QBE readies for more frequent natural disasters

QBE says it will drive ‘appropriate margin expansion’ this year after it increased its net catastrophe allowance by 25pc.

Interim QBE chief executive Richard Pryce. The insurer has increased its net catastrophe allowance by 25 per cent.

QBE says it will drive “appropriate margin expansion” this year after it increased its net catastrophe allowance by 25 per cent in anticipation of more frequent natural disasters.

In an update to the market, QBE said it had finalised the renewal of its 2021 reinsurance program at slightly better terms than it had expected.

The insurer’s net catastrophe allowance jumped to $US685m for 2021, up from $US550m in 2020.

The probability of it exceeding its allowance in 2021 was lower than in the year prior, it said.

“I am pleased that we have renewed the group’s reinsurance structure broadly consistent with the expiring program and at terms slightly better than budget,” QBE interim chief executive Richard Pryce said.

“The reinsurance renewal (including increased catastrophe allowance) has been factored into our pricing models and we remain confident of driving appropriate margin expansion in 2021,” he said.

QBE lifted its main catastrophe cover to $US3.4bn, up from $US3.3bn in 2020.

Its catastrophe aggregate limit was unchanged at $US500m with an attachment of $US625m, up from $US545m in 2020.

Its per-event deductible, meanwhile, doubled from $US5m to $US10m.

QBE’s finalisation of its reinsurance program comes as the sector braces for a slew of natural disasters this year.

The east coast has already been battered by storm activity this month and there have been warnings of escalating flood risks due to the above-average rainfall expected through the La Nina weather event.

QBE’s reinsurance update and its commitment to margin expansion comes after it warned last month that it would take a $US1.5bn loss 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.

Mr Pryce at the time said he was “very disappointed” with the statutory loss but expressed confidence in 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 told investors in December.

As QBE hunts for a new chief executive following the abrupt exit of Pat Regan, Mr Pryce said he was focused on making sure the insurer took advantage of favourable market conditions.

Analysts at Macquarie last week predicted that the hardening pricing cycle would run for another 12-18 months.

Fellow insurer IAG last week finalised its own reinsurance for 2021, locking in main catastrophe cover for losses up to $10bn.

QBE shares closed down 1.1 per cent on Monday at $8.47, broadly in line with the S&P/ASX 200 Index.