Amid a surge in catastrophe costs during the first half of 2023, insurance titan QBE (ASX:QBE) demonstrated resilience, driven by robust investment returns and a substantial rise in premium income. This strength allowed the company to provide shareholders with a significantly higher interim dividend.
QBE's impressive investment returns, coupled with a sharp increase in premium income, resulted in a remarkable recovery of earnings for the six months leading up to June 30. The company announced that it would distribute an interim dividend of 14 Australian cents per share, marking a substantial surge of over 50% from the 9 cents paid for the first half of 2022.
The strong financial performance is underscored by QBE's after-tax net profit of $US400 million, a notable contrast to the $US48 million reported in the same period of 2022. Furthermore, the adjusted cash profit after tax surged to $US405 million from $US66 million in the previous period, translating to an adjusted cash return on equity of 10.1%, a significant improvement from the 1.7% in the prior period.
QBE highlighted its ongoing momentum in premium growth, with a Group-wide renewal rate increase of 10.2% during 1H23, contributing to a robust gross written premium growth of 13%.
While natural catastrophe costs led to a rise in QBE's combined operating ratio to 98.8% from 94.9% in the prior period, the company explained that this was primarily due to catastrophe costs surpassing the first-half allowance. Notably, the company incurred an upfront cost of $98 million related to the $1.9 billion reserve transaction, impacting the combined operating ratio by 1.2%.
Catastrophe claims incurred a net cost of $US699 million, accounting for 8.7% of net insurance revenue, a noticeable increase from 6.2% in the prior period. The surge in catastrophe costs was influenced by significant events, including the February incidents in New Zealand and extensive convective storm activity in North America.
However, QBE's performance was much improved when excluding catastrophe costs. The company noted a 1.0% decrease in the ex-cat claims ratio during the first half, or 0.3% after excluding the influence of current year risk adjustments. This improvement was shaped by inflationary challenges in the Australia Pacific region, balanced by positive outcomes in the International and North America segments.
In line with other insurance firms, QBE experienced a marked upswing in investment income during the period, amounting to $US662 million or 2.4%, a significant shift from the $US20 million loss or (0.1)% recorded in the first half of 2022. QBE attributed this improvement to higher interest rates during the period and a $US52 million gain resulting from tighter credit spreads.
The company highlighted, "The core fixed income portfolio delivered strong returns, with the running yield increasing throughout the period. Risk asset performance improved in line with our long-term target return for the portfolio. Equities, enhanced fixed income, and infrastructure assets provided strong returns, mitigating the negative performance of the unlisted property portfolio due to lower property valuations."
