QBE Insurance Group (ASX:QBE) announced that its full-year net profit more than doubled, propelled by robust premium growth supported by renewal rate increases, new business expansion, and notably, a surge in investment income from its $US30 billion 'float.'
The insurer, reporting in US dollars, revealed earnings of $US1.36 billion for the 12 months ending in December, a stark contrast to the $US587 million recorded the previous year.
Revenue surged 10% year-on-year to $US20.83 billion, fueled by a 10% rise in Gross Written Premiums (GWP) to $US21.75 billion, with particular emphasis on repricing cover for clients in Australia and NZ affected by prolonged La Niña rain and flooding events in 2022 and the first half of 2023.
QBE's combined operating ratio, a key measure of underwriting profitability, improved to 95.2% from 95.9% in the preceding year.
CEO Andrew Horton stated, "Financial performance improved in the period, and QBE is demonstrating greater consistency and resilience. We are pleased with the ongoing progress across our strategic priorities and expect trading conditions to remain favorable in the year ahead."
The company's directors declared a final dividend of 48 Australian cents per share, marking a significant increase from 30 Australian cents last year, totaling 62 cents for 2023, up 58% from 39 cents in 2022.
Looking ahead to 2024, QBE anticipates mid-single-digit constant currency GWP growth, albeit at a slower pace.
The standout driver of the improved result stemmed from QBE's adept utilization of its insurance float, akin to Warren Buffett's strategy at Berkshire Hathaway. The float, comprised of premium income, fees, charges, and outgoing payments, experienced substantial growth, reaching $US30 billion by the end of 2023, a 7.1% increase from $US28.2 billion in 2022.
Higher interest rates across several regions, including Australia, NZ, the US, UK, and Europe, propelled returns on the float in 2023. The core fixed income portfolio, constituting 88% of the $US30 billion figure, yielded a 4.8% return, totaling $US1.247 billion (or $A1.92 billion), more than double the $US544 million recorded in 2022.
Despite a decline in unlisted property portfolio performance due to lower property valuations, enhanced fixed income and infrastructure assets delivered strong returns, with the risk asset portfolio yielding 5.7%, or $190 million, compared to 1.2% in the prior year.
QBE emphasized, "Strong investment returns and continued premium growth were offset by the material reduction in investment assets associated with the $1.9 billion reserve transaction announced in February 2023." The portfolio mix trended toward the target strategic asset allocation, with the allocation to risk assets increasing to 12% (and 14% on a committed basis) from 11% at the end of 2022, while the core fixed income portfolio now represents 88% of total investments.
