Price rises and new cover boost QBE’s first quarter

Russia’s invasion of Ukraine is expected to cost QBE $100m, but the listed insurer says costs from catastrophes are tracking in line with expectations.

QBE group chief executive Andrew Horton said despite a number of natural and political catastrophes there was “positive momentum” throughout the business. Picture: Britta Campion

Russia’s invasion of Ukraine is expected to cost QBE $100m, but the listed insurer says its costs from catastrophes are tracking “in line” with expectations.

QBE group chief executive Andrew Horton said despite a number of natural and political catastrophes there was “positive momentum” throughout the business.

“The tragic loss of life (in Ukraine) is deeply concerning,” he said.

“QBE currently expects to have some exposure to the broader conflict through a number of lines such as political violence, political risk and aviation (insurance).”

At its AGM on Thursday QBE revealed price rises across its policies were on the march, with a 7.9 per cent lift in renewal rate increases as higher prices are passed through to customers.

However, QBE noted growth ex-rate was “substantial”, up 18 per cent, pointing to strong business in the insurer’s crop and reinsurance lines as supporting the results.

“As discussed at the recent 2021 result, our strategy centred around resilience and consistency should result in the business being capable of delivering a consistent low to mid- 90s combined ratio,” Mr Horton said.

QBE shares jumped on the news, closing up 5.5 per cent at $12.68.

This comes after Mr Horton flagged in February the insurer would hike prices above expected inflation of 4-5 per cent in the coming year.

At its annual results in February, QBE noted a 19 per cent lift in gross written premiums.

The insurer’s crop and QBE Re business are heavily weighted to the first quarter.

Excluding the crop business, gross written premium increased by 15 per cent, with an ex-rate growth of 10 per cent.

QBE’s crop policy premiums have proven particularly bumper for the insurer, lifting 15 per cent.

The insurer is now forecasting crop gross written premiums of circa $4.66bn in the financial year, up from $3.8bn last year.

The early indications for the latest financial year come after QBE delivered a $750m full year profit last year, underpinned by rate increase, improved retention, and a growth in written cover.

However, the profit came after a $1.5bn blowout in the 2020 financial year and after a string of hits that have buffeted the business.

QBE said its capital position had strengthened by three points to 1.75 times, with QBE group chairman Mike Wilkins AO noting it “remains in the upper bound of our target range of 1.6 to 1.8 times”.

Speaking at the insurer’s annual general meeting on Thursday Mr Wilkins said despite the capital position QBE would maintain its move to cut future dividends.

QBE will now pay out between 40-60 per cent of cash profit annually in move Mr Wilkins said was aimed at “providing greater flexibility to balance our desire to grow, to reward shareholders and to maintain a strong capital position”.

This comes on a past payout of 65 per cent adjusted cash profits.

QBE is also grappling with the costs of catastrophic weather across Australia and the UK.

The Insurance Council of Australia noted the floods that smashed the east coast of Australia have proven the most costly in records, with insurers hit with $3.5bn in claims.

Mr Wilkins said QBE supported insurance industry calls on government to “better inform communities of the risks that are present in their environments” and fund mitigation efforts.

“QBE supports these calls and believes that the time is right to have a proper national discussion of how we face into the future in a more confident and sustainable manner,” he said.

“Based on our current view, in FY22 we continue to expect a Group combined operating ratio that demonstrates improvement on the FY21 exit combined operating ratio of ~94 per cent.”

QBE said it had also entered into a deal, pending regulatory approvals, to reinsurance legacy North American Excess and Surplus lines for prior accident year liabilities.

The insurer said the deal was aimed at reducing exposure to further reserve volatility in the run-off portfolio, but will hit the full year underwriting result by $70m.

The insurer also noted it was repositioning its investment portfolios in the quarter, lifting risk free assets “materially” to nine per cent of assets.

This sees QBE hit with a negative asset risk free impact of $459m.

However, this was offset by a beneficial claims liability discount impact of $440m.