QBE holds fire on investor returns as catastrophe costs weigh on global insurer

The insurer, led by Andrew Horton, plans to increase premiums revenue by a hefty 10 per cent after falling short of analyst profit expectations.

QBE’s US business has again created trouble for the global listed insurer, which has been sandwiched between rising costs and natural disasters despite attempts to push through double-digit price rises to customers.

Unveiling more than a six-fold jump in underlying cash profit of $US405m ($613m) for the six months to June 30 from a year earlier, analysts and investors noted with caution the decision to hand out an interim dividend equating to 35 per cent of profit back to shareholders.

QBE said it would retain funds given uncertainty around the year ahead, on top of the need to bankroll plans to grow the insurer’s cyber business.

Profit, which fell below consensus estimates of $US502m, came well above QBE’s first half profit last year of just $66m, which was restated after the insurer rolled out an accounting change.

QBE chief executive Andrew Horton said the result was disappointing but reinforced the impetus for the insurer’s plans to roll back its presence in American property markets.

“The US is a much more challenged business,” he said on Thursday.

Mr Horton noted QBE’s US operations have been so choppy for the insurer, given the changing views “about our appetite and how we present ourselves”.

QBE launched its American business in 1991, opening the reinsurance operations in the country two years later before a rapid expansion across the Americas.

The company has in recent years unwound chunks of its American business, with its latest moves to offload $1.9bn of reserves to NASDAQ listed insurer Enstar.

QBE’s results showed the North American business saw a 106.9 per cent core operating ratio, with costs exceeding revenues.

The catastrophe claims ratio worsened to 8.7 per cent, up from 6.2 per cent posted last year.

QBE reported $US699m in catastrophe costs, with storms in New Zealand and North America adding to the bill.

“We’re trying to get more stability in the (US) business in how we present ourselves,” Mr Horton said.

“It’s a much simpler business than it ever has been.”

The listed global insurer has flagged plans to reduce its exposure to catastrophe costs after its annual profit fell short of analyst expectations, on the back of two major weather events which dragged up payouts.

Mr Horton said QBE was focused on “resilience and reducing volatility, which should drive more consistent outcomes for our people, customers and stakeholders”.

Gross written premiums surged 13 per cent in the first half, driven by a 10.2 per cent repricing on top of organic growth.

Premiums in Australia Pacific increased above trend, hitting 11.8 per cent.

But the combined operating ratio across QBE worsened to 98.8 per cent, reflecting the added costs of a number of natural catastrophes in New Zealand and the US.

This was up on the 94.9 per cent posted in the prior period.

The insurer said it was aiming to take its combined operating ratio to circa 94.5 per cent and would target a 10 per cent increase in gross premiums across the year.

QBE also announced Peter Burton would take on the role of chief underwriting officer.

QBE declared a 14c dividend, at a 35 per cent payout of profits, below its 40-60 per cent pay out range.

Barrenjoey analyst Andrew Adams said the results were a miss, driven by tax, warning there was “more work to do” for QBE.

Shares in QBE fell 1.2 per cent to $15.41 in a slightly higher market.

Allan Gray chief investment officer Simon Mawhinney, who holds QBE as the largest insurer in the company’s portfolio, said the results were “very messy”, noting they showed the challenges insurers were facing responding to inflation and reinsurance costs.

“The longer term view which Andrew Horton reiterated seems reasonable; it does feel like the thing QBE should be able to achieve,” he said.

QBE has faced several years of troubled profits, posting a $1.5bn loss in 2020 on the back of exposures to claims from the Covid-19 pandemic.

A complex insurer, QBE has often found itself caught up in events across the world.

When Russia invaded Ukraine, QBE booked a $US75m net impact on the back of its exposure to political violence and cover the insurer had written for jets.

The insurer also booked $75m last year to cover remediation and interest costs after a probe revealed it had mispriced policies.

Originally published as QBE holds fire on investor returns as catastrophe costs weigh on global insurer