the insurer's fire and industrial special
risk premium for the year. If the total retentions of all insurers exceed A$10 billion then there is a pro-rata
reduction in the relevant insurer's retentions. The pool is backed by an unlimited Federal Government guarantee.
Although the amount of the guarantee is expected to be unlimited, the TIA provides that the Federal Government
can declare a "reduction percentage" if without the reduction percentage the amount payable under the guarantee
would be more than A$10 billion. If the Federal Government declares a reduction percentage then the amount
payable by the insurer under eligible insurance reinsured to the pool will be reduced by the reduction percentage.
The premiums to be charged by the pool vary with the location of the risk. Generally the reinsurance
premium will be 12% for central business district property, 4% for urban property and 2% for rural property of the
premium charged by the insurer, net of stamp duty, good and services tax and fire services levy. These premiums
may increase if a terrorist incident occurs.
QBE Insurance (Australia) Limited, QBE Insurance (International) Limited, QBE Insurance (Europe)
Limited and certain syndicates managed by QBE Underwriting Limited issue eligible insurance contracts and
participate in the TIA reinsurance program.
In 2006, the TIA was reviewed and the principal finding of the review was that the scheme should continue
to operate for at least the next 3 years (i.e. until 2009) with another review to follow no more than 3 years from now.
A number of recommendations were made as part of the review to refine the scheme including that the scheme
should be amended to allow public authorities to participate and other recommendations to encourage the private
sector to make terrorism insurance more widely available in the market. The Federal Government announced in
September 2006, that it would accept the findings of the review and changes to regulations made under the TIA
would reflect the review recommendations. In April 2007, Terrorism Insurance Amendment Regulations were
introduced to amend the existing TIA regulations by refining the scope of the terrorism insurance scheme so that
commercial insurance provided to all public authorities was included in the scheme.
Direct Offshore Foreign Insurers ("DOFIs")
The Financial Sector Legislation Amendment (Discretionary Mutual Fund and Direct Offshore Foreign
Insurers) Act 2007, which commenced on July 1, 2008, requires DOFIs operating in the Australian general
insurance market to be authorized insurers under the Australian Insurance Act and be subject to Australia's
prudential regime. The Act also provides for a limited exemption to enable insurance business that cannot be
appropriately placed in Australia to be supplied by a DOFI.
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Other Regulatory Reforms
The first phase of the substantive provisions of the Anti-Money Laundering and Counter-Terrorism
Financing Act 2006 and the Anti-Money Laundering and Counter-Terrorism Financing (Transitional Provisions and
Consequential Amendments) Act 2006 was implemented on December 13, 2006. These Acts will be implemented
in stages over two years however they do not apply to general insurers. General insurers may however be caught as
reporting entities under the Acts if they provide other designated services such as life insurance, managed funds and
superannuation or banking services.
The private sector in Australia is, subject to limited exceptions, required to comply with a privacy regime
which strictly regulates the collection, storage and disclosure of personal information. This regime is set out in the
Privacy Act 1988 (Cth) which was amended in 2001 to apply to the private sector. The operation of the private
sector provisions of the Privacy Act were reviewed by the Privacy Commissioner in 2005 but no amendments have
yet been made following that review. The Australian Law Reform Commission ("ALRC") released its report of a
review of the Privacy Act in August 2008. The recommendations for review of the Privacy Act are presently being
reviewed by the Federal Government. It is not anticipated that any changes will be made to the Privacy Act until
there has been a period of public consultation seeking comment on the ALRC report and recommendations.
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United Kingdom Insurance Regulation
Overview—Permission to Carry on Insurance Business. Under the Financial Services and Markets Act
2000 and its subsidiary legislation (the "FSMA"), it is unlawful to carry on insurance business in the United
Kingdom without permission to do so from the Financial Services Authority (the "FSA") under Part IV of the
FSMA (a "Part IV Permission"). The FSA, in deciding whether to grant a Part IV Permission, is required to
determine whether the applicant satisfies the Threshold Conditions set out in the FSMA (the "Threshold
Conditions"). As part of this determination, the FSA will consider whether the applicant has adequate resources
(including capital, human resources and effective means of managing risks) to carry out the proposed regulated
activities, whether persons connected with the applicant (controllers and companies within the same group) may
prevent the FSA's effective supervision of the applicant, whether the applicant's affairs would be conducted soundly
and prudently, with integrity and in compliance with proper business standards and whether it has competent and
prudent management. The FSA may impose limitations and requirements relating to the operation of the company
and the carrying on of insurance business in connection with granting Part IV Permission.
Detailed prudential rules applicable to carrying on insurance business are contained in the FSA's Handbook
of Rules and Guidance (the "FSA Handbook"). The main rules are set out in the (i) General Prudential Sourcebook
("GENPRU"), (ii) Prudential Sourcebook for Insurers ("INSPRU"); and (iii) Senior Management Arrangements,
Systems and Controls Sourcebook ("SYSC"). GENPRU contains core rules and principles which apply across all
regulated sectors, while INSPRU is the sectoral rule book containing more detailed material applicable to insurers.
SYSC contains systems and controls requirements applicable to insurers and others.
Lloyd's. Lloyd's is not an insurance company, but an association of insurance underwriters incorporated as
the Society of Lloyd's ("Lloyd's"). Members of Lloyd's underwrite through syndicates with the agency of Lloyd's
managing agents. Lloyd's is itself authorized and regulated by the FSA under the FSMA. The role of Lloyd's is to
provide the market infrastructure which enables its participants to engage in insurance business. If Lloyd's is in
breach of any of the obligations imposed on it by the FSMA, the FSA has available to it broadly the same powers of
intervention that it would have in relation to an insurance company in the same circumstances.
Members of Lloyd's are not currently required to obtain Part IV Permission under the FSMA to conduct
insurance business at Lloyd's but are subject to supervision by Lloyd's. Managing agents must, however, be
authorized and regulated by the FSA in respect of their business. The FSA imposes prudential and reporting
requirements under GENPRU and INSPRU on both Lloyd's and on managing agents.
Participants of Lloyd's (including members and managing agents) are subject to rules and regulations
imposed by the byelaws made by the Council of Lloyd's under the powers conferred on it by the Lloyd's Act 1982.
Lloyd's rules and regulations prescribe certain minimum standards relating to the management and control, solvency,
reporting and various other requirements.
QBE Insurance Business. QBE Insurance Europe Limited (our "London Market Subsidiary") is our
principal subsidiary in the United Kingdom. Our London Market Subsidiary is an insurance company having a Part
IV Permission from the FSA. Our principal Lloyd's market subsidiaries are: QBE Corporate Ltd; LIMIT (No. 2) Ltd;
LIMIT (No. 3) Ltd (together, the "QBE Corporate Members"); and QBE Underwriting Ltd, which is a managing
agent at Lloyd's (the "QBE Managing Agent").
Each of these companies is a wholly-owned, indirect subsidiary of QBE International Holdings UK plc.
The QBE Corporate Members are not regulated by the FSA. The QBE Managing Agent is authorized and regulated
by the FSA under the FSMA and by Lloyd's under the Lloyd's Acts 1871 to 1982. As an FSA authorized firm, the
QBE Managing Agent is subject to the FSA's rules including the high level principles, conduct of business,
prudential and systems and controls requirements. It is also required to manage the insurance business of the
syndicates it oversees in line with the FSA's prudential requirements. In particular, the rules require that managing
agents establish and maintain appropriate controls over risks affecting insurance business carried on through the
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syndicates they manage, including credit and market risk, and that they assess the capital needed to support the
business of each such syndicate taking account of the particular risks arising from such business or operational
infrastructure.
The following paragraphs describe the general rules applicable to our London Market Subsidiary, the QBE
Corporate Members and the QBE Managing Agent.
Regulatory Reporting. Our London Market Subsidiary is required to prepare its accounts in accordance
with special provisions applicable to it under the Companies Act 1985 and the FSMA which require it to file, and
provide its shareholders with, audited financial statements and related reports. Our London Market Subsidiary is
required to prepare its accounts in accordance with International Financial Reporting Standards for accounting
periods beginning on or after January 1, 2005. Our London Market Subsidiary is also required under the FSMA to
separately file with the FSA a number of regulatory returns, including an annual return comprising its audited
accounts.
Solvency Margins and Reserves. Under the FSA rules, our London Market Subsidiary is required to
maintain a solvency margin (that is, the value of such of its assets as are admissible for this purpose must exceed the
amount of its liabilities by a specified amount as required by the relevant rules). Changes in the UK minimum
solvency requirements became effective on January 1, 2004 following the implementation of certain European
Union life and general insurance solvency directives in the United Kingdom (Directive 2002/83/EC in respect of life
business (which replaced Directive 2002/12/EC) and Directive 2002/13/EC in respect of general business, together
known as "Solvency I"). These requirements are consolidated in INSPRU and GENPRU. Under GENPRU, certain
types of insurers (including our London Market Subsidiary) must calculate their capital resources requirements
("CRR") as the higher of the minimum capital requirement (the "MCR") based on the solvency margin prescribed in
the directives, and the more risk sensitive Enhanced Capital Requirement (the "ECR"). In addition, insurance firms
are required to carry out their own firm-specific assessment of their capital requirements using, among other things,
stress testing and scenario analysis. The FSA may then review the firm's individual capital assessment, issue its own
"individual capital guidance" for that firm and if this results in a higher amount than the CRR, require further capital
to be injected.
Each general insurance company writing certain volatile risks is required under INSPRU to maintain an
equalization reserve for the purpose of providing against above average fluctuations in claims in respect of that
business. Our London Market Subsidiary is authorized to write such business and thus is subject to these rules.
In relation to the QBE Corporate Members (which are not subject to FSA regulation), the FSA does not
currently impose direct solvency requirements. However, INSPRU and GENPRU impose solvency requirements on
Lloyd's that have a similar effect on Lloyd's as a whole to those imposed on authorized insurance companies.
Lloyd's is required to carry out a two part solvency test: first a calculation of the capital requirement for each
individual member; and second a calculation of the solvency position of the Lloyd's market as a whole. Managing
agents are required to assess the capital requirements of the syndicates they manage as they have the closest
understanding of syndicate level risks and controls. In circumstances where a member's assets are insufficient to
cover its individual required capital amount, any shortfall must be covered by the central assets held by Lloyd's itself.
Accordingly, in order that Lloyd's meet its own regulatory requirements, it requires each member to hold assets
equal to its individually calculated capital requirement, taking into account the syndicate level assessment of the
managing agent.
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Insurance Group capital. The Directive on the Supplementary Supervision of Insurance Companies in an
Insurance Group (1998/78/EC) (the "Insurance Groups Directive") as amended by the European Union Directive on
the Supplementary Supervision of Credit Institutions, Insurance Undertakings and Investment Firms in a Financial
Conglomerate (2002/87/EC) requires EU Member States to provide supervision for any insurance undertaking that
is part of a group which includes at least one other insurance company, insurance holding company, reinsurance
undertaking or non-EU member-country insurance undertaking. The Insurance Groups Directive was implemented
in the United Kingdom on December 1, 2001. Every insurer that is a subsidiary undertaking of an ultimate
insurance parent undertaking and whose head office is in the United Kingdom is required to report on the capital
adequacy of the insurance group of which it is a member at the level of its ultimate insurance parent company and its
ultimate European Economic Area ("EEA") insurance parent company (if different). Since December 31, 2005
insurers have been required to provide on request a summary of the report on group capital adequacy at the level of
the ultimate EEA insurance parent. Since December 31, 2006 it is a regulatory requirement for positive group
capital adequacy to be maintained at that level. These requirements apply at the same time as, and in addition to, the
normal calculation of insurers' own solo solvency requirements.
In the case of an authorized insurer that is itself a parent undertaking or has a participating interest of at
least 20% in at least one other financial firm (a "related undertaking"), an adjusted calculation to the solvency
margin calculation must be carried out to provide for deficits in the related undertaking, exclude all assets deriving
from related bodies, which are either inadmissible under the FSA's rules for valuing assets or fall within other
disallowed categories such as assets backing the margin of capital adequacy requirements of related undertakings.
Although Lloyd's corporate members are not authorized by the FSA and are not required to report on group capital
adequacy in their own right, if they are part of an insurance group which includes insurers so authorized, the group
capital adequacy report must include the assets, liabilities and regulatory capital of such corporate members.
Regulated entities within a "financial conglomerate" are subject to additional prudential requirements
resulting from the UK implementation of the European Union Directive on the Supplementary Supervision of Credit
Institutions, Insurance Undertakings and Investment Firms in a Financial Conglomerate (2002/87/EC). A financial
conglomerate is a financial group which satisfies a number of threshold requirements as to minimum holdings in, on
the one hand, the insurance sector and, on the other hand, the banking/investment sectors. QBE is not a financial
conglomerate or part of a financial conglomerate and is not expected to be affected by conglomerate regulation.
Supervision of Management and Control
Under the FSMA, any person who directly or indirectly acquires 10% or more of ordinary shares of an FSA
regulated firm, or is entitled to exercise or control the exercise of 10% or more of the voting power of the ordinary
shares of such firm, would be considered to be a "controller" of such firm. The FSMA determines control by
reference to an acquirer's associates in addition to the acquirer itself; that is, the holdings of persons who act jointly
under an agreement or arrangement with respect to the acquisition, holding or disposal of the shares or voting power
of the target must be aggregated. Persons who propose to acquire, increase their control, or acquire additional kind
of control over a regulated firm must apply to the FSA for approval before acquiring shares or voting power or
increasing their control. Increasing control for the purposes of the FSMA includes cases where a person increases
their shareholding above a threshold of 20%, 33% or 50%. Under the FSMA, the FSA must decide within three
months whether to approve or reject a change of control application. The FSA will not approve a new controller or
any increase of control without being satisfied that the controller is "fit and proper" to be a controller of, or acquire
increased control of, an authorized firm. Lloyd's regulations provide for similar notification and approval
requirements with respect to proposed controllers of Lloyd's managing agents and corporate members.
As a result of the above requirements, direct controllers, and holding companies who indirectly acquire
control, of our London Market Subsidiary and QBE Managing Agent will be required to apply for prior FSA
approval. In the case of the QBE Managing Agent and the QBE Corporate Members, approval of Lloyd's must be
obtained.
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Approved Persons. Certain key functions in the operation of an insurance business ("controlled functions")
may only be carried out by persons who are approved for such tasks by the FSA under the FSMA ("Approved
Persons"). A person may not carry out a controlled function for a regulated entity until the FSA has approved that
person in respect of that function and that entity. Controlled functions include, for example, governing functions
(such as being a director of an insurance company or Lloyd's managing agent), finance functions and significant
management functions (persons responsible for a significant business unit). The FSA will not grant Approved
Person status to an individual, unless it is satisfied that the individual has appropriate qualifications and/or
experience and is "fit and proper" to perform those functions.
Investigation and Intervention. The FSA has various powers to intervene in the affairs of an insurance
company, including the power to make requirements in relation to the investments of an insurance company, to limit
the insurance company's premium income, to require an actuarial investigation of the company to be made, to
appoint someone to investigate whether the Threshold Conditions are being met with respect to an insurance
company, to obtain information and require production of documents, to search and enter premises, and a residual
power to take such action as it thinks appropriate to protect policyholders against the possibility that the insurance
company may not be able to make payments due to policyholders. These powers may be exercised by the FSA if it
considers, for instance, that it is desirable in order to protect policyholders or potential policyholders against the risk
that the company may be unable to meet its liabilities, that the Threshold Conditions may not be met, that the
company or its parent has failed to comply with obligations under the relevant legislation, that the company has
furnished misleading or inaccurate information or that there has been a substantial departure from any proposal or
forecast submitted to the FSA.
Power to Cancel or Vary Part IV Permission. The FSA may cancel or vary a Part IV Permission of an
insurance company either at the request of the company or, for instance, if the company has failed to satisfy its
obligations under the FSMA or if it appears to the FSA that the Threshold Conditions are not being, or have not
been met. Permission to carry on insurance business will be cancelled if the company ceases to carry on insurance
business for a significant period.
Reinsurance of Potential Liabilities. The FSMA does not prescribe the types or proportion of assumed
business to be protected by reinsurance. However, it is generally accepted that to comply with the FSA's principles
of sound and prudent management, no more than 20 per cent of projected gross premiums should be ceded to any
one reinsurer in any one year. Furthermore, the FSA has powers to impose requirements on an insurance company
(such as a requirement not to take on new business) if it is satisfied that the company has not met its solvency
requirement or does not meet the Threshold Conditions.
Investment of Funds—Capital and Reserves. There are no legislative restrictions on the investments of an
insurer either in relation to technical provisions or to shareholders' funds. However, assets and investments may only
count towards capital adequacy requirements if they meet the criteria for admissibility and are capable of being
valued in accordance with GENPRU and comply with the requirements in INSPRU as to counterparty and asset
exposure limits.
In relation to the QBE Corporate Members, Lloyd's is required to hold all assets equal to each member's
individual capital requirement in trust in the form of "funds at Lloyd's." Additionally, each member must establish
one or more trust funds to hold all premiums received by the member or on its behalf. Separate premiums trust funds
must be established to segregate premium income for life or other long-term business, on the one hand, and general
business, on the other.
Distribution and Sale of General Insurance. As required by the EU Insurance Mediation Directive
(2002/92/EC), the distribution and sale of general insurance products by insurance intermediaries has been regulated
by the FSA since January 2005 and the regime also applies to direct sales by insurers themselves. The FSA's
Insurance (Conduct of Business) Sourcebook ("ICOB") contains rules that govern the treatment by insurers and
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insurance intermediaries of their customers. Many of the provisions of ICOB only relate to insurers or to insurance
intermediaries who are in direct contact with the ultimate customer/policyholder or are confined in their application
to transactions with retail customers. They apply to the promotion, arrangement, sale and administration of general
insurance and non-investment life insurance.
Recent and Proposed Regulatory Changes
Reinsurance Directive. The EU Reinsurance Directive (2005/68/EC) was adopted by the European
Parliament in November 2005 and had an implementation deadline of December 2007. In general terms, the
Reinsurance Directive extends the regime applying under the direct Insurance Directives such that for pure
reinsurers (i.e. firms writing reinsurance business only) to be authorized in their member states, they must be subject
to minimum prudential standards broadly equivalent to those applying to direct insurers. Once authorized, such
reinsurers are able to carry on business throughout the EEA without further authorization requirements. The
Reinsurance Directive was intended to be an interim measure, generally applying the capital adequacy and solvency
requirements of the current insurance directives to reinsurers. Full re-examination of reinsurers' solvency
requirements is taking place as part of Solvency II (see Solvency II below). In the UK, implementation of the
Reinsurance Directive occurred on 10 December 2007, through existing provisions of the FSMA; amendments to
the FSMA and related subsidiary legislation; and through rule changes to the FSA Handbook.
Acquisitions Directive. The EU Acquisitions Directive (2007/44/EC), which aims to harmonize the process
of approving changes in controllers of regulated insurance companies, banks and other financial services firms, was
adopted by the European Parliament in September 2007 and is due to be implemented into local law of EU Member
States by 21 March 2009. The implementation of this Directive is not expected to have a significant effect on the
current "controller" regime under the FSMA, as described above.
Treating customers fairly. In July 2006, the FSA outlined its retail regulatory agenda in its Treating
Customers Fairly initiative (“TCF”). The aim of TCF is to ensure that FSA regulated firms, including insurance
companies, develop appropriate systems and controls to consistently deliver fair outcomes for consumers. The FSA
has indicated that fair contract terms, and in particular compliance with the Unfair Terms in Consumer Contracts
Regulations (1999), are key to the regulated firms’ obligations to treat their customers fairly. The final deadline for
implementation of TCF is the end of December 2008, by which time the FSA expects all regulated firms to be able
to demonstrate that they are consistently treating their customers fairly. If the FSA’s expectations in this area are
not met, further regulatory action may follow.
Solvency II. The EU Commission is carrying out a wide-ranging review in relation to solvency margins
and reserves (the project being known as "Solvency II"). It is intended that the new regime will apply more risk
sensitive standards to capital requirements and bring insurance regulation more in line with the "three pillar"
approach used in the banking capital adequacy framework known as "Basel II". A draft proposal for Level 1 text of
the broad "framework" principles was proposed by the EU Commission in July 2007. Political agreement on the text
is expected by the end of 2008. Following that, the EU Commission will begin adopting detailed implementing
measures. Solvency II is expected to come into force in 2012. The broad outlines of the new regime are already
apparent from consultations issued by the Committee of European Insurance and Occupational Pensions Supervisors,
although there is still a great deal of material to be developed. The changes to the FSA's prudential regime which
came into force on 31 December 2004 anticipated what was then expected to emerge from Solvency II, although
considerable further change is expected.
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United States Insurance Regulation
General
Our US insurance subsidiaries are domiciled in the following states: California, Colorado, Florida, Illinois,
Indiana, Michigan, New Jersey, North Dakota, Pennsylvania, South Carolina, Washington and Wisconsin, and the
