QBE slashes its outlook as claims pile up from US and NZ storms

QBE says its combined operating ratio will worsen after a large number of claims from New Zealand and the United States were lodged in recent months.

QBE chairman Michael Wilkins and chief executive Andrew Horton at the Sydney AGM on Friday. Picture: John Feder

Shares in ASX-listed insurer QBE slid after the company revealed ballooning losses from natural catastrophe events, and said its combined operating ratio faced a material worsening after several volatile months.

In a market update on Friday ahead of the insurer’s annual general meeting, QBE revealed its combined operating ratio was set to slide from 93.5 per cent to 94.5 per cent as the underwriting performance sagged.

This comes after QBE faced almost $US480m ($716m) in catastrophe costs in the first quarter, tracking towards the top of the $US535m allowance intended to cover losses in the first half of the year.

This leaves $640m to cover the second half of the year’s losses in QBE’s total catastrophe budget.

QBE indicated it would book an extra $US130m in reserves to cover an adverse development on natural catastrophe events that hit late last year, including the Winter Storm Elliot, which savaged a large stretch of the US in December.

In response to the high natural catastrophe costs, QBE indicated it planned to deliver constant current premium growth of about 10 per cent – an increase on the company’s previous guidance of “mid to high single digits”.

QBE chief executive Andrew Horton said QBE was making a “sensible” decision.

QBE revealed it had booked an 11 per cent lift in gross written premium in the first quarter on the previous corresponding period.

Mr Horton said QBE was pricing in inflation, which the insurer had expected to be “more persistent than some central banks and governments around the world” had anticipated.

Renewals came in 10 per cent higher on average, in a lift QBE noted was supported by a “re-acceleration” across property classes and the firm’s reinsurance business, which steps in to cover insurance losses for other insurers.

QBE’s Australia Pacific business had the steepest increase in gross written premiums, climbing 11.3 per cent in the quarter.

Mr Horton told The Weekend Australian the firm was trying to mitigate against booking another worsening of its combined operating ratio.

“Rates are going up more than we had originally planned … property is going up more than we thought,” he said.

QBE is also waiting to see the outcome of the Australian Securities and Investments Commission’s investigation into the insurer over historic failures to pass on pricing to customers.

Arguments closed in a court fight between ASIC and IAG on Thursday, after the regulator took aim at the fellow listed insurer over its pricing failures.

QBE has previously revealed a $US75m provision for its pricing failures.

Mr Horton told The Weekend Australian QBE was “still in dialogue” with ASIC, and discussions were proving “constructive” as the regu­lator conducted its “due diligence” on the insurer’s past ­pricing.

Citi analyst Nigel Pittaway said the worsening of QBE’s combined operating ratio was disappointing.

“While operational performance ex-CATs is largely tracking in line, given the company’s track record, we are not totally convinced the market will completely look through this in the short term,” he said.

Shares in QBE fell 3.63 per cent to $14.61 by market close on Friday.

QBE also faced shareholders in its annual general meeting on Friday, during which all directors were returned to the board and the agenda items were approved.

QBE chairman Mike Wilkins received a 6 per cent protest vote by proxies in early voting, and several shareholders challenged the veteran insurer over the company’s continued cover of coal, gas and oil projects.

Mr Wilkins said QBE was on “our path to getting to net zero”.

Originally published as QBE slashes its outlook as claims pile up from US and NZ storms