QBE Europe combined ratio jumps in H1 while North America improves

Australia-based QBE has benefitted from improvements in its North American operations in the first half of 2018 while the European unit’s performance weighed on results.

The combined ratio of QBE’s European operations deteriorated to 94.3 percent in the first half of 2018 from 88.7 percent in the same period a year ago, primarily due to a reduction in the level of positive prior accident year claims development, the company said.

Pre-tax profit in the unit fell to $169 million from $231 million over the period, reflecting a reduced level of positive prior accident year claims development.

While headline gross written premium in Europe increased 9 percent year on year to $2.61 billion from $2.39 billion in the prior period, gross written premium was up only 3 percent on a constant currency basis. New business volumes were disappointing in catastrophe loss impacted areas, particularly in QBE Re, the company noted. However, both the insurance and reinsurance business in Continental Europe continued to grow.

“Trading conditions continued to improve with an average renewal premium rate increase of 4.8 percent achieved during the first half of 2018 compared with a reduction of 1.1 percent in the prior period,” said Richard Pryce, CEO European Operation. “The principal area of improvement is in those insurance and reinsurance sectors impacted by the 2017 catastrophe activity,” Pryce added.

In North America, the combined ratio improved to 95.4 percent in the first half from 98.3 percent in the same period a year ago. The underwriting result included a $40 million benefit from higher risk-free rates used to discount net outstanding claims compared with a $2 million adverse impact in the prior period. The underwriting result also benefited from positive prior accident year claims development and benign catastrophe experience.

The pre-tax insurance profit in North America jumped to $132 million from $71 million over the period. QBE’s North American operations specialises on industry-focused commercial insurer and reinsurer in property & casualty (P&C), specialty, crop and QBE Re (part of QBE’s global reinsurance business).

Overall, the group’s adjusted combined operating ratio deteriorated to 95.8 percent in the first half from 94.5 percent in the same period of 2017. The group’s net profit was up 4 percent year on year at $370 million in the first half.

The group achieved an average premium rate increase of 4.6 percent during the half which represents a considerable improvement from the 1.0 percent increase during the prior period.

QBE is undertaking a series of restructuring measures worldwide.

In February 2018, QBE entered into an agreement with Zurich Insurance Group to sell the division (excluding Puerto Rico).

In Asia Pacific, QBE sold its business in Thailand and entered into a reinsurance transaction to address profitability challenges in its Hong Kong construction workers’ compensation portfolio. A reinsurance agreement with Swiss Re removes QBE’s exposure to a challenged portfolio that contributed $37 million to the division’s $100 million full year 2017 underwriting loss.

QBE also announced the sale of its travel insurance business in Australia to nib, the operator of Australia’s third-largest travel insurer.

Finally, th e sale of QBE’s North American personal lines business is currently underway, a business that delivers annualised gross written premium of approximately $350 million.

QBE is repositioning the business in North American as a specialist industry-focused commercial insurer. “Once the proposed exit from the personal lines business is complete, we will benefit from the rationalisation of systems, processes and our back office to drive significant cost savings,” said QBE group CEO Pat Regan.

QBE is also taking remediating measures in Asia.

“We have committed to a comprehensive remediation of our Asia Pacific business including exiting unprofitable lines of business, driving a sharper underwriting focus and reducing costs,” Regan said.

Remediation activities already undertaken include the sale of QBE’s Thai business, exiting from Hong Kong construction workers’ compensation and the shedding of significant higher hazard marine, property and engineering business, particularly in Hong Kong, Singapore and Indonesia. “In aggregate, remediation activities are underway across 18 portfolios in Asia Pacific Operations and we have exited whole sub-segments such as Indonesian marine hull where the industry risk profile was simply unacceptable.

“While the improvement achieved to date is encouraging, it is clear that we will need to reduce expenses going forward as Asia Pacific Operations’ premium pool contracts,” Regan added.

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