QBE has posted a $1.6 billion loss and slashed dividends

Fighting wildfires in the US. David McNew/Getty Images

QBE posted a $US1.25 billion ($A1.6 billion) loss for the half year after higher claims from natural disasters and writing down more than $US1 billion against its North American business.

The insurance giant cut deeply into dividends, announcing a payout of four Australian cents a share, 30% franked, down from 33 cents in 2016.

The after tax loss on a cash basis was $US258 million ($A328 million) compared to a cash profit $US898 million ($A1.14 billion) last year.

The performance of North American Operations was hit by second half catastrophes including Hurricanes Harvey, Irma and Maria and the Californian wildfires.

The statutory result includes the non-cash write down of $US700 million ($A892 million) of goodwill and $230 million ($A293 million) of deferred tax asset in North American Operations.

Chairman W. Marston Becker says there are now signs of a modest recovery in the commercial insurance market in the northern hemisphere after years of weakness, with premium rates starting to adjust for the catastrophe losses of 2017.

“At the same time, there are tangible signs of rising global interest rates which, if sustained, bode well for future investment returns,” he says.

“Although there are some encouraging signs, (CEO) Pat Regan and his management team are not relying on an improving external landscape. Their focus is on ‘Brilliant Basics’ — improving underwriting quality, pricing and claims handling while simplifying the business portfolio and improving efficiency across QBE’s operations.

“QBE has been through a period of challenge and change with financial results that are below expectations. We expect better and more consistent results in the future that will reward your continued support.”

The company also announced to sale to Zurich Insurance Group operations in Argentina, Brazil, Colombia, Ecuador and Mexico, for $US409 million ($A521 million). Profit on sale before tax is estimated at $US100 million ($A127 million).

“The decision to exit Latin America is consistent with our focus on simplifying the group, reducing risk and improving the consistency of our results,” says Regan, who was appointed QBE Group CEO in January this year.

“Following a detailed review of our Latin American Operations, we determined that QBE was no longer the best strategic owner of these businesses.”

Highlights of the December half results (USD):

  • Statutory net loss after tax $1,249M (FY16 profit of $844M)
  • Statutory result includes the non-cash write down of $700M of goodwill and $230M of deferred tax asset in North American Operations
  • After tax loss on a cash basis of $258M (FY16 cash profit $898M)
  • Adjusted combined operating ratio of 104.1% (FY16 93.7%), consistent with the “around 104%” estimate included in our ASX Release of 23 January 2018
  • Net earned premium up 7%, assisted by reinsurance cost savings
  • Positive prior accident year claims development of $37M (FY16 $366M4)
  • Successfully reinsured potentially volatile claims liabilities in North American Operations
  • Probability of adequacy of outstanding claims strengthened to 90.0% (FY16 89.5%)
  • Improved expense ratio of 15.7%4 (FY16 16.5%)
  • Net investment return for the year of 3.2% (FY16 2.9%)
  • Debt to equity of 40.8% above our 25% – 35% benchmark range (FY16 33.8%), impacted by non-cash write down of North American Operations’ goodwill and deferred tax asset
  • Indicative APRA PCA multiple of 1.64x (FY16 1.76x)
  • Cash remittances from operating divisions broadly stable at $1,022M (FY16 $1,106M)
  • Final dividend of four Australian cents per share, 30% franked (FY16 33 Australian cents, 50% franked)

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