QBE to keep moving up its premiums in order to avoid losses

Listed insurer QBE says it is making good progress by dropping problematic customers and ditching underperforming portfolios but will continue pushing through single-digit price rises.

Australia’s biggest listed commercial insurer, QBE, will increase its use of AI as it continues its pullback from risky business lines.

In a market update on Friday, QBE said it had pushed through increases to premiums at an average of 7.3 per cent across its global operations and key markets in America, Europe, and Australia.

It said it would continue pushing through price rises in the “mid-single digits” as it attempted to head off losses and maintain its combined operating ratio around at least 93.5 per cent.

In the update posted ahead of QBE’s annual general meeting, the insurer revealed its price rises had been steepest for Australian customers – where the insurer is a key player in the auto and property sector – with premium rate increases of 11 per cent.

In North America, where QBE has sought to reduce its exposure to property markets and concentrate on commercial and crop cover, the insurer reported premium increases were tracking at 10.9 per cent.

QBE said excluding its rate increases, premiums were down 2 per cent due to a drop off in crop cover and the continued exit of portfolios across North America and Australia.

It said excluding its crop business, which often faces choppy premiums due to local harvests, its gross written premium was up 9 per cent, or 3 per cent if price rises were excluded.

QBE group chief executive Andrew Horton told the insurer’s AGM it would continue its “portfolio optimisation initiatives” – a key plank of reforms he pushed through after taking the top job at the company in September 2021.

Mr Horton said this was resulting in QBE reducing its property portfolio “where we have improved balance across the group and reduced potential earnings volatility”.

QBE has faced blowouts from its property portfolio, which the company sought to expand in recent years in a bid to capture market share.

“Our efforts over the near term will continue to focus on reducing volatility, which we expect will further support consistent outcomes for our customers, shareholders and people,” Mr Horton said.

“While I am pleased with the progress we are making, I believe we can continue to improve our underwriting performance, and this remains a priority.”

The QBE said the insurer was focused on improving the performance from its North American business after “an unsatisfactory result for 2023”.

“We have made the business simpler, exited a number of underperforming property portfolios, and we expect performance to improve with the run-off of non core lines,” Mr Horton said.

He told investors the insurer had seen a “good start to the year” with markets still supportive of its price push and retention was strong across the insurer’s lines.

Mr Horton said the insurer planned to accelerate its use of AI across the business, after investing in generative platform Snorkel AI in January.

But he said QBE was being “very cautious” about the rollout of AI and that the company was restricting what information its systems could access.

QBE chair Mike Wilkins said the insurer was putting “some guard rails” around AI, to protect customers and the organisation, saying he was conscious its systems could develop a bias.

“We are applying some common sense,” he said.

In its update on Friday, QBE said its natural catastrophe losses were tracking in line with assumptions, with claims of about $US300m ($453m) set against the insurer’s $609m budget for the first half.

Storms in Australia and North American were the key driver of claims for QBE in the quarter.

QBE said it was experiencing a modest amount of developments from the previous year, mostly related to extreme weather events that hit Europe in 2023, including a major hail event in Italy.

Mr Wilkins said the persistence of natural catastrophes was key to the rising cost of insurance.

Citi analyst Nigel Pittaway said QBE’s update was “largely as we expected”, noting the insurer was continuing momentum in premium growth.

“The update confirms QBE is on track for its FY guidance but lacks the element of outperformance some appeared to be looking for,” he said.

But Jarden analyst Kieren Chidgey said QBE’s outlook was improving.

QBE’s share price gained about 0.1 per cent on Friday to close up 2c at $17.61.

Originally published as QBE to keep moving up its premiums in order to avoid losses