QBE has upgraded its insurance outlook for the rest of 2022 despite being hit with a hefty drop in profits due largely to falls in investment markets in the six months to June 30.
The slide in earnings saw QBE chop its interim interest rate to 9 Australian cents a share from 11 cents previous.
“The strong dividend payout ratio of 57% reflects the Board’s confidence around the strength of the balance sheet and positive business momentum,” directors said in the interim profit statement on Thursday.
Investors ignored the lower dividend and lifted QBE shares more than 3% to 412.54 by the close.
The most international of Australia’s listed insurers told the ASX on Thursday that wobbly investment markets in the half followed the rush by central banks to push up key interest rates which in turn sparked a sell off in fixed interest securities, with prices falling as yields rose.
The rise in interest rates which saw bond prices tumble as central banks was led by the US Federal Reserve, the Bank of England and the Reserve Bank of Australia which rushed to try and cap surging inflation via sharp rises in their key market rates.
QBE said the rise interest rate saw the total investment loss for the first half $US840 million or 3.0%, compared with return of $US58 million or 0.2% for the first half of 2021.
“The result was materially impacted by unrealised losses associated with the significant increase in bond yields during the period,” QBE said. The losses don’t last as QBE holds the bonds to maturity.
But while interest rates are expected to continue rising in the second half of the year that won’t at the rapid rate seen from March through July and QBE is looking for a better performance.
The slide in bond prices saw the company report a 66% drop in first half earnings.
QBE reported a net profit of $US151 million for the June half, down from the $US441 million earned in the first half of 2021.
But in its core markets, QBE saw solid growth of 18% in Gross Written Premiums in the six months (GWP) to $US11.5 billion and has upgraded its outlook as a result.
QBE’s net earned premium rose by 8% to $US6.79 billion in its fiscal first half, its combined operating ratio was 92.9% which is expected to remain around that level for the rest of the financial year.
QBE said that “despite economic uncertainty, higher inflation, geopolitical tensions and record storm and flood events in Australia, QBE’s underwriting performance remained resilient in the first half of 2022, with the adjusted combined operating ratio of 92.9% improving 0.4% compared to the prior period.”
“Premium growth remains strong, with Group-wide renewal rate increases of 8.1% in the first half of 2022, which supported gross written premium growth of 18%,” the company said.
QBE’s combined operating ratio improved by 0.4% to 92.9%, reflecting strong rate increases and gross written premium growth, lower catastrophe costs and material improvement in total acquisition costs, partially offset by adverse prior accident year development, directors said on Thursday.
“Our outlook for the remainder of the year remains positive,” said CEO Andrew Horton.
“We expect constant currency gross written premium growth of around 10%, an improvement from our previous expectation for growth in the high single digits.” The combined ratio is expected to improve on 2021’s 94%.
