Analysts at Fitch Ratings have warned that the underwriting profitability of QBE Insurance Group is expected to moderate over the next six to 18 months due to inflationary pressure and higher reinsurance costs.
Fitch affirmed its Long-Term Issuer Default Rating (IDR) of ‘A-‘ and Insurer Financial Strength (IFS) Ratings of ‘A+’ (Strong) for QBE, along with its stable outlook.
But it noted that underwriting performance could dip over the coming months due to headwinds including the price of reinsurance protection, which will likely be elevated due to catastrophe costs in recent periods.
Overall, QBE’s capitalisation and leverage is considered to be strong, and the company has managed to improve its underwriting performance during H1 2022, with profitability achieved across all operating segments.
The group’s statutory combined ratio improved to 82% and 92% in 1H22 and 2021, respectively, from 107% in 2020, reflecting the favourable pricing environment and portfolio underwriting actions by QBE.
Also, while QBE says premium-rate increases have exceeded observed inflation in most business classes, it is nonetheless likely to strengthen claim reserves for long-tailed lines.
Underwriting gains in 1H were partly offset by unrealised losses stemming from QBE’s bond portfolio, Fitch observed, which caused net profit after tax to drop to US $151 million, down from $441 million for the prior year period.
However, the rating agency expects QBE’s near-term earnings to be supported by stronger reinvestment yields, as the insurer reinvests its fixed-income portfolio, which has a relatively short duration.
Fitch’s comments follow news that QBE 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.