QBE (ASX:QBE) says it will be able to manage its decision to exit the so-called middle insurance market in North America, a move that could cost it around half a billion dollars a year in gross written premiums.
The company states that this move will allow it to focus more closely on three other areas: crop, commercial, and specialty insurance lines.
The wind-down will start soon, but most of the impact will be felt in the company’s 2025 accounts. A charge of $100 million USD will be taken in the full-year accounts for 2024.
In a statement to the ASX on Wednesday, the country’s biggest insurer said the decision followed a strategic review of this segment in the North American insurance market.
"Following an extensive strategic review, QBE has determined it will commence an orderly closure of its North America middle-market segment,” QBE said.
"The segment represented gross written premium of around $500 million USD in FY23 and has experienced performance challenges over several years.
"The closure of middle-market will serve to refocus North America’s strategy on those businesses which hold more meaningful market position, relevance, and scale.
"The closure will have no incremental impact on appetite or strategy for North America’s three core businesses: Specialty, Crop, and Commercial."
QBE said it will begin non-renewing middle-market policies in accordance with applicable state regulations, with gross written premium expected to begin reducing in FY24 before falling more substantially in FY25.
"A restructuring charge of approximately $100 million USD before tax will be recorded in the FY24 result to account for costs associated with the business closure."
"The closure is expected to have limited impact on QBE’s FY24 Group combined operating ratio, and further information will be provided at QBE’s first-half results release on August 9."
QBE also reaffirmed the early trading update for the first quarter. The insurer said that in the five months to the end of May, there had been no change in its estimated combined operating ratio of around 93.5% (down from 95.9% in 2023), and it still expects single-digit growth in gross written premiums.
QBE said its first-half gross written premium is expected to be around $13.1 billion USD, representing constant currency growth of approximately 3% compared to the first half of 2023, with net insurance revenue expected to be around $8.4 billion USD.
There will be extra catastrophe costs. Recent events have included US convective storms, the Dubai floods, and an initial estimate of $175 million to $225 million USD to account for QBE’s net exposure to the ongoing civil unrest in New Caledonia.
"Group catastrophe costs in the five months to May 2024 are estimated at around $500 million USD, relative to the 1H24 catastrophe budget of $609 million USD." This is up sharply from the $300 million USD estimate for the January-April period given at the recent annual meeting.
Offsetting that will be higher investment income from its $30 billion USD float. "Total investment income in the five months to May 2024 was $643 million USD, which improved from $406 million USD in Q1 2024. That’s a jump of more than 50% in April alone.
"The result included a favorable credit spread impact of $76 million USD and a risk asset result of $104 million USD. To May 2024, the net impact from asset-liability management activities remained neutral," QBE said.
