QBE Insurance Group Limited

ABN 28 008 485 014

Head Office
82 Pitt Street
SYDNEY NSW 2000
Australia
Postal Address
Box 82 GPO SYDNEY 2001
4 February 2011 Telephone: +61 (2) 9375 4444
Facsimile: +61 (2) 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,

Market Release on:

• 2010 results guidance;

• Long term distribution agreement with Bank of America in the US and
acquisition of Balboa insurance portfolio;
• 2011 worldwide reinsurance protections;
• Queensland, New South Wales and Victorian catastrophes; and
• 2011 financial targets

Please find attached an announcement for release to the market.

Yours faithfully,

Duncan Ramsay
Company Secretary

Encl.
MARKET RELEASE
4 February 2011

• 2010 net profit after tax in line with market expectations after a record
underwriting profit but a lower insurance margin from continuing low
interest yields in the US and UK
• Long term distribution agreement with Bank of America in the US adding
an estimated US$1.3 billion of annualised net earned premium
• Comprehensive worldwide reinsurance programme in place for 2011-2013
• Strong growth and outlook for 2011

2010 RESULTS GUIDANCE

QBE is in the process of finalising its financial accounts and audit for the year ending 31
December 2010. Results are scheduled for release on 28 February 2011.

QBE expects to report improved net profit after tax (NPAT) in the second half compared
with the same period last year, with full year NPAT to be in line with market consensus of
around US$1.28 billion. Other key financial metrics, which are subject to detailed review
and audit, include:

• Gross written premium up 21% to US$13.6 billion;

• Net earned premium up 20% to US$11.4 billion;
• Net claims ratio down from 60.3% to 59.8%;
• Net commissions and expenses ratio up from 29.3% to 29.9%;
• Combined operating ratio of 89.7%;
• Underwriting profit up 18% to US$1.17 billion;
• Insurance profit margin of 15.0%;
• Investment income, before foreign exchange gains, down 41% to US$518
million;
• Foreign exchange gains down 51% to US$141 million;
• Net profit after tax and exceptional items down 17% to around US$1.28 billion;
and
• Probability of adequacy of outstanding claims >89%.

QBE’s diverse portfolios and operations have enabled the Group to produce an excellent
combined operating ratio with a slightly lower claims ratio. This has been achieved despite
the 2010 financial year including a frequency of small and large weather-related and
earthquake catastrophe claims not seen since 1999. Catastrophe events included Perth and
Melbourne storms, Chile earthquake, Christchurch earthquake and Queensland storms in
late December.
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MARKET RELEASE
4 February 2011
The slightly lower claims ratio compared with last year was achieved due to a reduction in
attritional claims and reflects the benefits of the Group’s diverse portfolios and extensive
reinsurance arrangements. The net commissions and expenses ratio was higher than last
year due to transformational IT projects, lower income from owned underwriting agencies
due to more business being written by QBE at reduced commissions and increased
premium taxes and Lloyd’s levies.

The insurance profit margin is below the bottom end of company guidance of 16% – 18%.
This is attributable to the higher than expected frequency of small and large catastrophe
claims through the second half and the continuing low interest yields in the US, UK and
Europe. Our investment yield, including foreign exchange gains, on the investments of
US$17 billion set aside to meet policyholders’ obligations decreased from 4.5% for 2009 to
3.4%.

Subject to the Board’s consideration of the financial statements, the final dividend for 2010
is expected to be maintained at 66 cents per share and will be franked at 10%. The
dividend reinvestment programmes continue at a 2.5% discount.

Mr Frank O’Halloran, QBE’s Group Chief Executive Officer, said “QBE’s underwriting
performance continues to outperform the large majority of our global peers and the
Australian market and is very satisfying in a year of increased frequency of small and large
catastrophes.”

“Our strategy for profitable growth from acquisitions and market leading results remains
unchanged. Over the past six years we have increased premium income by an average of
15% per annum and produced combined operating ratios of less than 90% in each of those
years.”

LONG TERM DISTRIBUTION AGREEMENT WITH BANK OF AMERICA IN THE US AND

ACQUISITION OF BALBOA INSURANCE PORTFOLIO

QBE has entered into an initial ten year distribution agreement with Bank of America for
lender placed and voluntary homeowners, contents, motor and other related consumer lines
and associated services. Lenders’ mortgage insurance is not included. As part of the
agreements, QBE will assume the outstanding claims and unearned premium liabilities of
Bank of America’s wholly owned subsidiary, Balboa Insurance Company and affiliated
entities in return for matching assets (“portfolio transfer”). The agreements, which are
subject to regulatory approvals, are expected to be completed in the second quarter, with
the portfolio transfer effective on 1 April 2011.

QBE estimates that the annualised gross earned premium and net earned premium from
the distribution agreement will be around US$1.5 billion and US$1.3 billion respectively.
We expect that the annualised insurance profit margin before tax, after catastrophe
allowances, amortization of cost of the distribution rights and portfolio transfer and the
expenses of distribution, will be slightly higher than that currently achieved on QBE’s
worldwide net earned premium and within the range of 15% to 20% of net earned premium.
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MARKET RELEASE
4 February 2011
The agreements involve the following:

1. the assumption of insurance liabilities of Balboa and its affiliates of approximately

US$1.2 billion matched by tangible assets of an equivalent amount; and

2. the upfront payment to Bank of America of US$700 million for the distribution rights
and the portfolio transfer, which will be substantially amortised in the first three
years.

