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QBE anticipates exhausting FY22 catastrophe allowance

21st November 2022 - Author: Luke Gallin

QBE Insurance Group Limited expects to incur full-year 2022 catastrophe losses of around AUD 1.06 billion, which is above its catastrophe allowance for the year of AUD 962 million.

qbe-logoThe Australian insurer has released a trading update for the third-quarter of 2022, which highlights that elevated catastrophe activity has continued through the second half of the year.

To October, QBE says that the net cost of catastrophe claims in the second half of the year is around AUD 430 million, taking the total net cost of cat claims to around AUD 880 million in the year to October.

For November and December, explains the insurer, its catastrophe allowance is roughly AUD 180 million. The carrier states that together with experience to date, it is now assuming FY22 net cat costs of around AUD 1.06 billion, which includes the AUD 75 million charge for exposure to Russia’s invasion of Ukraine, exceeding the FY22 cat allowance of AUD 962 million.

So, year to date, natural catastrophe claims stand at AUD 805 million, and Russia/Ukraine AUD 75 million, and when combined with the allowance for the final two months of the year, takes the revised cat assumption for 2022 to the AUD 1.06 billion.

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In terms of growth, QBE has reported that gross written premiums increased by 6% in Q3 2022 when compared with the prior year, with growth of 12% for 9M 2022.

At the same time, group-wide renewal rate increases averaged 8.4% in Q3 2022, while growth ex-rate of 8% reduced compared with H1 2022.

“This reduction followed planned North America Program terminations and a large first half bias for written premium across a number of growth focus areas. Retention has remained at favourable levels,” says QBE.

On inflation, QBE notes that despite aggressive action from central banks in recent times, risks associated with the persistency of inflation remain high, and the firm expects to strengthen long-tail reserves in H2 2022 to bolster resilience for a more prolonged inflationary environment.

However, the carrier says that the impact of this will be broadly offset by the release of COVID-19 risk margin, where residual risks associated with related business interruption claims has reduced on the back of recent legal decisions.

On the asset side of the balance sheet, QBE states that interest rates have continued to rise across its key markets, resulting in a negative asset risk free rate impact of AUD 461 million in Q3 2022, which was broadly offset by a beneficial claims liability discount impact of AUD 413 million.

“Challenging operating conditions have persisted into the second half, and while performance remains resilient across many facets of our business, higher than expected catastrophe costs have introduced some risk to our original full year outlook,” says the firm.

“QBE continues to expect FY22 Group constant currency GWP growth of around 10%, and we expect the supportive premium rate environment should continue into 2023.

“Based on our assessment of underwriting performance to date, we now expect a FY22 Group combined operating ratio of around 94%. As outlined at the 1H22 result, QBE’s FY22 combined ratio outlook excludes the impact of the Australian pricing promise review,” it adds.

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