The QBE bad news disease resurfaced again on Friday with news the insurer is expecting a loss of $US1.5 billion ($1.9 billion) for the year to December 31.
That saw the shares down more than 12% to $8.75.
QBE blamed US write-downs and a higher than expected impact of COVID-19 and extreme weather claims. As a result QBE expects a full year adjusted net cash loss after tax of approximately $US780 million.
QBE will report its confirmed 2020 (Calendar financial year) results to the market on 19 February next year.
Interim CEO, Richard Pryce said in the update he was “very disappointed” with the figures though confident about the outlook.
The insurer reported pre-tax impacts of $US470 million for COVID, $US130 million for catastrophe costs and $US360 million in prior year accident claims.
The poor results include a $US520 million write-down of its North American agricultural insurance business – after the California bushfires decimated grape vines in the Napa Valley.
While QBE’s ultimate cost of COVID-19 is unchanged at $US600 million, QBE noted a spike in claims across trade credit, lenders’ mortgage and business interruption policies.
QBE said the net incurred cost in 2020 for COVID “is now expected to be ~$470M, up ~$135M from $335M reported in 1H20.”
“The increase in COVID-19 related costs is primarily due to recognition of ~$100M of additional net claims costs across trade credit, lenders’ mortgage insurance, casualty classes and business interruption. The majority of the FY20 COVID-19 related claims costs represent IBNR and risk margin,” the company said.
QBE said it also expects a further $US30 million of claims related to extreme weather, as more hurricanes rip through the US.
To make matters worse, the insurer expects “significantly lower” investment returns, despite reporting expected income of $US140 million for the financial year, compared to a loss of $US90 million in the previous year.
There will also be write downs in technology with QBE saying that “with significant programs underway to modernise our technology estate and migrate much of the Group’s IT infrastructure to the cloud, the FY20 result will include a charge of ~$US60M reflecting the write-off of capitalised IT assets and the cost of decommissioning Australia Pacific’s main data centre.”
“The result is also expected to include a pre-tax charge of ~$US40M for early lease exit costs, primarily in North America and Australia, as the Group rationalises its global office footprint in a post-COVID-19 landscape.”
In other words the company is taking a loss to reduce the size of its office space in its two main markets because of the move to work from home in the pandemic is continuing and will persist in coming year.
The fall in the share price on Friday caps an up/down year for the company in 2020 – like so many other companies.
QBE started the year strongly, with the share price up 17% by21 February when the COVID-19 sell off hit, with shares falling 52% from that 2020 high through to the March 23 low.
Year-to-date, the QBE share price is down 32%.
