QBE Insurance Group, Australia’s top insurer by premium income, beat forecasts with a 19% rise in first-half earnings, helped by higher premium incomes and lower claims.
It was a pleasant surprise for the market, which responded by marking up QBE shares by over $1.30, or more than 6%, to $22.06.
But much of the improvement came from the benefit of the lower Australian dollar value in the half, solid contributions from acquisitions, and a profit on buying back some of the group’s debt.
The underlying insurance business was tougher, with a lower insurance profit before tax, lower underwriting profit and higher losses on investments thanks to the very low interest rates on bonds and debt securities the company holds its reserves in.
The company said net profit for the six months to June 30 totalled $1.02 billion, up from $859 million reported a year ago.
In a brief statement in the profit report, the company said the higher than expected profit was "mainly due to the benefit of premium growth assisted by the impact of translation to the weaker cumulative average Australian dollar, the impact of the 2008 acquisitions, foreign exchange gains and gains on the repurchase of QBE debt securities, partly offset by claims related to the global financial crisis and realised and unrealised losses on the equity portfolio".
The company said its "insurance profit before tax was $1,080 million or 17.5% of net earned premium, a very solid result towards the top end of our target range.
"This compares with the record insurance profit of $1,116 million or 21.8% of net earned premium for the same period last year. 2009 experienced a lower underwriting profit and lower investment yield on policyholders’ funds."
But at least for yesterday, the result went some way to reversing the negative sentiment about the company in the market that has seen its shares drop around 20%, compared with a rise of more than 18% for the ASX 200 since the start of January.
The set against the company followed a lower 2008 profit ($1.859 billion – down from $1.925 in 2007 – after the insurer spent $2.7 billion in 2008 on takeovers) and comments at the AGM in April that it would be pleased if it could maintain or increase profits in 2009.
But as surprising as the 19% rise was, the company has taken a conservative attitude to shareholder rewards: the interim dividend of 62 cents per share is only up one cent from 61 cents during the previous corresponding half.
The company said gross written premiums; one of the main measures for assessing the performance of the basic insurance business (along with claims and expenses) rose a very solid 22% in the half year to $8.057 billion.
The company said this growth was driven by a weaker Australian dollar and acquisitions completed in 2008, particularly QBE Lenders’ Mortgage Insurance and ZC Sterling which together added $223 million of gross written premium income.
The two acquisitions added $220 million in net earned premium and related profits to the result, the insurer said in its report to the ASX .
Premium rates for renewed business increased by 6% in Australia, 1% in Asia Pacific, 4.5% in Europe and 1.5% in the Americas.
As the company gets 80% of its business from offshore, the higher growth in Australian premiums isn’t as important as it looks.
The company said that "the unusual investment market and economic conditions were responsible for a number of large items included in the profit before tax.
"Additional incurred claims of $145 million on trade credit and other credit-related insurance policies;
"Realised and unrealised losses on equities of $144 million compared with a loss of $86 million for the same period last year;
"Lower interest yields reduced investment income by $115 million compared with the same period last year;
"Net foreign exchange gains of $282 million compared with a gain of $8 million for the same period last year; and profit of $66 million on the further repurchase of QBE debt securities compared with nil for the same period last year."
The market also liked the offering from the AMP for its first half year result.
The shares rose nearly 3%, or 17 cents, to $6.02 after it revealed a drop in earnings (including one off items) and less solid underlying performance.
The big fund manager told the ASX yesterday that net profit eased to $362 million for the June 30 half from $366 million in the previous corresponding half.
But underlying profit, which excludes the effects of market volatility, saw a 16% fall to $367 million.
But a strong day on the market helped buttress sentiment and the shares rose.
The consensus estimate from analysts was for an underlying profit of around $275 million, so the AMP surprised on the upside, just as QBE had done.
Chief executive Craig Dunn said that while the economic outlook currently looks more promising, the market is likely to be subject to ongoing volatility and investor sentiment continues to be subdued.
"This result reflects tight cost control, robust net cashflows, improving investment performance, a further strengthening of the Group’s capital position, along with improved market share in Australian superannuation, retirement