insurance department in such states are the primary regulators of our US insurance subsidiaries.
Our US insurance subsidiaries are subject to the insurance statutes in the states in which they are domiciled,
as well as regulations promulgated by the Departments of Insurance in such states, which Departments have primary
authority over the supervision of our US insurance subsidiaries. Our US insurance subsidiaries are also subject to
the insurance laws and regulations of each state in which they are licensed or transact insurance. The insurance
statutes and regulations that apply to our US insurance subsidiaries are extensive and such regulation is designed
primarily for the protection of policyholders of our US insurance subsidiaries and not security holders. The
insurance statutes and regulations govern many activities and products related to our US insurance subsidiaries,
including requirements for licenses to transact insurance business, rates for insurance business, policy language,
rating, underwriting and claims practices, transactions with affiliates, reserve requirements, dividends, mandatory
capital and surplus requirements, insurer solvency, withdrawal from certain markets, investment standards and other
related matters. In addition, our US insurance subsidiaries are subject to statutes, regulations and judicial decisions
that define the risks and benefits for which insurance is sought and provided, including in such areas as product
liability and environmental coverages. Certain information and reports that our US insurance subsidiaries have filed
with the Departments of Insurance in our insurance subsidiaries' states of domicile can be inspected during normal
business hours at such Departments of Insurance.
Financial Reporting and Statutory Examinations
Financial Statements. Our US insurance subsidiaries are required to file detailed annual and quarterly
financial statements and other reports with state insurance regulators in each of the states in which they are licensed
to transact business. Such annual and quarterly financial statements and other reports are required to be prepared on
a calendar year basis and include financial statements and other information prepared on a statutory accounting basis
("statutory accounting practices" or "SAP") promulgated by the National Association of Insurance Commissioners
("NAIC"), which basis differs in certain material respects from US GAAP.
Market Conduct Examinations. The laws and regulations of the states where our US insurance subsidiaries
operate include numerous provisions governing the marketplace activities of insurers, including provisions
governing the form and content of disclosure to consumers, product illustrations, advertising, sales and underwriting
practices, complaint handling and claims handling. These provisions are enforced by the state insurance regulatory
agencies through periodic market conduct examinations. Our US insurance subsidiaries are subject to routine market
conduct examinations and to date none have resulted in material adverse findings or material fines.
Financial Examinations. As part of the regulatory oversight process, state insurance departments conduct
periodic detailed examinations of the books, records, accounts, policy filings and business practices of insurers
domiciled in their state, generally once every three to five years. Examinations are generally carried out in
cooperation with the insurance departments of other states under guidelines promulgated by the NAIC. Our US
insurance subsidiaries endeavor to respond to such inquiries in an appropriate way and to take corrective action if
warranted. The respective reports filed by the insurance regulators with respect to the most recent periodic
examinations of the US insurance subsidiaries contained no material adverse findings.
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Insurance Regulatory Information System. The Insurance Regulatory Information System ("IRIS") was
developed by the NAIC to assist state insurance departments in monitoring the financial condition of insurance
companies operating in their states. IRIS identifies twelve key financial ratios and specifies "usual ranges" for each
ratio. Insurers typically submit financial information about themselves to the National Association of Insurance
Commissioners ("NAIC") annually, which in turn analyzes the data using the prescribed ratios. Departures from the
usual ranges of ratios may lead to inquiries from state insurance departments. Generally, regulators will begin to
investigate or monitor an insurance company if four or more of its IRIS ratios fall outside the usual ranges.
Holding Company System Regulation
We and the US insurance subsidiaries are subject to regulation under the insurance holding company
system laws of various jurisdictions. The insurance holding company system laws and regulations vary from
jurisdiction to jurisdiction, but generally require an insurance company that is a member of an insurance holding
company system to register with the state regulatory authorities and to file with those authorities certain reports
regarding its holding company system, including information concerning its holding company and affiliates and its
capital structure, ownership, financial condition, certain affiliate transactions and general business operations.
Transactions between an insurance company registrant and a company within the holding company system may
require prior notification or approval from the registrant's domiciliary regulator. In some US jurisdictions, such
affiliate transactions will require notification/prior approval if the transaction could materially affect the operations,
management or financial condition of insurers under the system. Such laws and regulations also require advance
regulatory approval by the state of domicile as well as other states where pre-notification provisions have been
adopted with respect to any direct or indirect change of control of a subject registrant insurance company. Because
such regulation focuses on the ultimate control of the insurance company, regulatory compliance would be required
with respect to any person that sought to acquire control of QBE. Generally, such control is presumptively deemed
to exist through the ownership of 10% or more of the outstanding voting securities of a domestic insurance company
or any entity that controls a domestic insurance company, although control can otherwise exist under certain
circumstances.
Statutory Surplus and Dividend Limitations
Statutory surplus (i.e., the net worth of an insurance company, as calculated in accordance with SAP) is an
important measure utilized by insurance regulators and rating agencies to assess our US insurance subsidiaries'
ability to support business operations and provide dividend capacity. Our US insurance subsidiaries are subject to
various state statutory and regulatory restrictions that limit the amount of dividends or other distributions that may
be paid without prior approval from regulatory authorities. These restrictions differ by state, but are generally based
on calculations incorporating statutory surplus, statutory net income and/or investment income.
Risk Based Capital Requirements
In order to enhance the regulation of insurer solvency, the NAIC adopted in December 1993 a formula and
model law to implement risk-based capital requirements for property and casualty insurance companies. These risk-
based capital requirements are designed to assess capital adequacy and to raise the level of protection that statutory
surplus provides for policyholder obligations. The risk-based capital model for property and casualty insurance
companies measures three major areas of risk facing property and casualty insurers:
• underwriting, which encompasses the risk of adverse loss development and inadequate pricing;
• declines in asset values arising from credit risk; and
• declines in asset values arising from investment risks.
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An insurer will be subject to varying degrees of regulatory action depending on how its statutory surplus
compares to its risk-based capital calculation. Equity investments in common stock typically are valued at 85% of
their market value under the risk-based capital guidelines. For equity investments in an insurance company affiliate,
the risk-based capital requirements for the equity securities of such affiliate would generally be our US insurance
subsidiaries' proportionate share of the affiliate's risk-based capital requirement.
Under the approved formula, an insurer's total adjusted capital is compared to its authorized control level
risk-based capital. If this ratio is above a minimum threshold, no company or regulatory action is necessary. Below
this threshold are four distinct action levels at which a regulator can intervene with increasing degrees of authority
over an insurer as the ratio of surplus to risk-based capital requirement decreases. The four action levels include:
• insurer is required to submit a plan for corrective action;
• insurer is subject to examination, analysis and specific corrective action;
• regulators may place insurer under regulatory control; and
• regulators are required to place insurer under regulatory control.
As of June 30, 2008, each of our US insurance subsidiaries' surplus (as calculated for statutory purposes) is
above the risk-based capital thresholds that would require either company or regulatory action.
Accreditation
The NAIC has instituted its Financial Regulatory Accreditation Standards Program ("FRASP") in response
to federal initiatives to regulate the business of insurance. FRASP provides a set of standards designed to establish
effective state regulation of the financial condition of insurance companies. Under FRASP, a state must adopt
certain laws and regulations, institute required regulatory practices and procedures, and have adequate personnel to
enforce such items in order to become an "accredited" state. If a state is not accredited, other states may not accept
certain financial examination reports of insurers prepared solely by the regulatory agency in such unaccredited state.
The respective states in which our US insurance subsidiaries are domiciled are accredited states.
Regulation of Investments
The US insurance subsidiaries are subject to state laws and regulations that require diversification of their
investment portfolios and impose qualitative and quantitative limits upon the amount and type of their investments
in certain investment categories such as non-investment grade fixed income securities, real estate and equity
investments. Investments exceeding regulatory limitations are generally treated as non-admitted assets for purposes
of measuring statutory surplus, and, in some instances, require divestiture.
The NAIC has adopted a model law governing legal investments for life and non-life insurers in an effort to
impose uniform regulatory standards for insurance company investments. This so-called "defined limits" or
pigeonhole version of the model law prescribes permitted classes of legal investments, and certain prohibited
investments, and establishes qualitative and quantitative limitations for each class of investment. At present, a
limited number of states have approved the defined standards version of the model law. The NAIC has also adopted
a second, "defined standards" or prudent person version of the model law which relies more on the exercise of
prudence by insurers in their investment activity rather than the establishment of strict quantitative limits on
investments. However, such model laws are without binding legal effect in a given jurisdiction unless specifically
adopted in such jurisdiction.
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Gramm-Leach-Bliley Act
The Gramm-Leach Bliley Act (the "GLBA") and regulations promulgated under the GLBA, as well as state
privacy statutes and regulations, govern the privacy of consumer financial information. The regulations limit
disclosure by financial institutions of "nonpublic personal information" about individuals who obtain financial
products or services for personal, family or household purposes. The GLBA and the regulations, as well as state
privacy laws, generally apply to disclosures to nonaffiliated third parties, subject to specified exceptions, but not to
disclosures to affiliates. Privacy regulation is an evolving area of state and federal regulation, which requires us to
continue to monitor developments.
Guaranty Associations
Virtually all states where the US insurance subsidiaries are licensed to transact business have insurance
guaranty fund laws requiring insurance companies doing business, within those jurisdictions, to participate in
guaranty associations. Guaranty associations are organized to cover, subject to limits, contractual obligations under
insurance policies, and certificates issued under group insurance policies, issued by impaired, insolvent or failed
insurance companies. These associations levy assessments, up to prescribed limits, on each member insurer doing
business in a particular state on the basis of their proportionate share of the premiums written by all member insurers
in the lines of business in which the impaired, insolvent or failed insurer is engaged. Some states permit member
insurers to recover assessments paid through full or partial premium tax offsets, usually over a period of years.
Assessments levied against our US insurance subsidiaries by guaranty associations during each of the past five years
have not been material.
Patriot Act
The USA Patriot Act of 2001 (the "Patriot Act"), enacted in response to the terrorist attacks on
September 11, 2001, contains enhanced anti-money laundering laws and mandates for the adoption and maintenance
of appropriate anti-money laundering programs by financial institutions. All covered financial institutions are
required to implement and maintain an effective anti-money laundering program ("AML Program") that, at a
minimum, includes: (1) establishment and maintenance of appropriate anti-money laundering policies, procedures
and internal controls; (2) the appointment of an anti-money laundering compliance officer with responsibility for the
day-to-day AML Program; (3) an ongoing anti-money laundering training program; and (4) an independent audit
function to test the AML Program. The Patriot Act applies to a broad range of financial institutions, including
insurance companies.
Terrorism Risk Insurance Act
On November 26, 2002, President Bush signed into law the Terrorism Risk Insurance Act of 2002, which
was amended and extended by the Terrorism Risk Insurance Extension Act of 2005 and amended and extended
again by the Terrorism Risk Insurance Program Reauthorization Act of 2007 ("TRIPRA") through December 31,
2014. TRIPRA provides a federal backstop for insurance-related losses resulting from any act of terrorism on US
soil or against certain US air carriers, vessels or foreign missions. Under TRIPRA, all US-based property and
casualty insurers are required to make terrorism insurance coverage available in specified commercial property and
casualty insurance lines. Under TRIPRA, the federal government will pay 85% of covered losses after an insurer's
losses exceed a deductible determined by a statutorily prescribed formula, up to a combined annual aggregate limit
for the federal government and all insurers of A$100 billion. If an act (or acts) of terrorism result in covered losses
exceeding the A$100 billion annual limit, insurers with losses exceeding their deductibles will not be responsible for
additional losses. The deductible for each year is based on the insurer's direct commercial earned premiums for
property and casualty insurance, excluding certain lines of business such as commercial auto, surety, professional
liability and earthquake lines of business, for the prior calendar year multiplied by 20%. The specified percentages
for prior periods were 7% for 2003, 10% for 2004, 15% for 2005, 17.5% for 2006 and 20% for 2007, which extends
through 2014.
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All of our US insurance subsidiaries are impacted by TRIPRA, ,as well as QBE Insurance (Europe)
Limited in our European operations and certain syndicates managed by QBE Underwriting Limited in our Lloyd's
operations, each of which writes US business.
Federal and State Legislative and Regulatory Changes
From time to time, various regulatory and legislative changes have been proposed in the insurance industry.
The NAIC and many state insurance regulators are re-examining existing laws and regulations specifically focusing
on issues relating to the solvency of insurance companies, interpretations of existing laws and the development of
new laws. During the past several years, various regulatory and legislative bodies have adopted or proposed new
laws or regulations to address the cyclical nature of the insurance industry, catastrophic events and insurance
capacity and pricing. These regulations include (i) the creation of "market assistance plans" under which insurers
are induced to provide certain coverages, (ii) restrictions on the ability of insurers to rescind or otherwise cancel
certain policies in mid-term or to not renew policies at their scheduled expirations, (iii) advance notice requirements
or limitations imposed for certain policy non-renewals, (iv) limitations upon or decreases in rates permitted to be
charged, (v) expansion of governmental involvement in the insurance market, and (vi) increased regulation of
insurers' policy administration and claims handling practices. Additionally, as a result of investigations and legal
actions brought by various state attorney generals, there has been an increase in regulation governing activities and
compensation of insurance producers and others involved in the sale of insurance. Market practices are still
evolving in response to these developments, and we cannot predict what practices the market will ultimately adopt
or how these changes will affect our competitive standing with brokers and agents or on the commission rates that
we pay to our brokers, agents and program administrators. NAIC and state insurance regulators continually re-
examine the appropriate nature and scope of insurance regulation.
Currently in the United States, the federal government does not generally regulate the insurance business
(except in certain instances where federal legislation specifically pre-empts state insurance regulation). Congress
and some federal agencies from time to time investigate the current condition of insurance regulation in the United
States to determine whether to impose federal regulation or to allow an optional federal charter, similar to banks.
Legislation that would provide for federal chartering of insurance companies has been proposed. In recent years,
various legislative proposals have also been introduced in Congress that called for the federal government to assume
some role in the regulation of the insurance industry. To date, none of the Congressional proposals has been enacted
and it cannot be predicted what form any such future proposals might take or what effect, if any, such proposals
might have on us if enacted into law. Additionally, the U.S. Department of the Treasury has released a proposal to
remodel the financial regulatory structure, which suggests that such efforts may be more productive than in the past.
In addition, there can be no assurance that creation of a federal insurance regulatory system would not adversely
affect our business or disproportionately benefit our competitors.
We are unable to predict whether any of these laws and regulations will be adopted, the form in which any
such laws and regulations would be adopted or the effect, if any, these developments would have on our US
subsidiaries' operations and financial condition.
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OUR BOARD AND MANAGEMENT
Overview
Our board of directors comprises eight directors, being the chairman, the chief executive officer and six
independent non-executive directors, using the "independence" definition of the ASX Corporate Governance
Council. Applying this definition, the board has determined that a non-executive director's relationship with QBE as
a professional adviser, consultant, supplier, customer or otherwise is not material unless amounts paid under that
relationship exceed 1% of our revenue or expenses.
Directors are selected to achieve a broad range of qualifications, skills and experience on the board
complementary to our activities. The board regularly discusses its composition, including the nomination of
potential members. All directors are members of the nomination committee and are involved in the selection of new
board members. External consultants may be engaged where necessary in searching for prospective board members.
The chairman oversees the performance of the board, its committees and each director. The review
procedure involves an annual assessment of the entire board, with the review of each director comprising a
combination of written questions and answers covering the areas such as role, procedures, practices and behaviors,
followed by interviews. Individual assessments are confidential to the directors concerned together with an interview
with each director. The chairman reports the overall result to the board as a whole and it is discussed by all directors.
The review procedure is a precursor to other directors determining whether to support, via the notice of meeting, a
non-executive director for re-election at an annual meeting.
Our constitution provides that no non-executive director shall hold office for a continuous period in excess
of three years or past the third annual general meeting following the director's appointment, whichever is the longer,
without submitting for re-election. If no such director would otherwise be required to submit for re-election but the
listing rules of the ASX require that an election of directors be held, the director to retire at the annual general
meeting will be the director who has been longest in office since their last election, but, as between persons who
became directors on the same day, the one to retire shall (unless they otherwise agree among themselves) be
determined by lot. Retiring directors may offer themselves for re-election at the annual general meeting. Directors
appointed by the board are subject to re-election at the annual general meeting. Under our constitution, there is no
maximum fixed term or retirement age for non-executive directors.
The issue of independence of directors has received considerable attention in recent times. As a general
guide, the board has agreed that a non-executive director's term should be approximately 10 years. The board
considers that a mandatory limit on tenure would deprive us of valuable and relevant corporate experience in the
complex world of international general insurance and reinsurance. Ms. Hutchinson has been a non-executive
director since September 1997 and chairman of the investment committee since 2002. She was re-elected as a
director at the 2006 annual meeting. QBE's other directors believe that Ms. Hutchinson continues to exercise
independent judgment and through her QBE experience provides an important contribution.
Similarly, our chairman's former executive capacity with us has been fully disclosed to shareholders. The
chairman ceased to be managing director in January 1998. The chairman was re-elected as a director by an
overwhelming majority at the 2006 annual meeting. The other directors consider that the chairman exercises
independent judgment; and they believe it to be in shareholders' and policyholders' interests to retain the chairman's
first hand wealth of experience and have resolved that he should continue in that role. With over 50 years
involvement at many levels, the chairman has extensive knowledge of the insurance industry. However, the
chairman is not considered to be an "independent" director as recommended by the ASX Corporate Governance
Council because there was less than a three year period between him acting as a managing director and being
appointed chairman.
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Directors advise the board on an ongoing basis of any interest they have that they believe could conflict
with our interests. If a potential conflict does arise, either the director concerned may choose not to, or the board
may decide he or she should not, receive documents or take part in board discussions while the matter is being
considered. There are no material conflicts between any duties of QBE and any private interests or other duties of
the members of our board of directors that have not been disclosed.
Under our constitution, our management is vested in the board. In particular, the board:
• oversees corporate governance;
• selects and supervises the chief executive officer;
• provides direction to management;
• approves the strategies and major policies of the Group;
• monitors the achievement of strategies and policies;
• monitors performance against plan;
• considers regulatory compliance; and
• reviews human and other resources (including succession planning), information technology and other
resources.
The board ensures it has the information it requires to be effective including, where necessary, external
professional advice. A non-executive director may seek such advice at our cost with the consent of the chairman. All
directors would receive a copy of such advice. Non-executive directors may attend relevant external training courses
at our cost with the consent of the chairman.
Strategic issues and management's detailed budget and three year business plans are reviewed annually by
the board. The board receives updated forecasts during the year. Visits by non-executive directors to our offices in
key locations are encouraged. To assist the board to maintain its understanding of the business and to effectively
assess management, directors have regular presentations by the managing directors and other senior managers of the
various divisions on topics, including budgets, three year business plans and operating performance, and have
contact with senior employees at numerous times and in various forums during the year. The board meets regularly
in Australia and once a year overseas. Each meeting normally considers reports from the chief executive officer and
chief financial officer together with other relevant reports. The board regularly meets in the absence of management.
The chairman and chief executive officer, and board members in general, have substantial contact outside board and
committee meetings.
Board of Directors
Currently our board of directors consists of the following eight directors, all of whom may be contacted at
our principal executive offices:
Name Position Age

