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QBE projects $1.5bn full-year loss

18th December 2020 - Author: Matt Sheehan

Australian re/insurer QBE has revealed that it expects to incur an after-tax loss of USD 1.5 billion for the full-year 2020 period.

QBEThe pre-tax loss is estimated at $780 million and includes $470 million of COVID-19 costs, $130 million of elevated catastrophe losses and $360 million of prior year claims development.

While QBE’s estimated ultimate net cost of COVID-19 is unchanged at $600 million, the company’s net incurred cost in FY20 has increased by $135 million from the $335 million reported in H1 2020.

The increase in COVID-19 related costs is mainly due to $100 million of additional net claims costs across trade credit, lenders’ mortgage insurance, casualty classes and business interruption.

Catastrophe losses are currently estimated at $130 million above the $550 million allowance and well into the Group’s catastrophe aggregate reinsurance program.

QBE noted that the US wildfire and hurricane season was particularly active this year with a record number of named storm landfalls, while storm activity in Australia has also been adverse.

The Group’s North American crop result was also impacted by prevented planting claims in North and South Dakota, the derecho which devastated corn yields in Iowa and the Californian wildfires which materially impacted grape vines (fire and smoke damage) in the Napa Valley region.

Adverse prior year claims development also grew significantly from the $120 million reported in June, with $30 million stemming from Hurricane Irma in the group’s North America segment, and Hurricane Dorian and Typhoons Hagibis and Faxai impacting International business, primarily through QBE Re.

The remaining $210 million of adverse development includes a substantial charge in North America in response to social inflation trends, a $40 million strengthening of discontinued E&S reserves and $40 million of adverse development in the general aviation portfolio.

Further adverse development in financial lines and inwards reinsurance also contributed to the movement.

For the full year, QBE expects net investment income to be $140 million, with a strong recovery in credit spread reversing the $90 million loss it reported in H1.

“While I am very disappointed with the headline statutory loss, I am increasingly confident about the pricing cycle, particularly in the northern hemisphere, and the outlook for the underlying business,” said QBE Interim Group CEO Richard Pryce.

“Premium rate momentum accelerated in North America and International during 3Q20 and the FY20 attritional claims ratio is expected to improve further from 45.5% reported in 1H20,” Pryce continued.

“As we move into 2021, my focus remains on ensuring the Group takes full advantage of currently favourable market conditions by locking in margin expansion while driving targeted growth in portfolios and regions offering the most profitable new business opportunities. Our balance sheet remains strong and able to fund expected growth.”

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