QBE Insurance

Unprecedented frequency and severity of catastrophes – the likes of which CEO Frank O’Halloran has not witnessed in 35 years – has sharply increased large risk and catastrophe claims.

This starts a chain reaction which impacts the claims ratio, the combined operating ratio (COR), the underwriting result, the insurance profit and margin and the bottom line. In isolation profits evaporate and in many instances losses are incurred.

Greater diversification – either geographic or by product line - and stronger reinsurance cover softens the blow. By design and management QBE is riding out the current situation and reporting strong earnings. Interim dividend will be held at 62 Australian cents per share.

The dividend reinvestment plan at a 2.5% discount will operate and will not be underwritten.

First half 2011 Net Profit after tax is expected to be 50% to 60% above 2010 of US$440m – suggesting a range of US$660m to $704m subject to usual caveats including investment markets and catastrophes in June.

QBE is one of the few global general insurers or reinsurers of any significance with meaningful catastrophe (CAT) allowances still available half way through the financial year. Offsetting highly elevated CAT claims was a significant recovery in net investment income (NII) – another integral part of the insurance profit/margin equation. NII, including foreign exchange (forex) gains, for the five months to May was US$560m compared to US$109m for 2010.

Operational forex gains were US$120m compared with US$101m for 2010. Excluding forex gains the investment yield is currently above the full year target of 3.3 to 3.5% boosted we suspect by unrealised capital gains in the corporate bond portfolio as rates have declined.

For more information on QBE Insurance please contact us on 07 4771 4577.