Len Bleasel ........................................................... Non-executive director 65
Duncan Boyle ....................................................... Non-executive director 57
John Cloney .......................................................... Non-executive director and chairman 67
Isabel Hudson ....................................................... Non-executive director 48
Belinda Hutchinson .............................................. Non-executive director 55
Charles Irby .......................................................... Non-executive director 63
Irene Lee ............................................................... Non-executive director 55
Frank O'Halloran .................................................. Chief executive officer and director 62
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Len Bleasel AM, FAIM, FAICD. Mr. Bleasel was appointed an independent, non-executive director of
QBE in January 2001. He is also chairman of the remuneration committee and 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 2001. Mr. Bleasel is chairman of ABN AMRO Australia Holdings Pty Limited and APA Group. He is also
chairman of the Zoological Parks Board of NSW and is on the advisory boards of various charities.
Duncan Boyle, BA, FCII. Mr. Boyle was appointed an independent non-executive director of QBE in
September 2006. He is a member of the audit and remuneration committees. Mr. Boyle is a non-executive director
of Stockland Trust Group and Clayton Utz, and has 35 years of insurance experience working in Australia, New
Zealand and the UK.
John Cloney ANZIIF, FAIM, FAICD. Mr. Cloney joined us as managing director in 1981. 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 1998. He is also chairman of the chairman's and funding committees and a member
of the investment and remuneration committees. Mr. Cloney is a director of Boral Limited, Maple-Brown Abbott
Limited and director of ABN AMRO Australia Holdings Pty Limited. He is a trustee of the Sydney Cricket and
Sport Ground Trust. He has over 50 years of involvement in the insurance industry.
Isabel Hudson MA, FCII. Ms. Hudson is based in the UK and was appointed an independent, non-
executive director in November 2005. She is a member of the audit, chairman's and remuneration committees. She is
a member of the business development board of Scope, a UK charity.
Belinda Hutchinson AM BEc, FCA. Appointed an independent, non-executive director in 1997,

