QBE warns inflation not over yet, signals premium price rises

Hot inflation has continued to drive price rises to QBE’s Australian customers, with the global insurer warning it will continue doling out hikes in the coming year.

QBE expects to lose $US200m from the California fires that destroyed parts of Los Angeles recently. Picture: AFP

Hot inflation has continued to drive price rises to QBE’s Australian customers, with the global insurer warning it will continue doling out price rises in the coming year after ruling off a 31 per cent full-year profit jump topping $US1.77bn ($2.76bn).

The Australian commercial insurer, which boasts operations in the US and Europe as key markets, said its global business had returned to growth, with gross written premiums, the core measure of QBE’s insurance book, up 3 per cent, “in line with expectations”.

QBE said it had also continued passing through premium increases to existing customers, with rate increase of about 5.5 per cent across its markets.

But the pace of premium rises has slowed from the prior year, after QBE handed out 9.7 per cent rate increases in response to red hot inflation.

The insurer handed its Australia Pacific customers rate increases on average of 8.4 per cent. This was compared to 7.3 per cent across its North American business and 3.7 per cent across QBE’s broader international operations.

QBE group chief executive Andrew Horton said the rise in premiums for Australian customers was a reflection of the inflated costs to repair and replace, alongside continued natural catastrophe losses.

QBE said it expected to grow its premium in the “mid-single digits” in the coming year.

Mr Horton said this in part reflected expectations that inflation and natural catastrophes would continue driving up the price to repair or replace things.

QBE Group CEO Andrew Horton. Picture: Britta Campion

He said QBE expected inflation to continue into the coming year, despite the Reserve Bank’s move to lower the cash rate by 25 basis points, citing improvement in circumstances.

“We’re planning on inflation to come down, not particularly fast, this year,” Mr Horton said.

“We’ve got to see what’s going on geopolitically with tariffs and other things and whether that’s going to stall the reduction in inflation if they bite or not.”

Mr Horton said QBE’s Australian business, which is heavily tilted to commercial cover but boasts a small retail component covering homes and cars, was important to the global insurer.

QBE, while founded in Australia, reports its earnings in US dollars due to its overseas exposure.

Mr Horton said QBE was committed to Australia, after first launching in 1886.

“It’s important to us, it’s a relatively competitive market for consumer, we like being in it and want to improve it and work with the government,” he said.

His comments come after the insurance sector was criticised by Peter Dutton, with the Opposition Leader saying the sector had to “bring down the insurance premiums for households and small businesses”.

QBE’s Australian business saw the worst natural catastrophes for the insurer, with wild weather accounting for 7.5 per cent of net ­insurance revenue. This was compared to QBE’s milder natural cat­astrophe losses globally, which fell to 5.9 per cent, from 6.6 per cent of net insurance revenue last year.

Opposition Leader Peter Dutton. Picture: NewsWire / John Gass

Mr Horton said QBE’s retreat from its US retail business had kept down costs from the California bushfires, with about $US200m in net exposures from the disaster.

QBE boasts a significant North American business, but the insurer has been rapidly scaling back its mid-market offerings in the country amid upsets and wild weather.

Mr Horton said historically QBE’s exposure to a disaster such as the LA fires would be almost double to where it was today.

“That’s an indication of our remediation strategy,” he said.

Mr Horton also said a reasonable amount of the loss would come from QBE’s reinsurance business, where it picked up the bills of other insurers.

He said QBE was keen to grow the reinsurance arm, which currently accounted for about 10 per cent of the total business.

QBE’s results resulted in the insurer revealing a bulging capital pile, with analysts questioning why the insurer did not look to hand out more cash to investors.

Citi analyst Nigel Pittaway said QBE was “openly about returning capital but has yet to announce a formal buyback”.

Barrenjoey analyst Andrew Adams noted expectations that QBE would lob a $1.5bn buyback.

But Mr Horton said QBE was retaining the cash to invest in organic growth. “I’m not interested in acquiring things, it’s always tough to do,” he said.

The insurer is targeting a combined operating ratio of 92.5 per cent, down on the 93.1 per cent delivered at the full year.

QBE declared a final dividend of 63c a share, of which 12.6c was franked, taking its full-year payout to 87c a share.

This reflects QBE paying out 50 per cent of its full-year earnings, up from 45 per cent last year.

QBE shares rose 3 per cent to $20.68 on Friday.

Originally published as QBE warns inflation not over yet, signals premium price rises