Major insurer, QBE Insurance, boosted first half earnings by 56% for the 2007 financial year and has forecast a double digit growth in earnings for the full 12 months to December.
QBE's first half net profit was a record $921 million: that was $100 million more than market estimates.
QBE upgraded its full-year insurance profit forecast from 18.5% to 20.0% of net earned premium, subject to large risk and catastrophe claims not exceeding the substantial allowances in its business plans.
The previous insurance profit target was 17.5% to 18.5%.
That saw the company's shares surge: up more than 11%, or $3.02, to close at $30.52.
Also helping sentiment was the largerthan expected lift in dividend:
"As a result of the increased profit, the directors declared an interim dividend of 57.0 cents per share, up 43% on the interim dividend of 40.0 cents per share for the first half of 2006. The interim dividend will be 60% franked. The interim dividend represents a payout of $492 million, up 53% from the previous interim dividend," the company said.
That increase was well covered by a 52% rise in diluted earnings per share to 104.9 cents.
As we see in the Caribbean at the moment with Hurricane Dean, the US storm season is starting and with tornados and other severe weather events, can have an impact on insurance company earnings.
QBE CEO, Frank O'Halloran, said "the significant increase in net profit and positive outlook for the rest of the year reflects the constant focus the QBE team has on all the key drivers that determine profitability in the insurance business.
"A premium rates is only one of those drivers."
He said recent US acquisitions should enable QBE to achieve growth in gross written premium for fiscal 2007 and 2008 of around 25% and 10%, respectively.
"The integration plans for these acquisitions are well advanced and we are on target to achieve the previously announced synergies and profit," he added.
QBE used something of an understatement to describe the first half: "the first half of 2007 has been very rewarding for shareholders".
It certainly has; profit targets "substantially exceeded" and two large acquisitions were completed in less volatile segments of the US insurance market to lock in growth for 2007 and 2008.
QBE said the higher net profit of $921 million followed "a continued low frequency and severity of claims, higher investment yields and the inclusion of the recent US acquisitions for a portion of the half year".
Return on average shareholders' funds was 28.1% compared with 22.2% for the same period last year.
"We completed the acquisitions of Praetorian Financial Group ("Praetorian") and Winterthur US Holdings ("Winterthur US") on 31 May 2007 following the receipt of final regulatory approvals. Praetorian has been consolidated from 1 April 2007 and Winterthur US from 1 June 2007. These dates are consistent with our announcements to the market in late December 2006 and early January this year", QBE said.
The company said insurance profit before tax for the half year increased by 41% to $1,053 million or 22.2% of net earned premium compared with 18.7% for the same period last year.
That increase in insurance profit was achieved on net earned premium of $4,749 million, up 19% on the same period last year.
"Growth in net earned premium has been assisted by the US acquisitions and lower reinsurance costs, and has been partly offset by the strong appreciation of the Australian dollar against the US dollar and lower overall premium rates. Insurance profits were achieved in the substantial majority of the 45 countries in which we operate," QBE said.
"The Australia Asia Pacific division ("AAP"), European operations division, the Americas division and our captive reinsurer, Equator Reinsurances Limited ("Equator Re"), all produced higher insurance profits when compared with the same period last year.
"Consistent with recent years, insurance liabilities at 30 June 2007 include a substantial allowance for large risk claims and catastrophes which may occur in the second half of 2007 and increased risk margins in outstanding claims."
QBE said that due to its strong capital adequacy, the directors have decided to suspend the Dividend Reinvestment Plan ("DRP"); however, the Dividend Election Plan ("DEP") will remain in place for the time being. The directors have also decided that there will be no underwritten dividend reinvestment as was the case for the final dividend for 2006.
The company said "Shareholders' funds Since 31 December 2006, shareholders' funds have increased by 23% to $7,721 million.
"The increase is mainly due to the reinvestment of the 2006 final dividend, the share placement to fund the US acquisitions and the half-year profit.
"The ratio of borrowings to shareholders' funds at 30 June 2007 was 46.3%. This ratio is slightly higher than normal due to the recent settlement of the US acquisitions. We expect the ratio to be reduced to close to 40% at year end."
The company has a couple of new buys on its plate but the turmoil in financial markets might see those postponed for a while until obtaining finance becomes easier.