Ms. Hutchinson is chair of the investment committee and a member of the audit, chairman’s and funding committees.
She is a director of St. Vincent's & Mater Health Sydney Limited. Ms. Hutchinson was an executive director of
Macquarie Bank Limited from 1992 to 1997 and remains a consultant to the bank. She was a vice president of
Citibank Limited between 1981 and 1992.
Charles Irby FCA (England and Wales). Mr. Irby is based in the UK and was appointed an independent,
non-executive director of QBE in June 2001. He is a member of the investment committee and the European
operations' audit committee. Mr. Irby was senior UK Advisor to ING Barings Limited from 1999 to 2001, having
spent 27 years with ING Barings. Mr. Irby became a non-executive director of Aberdeen Asset Management plc, a
company listed on the London Stock Exchange in 1999 and was appointed its Chairman in 2000. He is a director of
Great Portland Estates plc and North Atlantic Smaller Companies Investment Trust plc. Mr. Irby is also a trustee and
governor of King Edward VII's Hospital Sister Agnes.
Irene Lee BA, Barrister-at-Law. Ms. Lee was appointed an independent, non-executive director in May
2002 and is chair of the audit committee and a member of the funding and investment committees. Ms. Lee has wide
experience in financial services, including as CEO and executive director of Sealcorp Holdings Limited in Australia,
executive director and vice president of investment management and investment banking at Citibank Limited in
Australia and overseas and as the Head of Corporate Finance, at Commonwealth Bank in Australia. She is executive
chair of Keybridge Capital Limited and is a director of ING Bank (Australia) Limited. She is a member of the
Takeovers Panel, the advisory council of JP Morgan Australia and the executive council of the UTS Faculty of
Business. Ms. Lee is also a trustee of the Art Gallery of New South Wales.
Frank O'Halloran FCA. Mr. O'Halloran was appointed Chief Executive Officer in January 1998 and is a
member of the chairman's, funding and investment committees. He joined us in 1976 as Group Financial Controller
and was appointed Chief Financial Officer in 1982. He was Director of Finance from 1987 to 1994 and Director of
Operations from 1994 to 1997. He has had extensive experience in professional accountancy for 14 years and
insurance management for over 31 years.
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Board Committees
The board is supported by several committees which meet regularly to consider the audit process,
investments, remuneration and other matters. The main committees of the board are the audit committee, the
investment committee and the remuneration committee. These committees operate under a written charter approved
by the board. Any non-executive director may attend a committee meeting. The committees have direct and
unlimited access to our senior managers during their meetings and may consult external advisers when necessary at
our cost, including requiring their attendance at committee meetings. Committee membership is reviewed regularly.
Audit Committee
The audit committee may only comprise non-executive directors. The audit committee membership
currently comprises five non-executive directors and it normally meets four times per year. The chairman must be a
non-executive director who is not the chairman of the board. The current composition of the audit committee
complies with the best practice recommendations set by the ASX Corporate Governance Council. The chairman is
appointed by the board. The current members of the audit committee are Mr. Bleasel, Mr. Boyle, Ms. Hudson,
Ms. Hutchinson and Ms. Lee (chair).
The audit committee operates under a written charter determined by the board. The role of the committee is
to oversee and enhance the integrity of our financial reporting process. The objectives of the audit committee
include reviewing:
• the quality of financial reporting to the ASX, ASIC and shareholders;
• our accounting policies, practices and disclosures; and
• the scope and outcome of our internal and external audits.
The audit committee's responsibilities include the financial statements (including items such as claims
reserves, reinsurance recoveries and income tax), external and internal audit, risk management and other matters
including internal controls, compliance other than regulatory compliance, tax compliance and significant changes in
accounting policies.
The chairman of the board usually, and other non-member non-executive directors often, attend audit
committee meetings which consider our June 30 and December 31 financial statements. Meetings of the audit
committee also include, by invitation, the chief executive officer, the chief financial officer, our chief risk officer,
chief operating officer, our Group internal audit manager, our external auditor and our chief actuarial officer. On
occasion, other senior managers also attend.
The audit committee has the right of access to the external and internal auditors (in the absence of
management if required) and senior management. The audit committee also has the right to obtain external
professional advice at our expense. Our Group internal audit manager, the external auditor, the chief risk officer and
the chief actuarial officer have direct access to the audit committee and a reporting line to the chairman of the audit
committee.
The audit committee meets with the external auditor in the absence of management in relation to our
June 30 and December 31 financial statements and otherwise as required.
The chief executive officer and chief financial officer provide the board with certificates in relation to the
financial reports and risk management as recommended by the ASX Corporate Governance Council and as required
by the Corporations Act.
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Chairman's Committee
The chairman's committee comprises Mr. Cloney (chairman), Ms Hutchinson and the chief executive
officer, Mr. O'Halloran. This committee meets from time to time as required to address such matters as are referred
by the board.
Funding Committee
The funding committee comprises Mr. Cloney (chairman), Ms. Hutchinson, Ms. Lee and Mr. O'Halloran.
This committee meets from time to time as required to address such matters as are referred by the board.
Investment Committee
The membership of the investment committee comprises four non-executive directors and one executive
director and it normally meets three times a year. The chairman must be a non-executive director who is not the
chairman of the board. The current members of the investment committee are Ms. Hutchinson (chairman),
Mr. Cloney, Mr. Irby, Ms. Lee and Mr. O'Halloran. The meetings also include, by invitation, the Group general
manager, investments, the chief financial officer and chief operating officer.
The investment committee operates under a written term of reference determined by the board. The role of
the investment committee is to oversee our investment activities. This includes review of:
• investment objectives and strategy;
• investment risk management;
• currency, equity and fixed interest exposure limits;
• credit exposure limits with financial counterparties; and
• Group treasury.
The investment committee's responsibilities include review of economic and investment conditions as they
relate to us, approval of management's investment strategy and review of investment performance including our
defined benefit superannuation funds.
Remuneration Committee
The membership of the remuneration committee may only comprise non-executive directors and currently
comprises four non-executive directors. It normally meets four times a year. The current members of the
remuneration committee are Mr. Bleasel (chairman), Mr. Cloney, Ms. Hudson and Mr. Boyle. Meetings of the
remuneration committee also include, by invitation, the chief executive officer, chief operating officer and the
general manager, human resources of the QBE Group.
The remuneration committee operates under a written terms of reference determined by the board. The role
of the remuneration committee is to oversee QBE's general remuneration practices. The remuneration committee's
responsibilities include:
• recommendation of the total remuneration cost ("TRC") of the chief executive officer and approval of
the TRC of the Group operations executive and Group head office management;
• short and long-term incentives, such as equity based plans;
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• review of superannuation;
• review of performance measurement criteria and other human resource practices;
• review of personal development plans for the group executives and other senior positions; and
• recommendations on non-executive director remuneration.
The committee considers independent external advice in determining policies and practices that will attract
and retain high quality people.
Compensation of Directors and Executive Officers
Non-executive director remuneration reflects our desire to attract, motivate and retain high quality directors
and to ensure their active participation in affairs for the purposes of corporate governance, regulatory compliance
and other matters. We aim to provide a level of remuneration for non-executive directors comparable with our peers,
which include multi-national financial institutions. The board seeks the advice of independent remuneration
consultants to ensure that remuneration levels are appropriate.
Remuneration practices for our executive officers vary in each of the markets within which we operate, and
therefore the diversity of individual roles and complexity of each operating environment is considered. The
remuneration committee recognizes that we operate in a competitive environment, where the key to achieving
sustained performance is to generally align executive reward with increasing shareholder wealth.
The guiding principles applied in managing remuneration and reward for executive officers combine:
• linking individual performance objectives to achievement of financial targets and business strategies;
• the achievement of short-term and long-term financial business targets that deliver sustained growth in
value for shareholders (e.g. return on equity, insurance profit, return on capacity for our Lloyd's
business and investment performance); and
• using market data to set fixed annual remuneration levels.
The remuneration committee seeks the advice of independent remuneration consultants to ensure that
remuneration and reward levels are appropriate and are in line with market conditions in the various markets in
which we operate. The remuneration committee seeks to have remuneration structures in place that encourage the
achievement of a return for shareholders in terms of both dividends and growth in share price.
The Short-Term Incentive ("STI") scheme is a short-term incentive arrangement in the form of an annual
cash bonus, designed to reward both executive officers and the majority of staff. The STI aims to recognize the
contributions and achievements of individuals when business targets relating to the performance of the business unit,
the division or QBE as a whole, as appropriate, are achieved or exceeded.
Executive officers and key management personnel are eligible to participate in DCP. An executive is only
entitled to participate in the DCP when an STI is earned. The DCP aims to attract and retain key executives and to
increase shareholder value by motivating executives. It provides executives with the opportunity to acquire equity in
the form of conditional rights to fully paid shares without payment by the executive, and options to subscribe for
shares at market value at the grant date. For further details, see Note 27 to our 2007 financial statements.
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The remuneration committee reviews and approves the terms of the STI and the DCP annually, and
approves the total quantum of short-term incentive and deferred compensation for executives based on the
applicable audited results.
Under our constitution, the non-executive directors may collectively be paid, as fees for their services, a
fixed sum not exceeding the aggregate maximum sum determined from time to time by the shareholders in general
meeting. As determined at the 2007 annual meeting, total non-executive directors fees are now authorized to a limit
of A$2.7 million per financial year. The fees paid to non-executive directors during the year ended December 31,
2007 were approximately A$2.0 million. Such fees are apportioned among the directors on the basis of duties
performed either as board members or members of various committees. Executive directors are not entitled to
receive directors' fees and are remunerated through their existing employment arrangements.
Employees are eligible to participate in our ESOP. See Note 27 to our 2007 financial statements for further
information related to our DCP and our ESOP.
For more information on the compensation of our directors and executive officers, please see our 2007
remuneration report included in our 2007 Annual Report and Note 28 to our 2007 financial statements.
External Auditor Independence
We have issued an internal guideline on external auditor independence. Under this guideline, the external
auditor is not allowed to provide the excluded services of preparing accounting records, financial reports or asset or
liability valuations. Furthermore, the external auditor cannot act in a management capacity, as a custodian of assets
or as share registrar. The board believes some non-audit services are appropriate given the external auditor's
knowledge of our business. We may engage the external auditor for non-audit services subject to the general
principle that fees for non-audit services should not exceed 30% of all fees paid to the external auditor in any one
financial year. External tax services are generally provided by an accounting firm other than the external auditor.
The external auditor has been our auditor for many years. As a diverse international group, we require the
services of one of a limited number of international accounting firms to act as auditor. It is our practice to review
from time to time the role of the external auditor. The Corporations Act, Australian professional auditing standards
and the external auditor's own policy deal with rotation and require rotation of the lead engagement partner after five
years. In accordance with such policy, the lead engagement partner of the external auditor rotated in 2004 and will
rotate after 2009.
Risk Management
We have in place a global risk management framework that defines the risks that we are in business to
accept and those that we are not, together with the key risks that we need to manage and the framework and high
level controls that are required to manage those risks.
We have established internal controls to manage risk in the key areas of exposure relevant to our business.
The broad risk categories are:
• insurance risk—including underwriting, claims and actuarial risk factors;
• operational risk—including areas such as human resources, valuation of assets, corporate security and
outsourcing, regulatory risks and the adequacy of processes and systems;
• acquisition risks—including due diligence and integration processes; and
115
• funds management and treasury risk—including operational, cash flow, trading and security risks.
Internal controls and systems are designed to provide reasonable assurance that our assets are safeguarded,
insurance and investment exposures are within desired limits, reinsurance protections are adequate, counterparties
are subject to security assessment and foreign exchange exposures are within predetermined guidelines. The board
has approved a comprehensive risk management strategy ("RMS") and reinsurance management strategy ("REMS")
both of which have been lodged with APRA. The RMS deals with all areas of significant business risk to us. The
REMS covers topics such as our risk tolerance and our strategy in respect of the selection, approval and monitoring
of all reinsurance arrangements. Our reinsurance security committee assesses reinsurer counterparty security. This
management committee normally meets four times a year and holds special meetings as required.
While the RMS and REMS are approved by the board, we believe that managing risks is the responsibility
of the business units and that all staff need to understand and actively manage risk. The business units are supported
by compliance teams and by our senior management. See Notes 4 and 5 to our 2007 financial statements for a
discussion of our risk management policies and procedures.
Code of Conduct
We have adopted a code of conduct. The code of conduct requires that business be carried out in an open
and honest manner with our customers, shareholders, employees, regulatory bodies, outside suppliers, intermediaries
and the community at large. The code also deals with confidentiality, conflict of interest, "whistle-blowing" and
related matters. No material waivers have been granted to this code.
Summary Director Compensation Table for Year Ended December 31, 2007
The following table summarizes our non-executive director compensation for the year ended December 31,
2007:
Directors' Retirement
Fees(1) Superannuation(2) Benefits(3) Total
(A$ in thousands)
Non-executive Directors
Len Bleasel .................................................... 221 20 7 248
Duncan Boyle ................................................ 214 19 — 233
John Cloney ................................................... 544 49 30 623
The Hon. Nick Greiner (4)............................. 56 5 6 67
Isabel Hudson ................................................ 233 — — 233
Belinda Hutchinson ....................................... 221 20 16 257
Charles Irby ................................................... 242 — 6 248
Irene Lee ........................................................ 235 21 5 261
Total ......................................................... 1,966 134 70 2,170
(1) Includes fees paid for service on board committees.

