QBE shares surge as ‘perfect storm’ propels earnings

QBE Group’s interim chief executive Richard Pryce says the business is benefiting from a global rise in insurance premiums, a trend that helped drive a sharp rebound in profits and put a rocket under the company’s share price.

QBE shares surged more than 8 per cent on Thursday, after the insurer smashed market expectations with a $US441 million ($599 million) half-year profit, up from a loss last year, and an upbeat outlook statement.

Investors welcomed the insurer’s strong half-year profit result as well as its upbeat outlook.Credit:Bloomberg

Shareholders will pocket a 11c dividend, up from 4c last year, as the market welcomed signs the company’s long-running efforts to improve performance were bearing fruit.

Mr Pryce, delivering his final result as interim boss before handing over to incoming CEO Andrew Horton next month, said the worldwide trend of rising insurance premium rates had helped drive QBE’s rebound.

“Premium rate increases have continued in virtually all our products and geographies, and have contributed to the strong recovery in QBE’s underwriting profitability during the first half of 2021,” said Mr Pryce, who handed down the result from London.

In early afternoon trading QBE shares were up 8.3 per cent to $12.54, as investors welcomed the positive result from a company that over the years has had a reputation for unpleasant surprises.

Amid a global rise in insurance premiums – known as a “hardening” in industry jargon – QBE said premium rates increased by an average of 9.7 per cent across the company.

QBE’s combined operating ratio – which compares claims and other expenses to total premiums, and is a key measure of profitability – was 93.3 per cent, compared with 103.4 per cent last year, when it was affected by COVID-19 claims. A ratio above 100 per cent indicates the underwriting activity is unprofitable.

Chief investment officer at Atlas Funds Management, Hugh Dive, said that as well as the premium growth, QBE’s bottom line had also benefited from lower claims. It also released reserves that had previously been set aside to cover claims.

“It’s a bit of a perfect storm for them,” Mr Dive said.

The result came despite the global insurance industry experiencing another six months of high catastrophe costs, including devastating winter storms in Texas during February, and flooding in East Coast Australia.

Winter storm Uri in Texas in February this year drove up catastrophe costs for QBE.Credit:Getty Images

Chief financial officer Inder Singh said the artic temperatures in Texas unleashed by the winter storm Uri, this February, drove record insurance claims. He said the winter storm helped make the first quarter of 2021 the second worst March quarter for insurance claims in history, behind 1994, which included a deadly earthquake in Los Angeles.

QBE’s catastrophe costs for the half were $US462 million, 1.6 per cent above its increased allowance. Mr Pryce said the rising disaster costs were concerning and QBE had not increased its catastrophe exposure in the half, as pricing was “adequate rather than margin enhancing.”

Mr Pryce said there were signs the trend of briskly rising insurance premiums was “moderating,” but the company still delivered an optimistic outlook for the medium term.

It said premium rates were increasing faster than the expected cost of paying claims, and as it tried to manage costs better this should lead to “a stronger, more consistent and sustainable level of financial performance over the medium term.”

Citi analyst Nigel Pittaway said the company’s earnings and margins beat his expectations, and its cost-cutting program appeared to running ahead of schedule.

“This is a strong result albeit partly driven by one-offs such as reserve releases and lower than expected COVID charges,” Mr Pittaway said.

QBE’s 11c interim dividend will be franked at 10 per cent and paid on September 24.

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