Release Date: August 08, 2024
For the complete transcript of the earnings call, please refer to the full earnings call transcript.
Positive Points
- QBE Insurance Group Ltd (ASX:QBE, Financial) reported a strong financial performance, with a return on equity of 16.9%, significantly improved from the prior period.
- The company achieved a combined operating ratio of 93.8%, aligning with their full-year outlook.
- QBE Insurance Group Ltd (ASX:QBE) announced the launch of QCyberProtect, a new global cyber product, addressing the increasing demand for cyber coverage.
- The investment portfolio delivered an annualized return of almost 5%, supported by strong performance in both core fixed income and risk assets.
- The interim dividend was increased to $0.24 per share, up from $0.14 in the prior period, representing a payout ratio of 31%.
Negative Points
- Gross Written Premium (GWP) growth moderated to 2%, impacted by exited lines and crop, with underlying growth closer to 11%.
- The company faced a significant loss of around $200 million net of reinsurance due to civil unrest in New Caledonia.
- The North American middle-market business closure resulted in a restructuring charge of around $145 million for the full year.
- The noncore runoff businesses in North America are expected to incur a total underwriting loss of around $200 million for the full year 2024.
- QBE Insurance Group Ltd (ASX:QBE) noted increased competition in certain markets, particularly in Australia and the UK, which may impact future growth.
Q & A Highlights
Q: At the full year, you said you were setting full year guidance with more confidence. How is your confidence now sitting with respect to that full year level of guidance?
A: We are confident on the full year level of guidance due to the actions taken in the first half. The underlying businesses are performing well, and we are assuming the cat credit remains in the second half. We are comfortable that we can absorb the $40 million within the combined ratio and still achieve around 93.5%.
Q: Regarding the North American business, you mentioned the current accident year combined ratio is 94.5%. Does this include any favorable cat? How exposed is this business to market cycles?
A: The 94.5% is a good proxy for where the business is running on a full-year basis. The North American business now contains only profitable businesses, and we have added adjacencies like cyber and healthcare. We have a good balance in the business, which can deliver a consistent 90% to 95% combined ratio.
Q: How should we be thinking about the tax rate in the second half? Should we assume the low rate in the first half continues?
A: The 23% tax rate in the first half benefited from recognizing additional tax assets in North America. The natural tax rate is closer to 27%, so you should expect it to tick a little higher in the second half.
Q: What level of stranded costs are you expecting to be left behind from middle-market and the old noncore for us to reach the 94.5% combined ratio?
A: We expect around $50 million of stranded costs, which we are working to reduce over the next 12 to 18 months. The core business is also growing, so we feel confident that the core business has a profile of around 95%, sub-95% range.
Q: Does your guidance for this year of 93.5% include the $40 million upfront cost of the LPT and the losses on the noncore portfolio?
A: The guidance includes the $40 million upfront cost of the LPT. The losses in the noncore portfolio are running broadly in line with our expectations and have not had a material impact on our guidance.
Q: Are you confident that you are able to cover inflation on an underlying basis across your portfolio?
A: Overall, we feel comfortable with the inflation peg of 5% for the year. Technical rate adequacy remains favorable, and we are not seeing any lines of business where rate is not covering inflation.
Q: Is this the last reinsurance transaction, or should we expect more in the future?
A: We have covered most things we want to cover with the recent transactions. There is no expectation of doing another large transaction over the next 12 months, but we cannot rule out the possibility entirely.
Q: Can you clarify the drivers behind the change in GWP outlook to 3%?
A: The main drivers are the exit of the middle-market portfolio and increased competition in the AusPac business. Crop premiums also came in a bit lower than expected.
Q: What is driving the weaker outlook for the noncore North American business?
A: The weaker outlook is mainly due to the addition of the mid-market business, which was not included in our initial guidance. There has also been more loss activity from convective storms than we had planned for.
Q: How should we think about the sensitivity to interest rates on the liability side after the reserve transactions?
A: The reserve transactions will result in $1.5 billion of assets coming off the book, but the overall sensitivity to interest rates should not change significantly. We are focused on reducing the interest rate risk embedded in the regulatory capital position.
For the complete transcript of the earnings call, please refer to the full earnings call transcript.
