QBE Insurance Group Limited has reported that the impacts of adverse weather conditions on its US crop insurance business, combined with the significant level of claims from the Australian bushfires, pushed its full year 2019 combined operating ratio above the target range.
The Australian insurer announced in December that it was anticipating some deterioration within its North American Crop insurance business in 2019, driven by adverse conditions such as an unusually cold growing season and heightened crop hail.
At this time, QBE warned that the business was likely to produce an operating ratio of between 107% to 109% on net earned premiums of almost $1.2 billion. The firm has now revealed that the business recorded an operating ratio of 107.5% for the full year 2019, impacting the Group’s full year 2019 combined ratio by 1.8% relative to the long-term average combined operating ratio of the Crop business.
As a result of the underwriting challenges within its US Crop segment, QBE’s full year 2019 combined operating ratio totalled 97.5%, which is above the target range of 94.5% to 96.5%.
The firm adds that the result included a lower contribution from prior accident year claims development, with reserves in specific US and European casualty portfolios strengthened to account for the more challenging industry-wide inflationary trends.
The Australian insurer continues to explain that reserve strengthening in these areas was mostly offset by reinsurance recoveries, and continued favourable reserve development elsewhere in the Group.
QBE’s attritional claims ratio improved to 47.5% in the year, against 50.2% in full year 2018. Significant improvement was recorded in both Australia Pacific and International explains the firm, adding that underlying improvement in its North America attritional claims ratio was mostly offset by a higher volume of small weather events in the second-half of the year.
The expense ratio also improved for the firm in 2019 when compared with the previous year, by almost 1% to 14.6%. QBE attributes the improvement here to early benefits from a three-year operational efficiency program.
Overall, the Sydney headquartered insurer has recorded statutory net profit after-tax of $550 million, which is growth of 41% when compared with the previous year. Adjusted cash profit increased 6% to $733 million, while the firm has reported an adjusted profit return on equity (RoE) of 8.9%, versus 8% in full year 2018.
QBE’s gross written premium reached $13.44 billion, up 2% on a continuing operations basis. Net earned premiums also increased on a continuing operations basis, by 1% to $11.6 billion in 2019.
Turning to investments, and QBE reports that its net investment return increased appreciably in 2019 to 4.6%, against 2.2% in 2018, and which is a reflection of strong returns across most asset classes.
QBE Group’s Chief Executive Officer (CEO), Pat Regan, said: “Despite the impact of adverse weather conditions on our North American Crop business, the underlying fundamentals of our business remain strong and we continue to see improvement in both the quality and resilience of our earnings.
“In 2019, we made substantial progress across all our strategic priorities and recorded especially pleasing results in Australia Pacific and International.
“With strong pricing momentum, non-core asset sales completed and having significantly strengthened reserves in portfolios facing more challenging industry-wide inflationary trends, we enter 2020 with strong prospects for further sustainable margin improvement.”
The Australian carrier also provided an update on premium rate momentum experienced in the year, noting Group-wide renewal rate increases of an average of 8.3% during the second-half of 2019. For the full year, QBE has reported that Group-wide renewal rate increases averaged 6.3%, compared with 5% in 2018.
The insurer explains that it experienced accelerated premium rate momentum across all divisions throughout 2019, most notably in International (particularly Europe) and North America.
“Cell reviews and the Brilliant Basics program have transformed QBE, embedding a strong and transparent performance culture while upgrading the core capabilities of the business – pricing, risk selection and claims management – and driving a consistent approach to doing business across the Group,” said Regan.
