Insurer QBE says it faced a “perfect storm” of problems with its US business in 2013, and expects the division’s performance to stabilise in 2014.
The forecast comes as a law firm looks into launching a class action against QBE on behalf of shareholders hit by a massive share price fall caused by news in December of the company’s US woes.
QBE made a $US250 million loss in 2013, after major writedowns on the value of its North American business.
Chairman Marty Becker told QBE’s annual general meeting on Wednesday there had been two years of losses from its US crop insurance business because of major weather disruptions.
QBE had also faced troubles with its mortgage insurance business and its underwriting program business, which evaluates insurance applications and determines premiums.
“We’ve had a perfect storm in the US of the mortgage industry meltdown, the crop business and the weather related patterns in the US, but the place where QBE needs to take responsibility is the programs business,” he said.
“We’ve been in the program business for a long time but unfortunately the reality is, and you can point the blame wherever you like, the reality is we’ve been too optimistic in terms of the loss picks we’ve taken on that business.”
QBE expects the US business to stabilise in 2014, and chief executive John Neal said with writedowns now out of the way, the company could expect to return to its previous levels of profitability.
“If you look at the combined operating profit ratio, and that insurance profit margin of 10 per cent, and the confidence we now have in the action we have taken in the balance sheet, you are talking about a return to net profit after income tax of in excess of $1 billion,” he told shareholders.
As the general meeting got underway, law firm Maurice Blackburn was announcing its intention to investigate a potential class action against QBE.
After calling a trading halt on December 6, 2013, QBE announced on December 9 it was expecting to post an annual loss of $US250 million, well below what market analysts had been expecting.
In response, more than $4 billion was wiped off QBE’s market value on December 9 – the biggest single day fall for QBE in the past 12 years.
The stock fell again the next day, leading to a 30 per cent loss in its value over the two days, Maurice Blackburn said.
Maurice Blackburn class actions principal Jacob Varghese said investors who bought into QBE prior to the writedowns had paid too much for their shares.
He said possible court action would argue investors should have been better informed about the extent of the problems with the US business earlier.
“The North American business was under very close scrutiny,” he said.
“Whose job it was to look at what’s going on, given that it is hard to believe they only learnt it was as bad as it was as late as they did?”
QBE shares were steady at $12.74 at 1240 AEDT.