(2) Mr. Irby and Ms. Hudson are UK residents. They receive a superannuation equivalent of 9% of fees which is included in directors' fees.
(3) Retirement benefits reflect the adjustment to the amounts preserved at December 31, 2003, being an annual increase equal to the five year
Australian government bond rate.
(4) Mr. Greiner retired on April 4, 2007.
The aggregate amount of compensation paid by us to all directors (executive and non-executive) of
QBE Group during the year ended December 31, 2007 was approximately A$8.2 million.
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Key Executive Officers
The following table shows our key executive officers:
Name Position Age

Frank O'Halloran ...................... Chief executive officer 62
Steven Burns............................. Chief executive officer, European operations 50
Neil Drabsch ............................. Chief financial officer 59
Mark ten Hove .......................... Group general manager, investments 51
Vince McLenaghan................... Chief operating officer and acting President and Chief Executive Officer, the Americas 49
Michael Goodwin ..................... Chief executive officer of QBE's Asia Pacific operations 49
Terry Ibbotson .......................... Chief executive officer of QBE's Australian operations 63
Steven Burns. Mr. Burns is currently chief executive officer of QBE's European operations. He is a
chartered accountant and was finance director of the Janson Green managing agency at Lloyd's from 1987, prior to
being acquired by Limit in 1998. Mr. Burns became CEO of Limit plc in August 2000. In September 2004 he was
appointed CEO of our European operations as part of the restructure of our European company operations and our
Lloyd's division.
Neil Drabsch. Mr. Drabsch was appointed as chief financial officer of QBE in 1994 and acts as deputy
company secretary of QBE. He joined QBE in 1991 and was the Group company secretary from 1992 to 2001.
Mr. Drabsch has over 41 years experience in insurance and reinsurance management, finance and accounting,
including 24 years as a practicing chartered accountant.
Vince McLenaghan. Mr. McLenaghan was appointed chief operating officer of the Group in 2006 and
was recently appointed as acting President and Chief Executive Officer of the Americas. Mr. McLenaghan has been
in the insurance industry for 31 years. During his 25 years with QBE, he has served in a number of general
management roles, including as managing director within our Asia Pacific operations.
Mark ten Hove. Mr. ten Hove joined QBE in 1999 as Group investment manager, having previously been
chief investment officer at OCBC Asset Management Limited in Singapore. He has over 21 years experience in
funds management including previous roles with Bankers Trust in Hong Kong and Singapore and Thornton
Investment Management (Dresdner Bank Group) in Hong Kong.
Michael Goodwin. Mr. Goodwin was appointed chief executive officer of QBE's Asia Pacific operations
in 2007. He is an actuary and has been in the insurance industry for 16 years, having started his career with
Mercantile Mutual. Mr. Goodwin was deputy general manager of the QBE Mercantile Mutual joint venture when it
was purchased by QBE in 2004 and became chief operating officer of the Asia Pacific operations in 2006.
Terry Ibbotson. Mr. Ibbotson was appointed chief executive officer of QBE's Australian operations in
2007. He has over 39 years experience in the insurance industry. Mr. Ibbotson joined QBE in 1993 and since that
time has served in various general management roles, including as chief operating officer of our Australian
operations.
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Summary Executive Compensation Table for the Year Ended December 31, 2007
The following table summarizes compensation for our key executive officers:
Post
Short-Term Employee Employment
Benefits Benefits Share Based Payments(3)
Long
Base Super- Service Conditional
Salary Other(1) STI(2) Annuation Leave Rights Options Total
(A$ in thousands)
Frank O'Halloran 1,566 508 2,506 231 174 787 256 6,028
Other key executive

