Natural disasters put QBE on course for operating loss

Insurer QBE is likely to be forced into the red following a costly run of natural catastrophes this year.

Hurricane Irma left a trail of destruction in Florida. Pic: AFP

Sydney-based insurer QBE has warned 2017 will likely be “the costliest year in the history of the global insurance industry” and will push the company into the red following the high number of “extreme global catastrophe” losses throughout the year so far.

The $14 billion global insurance giant (QBE) today said the run of natural disasters had pushed the company to increase its claims allowance for catastrophes and large individual claims, which usually relate to commercial operations. The increased claims allowance, which was pushed out to $1.75 billion in the final quarter of the year alone, will likely push the company into an operating loss this year.

QBE said disasters such as Cyclone Debbie, which hit Queensland in March this year, the recent Hurricanes Harvey, Irma and Maria, which devastated the Caribbean, Texas and Florida, and last month’s earthquake in central Mexico, had all resulted in significant claims for the company.

“The catastrophic events over the past month have caused a tragic loss of life and substantial and widespread property and infrastructure damage,” QBE chief executive John Neal said. “Our thoughts are with those affected by these devastating events including our customers, business partners and employees.”

Due to the increased catastrophe and large claims allowance, QBE will take a $600 million hit to the bottom line. This, the company said, will see the group’s combined operating ratio rise to between 100 and 102 per cent — meaning the company will pay out as much as $1.02 for every $1.00 of insurance premiums it collects.

QBE shares fell as much as 5 per cent to an 11-month low of $9.65. By 10.30am (AEDT) the stock was down 4.3 per cent at $9.75.

Hurricane Irma churned through Florida last month, bringing with it winds over 200km/h just weeks after Hurricane Harvey caused widespread flooding across Texas. It was the first recorded instance of two category four hurricanes hitting the US in the same season, fuelled by above average water temperatures.

Hurricane Maria smashes through the Caribbean.

Earlier this year, Geoff Summerhayes, an executive board member of the Australian Prudential Regulation Authority which regulates insurance and financial companies, said climate change was a “material” risk to companies and warned that company directors could be liable if they failed to incorporate climate change risks into their financial models and disclose the risks they face.

QBE, which operates in 37 countries, is the only major Australian insurer to have a substantial business in the US.

“While it is too early to speculate how much reinsurance and primary insurance pricing will rise as a result of recent catastrophe experience, QBE is well placed to benefit from price rises with much of our reinsurance programs already purchased for 2018,” Mr Neal said.

Last month it was announced Mr Neal will be replaced by his former chief financial officer Patrick Regan following a boardroom scandal and a surprise profit downgrade earlier this year.

The prior earnings downgrade in June came just ahead of the group’s half-yearly results, caused by a small claims blowout in Latin America and Asia after an increase marine and fire damages in Hong Kong and Singapore, a poor crop insurance result in Ecuador and Chile, where floods have gripped the countries, and continued problems in the Colombian third party motor insurance business, which has been plagued by fraud, gang car use and hospital fee gouging.

The company has since split its emerging markets business into separate Asia and Latin American divisions, and is considering exiting any number of markets in Latin America.