QBE readies for ‘extended recession’

Insurer QBE is preparing for a ‘deep’ recession by boosting capital, reducing gearing and improving earnings resilience.

QBE CEO Patrick Regan. Picture: Hollie Adams

QBE chief executive Pat Regan has warned of “a deep and extended recession” due to the COVID-19 pandemic as the insurance giant announced plans to bolster its capital, reduce gearing and improve earnings resilience through the crisis.

QBE says the moves, including a $1.2 billion raising, will position it with “demonstrable capital strength to navigate a broad range of severe economic scenarios”.

“It is difficult to see how it can be a sharp V-shaped recovery … it is (also) difficult not to foresee a deep and extended recession,” Mr Regan said.

QBE has been working for a number of weeks to position itself to withstand a range of scenarios, Mr Regan also revealed.

“We started from a good capital position but we think it is prudent to take pre-emptive and proactive steps now to take capital strength to an extremely strong position,” he said.

Its capital plan will position the insurer to withstand almost any scenario but to also take advantage of any opportunities that arise, he said.

The equity raising was announced as the insurer revealed trading conditions across the group strengthened during the first quarter, with strong premium rate momentum across all divisions.

“Despite the extraordinarily difficult landscape, QBE commenced the year with strong pricing momentum and underlying premium growth,” Mr Regan said.

“The capital plan we have outlined positions us to navigate this period of extreme uncertainty with demonstrable strength and gives us the flexibility to pursue organic growth opportunities that may arise over the medium term.”

QBE’s raising follows similar moves by other companies in recent weeks, including by Cochlear, Webjet, Flight Centre and Reece.

The raising includes a fully underwritten $US750m institutional placement at $8.25 a share, a 9.4 per cent discount to Thursday’s closing price of $9.11, as well as a $US75m retail share purchase plan offered to existing Australian and New Zealand shareholders.

The capital plan has already seen it de-risk its investment book by exiting all equities as well as emerging market and high yield debt. It has taken out additional reinsurance and embarked on more targeted corn price hedging to counter the impact of oil price weakness, in “pre-emptive and decisive action,” it said.

Group-wide premium rate increases averaged 8 per cent in the quarter, up from 4 per cent in the prior corresponding period. While strong premium rate momentum was seen across all divisions, it was particularly evident in North America and international, it said.

Gross written premium increased by more than 9 per cent to $US4.5bn, reflecting premium rate increases coupled with solid volume growth assisted by improved retention in every division.