The market gave QBE Insurance Group a gentle thumbs down for delivering a modest downgrade for first half (June 20) earnings on Thursday night in London.
The shares eased 27c, or around 1.4%, to $18.68 in the wake of the briefing. That’s only 26c above the group’s 52 week low.
The overall market was down 0.8%
The bottom line from the briefing was that QBE’s year to date insurance margins have been hit by lower investment yields and higher large claims, especially in Australia (storms) and in the Gulf of Mexico oil spill and the Chile earthquake.
But the company said in a presentation released to ASX that its full year targeted investment yield on policyholders’ funds would be slightly higher than its guidance of 3%.
"We expect our half year insurance profit margins to be at the lower end of our targeted range of 16 per cent to 18 per cent notwithstanding difficult market conditions," QBE said.
"We maintain targeted full year insurance margin range at 16 per cent to 18 per cent."
QBE said its yields on US dollar, sterling and euro cash and fixed interest investments were at historical lows, but "with signs of increase".
(Although with no move in official US, European UK or Japanese interest rates, and a sharp fall in official US government yields in the last two months, it’s hard to see where a jump in bond yields is going to come from.)
"QBE has no direct exposure to sovereign bonds in Greece, Portugal or Spain," it said.
But it did say that "Our investment portfolio includes fixed interest securities with the highly rated Spanish banks, Santander $180m and BBVA $100m".
QBE said it expected gross written premiums in 2010 would be up by 7% at $A15.4 billion, while net earned premiums (NEP) would also rise by 7% to $A13 billion.
"NEP for first half of 2010 will be slightly down compared with last year due to the impact of the stronger cumulative Australian dollar, up 29 per cent against the US dollar and 23 per cent against the sterling," QBE said.
The company said its estimated large risk and catastrophe claims in excess of $A2.5 million to May 31 totalled $A555 million, up from $A458 million for the previous corresponding period.
This included claims for storms in Perth and Melbourne, totalling $A108 million and $A76 million respectively.
Claims from the earthquake in Chile amounted to $A91 million while it has so far received claims worth $A29 million in relation to BP’s Deepwater Horizon rig explosion and oil spill in the Gulf of Mexico in the US.
Distribution and acquisition opportunities for QBE were increasing, however and "Acquisitions in 2010 to date will add over US$1.3bn additional annualised Gross Written Premiums of which US$0.4bn was included in our initial premium target."
