Shares in insurer QBE jumped more than 5% yesterday at one stage after the company failed to shock investors with bad news and instead turned in solid improvement in profit for 2018 and more to come – so long as nature remains well-behaved.
QBE has something of a reputation of delivering bad news both at reporting time and during the year but for the past year, it seems to have been on track.
As a result, QBE Group’s profit recovered dramatically last year, thanks to lower claim costs and the company enjoyed the benefits of restructurings and cost-cutting.
The insurer said net profit after tax was $US390 million ($A546 million), after 2017’s $US1.2 billion loss, with the profitability of its underwriting operations improving significantly.
QBE shares jumped 3.4% by the close to end at $11.87 after being as high as $12.11.
On a cash basis, which tends to be less volatile, QBE’s profits improved to $US715 million, from a $US262 million loss last year.
Directors announced a bigger final dividend, of 28 Australian cents a share, compared with 4 cents last year, making a total for the year of 50 Australian cents against 26 cents for 2017.
QBE said the costs of insurance claims had been lower across all of its divisions, helped by fewer catastrophes, though this benefit was partly offset by weaker investment income in the December quarter.
Further helping the bottom line, insurance premiums across the group rose by an average of 5% compared with a 1.8% rise a year earlier. That rise was well ahead of inflation rates in Australia, the US and the UK, and Europe.
“The actions we have taken to simplify the Group, implement a rigorous performance management framework and upgrade core capabilities in pricing, risk selection and claims management delivered meaningful improvement in the underlying quality of our business and our financial performance in 2018,” chief executive Pat Regan said yesterday.
The company’s key combined operating ratio – claims as a share of premium ratio – was 95.7%, which is in its target range of 95 to 97%, and much lower than the 103.9% recorded in 2017. A ratio above 100% means losses, a lower ratio indicates higher profitability.
That improvement meant an underwriting profit of $US480 million compared with a loss of $US507 million in 2017.
Net investment and other income was $US547 million compared with $US758 million last year, resulting in a net return of 2.3% compared with 3.0% last year. Fixed income returns were adversely impacted by higher US Treasury yields and wider global credit spreads.
The Group’s effective tax rate was 11%, reflecting the mix of corporate rates in the jurisdictions in which QBE operates as well as the recognition of deferred tax assets and the utilisation of previously unrecognised tax losses in the US tax group.
In line with previous guidance for a stronger performance in the year ahead, it included a slightly lower target range for its combined operating ratio of 94.5% to 96.5% in 2019.
“I am pleased with the progress made against our objectives in 2018. Significant portfolio rationalisation and simplification, successful placement of the restructured 2019 reinsurance program, divisional consolidation and initiation of a three-year operational efficiency program position us well to deliver further value for our shareholders in 2019,” Mr. Regan said.
During 2018, QBE announced the sale of its Latin American Operations.
“Given the materiality of this transaction, it is reported as a discontinued operation such that the results of Latin American Operations are presented separately from those of its continuing business, with the comparatives restated for consistency as required by accounting standards,” the company explained yesterday.
QBE said its return on equity was 8% in 2018, a much better outcome than the poor 1.4% the year before.
