QBE Europe CEO sees growth post Brexit

The move of the the European operations to Brussels after Brexit is a logical move as mainland Europe insurance operations grow faster than in the UK and the prospects look good, said Richard Pryce, CEO QBE European Operations.

Australia’s QBE is establishing a new subsidiary in Brussels, Belgium, to preserve its ability to operate across the European Union in the event of a loss of 'passporting' rights when the UK leaves the EU. The European subsidiary is expected to be operating in time for 2019 renewals.

“Our insurance and reinsurance businesses in Europe have been growing steadily,” Pryce said at a Feb. 26 briefing in London.

“That’s why we were very comfortable embarking in this process. They are good businesses for us. They are growing and we think this will link us more closely to our customers because we will be right in the centre of Europe and we will carry on being a European business serving European insurance and reinsurance customers. I would expect to carry on growing in those areas as a consequence of that,” Pryce said.

QBE’s European operations grew gross written premium by 4.1 percent year on year to £3.14 billion in 2017. Insurance profit was up 6.9 percent year on year at £249 million with a profit margin of 10.0 percent.

Pryce suggested that the move to Brussels might boost growth even further post Brexit.

“If you provide certainty to customers then you can see good opportunities, and customers are interested to know what you are going to do,” Pryce said.

Pryce sees opportunities in casualty in the European environment with bodily injury tables catching up in some places such as Spain, but higher inflation prospects need to be reflected in rates.

Growth potential in casualty

“More and more people are circumspect around casualty and inflation,” Pryce said. “You are seeing that in some of the reinsurance purchasing. People are far more cautious around that area. We are going to be in a higher inflation environment in the next two or three years wherever you are. That is something that significantly can impact casualty,” Pryce said.

But higher inflation is not holding back QBE. “It’s not necessarily about reducing appetite. It’s making sure you get the right price and the right structure,” Pryce said.

“We are expecting to see an improved pricing in most of the financial lines sectors. We are starting to see it in areas of P&I (protection and indemnity) , maybe not quite so much in D&O (directors and officers), but if it doesn’t happen we’ll take the necessary actions required,” Pryce noted.

The UK business grew at a slower pace than the rest of Europe in 2017, and QBE is planning a marketing campaign of engagement with brokers to spur growth in casualty and motor business on the back of the Ogden discount rate change.

Dealing with Lloyd's

QBE’s Lloyd’s business was hit by the North American nat cat events in 2017, but that is not changing QBE’s strategy for the operations.

“We’re realistic that if you operate in Lloyd’s you are going to have quite a high proportion of cat business. We write our US cat insurance business in Lloyd’s, so that’s our marine and energy. Those businesses you would expect to have been impacted more by cat than our UK casualty or UK property and our European business,” Pryce said.

“We had many good years of results in Lloyd’s, this is a year when you are going to have more cat business in your Lloyd’s business than you would have elsewhere,” Pryce noted.

QBE has increased its capacity at Lloyd’s slightly for 2018 to take advantage of better rates on the back of large cat losses in 2017.

But Pryce remains concerned about the high costs of operating at Lloyd’s.

“It is an expensive place to operate. You can see that in the commission and operating costs. That’s why to have the right balance of your portfolio between Lloyd’s and non-Lloyd’s is very important,” Pryce noted.

“The general trajectory in London Market commission rates is up,” Pryce said. “It’s very difficult to make the right return if are going to have a high commission rate and a high operating cost in a competitive environment. I don’t see any immediate reduction in that.”

As a consequence, Pryce expects QBE to grow faster outside of Lloyd’s than in the market and wants to avoid the high commission fees in the London Market.

“A lot of those customers you can touch through your distribution so you don’t have to worry so much about using the London Market,” Pryce said.

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