officers
Steven Burns(4) ............... 1,315 436 2,332 — — 963 423 5,469
Neil Drabsch.................... 741 293 1,065 109 24 418 129 2,779
Michael Goodwin(5)........ 421 165 288 51 25 45 14 1,009
Vince McLenaghan.......... 779 190 1,297 119 28 347 104 2,864
Mark ten Hove ................. 750 248 1,125 150 — 383 161 2,817
Terry Ibbotson(6)............. 552 150 581 97 54 192 61 1,687
Total................................ 6,124 1,990 9,194 757 305 3,135 1,148 22,653
(1) "Other" includes the deemed value of the provision of motor vehicles, long service leave, health insurance, life insurance and personal
accident insurance and the applicable taxes thereon. It also includes interest on share loans provided in Note 28(E) to our 2007 financial
statements. Directors' and officers' liability insurance has not been included in other remuneration since it is not possible to determine an
appropriate allocation basis.
(2) STI is the accrued entitlement for the financial year.
(3) The fair value at grant date of options and conditional rights is calculated using a binomial model. The fair value of each option and
conditional right is earned evenly over the period between grant and vesting. Details of grants of conditional rights and options are
provided in Note 28 to our 2007 financial statements.
(4) Mr. Burns is located in London. His remuneration has been converted to Australian dollars using the cumulative average rates of exchange
for the year.
(5) Mr. Goodwin was appointed as chief executive officer of our Asia Pacific operations on October 8, 2007. Before this appointment, he was
the chief operating officer for the same division. Amounts shown include Mr. Goodwin's remuneration during the reporting period, whether
as key management personnel or otherwise. Amounts received in his position as key management personnel amounted to A$302,000,
comprising: base salary of A$115,000; other short-term employee benefits of A$37,000; superannuation of A$14,000; and STI of
A$136,000.
(6) Mr. Ibbotson was appointed as chief executive officer of our Australian operations on October 8, 2007. Before this appointment, he was the
chief operating officer for the same division. Amounts shown include Mr. Ibbotson's remuneration during the reporting period, whether as
key management personnel or otherwise. Amounts received in his position as key management personnel amounted to A$374,000,
comprising: base salary of A$139,000; other short-term employee benefits of A$24,000; superannuation of A$24,000; and STI of
A$187,000.
The aggregate amount of compensation paid by us during the year ended December 31, 2007 to all
executive officers of the QBE Group, excluding the chief executive officer, was approximately A$16.6 million.
As of December 31, 2007 our executive officers held approximately 1.1 million options to acquire
approximately 1.1 million of our ordinary shares at various times and prices.
For further information relating to executive compensation, see our 2007 remuneration report included in
our 2007 Annual Report and Note 28 to our 2007 financial statements.
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Share Ownership of Directors and Key Executive Officers
The following table shows share ownership of our directors and key management personnel at November 5,
2008.
Ordinary Shares
Subject to Non - Conditional Rights
recourse Loans Total Ordinary to Ordinary Shares
(1) Shares Options (2) (2)
Non-executive Directors:
Len Bleasel (3)............................................. – 52,116 – –
Duncan Boyle .............................................. – 5,003 – –
John Cloney ................................................. – 635,377 – –
Isabel Hudson .............................................. – 8,732 – –
Belinda Hutchinson ..................................... – 40,988 – –
Charles Irby ................................................. – 15,000 – –
Irene Lee ...................................................... – 26,505 – –
Key Executive Officers:
Frank O'Halloran (4).................................... 875,359 1,116,740 338,740 105,152
Steven Burns................................................ 3,308 75,971 451,768 166,006
Neil Drabsch (5) .......................................... 154,649 227,556 177,755 53,612
Michael Goodwin ........................................ 5,699 11,036 23,011 6,701
Vince McLenaghan...................................... 109,809 175,785 156,515 53,549
Mark ten Hove ............................................. 173,716 275,633 107,614 52,494
Terry Ibbotson ............................................. – 20,183 56,206 27,363
Total .................................................... 1,332,540 2,686,625 1,311,609 464,877
(1) Prior to June 20, 2005, non-recourse loans were provided by us to the executive director and other key executives on the exercise of their
options for the purchase of shares in QBE. Under A-IFRS, non-recourse loans and the related shares are derecognized and are instead
treated as options.
(2) Conditional rights and options relating to the achievement of targets in a financial year are granted in March of the following year. Interest
free personal recourse loans are available on terms permitted by our Deferred Compensation Plan to persons in the employment of the
company who hold options under this Plan, to fund the exercise of those options. Options issued in 2005 and future financial years are
exercisable after five years, with the exception of options for staff in the Group investment division, which continue to be exercisable after
three years.
(3) Includes 28,116 ordinary shares held by persons related to Mr. Bleasel.
(4) Includes 48,993 ordinary shares held by persons related to Mr. O'Halloran.
(5) Includes 3,760 ordinary shares held by persons related to Mr. Drabsch.
Transactions with Key Executive Officers
A wholly-owned subsidiary of QBE has entered into a retirement benefit arrangement with Mr. O'Halloran,
which is in addition to his entitlement under our staff superannuation plan. As Mr. O'Halloran has remained
employed with us beyond May 2004, he will receive a lump sum payment of 150% of his total cash remuneration on
retirement, being his annual cash salary plus the cash incentive bonus, for the financial year prior to the date of his
retirement. As a condition of this arrangement, Mr. O'Halloran has entered into a non-compete agreement to apply
for three years from the date of his retirement.
In connection with our ESOP we granted loans to certain of our key executive officers. For details of the
loans see Note 28(E) to our 2007 financial statements.
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OUR PRINCIPAL SHAREHOLDERS
The following table sets forth information concerning the beneficial ownership of our ordinary shares
known to us as of November 12, 2008 by the following persons or entities:
• beneficial owners of 5% or more of our outstanding ordinary shares; and
• all members of our board and our key executive officers, as a group.
The applicable percentage of ownership for each holder of ordinary shares is based on 889,037,398 total
issued ordinary shares of QBE as of September 30, 2008. Ordinary shares of QBE subject to options, warrants and
convertible notes currently exercisable or convertible, or exercisable or convertible within 60 days of the date of this
Information, are deemed outstanding for computing the percentage of the person holding the options but are not
deemed outstanding for computing the percentage of any other person. The individuals named in the table have sole
voting and investment power with respect to all ordinary shares of QBE shown as beneficially owned by them.
Number of Percentage of
Name Shares Ownership
The Capital Group of Companies Inc. 53,510,130 6.3%
Key executive officers and directors (14 persons) as a group............................................. 2,685,455 0.3%
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APPENDIX A: GLOSSARY TO CERTAIN INSURANCE TERMS
Set forth below are definitions of some of the insurance terms used in the Information. For a definition of
some of the insurance product terms used in the Information, see "Business—Description of Products and Services."
Actuarial analysis Evaluation of risks in order to attempt to ensure that claims provisions
adequately reflect expected future loss experience and claims payments; in
evaluating risks, mathematical models are used to predict future loss
experience and claims payments based on historical loss ratios, loss
development patterns and other relevant data and assumptions.
Assume To accept from the primary insurer or reinsurer all or a portion of the
liability underwritten by such primary insurer or reinsurer.
Attritional claims ratio The aggregate of claims less than A$2.5 million divided by net earned
premium.
Broker One who negotiates contracts of insurance or reinsurance on behalf of an

