QBE Insurance earnings results

CommSec CommSec

 

25 February 2019

Results ($m)

Full Year 2018

Full Year 2017

Change

Gross Written Premium

 13,657

13,328

+2%

Net Earned Premium 

 11,640

11,351

+3%

Combined Operating Ratio  (%)

 95.7

103.9

-8.2bps

Net Cash Profit (Loss) After Tax 

 715

 (262)

 -

Consensus

 718

 

 

Net Profit after Tax 

 390

 (1,249)

 -

Interim Dividend ($)

 0.28

0.04

 600%

QBE Insurance (QBE) profit recovers on lower claim costs and improving efficiencies

 

Results

  • QBE Insurance has reported full year ‘’underlying’ or cash profit after tax of $715 million, compared to a loss of $262 million in the previous year. The net profit after tax of $390 million reflected a range of one-off results, including the impact of foreign exchange costs.

Drivers

  • QBE’s performance over the year was a result of improved claims costs across all its businesses, combined with meaningfully lower catastrophe claims. This outcome was reflected in the improvement of the combined operating ratio - a measure which reflects costs, such as expenses and claims, as a proportion of the value of the premium collected by the insurer. QBE’s FY combined operating ratio (COR) improved from 104% in 2017, to 95.7% in 2018. A positive contribution to this outcome was the group-wide premium rate increases which averaged 5.0% compared with 1.8% in 2017, with improved pricing conditions seen in all divisions.
  • Gross written premium increased by 3% in constant currency terms, which removes the impact of currency movements. This improved premium growth in North American and Europe, although this was balanced by higher costs in the Asia Pacific Operations. Premium rates fell in the Australian & New Zealand Operations driven by legislative changes in NSW CTP that drove a significant reduction. Excluding the impact of CTP premium rate reductions, gross written premium increased 5%. Asia Pacific gross written premium fell 15% in constant currency terms, reflecting a range of factors including exiting from businesses across the region.
  • Insurance profit rose from $62 million in the prior year to $861 million in 2018, due to a significant improvement in underwriting profitability, partly offset by lower investment income. The fall in net investment and other income, fell to $547 million in 2018, compared with $758 million in 2017, in part reflecting significant market volatility during the final quarter of 2018. At the same time costs rose reflecting the impact of foreign exchange movements in additional to one-off costs.

Dividend

  • QBE declared a final dividend of $0.28 compared to $0.04 in the pcp. This brings the full year 2018 payment to $0.50 compared to $0.26 in 2017.  In addition to $333 million of shares repurchased through the its share buyback, QBE has returned more than $1 billion to shareholders in 2018.  

Outlook

  • QBE remains focussed on improving efficiencies and simplifying its business which see the group reduce costs by a total of $130 million over the next three years. . QBE is targeting a range of 95.0%-97.0% for the group combined operating ratio over the medium term and a net investment return in the order of 3.0% to 3.5%.

Share price

  • QBE shares have risen 3% with investors encouraged by the progress made in simplifying its business by exiting under-performing businesses in addition to meeting its forecasts. 

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