Insurance giant QBE has reported a 5% in net profit in the year to December 31 to a five year high, an 8% hike in annual dividend and announced a $1 billion share buyback that might take a bit of time to eventuate.
The global insurer reported net profit after tax of $844 million for 2016, up from $807 million in the prior year. Return on equity improved from 7.5% to 8.1% (a long way from the sorts of returns that the big four Aussie banks are getting around 14% to 16%).
The company said it would launch the $1 buyback over three years in recognition of the strength of its balance sheet and expected retained earnings growth.
The buyback was the “most appropriate application of QBE’s emerging surplus capital, rewarding shareholders while maintaining capital efficiency", the company said yesterday.
QBE also announced a 10% increase in its final dividend to 33 cents a share, giving an 8% rise in the full year payout to 54 cents.
The shares ended up 2.4% at $12.60.
However, investors will have to be patient to see the benefit of the buyback, which will take place over the next three years.
The buyback is premised on continued earnings growth, which QBE hopes will be assisted by a rise in global interest rates on safe investments, such as government bonds.
The insurer is targeting an investment return of 2.5-3% for 2017 (2.7% in 2016%).
QBE chief executive John Neal said the 2016 result was a “testament to the strength and diversity of our global franchise underpinned by a strong underwriting culture and supported by a high quality balance sheet."
Net profit after tax jumped 23% from 2015 when expenses from that year including losses from its sold Argentine workers compensation business and other write-downs are factored in.
"Improved discipline" in managing insurance claims deliver a lower payout ratio in Australia and New Zealand, he said. Operating ratio in North America improved from 97.7% to 99.8 per cent and European operations delivered an earnings ration of 90.2%.
QBE will pay a 33¢ dividend, up from 30¢ last year, making a full year payout of 54 cents.
QBE said cash profit after tax, which is the key determinant of its dividend payments was broadly stable at $898 million, but up 12% on a constant currency basis – as if exchange rates had not moved since last year.