The funding of the distribution rights payment initially will be from new short term bank
facilities which are intended to be replaced at the appropriate time by Tier 2 debt securities
acceptable to regulators and ratings agencies. The expected profits for 2011 and
reinvestment of the 2010 final dividend through dividend reinvestment and a dividend
underwriting arrangement will preserve the existing capital adequacy.

Mr Frank O’Halloran said “The distribution agreement with Bank of America in the US and
the portfolio transfer provide QBE with a specialist personal lines portfolio which is
complementary to the Sterling National business acquired in 2008. QBE’s business in the
US will now be made up of five major segments, namely, lender placed and voluntary
homeowners, contents and motor primarily through financial institutions (GWP of US$2.1
billion), specialty insurance programmes (US$1.5 billion), crop insurance (US$1.2 billion),
regional agency and broker (US$1.3 billion) and reinsurance (US$0.5 billion).”

He added “QBE’s strategy in the US of specialisation for the majority of business has
enabled it to outperform the market in recent years, with 2010 producing a preliminary
combined operating ratio of 89.7% and a 19% increase in underwriting profit to US$309
million. We now have sizeable market shares in the lender placed homeowners, specialty
insurance programme and crop sectors.”

2011 WORLDWIDE REINSURANCE PROTECTIONS

As previously foreshadowed, QBE has implemented an initiative to leverage its global scale
in acquiring reinsurance for its diverse portfolios. Benefits to QBE will be an overall lower
reinsurance cost, greater risk coverage and an improvement in the combined operating
ratio.

QBE has purchased a comprehensive worldwide reinsurance programme for risk and
catastrophe claims in 2011. Acquisitions above US$250 million of premium income made in
2011 require prior approval from reinsurers before they are included in the worldwide
covers.

The worldwide covers will reduce the cost of annual reinsurance protections by close to
US$300 million, with an estimated improvement in underwriting margins of 0.5%. The
covers include all classes of business with the exception of inwards reinsurance, crop
insurance, business written in Lloyd’s syndicate 1036 and lenders’ mortgage insurance.
Programme details include:

(i) Worldwide catastrophes

A single layer of US$1.3 billion excess of US$200 million with total pre-paid cover
purchased of US$2.6 billion. This cover is 100% placed for 2011 and 80% for 2012
and 2013, with the balance likely to be placed on a one year basis.
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MARKET RELEASE
4 February 2011
(ii) Worldwide per risk
A single layer of US$200 million excess of US$50 million with US$1 billion of
aggregate cover. The cover includes a clash of retentions from various classes of
business. This cover is placed 100% for 2011 and 82.5% for 2012 and 2013, with
the balance likely to be placed on a one year basis.

(iii) Worldwide catastrophe and risk aggregate cover

US$170 million excess of US$800 million for an accumulation of catastrophe and
individual risk claims above US$5 million. The aggregate limit for individual risk
claims is US$300 million. The cover includes inward reinsurance and syndicate
1036. This cover is 100% placed for 2011.

(iv) Worldwide risk aggregate cover

US$200 million excess of US$400 million for an accumulation of individual risk
claims above US$5 million from the ground up. It is 87.25% placed for 2011, 2012
and 2013.

QBE has also purchased additional high level catastrophe covers for Australia and New
Zealand as well as renewing protections for the business not included in the worldwide
covers. QBE’s captive reinsurer, Equator Re, has purchased catastrophe protection of
US$100 million in excess of US$100 million, 90% placed.

The distribution agreement and portfolio transfer with Bank of America and the new
worldwide covers means that QBE’s maximum retention from the largest realistic
catastrophe scenario will be lower than 2010 at around 4.0% of net earned premium for
2011.

Mr Frank O’Halloran said “The covers purchased are one of the most comprehensive
available in the market place.”

He added “This has been achieved with a significant reduction in cost of reinsurance, more
comprehensive reinsurance and expected benefit to profitability.”

QUEENSLAND, NSW AND VICTORIAN CATASTROPHES

The estimated net cost to QBE for the Queensland catastrophe in late 2010 is US$45
million; the three catastrophes in Queensland, Northern New South Wales and Victoria in
January 2011 is around US$100 million; and the very preliminary estimate of Cyclone Yasi
on 3 February 2011 is around US$100 million. The claims for 2011 are well within the
significant allowances for large risk and catastrophe claims included in our 2011 business
plans, which after the worldwide aggregate protections are close to US$1.5 billion.

