QBE to shrink US business, take restructuring hit

The insurer will roll off $US500m worth of customers from its North American business, in a bid to stem the issues flowing from the sector.

QBE will book a $US100m restructuring charge in 2024. Picture: Luis Enrique Ascui/AAP Image

QBE will walk away from $US500m ($750.5m) of North American business, with plans to sack up to 150 staff, as it looks to stem the bleeding from its troubled overseas operation after a strategic review.

In a market update on Wednesday, the ASX-listed insurer said it would book a $US100m ($149m) restructuring charge from the move, which the insurer said was aimed at refocusing “on those businesses which hold more meaningful market position, relevance and scale”.

QBE said it would now not renew mid-market policies from many North American customers “in accordance with applicable state regulations” which would see only a limited impact to the 2024 financial year results.

A more substantial impact will be felt in 2025.

A QBE spokeswoman said the insurer would reduce its North American workforce by 5 per cent in response to the move.

“We are working with our impacted colleagues to ensure they have the support and resources they need through the transition,” she said.

QBE shares fell on the news, ending 4.3 per cent lower at $17.59 each.

The move comes after a string of losses from QBE’s North American operations and in the wake of several years of the insurer attempting to scale back its exposure to poor performing lines in the region.

QBE reported a 103.7 combined operating ratio from its North American operations at the full year.

The move marks a pullback from North America by QBE, which launched a highly touted foray into the market in 2018 under former chief executive Pat Reagan.

This came as QBE walked away from its personal lines business in North America, focusing on its mid-market business as well as the insurers crop cover operations.

The insurer also offered an update on its first-half performance, ahead of their publication in August, with QBE telling investors it would continue to grow premiums at “mid-single digits”.

QBE told investors it had lifted premiums 3 per cent, on a constant currency basis, now hovering around $US13.1bn.

It said net insurance revenue would come in around $US8.4bn.

The insurer, which boasts exposure to Australia, Europe, North America, and Asia, said catastrophe costs had come in below expectations.

This sees it face just $US500m in costs against a $US609m budget.

However, QBE disclosed it expected to face up to $225m in costs from its exposure to “the ongoing civil unrest in New Caledonia”.

QBE said its prior year adverse claims development was “modest”.

Investment returns were also improved from the first quarter, expected to close the half at $US643m, up from $US406m.

This saw QBE book a $US76m favourable credit impact and a $104m risk asset result.

QBE said it expected to book a 93.5 per cent combined operating ratio.

Analysts welcomed QBE’s move, with Citi noting the move away “should be taken positively”.

Citi analyst Nigel Pittaway said he had been “sceptical of QBE’s mid-market strategy” for a long time.

“We view today’s announcement as almost inevitable,” he said.

But Mr Pittaway said QBE’s earnings update presented a “slight miss”.

“QBE is packaging up essentially good news – finally quitting the long standing but ultimately underperforming mid-market exercise – with less good news,” he said.

“At this stage, we think the relief of finally ending this longstanding underperforming business should outweigh the minor negatives on numbers, although the $US100m restructuring charge, lower future premium and potential expense overruns are also factors to consider.”