QBE, 1H2018: focus on redefining its international presence and maximizing ROE

QBE reported a statutory net profit after tax of USD 358 million, up 4% from USD 345 million in the first half of 2017 while cash profit after tax was also up 3% to USD 385 million from USD 372 million.

Adjusted net profit after tax fell 18% to USD 380 million from USD 464 million in the prior period, reflecting a reduced level of positive prior accident year claims development and significantly lower investment returns.

Gross written premium increased 4% to USD 7,887 million from USD 7,596 million in the prior period. Currency movements favorably impacted GWP by USD 205 million y-o-y. GWP increased 1% on a constant currency basis.

European Operations' GWP was up only 3% on a constant currency basis. Improved pricing conditions gave rise to an average premium rate increase of 4.8% compared with a reduction of 1.1% in the prior period. Premium rate increases were partially offset by the non-renewal of unprofitable accounts and a targeted reduction in new business volumes in underperforming and/or underpriced classes.

The Group's adjusted combined operating ratio increased to 95.8% 1,3,4 from 94.5% 2,3,4 in the prior period, with an improvement in the attritional claims ratio more than offset by a reduced level of positive prior accident year claims development.

During 2018, QBE has undertaken a series of transactions to reduce complexity and simplify the portfolio including, aiming to redefine itself as an "international" player, as distinct from a "global" one, with meaningful operations in major insurance market hubs. To achieve this goal, QBE has started divesting some of its businesses, reducing its geographical footprint, and refining its approach to capital allocation to ensure that individual cells are delivering acceptable risk-adjusted returns to maximize return on equity.

The main changes - finalized or still ongoing - are:

  • Sale of operations in Argentina and Brazil, for a total consideration of USD 244 million
  • Sale of operations in Colombia, Ecuador and Mexico - to be completed by year end (anticipated total consideration of USD 385 million)
  • sale of Australian & New Zealand travel insurance business to nib
  • operations in Puerto Rico held for sale
  • planning the Group's exit from North American personal lines - to be completed by year end
  • reinsuring 100% of the Group's ongoing exposure to Hong Kong construction workers' compensation including USD 166 million of potentially volatile claims liabilities, to reduce Asia Pacific Operations' risk profile
In the second half of 2018, QBE will also complete the negotiation of the Group's 2019 reinsurance program. Since 2015, a key feature of its program has been a deeply "in-the-money" individual risk and catastrophe aggregate program with a single reinsurer. This program performed well in 2017; however, QBE's growing exposure to a single reinsurer is not optimal and the time value of money is an important consideration, particularly in a rising interest rate environment, the Group's management consider. The main objective of the new reinsurance approach is to optimize balance sheet protection, capital credit, cost, and earnings variability.

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