QBE flags $US1.5bn annual net loss, final dividend in doubt
The insurance group’s shares have slumped 12.5 per cent as it warned of a $US1.5bn full-year loss.
QBE Insurance’s final dividend is in doubt after it signalled a full-year loss of $US1.5bn ($2bn), due to its bottom line being hit by large writedowns, COVID-19 costs and elevated catastrophe costs.
The under-pressure company — which dramatically dumped chief executive Pat Regan in September over a conduct issue — updated investors on its annual earnings expectations in an ASX statement on Friday. The profit warning had several analysts axing their expectations that QBE would pay a final 2020 dividend.
Investors pummelled QBE’s shares, which slumped as low as $8.69, before closing down 12.5 per cent at $8.71 on Friday.
QBE said it expects a statutory net loss of $US1.5bn for the year ended December 31, including a $US520m non-cash writedown of North America goodwill and deferred tax assets, and $US100m of technology and real estate related writedowns.
The insurer also noted its prescribed capital amount (PCA) would be above the midpoint of its 1.6-1.8 times target range, and it expects its pro forma debt to equity ratio to rise to about 33 per cent but stay within a targeted 25 per cent to 35 per cent range.
Velocity Trade analyst Brett Le Mesurier said the sombre QBE earnings update prompted him to remove a final dividend from his expectations.
“The update has been eagerly anticipated and its contents are worse than expected. The struggle gets harder,” he added.
Bell Potter analyst TS Lim downgraded QBE to a “hold” rating and also noted the insurer was unlikely to declare a dividend when it hands down its full-year results in February.
“While the net impact on the PCA multiple appears manageable (expected to be above the midpoint of the 1.6-1.8x target range), we don’t think QBE is in a position now to pay a final dividend in 2020,” he said.
Mr Lim also lowered his QBE price target to $9.50.
While the Australian Prudential Regulation Authority this week removed a cap limiting dividends for financial companies to 50 per cent of statutory profits, it is still keeping close watch on capital buffers.
“In determining the appropriate level of dividends, APRA expects ADIs (authorised deposit taking institutions) and insurers to remain vigilant, regularly assess their financial resilience through stress testing, and undertake a rigorous approach to recovery planning,” APRA said.
QBE interim chief executive Richard Pryce said: “While I am very disappointed with the headline statutory loss, I am increasingly confident about the pricing cycle, particularly in the northern hemisphere, and the outlook for the underlying business.
“Premium rate momentum accelerated in North America and international during third quarter 2020 and the full-year 2020 attritional claims ratio is expected to improve further.”
He said despite the departure of Mr Regan, QBE’s strategy remained largely the same, although he was targeting higher returns.
“I’m not envisaging any change in the group’s strategic agenda for 2021, however, I think we can generate a better return from our cell (business) review during 2021 by being more intensely focused on the poorer performing cells and more action orientated,” Mr Pryce added.
“In addition we are going to accelerate the roll out of our pricing tools.”
The revised earnings expectations by QBE included the adverse impact of US wildfire and hurricane season where there was a record number of named storm landfalls. The insurer also highlighted storm activity in Australia as being worse than expected in the fourth quarter.
On the issue of business interruption insurance claims stemming from COVID-19, where QBE has exposure in the United Kingdom and Australia to unfavourable test case rulings, Mr Pryce said it was “too premature” to outline worst case scenarios for the latter market.
“We have a very small number of claims … We are looking at some estimates but we are not in a position to disclose anything.
“The difference between us and others, is we feel confident about our reinsurance protection.”
QBE does expect to make a small provision next year for casualty insurance claims, including workers’ compensation, linked to the pandemic in the UK and Europe.
The insurer’s annual result is being impacted by a pre-tax hit of $US470m for COVID-19 costs, $US130m of elevated catastrophe costs exceeding its $US550m natural disaster allowance, and $US360m of prior accident year claims development.
QBE also said full-year net investment income had rebounded and was expected to be $US140m, compared to a loss of $US90m in the first half.
The group reported an interim adjusted net cash loss of $US666m, and now expects to report an annual adjusted net cash loss of $US780m.
Mr Pryce said going into 2021 his focus was to ensure QBE took advantage of favourable market conditions.
“Our balance sheet remains strong and able to fund expected growth. QBE is probably growing now for the first time it has probably for a decade because we don’t have the impact of any (asset) disposals.”
Asked if he was interested in becoming QBE’s permanent chief executive, Mr Pryce indicated it was still his intention to retire once a new boss was on deck.
“That’s always been my plan,” he said of his intention to retire. Mr Pryce was convinced to reverse his decision to lead QBE while the global CEO search continued. “I’m sure they can find someone a lot better than me to do the job.
“That’s a conversation you should have with the chairman.”
The interim appointment saw Mike Wilkins return to his position as chairman, rather than executive chairman.
QBE misled half a million customers, lawsuit alleges
The insurance major is accused of misleading customers on discounts for products including home, contents and car protection.
NAB boss urges ‘massive cultural shift’, tells staff to step up
CEO Andrew Irvine has set a bold target for it to become the ‘most customer-centric company’ in Australia and New Zealand, as he lamented that improved momentum had not led to better customer advocacy.