Mr Frank O’Halloran said “We have had 4,500 claims reported to date from the December
and January storms. As was the case with the Victorian bush fires and the Melbourne and
Perth storms, QBE has mobilised staff from around Australia and overseas to support our
many policyholders in Queensland.”
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MARKET RELEASE
4 February 2011
2011 FINANCIAL TARGETS

The acquisitions made in 2010 and announced in 2011 to date and the new worldwide
reinsurance covers will assist premium growth and profitability in 2011. We have allowed for
cancellation of some unprofitable business and re-underwriting of some of our property
exposure. Our targets, allowing for stable bond and currency markets, are:

• Gross earned premium growth 17% - 20%

• Net earned premium growth 20% - 23%
• Combined operating ratio 87% - 90%
• Insurance profit margin 15% - 18%
• Benchmark APRA regulatory MCR multiple > 1.5 times

The above targets are subject to the usual caveats, particularly large individual risk and
catastrophe claims not exceeding the substantial allowances in our business plans and from
the aggregate covers purchased, and existing interest yields not falling from current levels.

Mr O’Halloran said “We will continue with our current strategy of growth by acquisition and
focus on market leading underwriting performance.”

He added “Our short duration conservative investment strategy means that any rise in
interest rates in the US, UK and Europe will be beneficial for our profitability and our capital
adequacy.”

For further information, please contact:

Investor Relations QBE Insurance Group Limited

Tel: +612 9375 4636 ABN 28 008 485 014
investor.relations@qbe.com 82 Pitt Street
SYDNEY NSW 2000
Australia
Media Enquiries
David Symons
Tel: +61 [0] 410 559 184
mediaenquiries@qbe.com

QBE Insurance Group Limited is listed on the Australian Securities Exchange, is recognised
as one of the top 25 global insurance and reinsurance companies as measured by net
earned premium and has operations in 49 countries.

[see attached additional information]

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MARKET RELEASE
4 February 2011

Additional Information

Bank of America
Bank of America is one of the world's largest financial institutions, serving individual consumers,
small- and middle-market businesses and large corporations with a full range of banking, investing,
asset management and other financial and risk management products and services. The company
provides unmatched convenience in the United States, serving approximately 57 million consumer
and small business relationships with more than 5,800 retail banking offices and approximately
18,000 ATMs and award-winning online banking with 29 million active users. Bank of America is
among the world's leading wealth management companies and is a global leader in corporate and
investment banking and trading across a broad range of asset classes, serving corporations,
governments, institutions and individuals around the world. Bank of America offers industry-leading
support to approximately 4 million small business owners through a suite of innovative, easy-to-use
online products and services. The company serves clients through operations in more than 40
countries. Bank of America Corporation stock (NYSE: BAC) is a component of the Dow Jones
Industrial Average and is listed on the New York Stock Exchange.

Balboa Insurance Group (“BIG”)

For over 60 years, BIG has provided risk management and loss mitigation solutions to financial
institutions in the mortgage and auto finance industries.

On 1 July 2008, BIG’s former parent, Countrywide Financial Corporation, was acquired by Bank of
America. On 1 January 2009, all BIG entities became part of Bank of America Insurance Group.

BIG is licensed in all 50 states with the exception of Louisiana, where it is licensed for surplus lines
only. BIG is headquartered in Irvine, California.

Companies in the BIG general insurance group:

• Balboa Insurance Company
• Meritplan Insurance Company
• Newport Insurance Company
• Newport E & S Insurance Company
• Balboa Warranty Services Company

Lender Products
• Lender Placed Insurance Programs
o Lender placed flood and flood gap
o Lender placed fire
o Lender placed wind and hailstorm
o Real Estate Owned property and liability coverage
o State of the art insurance tracking

• Auto Risk Mitigation

o Collateral Protection Insurance (for the lender in the event no other insurance is in place
at the time of the loss)
o RepoSource (proprietary insurance recovery program)
o TrackSource (proprietary insurance process flow tracking system)

Consumer Products
• Homeowners Insurance
• Renter Insurance
• Automobile Insurance
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MARKET RELEASE
4 February 2011
Selected financial information - Balboa Insurance Company and subsidiaries
Meritplan Insurance and Newport Insurance

Income Statement
2007 2008 2009
US$m US$m US$m
Gross written premium 1,767 1,919 1,942
Net earned premium 1,228 1,613 1,737
Losses & loss adjustment expenses 551 662 643
Underwriting expenses 408 408 386
Underwriting result 269 543 708
Investment income 72 118 47
Profit before tax 341 661 755
Tax 138 234 312
Profit after tax 203 427 443

Ratios
Claims ratio 44.9% 41.0% 37.0%
Expense ratio 33.2% 25.3% 22.2%
Combined ratio 78.1% 66.3% 59.2%

Net Earned Premiums by Product

Total
2009
US$m
Fire 611
Allied Lines 536
Homeowners 174
Auto physical damage 284
Private passenger auto liability 43
Other 89
Total 1,737

Balance Sheet
Balboa Insurance
2008 2009
US$m US$m
Assets
Investments & cash 2,361 2,963
Premiums receivable 110 46
Investment income 16 24
Taxes 60 89
Other assets 58 112
Total assets 2,605 3,234

Liabilities
Unearned premiums 850 919
Outstanding claims 279 308
Taxes 65 104
Other liabilities 153 161
Total liabilities 1,347 1,492

Shareholders equity 1,258 1,742

Source: Balboa Insurance Group NAIC filings