Australian insurer QBE has posted an AU $712 million (US $510 million) loss for the first half of 2020, driven by underwriting impacts from COVID-19, large catastrophe losses, and a poor investment performance.
The results compare with a profit of $463 million for the same period last year, as performance was offset by $335 million of pandemic losses and a net investment loss of $90 million, compared with a profit of $755 million last year.
QBE is currently anticipating an ultimate cost of $600 million from the pandemic, with $265 million of potential claims set to emerge over the next 12-18 months, primarily relating to trade credit and lender’s mortgage insurance.
The H1 pandemic loss impacted multiple lines of business, including property (business interruption), reinsurance, workers’ compensation, casualty (including D&O), accident & health (A&H), trade credit, lenders’ mortgage insurance (LMI) and landlords’ insurance.
Notably, COVID-19 losses have already neared the attachment point of QBE’s aggregate reinsurance cover, and the company is expecting that any business interruption claims from the pandemic will be covered by its reinsurance.
Including both pandemic and natural disaster losses, QBE says it has eroded all but $20 million of the deductible on its catastrophe aggregate reinsurance program, meaning the insurer will surely be utilizing its reinsurance coverage over the second half of the year.
QBE pointed out that its property catastrophe and catastrophe aggregate treaties are ‘all perils’ covers, meaning qualifying perils are not named or listed, and noted the classes of business covered by its treaties include ‘property material damage and business interruption.’
The company therefore argues that COVID-19 should fall under this coverage, and crucially that business interruption will be covered in its own right and not require a material damage trigger.
QBE reported an underwriting loss of $524 million in H1 2020 compared with a loss of $24 million for the prior period, equating to a combined operating ratio of 109.5% compared with 100.4%. COVID-19 added 6.0% to the combined operating ratio.
Catastrophe claims during the period increased to $308 million from $180 million in 1H 2019 due to devastating and widespread bushfires in Australia coupled with significant east coast hail and storm activity.
“I am encouraged by the strong underlying trends evident in the result,” said QBE Group CEO, Pat Regan.
“Notwithstanding uncertainty surrounding the enduring impact of the COVID-19 pandemic, our greatly strengthened capital base positions us well to capitalise on accelerating pricing momentum and emerging organic growth opportunities,” he continued.
“The improving industry landscape coupled with the fundamental disciplines we have instilled in the business underpin my confidence in our ability to drive sustained margin improvement.