insured party, receiving a commission from the insurer or reinsurer for
placement and other services rendered.
Capacity The percentage of surplus, or the dollar amount of exposure, that an

insurer or reinsurer is willing to place at risk. Capacity may apply to a
single risk, a program, a line of business or an entire book of business.
Case reserves Recorded estimates of unpaid liabilities associated with specific reported
claims. Case reserves may pertain to losses and loss adjustment expenses.
Casualty insurance Insurance that is primarily concerned with the losses caused by injuries to
third persons or their property (i.e., not the policyholder) and the legal
liability imposed on the insured resulting therefrom. It includes, but is not
limited to, general liability, employers' liability, workers' compensation,
professional liability, public liability and automobile liability insurance. It
excludes certain types of losses that by law or custom are considered as
being exclusively within the scope of other types of insurance, such as fire
or marine.
Catastrophe reinsurance A form of excess of loss reinsurance that, subject to specified limits,
indemnifies the insured for the amount of loss in excess of a specified
retention with respect to an accumulation of losses resulting from a
catastrophe event or series of events.
Ceding Reinsuring a part or a whole of an underwriting risk with a reinsurer by

making a premium payment.
Claim The amount payable under a contract of insurance or reinsurance arising

from a loss relating to an insured event.
Claims incurred The aggregate of all claims paid during an accounting period adjusted by
the change in claims provisions for that accounting period.
Claims provisions The estimate of the most likely cost of settling present and future claims
and associated loss adjustment expenses plus a risk margin for the possible
fluctuation of the liability.
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Claims ratio Net claims incurred divided by net earned premium.
Combined operating ratio The sum of our claims ratio, commission ratio and expense ratio. A
combined operating ratio below 100% indicates profitable underwriting
results. A combined operating ratio over 100% indicates unprofitable
underwriting results.
Commercial lines Types of insurance written for businesses instead of individuals.
Commission ratio Net commission expense divided by net earned premium.
Cover The scope of protection provided by an insurance policy.
CTP Compulsory third party motor vehicle personal injury insurance in

Australia.
Direct insurance The provision of insurance directly by an insurer to an insured, i.e., not
through an intermediary.
Excess of loss reinsurance A form of reinsurance in which, in return for a premium, the reinsurer
accepts liability for losses or claims settled by the original insurer in
excess of an agreed amount, generally subject to an upper limit.
Expense ratio Underwriting and administrative expenses divided by net earned premium.
Facultative reinsurance The reinsurance of individual risks through a transaction between the
reinsurer and the cedant (usually the primary insurer) involving a specified
risk.
Frequency The number of claims occurring under a given coverage divided by the
number of exposures for the given coverage.
General insurance Generally used to describe non-life insurance business including property
and casualty insurance.
Gross claims incurred The amount of claims incurred during an accounting period before
deducting reinsurance recoveries.
Gross earned premium The total premium on insurance earned by an insurer or reinsurer during a
specified period on premiums underwritten in the current and previous
underwriting years.
Gross written premium The total premium on insurance underwritten by an insurer or reinsurer
during a specified period, before deduction of reinsurance premium.
Incurred but not reported (IBNR) Claims arising out of events that have occurred before the end of an
accounting period but have not been reported to the insurer by that date.
Insurance solvency ratio Ratio of net tangible assets to net earned premium, which is an important
industry indicator in assessing the ability of general insurers to pay their
existing liabilities.
Inward reinsurance The reinsurance or assumption of risks written by another insurer.
122
Large individual risk and catastrophe The aggregate of claims of A$2.5 million or more divided by net earned
claims ratio premium.
Lloyd's The Society and Corporation of Lloyd's, incorporated by the Lloyd's Acts
1871 to 1982, including the Council of Lloyd's and any person or delegate
acting under its authority as the context may require.
Long-tail Classes of insurance business involving coverage for risks where notice of
a claim may not be received for many years and claims may be
outstanding for more than one year or more before they are finally settled
and quantifiable by the insurer; protracted legal proceedings may be
involved to apportion liability and to establish the quantum of claims.
Net claims incurred The amount of claims incurred during an accounting period after
deducting reinsurance recoveries.
Net earned premium Net written premium adjusted by the net change in unearned premium for
a year.
Net investment income Gross investment income after taking into account borrowing costs,
foreign exchange gains and losses and investment expenses.
Net written premium The total premium on insurance underwritten by an insurer during a
specified period, after deduction of premium applicable to reinsurance
acquired in respect thereof.
Outstanding claims The amount of provisions established for claims and related claims
expenses that have occurred but have not been paid.
Outward reinsurance The reinsurance or cession of risks by the insurer to an assuming reinsurer.
Premium Payments and consideration for insurance, surety bonds or reinsurance

coverage under insurance policies, surety bonds or reinsurance
agreements.
Proportional reinsurance A type of reinsurance in which the original insurer and the reinsurer share
losses in the same proportion as they share premiums.
Recoveries The amount of claims recovered from reinsurance, third parties or salvage.
Reinsurance An agreement to indemnify a primary insurer by a reinsurer in

consideration of a premium with respect to agreed risks insured by the
primary insurer. The enterprise accepting the risk is the reinsurer and is
said to accept inward reinsurance. The enterprise ceding the risks is the
cedant or ceding company and is said to place outward reinsurance.
Reinsurer The insurer that assumes all or part of the insurance or reinsurance liability
written by another insurer. The term includes retrocessionaires, which are
insurers that assume reinsurance from a reinsurer.
Retention That amount of liability for which an insurance company will be

responsible after it has completed its reinsurance arrangements.
123
Retrocession An agreement by a reinsurer to accept part or all of the risk insured by
another reinsurer in consideration of a premium, being the retrocession
premium.
Run-off The management of claims to finalization in respect of a discontinued

class of business.
Short-tail Classes of insurance business involving coverage for risks where notice of
a claim is received and claims are outstanding for one year or less before
they are finally quantifiable and settled by the insurer.
Treaty reinsurance Reinsurance of risks in which the reinsurer is obliged by agreement with
the cedant to accept, within agreed limits, all risks to be underwritten by
the cedant within specified classes of business in a given period of time.
Underwriting The process of reviewing applications submitted for insurance or

reinsurance coverage, deciding whether to provide all or part of the
coverage requested and determining the applicable premium.
Underwriting year The year in which the contract of insurance commenced or was
underwritten.
Unearned premium The portion of a premium representing the unexpired portion of the
contract term as of a certain date.
Whole account reinsurance An excess of loss contract that protects the whole of the business written
by the reinsured.
Written premium Premiums written, whether or not earned, during a given period.
124
MARKET ANNOUNCEMENT
QBE announces Offers to Exchange Outstanding Capital

