Reinsurance News

QBE reports FY net profit of $770m, cites resilient underwriting performance

17th February 2023 - Author: Kane Wells

Australian headquartered insurer QBE has reported a net profit of $770m in its full year 2022 results, a $20m increase from the previous year.

qbe-logoAdjusted cash profit after tax increased to $847m from $805m in 2021, resulting in an adjusted cash return on equity of 10.5%.

QBE states that despite heightened inflation, geopolitical tensions and elevated catastrophe activity, its underwriting performance demonstrated improved resilience, with an adjusted combined operating ratio of 93.7%, improving by 1.3% compared to the full year 2021.

Meanwhile, premium growth continued, with renewal rate increases of 7.9% compared with 9.7% in 2021, supporting a gross written premium expansion of 13%.

This continued across all divisions, says QBE, with North America, International and Australia Pacific achieving growth of 16%, 14% and 9%, respectively.

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The firm’s net cost of catastrophe claims increased to $1bn or 7.2% of NEP, compared with 6.6% in the prior period.

Catastrophe costs were of course driven by Hurricane Ian, flooding in Australia and an allowance for the Russia/Ukraine conflict.

The firm’s total investment loss for the year was $776m or 2.7%, compared with a return of $122m or 0.4% for the prior period.

The Australian insurer states that this result was heavily impacted by unrealised losses associated with the significant increase in bond yields over the year.

Also, QBE announced that it has entered into a broad-based reinsurance transaction with Enstar that de-risks its exposure to reserves totalling $1.9bn.

The Loss Portfolio Transfer encompasses a range of North America and International long tail reserves, primarily relating to financial lines, discontinued programs and reinsurance business, largely underwritten between 2010 to 2018.

In aggregate, these reserves account for 10% of QBE’s full year net reserves or 15% of QBE’s full year long tail reserves.

The firm states it will maintain claims control over the majority of these reserves to ensure continuity and consistency for its customers and trading partners.

QBE writes, “The transaction will support improved capital efficiency, reduced reserve volatility risk and provide greater bandwidth to focus on customer outcomes and sustainable growth.

“Reserves subject to this transaction have contributed ~$0.6bn of adverse prior year development over the past 5 years. We anticipate the transaction will give rise to an increase in our APRA PCA multiple of ~0.06x, or ~$400M capital equivalent.

“We anticipate a pre-tax upfront cost for the transaction of ~$100M, with a broadly neutral impact on earnings beyond. Capital released from the transaction will be reallocated to support growth and other initiatives, ultimately supporting an improved outlook for returns.”

As for the firm’s strategic priorities going forward, QBE Group CEO, Andrew Horton, commented, “Our new purpose, vision and strategic priorities launched at the start of 2022 have been embraced by our people, helping to bring us together and become a more consistent organisation.

“As we look forward, we have the right foundations in place, the right team and importantly, strong enterprise-wide engagement around a clear and consistent strategy.”

Horton continued, “Our strategy continues to come to life. 2022 has been about laying the foundations and embedding our new vision, purpose and strategic priorities. I think we’ve achieved a lot this year, momentum is building, and our people are more engaged.

“As we move into 2023, benefits for our business, customers and partners will build if we can maintain this energy.

“As we look forward, I think we have the right foundations in place, the right team and importantly, strong enterprise-wide engagement around a clear and consistent strategy.”

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