Upbeat QBE lifts cash profit 35pc

QBE says it’s confident of its improved earnings resilience, as it posted a 35pc jump in half year cash profit.

QBE Boss Pat Regan. Picture: Britta Campion

QBE chief executive Pat Regan is counting on higher insurance premiums more than offsetting the impact of falling interest rates around the globe and says the insurer is not even halfway through the turnaround program that he kicked off eighteen months ago.

Speaking to The Australian after QBE handed down a 35 per cent lift in cash profit for the six months through June, Mr Regan also said he was more focused on “making a better version of the current QBE” than looking to grow the business through acquisitions.

“It’s tough buying and integrating [new business] as well as improving the current business. Doing all of that at the same time is difficult, so as long as there’s good stuff to be done here, and better customer outcomes to give, then we’re probably better off doing that,” Mr Regan said.

Commenting on the US-China trade war, Mr Regan pointed to its direct impact on QBE.

“The insurance we do is long-term correlated to GDP growth so over the long term you’d rather it be growing a bit higher. And clearly the longer the trade war goes on the more impact it has on global growth.

“In the shorter term, China is one of the bigger purchasers of soy beans and we provide crop insurance so that has some impact on our business … but we’ve taken out some hedge protection against that,” he said.

QBE posted a cash profit after tax of $US520 million ($767.8m) in the first half, with the result boosted by stronger investment returns over the period. But falling interest rates would dampen returns in the investment book going forward, Mr Regan warned.

“Since the start of the year, interest rates around the world are down about 70 basis points, which is a massive fall from what were already historically low levels to start with, and not really what any of us thought would happen eight or nine months ago.

“There are some things you can do to offset that but unless you take a lot more risk, the amount of investment income you get is lower. So that means we’ve just got to make more money from underwriting. And that’s the program of work we’ve been doing.

“Luckily, the pricing environment’s a bit better so you would hope what we lose on the investment side we would gain, at least, maybe plus a bit on the pricing side,” Mr Regan said.

Group-wide premium rate increases averaged 4.7 per cent over the six-month period, the insurer said, while the investment portfolio delivered an annualised net return of 6.8 per cent, including mark-to-market gains. This was up from 2.1 per cent in the prior period.

Statutory net profit jumped 29 per cent to $US463m but revenue dipped 2 per cent to $US7.23 billion.

The result was adversely impacted by a reduced contribution from its lenders’ mortgage insurance division and its North American crop business, which suffered an unusually wet spring season. This saw its combined operating ratio increase to 58.5 per cent from 50.6 per cent in the prior period.

Mr Regan said the LMI book had been hit by lower lending volumes, but that the housing market declines “have bottomed out”.

“I don’t know that we’re back to the boom years but it feels like we’re not in the decline years anymore. As everyone knows, there’s still the tax stimulus to come through, employment is very high and interest rates are very low, so it feels like there’s a reasonable backdrop for the housing market. I don’t know whether it will go up a lot but you would be surprised if it went down from here,” Mr Regan said.

QBE will pay a dividend of $A0.25c per share, up 14 per cent on the year prior. Combined with the $US174m of shares repurchased through an on-market buyback, total shareholder returns for the half are up 27 per cent to $A503m.

QBE closed down 1.1 per cent at $11.95, after earlier jumping as much as 3 per cent.