Securities for New Notes
QBE today announced that it is has commenced concurrent exchange offers (the “Exchange Offers”) to
exchange (i) certain US dollar denominated capital securities of QBE Capital Funding II L.P. guaranteed
by, and redeemable for cash or exchangeable for preferred securities of, QBE (CUSIP Nos. 74730UAA3,
G73055AA6, ISIN Nos. US74730UAA34, USG73055AA68) (the “Outstanding Dollar Capital Securities”)
for US dollar denominated 9.75% Senior Notes due 2014 of QBE (the “New Dollar Notes”) and (ii) certain
Sterling denominated capital securities of QBE Capital Funding L.P. guaranteed by, and redeemable for
cash or exchangeable for preferred securities of, QBE (CUSIP No. 74730FAA6, ISIN Nos.
US74730FAA66, XS0261573587 and Common Code Nos. 026194849 and 026157358) (the
“Outstanding Sterling Capital Securities” and, together with the Outstanding Dollar Capital Securities, the
“Outstanding Capital Securities”) for Sterling denominated 10.00% Senior Notes due 2014 of QBE (the
“New Sterling Notes” and, together with the New Dollar Notes, the “New Notes”).
Principal amount of the Notes for each
US$1,000 or £1,000 principal amount of Capital
Securities
Liquidation Title of Capital Early Total
Preference Securities to be Principal Exchange Participation Exchange
CUSIP/ ISIN / Common Code Outstanding Exchanged Amount Amount Amount*
CUSIP: 74730UAA3, G73055AA6
Capital Securities issued by
ISIN: US74730UAA34, US$550,000,000 US$650.00 US$50.00 US$700.00
QBE Capital Funding II L.P.
USG73055AA68
CUSIP: 74730FAA6
ISIN: US74730FAA66, Capital Securities issued by
£300,000,000 £650.00 £50.00 £700.00
XS0261573587 QBE Capital Funding L.P.
Common Code: 026194849,
026157358
* The Total Exchange Amount includes the Early Participation Amount and will be payable to holders if they tender their Outstanding Capital
Securities for exchange at or prior to the Early Participation Deadline defined below.
The Exchange Offers are only being made, and copies of the Exchange Offer documents will only be
made available, to holders of Outstanding Capital Securities that have certified certain matters to QBE,
including their status as either “qualified institutional buyers,” as that term is defined in Rule 144A under
the United States Securities Act of 1933, as amended (the “Securities Act”) or persons other than “U.S.
persons,” as that term is defined in Rule 902 under the Securities Act (collectively, “Eligible Holders”).
Each Exchange Offer will expire at 12:00 midnight, New York City time, on December 23, 2008, unless
extended by QBE (such date and time with respect to an Exchange Offer, as it may be extended, the
‘‘Expiration Date”). In order to be eligible to receive the Early Participation Amount, holders of
Outstanding Capital Securities must validly tender their Outstanding Capital Securities at or prior to 5:00
p.m., New York City time, on December 9, 2008, unless such deadline is extended by QBE (such date
and time with respect to an Exchange Offer, as it may be extended, the “Early Participation Deadline”).
Outstanding Capital Securities tendered prior to 5:00 p.m., New York City time, on December 9, 2008 (the
“Withdrawal Deadline”) may be withdrawn at any time at or prior to the Withdrawal Deadline. Outstanding
Capital Securities tendered after the Withdrawal Deadline may not be withdrawn.
Holders of Outstanding Capital Securities holding through The Depository Trust Company, Euroclear
Bank S.A./N.V. or Clearstream Banking, société anonyme, and wishing to tender Outstanding Capital
Securities pursuant to the Exchange Offer must submit, or arrange to have submitted on their behalf, at or
before the Expiration Date and before the respective deadlines set by such clearing systems, duly
completed electronic instructions, in each case in accordance with such clearing systems’ respective
requirements.
Consummation of the Exchange Offers is subject to certain conditions. Neither Exchange Offer is subject
to completion of the other Exchange Offer.
The New Notes have not been and are not expected to be registered under the Securities Act or the
securities laws of any other jurisdiction. Therefore, the New Notes may not be offered or sold in the
United States absent registration or any applicable exemption from the registration requirements of the
Securities Act and any applicable state securities laws.
The Exchange Offers are also not being made to, and any offers to exchange will not be accepted from,
or on behalf of, Eligible Holders in any jurisdiction in which the making of such Exchange Offers would not
be in compliance with the laws or regulations of such jurisdictions. In particular, persons resident in the
Republic of Italy may not participate in the Exchange Offers.
This market announcement shall not constitute an offer to purchase any securities or a solicitation of an
offer to sell any securities and is issued pursuant to Rule 135c under the Securities Act. The Exchange
Offers are being made only pursuant to a confidential offering memorandum and related documentation
and only to such persons and in such jurisdictions as is permitted under applicable law.
FOR MORE INFORMATION CONTACT:
The Exchange Agents for the Exchange Offers:

The Dollar Exchange Agent The Sterling Exchange Agent
Global Bondholder Services Corporation Deutsche Bank AG, London Branch
65 Broadway, Suite 723, 7th Floor

New York, New York 10006 Winchester House
United States of America 1 Great Winchester Street
Attention: Corporate Actions London EC2N 2DB
Toll-Free: +1 866 470-4200 United Kingdom
Banks and Brokers: +1 212 430-3774 Attention: Trust and Securities Services
Facsimile: +1 212 430-3775 Telephone: +44 20 7547 5000
Facsimile: +44 20 7547 5001
QBE Insurance Group Limited:
Mr. Neil Drabsch Mr. Duncan Ramsay

Chief Financial Officer General Counsel and Company Secretary
+612 9375 4216 +612 9375 4422
26 November 2008

ASX 26nov08 QBE Announces Acquisitions Etc

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QBE INSURANCE GROUP LIMITED

ABN 28 008 485 014

Telephone: (02) 9375 4444

re: QBE ANNOUNCES ACQUISITIONS, UPDATED REVENUE

Please find attached for release to the market:

THIS MARKET ANNOUNCEMENT OUTLINES:

• a number of acquisitions, the largest being ZC Sterling Corporation (“ZCS”)

ZCS is not involved with lenders’ mortgage insurance.

GROUP REVENUE FORECASTS

CAPITAL MANAGEMENT INITIATIVES

NOT FOR DISTRIBUTION OR RELEASE IN THE UNITED STATES OR TO U.S.

Acquisitions, upgrade of revenue

Supplement to market announcement

NOT FOR DISTRIBUTION OR RELEASE IN THE UNITED STATES OR TO U.S. PERSONS

Supplemental Disclosure Information

NOT FOR DISTRIBUTION OR RELEASE IN THE UNITED STATES OR TO U.S. PERSONS

NOT FOR DISTRIBUTION OR RELEASE IN THE UNITED STATES OR TO U.S. PERSONS

NOT FOR DISTRIBUTION OR RELEASE IN THE UNITED STATES OR TO U.S. PERSONS

NOT FOR DISTRIBUTION OR RELEASE IN THE UNITED STATES OR TO U.S. PERSONS

NOT FOR DISTRIBUTION OR RELEASE IN THE UNITED STATES OR TO U.S. PERSONS

Supplement to market announcement

NOT FOR DISTRIBUTION OR RELEASE IN THE UNITED STATES OR TO U.S. PERSONS

NOT FOR DISTRIBUTION OR RELEASE IN THE UNITED STATES OR TO U.S. PERSONS

 US mortgage companies are required by legal and regulatory requirements to ensure

NOT FOR DISTRIBUTION OR RELEASE IN THE UNITED STATES OR TO U.S. PERSONS

NOT FOR DISTRIBUTION OR RELEASE IN THE UNITED STATES OR TO U.S. PERSONS

 This is a standard homeowners product with a fundamentally different

NOT FOR DISTRIBUTION OR RELEASE IN THE UNITED STATES OR TO U.S. PERSONS

NOT FOR DISTRIBUTION OR RELEASE IN THE UNITED STATES OR TO U.S. PERSONS

Supplemental Disclosure Information

November 26, 2008

50961.02-Sydney Server 1A MSW - Draft November 24, 2008 - 11:47 PM

SPECIAL NOTE REGARDING FORWARD-LOOKING STATEMENTS................................................................1

50961.02-Sydney Server 1A MSW - Draft November 24, 2008 - 11:47 PM

• the performance of our investment portfolios, and changes to investment valuations;

• the scope and frequency of catastrophes;

• unanticipated changes in industry trends;

• ineffectiveness of risk management policies and procedures;

• the financial strength of our insurance and reinsurance subsidiaries;

• our ability to obtain the appropriate level and type of reinsurance;

• changes in assumptions related to the value of businesses acquired or goodwill;

• changes in accounting standards, practices and/or policies;

• changes in regulation and government policies, legislation or tax laws;

• changes in Lloyd's rules and policies;

• potential litigation, arbitration or regulatory investigations;

• systems and technology risks;

• our dependency on key personnel;

• our reliance on insurance agents and brokers;

In the Information, unless the context otherwise requires, references to:

• "APRA" means the Australian Prudential Regulation Authority or any successor;

Six months ended Year ended

Our operations are conducted through the following divisions:

• Equator Re consisting of our captive reinsurance business based in Bermuda; and

• Investments providing management of our investment funds.

Acquisitions from The PMI Group, Inc.

• geographic and product diversification;

• attracting and retaining quality underwriters;

• ongoing actuarial assessment of premium pricing and outstanding claims reserves;

• a group risk management strategy; and

Six months ended June 30, Year ended December 31,

(1) Includes property excess of loss, engineering, war and energy.

Net earned premium.............................................. 5,108 4,749 10,210 8,158 7,386 6,781

US mortgage companies are required by legal and regulatory requirements to ensure

This is a standard homeowners product with a fundamentally different